Syndication Fraud?

Crafts by Veronica v. Yahoo!, Inc., complaint filed May 1, 2006 (D.N.J.)

This putative class action alleges “syndication fraud” by Yahoo!, defined as delivering partners’ ads in low-quality places, such as typosquatting websites that offer only ads or spyware-delivered ads, contrary to representations that Yahoo! would place ads on high-quality sites with relevant information like product reviews. Along with breach of contract, civil conspiracy, and unjust enrichment, the complaint alleges violations of the New Jersey Consumer Fraud Act, claiming that Yahoo!’s practices were unfair and fraudulent.

Some thoughts: (1) The NJCFA is unlikely to cover a nationwide class; even statewide class certification in a consumer fraud case can be difficult, without the due process problems implicated by a nationwide class. California law (where Yahoo!’s based) might have been a better nationwide bet; California courts have accepted nationwide classes against California-based businesses before. If the gravamen of the complaint really is unfairness – and I haven’t looked into that under NJ law – then some of the usual problems with consumer protection class actions, like individual causation and reliance, may be less pressing, though the due process issue would remain for out-of-state class members.

(2) New Jersey requires consumer-oriented conduct; individually negotiated contracts don’t come within its consumer protection law. Are Yahoo!’s ad programs available to the “general consuming public”? See R.J. Longo Constr. Co. v. Transit America, Inc., 921 F. Supp. 1295, 1311 (D.N.J. 1996). If they’re mass-market contracts, maybe they’re covered.

(3) According to the complaint, the advertising is delivered on a pay per click, not pay per impression, basis. Thus, even if the ad sites are lower-quality than advertisers hoped, it seems to me that harm would depend on the proposition that people who actually click on ads at low-quality sites are less likely to do business with the advertiser than people who actually click on ads at high-quality sites. Can this be shown? (The lawsuit explicitly disclaims any reliance on click fraud, which is the subject of other litigation.)

(4) A separate potential source of harm, only hinted at in the complaint, is harm to the advertiser’s goodwill from being associated with typosquatting or spyware. This is much more speculative, but, with advertisers being sued for using spyware, it’s not outside the realm of possibility. What sort of evidence would be relevant to this claim of harm?