dotStrategy Co. v. Facebook Inc., No. C 20-00170 WHA

482 F.Supp.3d 994

DOTSTRATEGY CO., Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.FACEBOOK INC., Defendant.

No. C 20-00170 WHA

United States District Court, N.D. California.

Signed August 28, 2020

Solomon B. Cera, Thomas C. Bright, Cera LLP, San Francisco, CA, David A. Hodges, David Hodges Law Office, Little Rock, AR, for Plaintiff.

Marshall S. Ney, Friday, Eldredge & Clark LLP, Rogers, AR, Ashley Margaret Simonsen, Covington and Burling LLP, Los Angeles, CA, Karen L. Dunn, Pro Hac Vice, Paul Weiss Rifkind Wharton & Garrison LLP, Martha L. Goodman, Pro Hac Vice, Boies Schiller Flexner LLP, Washington, DC, Kathleen R. Hartnett, Cooley LLP, Sean F. Howell, Simon J. Frankel, Covington & Burling LLP, San Francisco, CA, Kathryn Elizabeth Cahoy, Covington & Burling LLP, Palo Alto, CA, for Defendant.

ORDER GRANTING MOTION TO DISMISS

WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE

INTRODUCTION

This putative class action alleges that defendant's representations regarding advertising on its social media platform were deceptive and fraudulent in violation of California's Unfair Competition Law because, contrary to defendant's representations that advertisers would not be charged for invalid clicks to their ads, defendant nevertheless charged plaintiff for such clicks. Defendant moves to dismiss the complaint. To the extent stated herein, defendant's motion is GRANTED .

STATEMENT

In plaintiff dotStrategy, Co.’s own words (Dkt. No. 71 at ¶ 2):

[t]his case concerns the large number of fake accounts on the Platform in violation of Facebook's "authenticity policy" and Terms of Service, and the significant amount of advertising revenue that these fake accounts generate for Facebook. Advertisers are charged for actions generated through fake Facebook accounts, and when these accounts are determined by Facebook to be fake, the advertising revenue generated by these accounts is not refunded to advertisers such as plaintiff. This is contrary to Facebook's representations that advertisers will not be charged for "[c]licks generated through prohibited means, such as fake accounts," and significant monetary injury has, as a result, been incurred by Plaintiff and the members of the Class.

In brief, between 2013 and 2018, defendant Facebook Inc.’s website made numerous statements about advertising on Facebook, which plaintiff alleges were either false or misleading. The main statement that plaintiff complains of, however, concerns Facebook's alleged statement to advertisers that they would "not be charged for clicks that are determined to be invalid" (id. at ¶¶ 9 at n.8, 40, 41, 41(e), 45(a),47(a)). Crucially, the complaint fails to allege that plaintiff relied on this alleged misrepresentation, which is the crux of plaintiff's entire case, as presented during oral argument. This shortfall in pleading is fatal. Now here are the details.

The following allegations are taken from the operative complaint (Dkt. No. 71). Defendant Facebook Inc. is the world's largest social media company. Facebook's online platform allows its nearly 2.45 billion users to connect, share photos, videos, and other content with friends and family. Facebook makes money by selling advertising. In exchange for placing ads on Facebook's platform, advertisers pay for the number of clicks or the number of impressions their ads receive from Facebook users (id. at ¶¶ 1, 3–4, 8–9).

Facebook's website made the following and/or similar representations about advertising on Facebook. In 2013, Facebook represented that placing ads on its website would help advertisers "reach the right people" (id. at ¶ 42(b)). In 2014, it represented that "[o]n Facebook, you'll only pay to reach the right people who'll love your business (id. at ¶ 43(a)). In 2015, Facebook stated its "[a]ds are optimized to help you get more people to visit your website or increase conversions" (id. at ¶ 44(e)). Similar representations appeared through 2018 to the present (see id. at ¶¶ 45–47).

Importantly, on its business help center page, Facebook represented to advertisers that they "will not be charged for clicks that are determined to be invalid" (id. at ¶¶ 9 at n.8, 40, 41, 41(e), 45(a),47(a)). "Invalid" clicks are "clicks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don't follow Facebook terms" (id. at ¶ 41(a)). Facebook, in turn, defined fake/false accounts as, among other things, "violating accounts, which represent user profiles that [Facebook] believe[s] are intended to be used for purposes that violate [Facebook's] terms of service, such as bots or spam" (id. at ¶ 50) (emphasis omitted).

Plaintiff is an Arkansas marketing company operated by its sole managing member Bill Doshier (id. at ¶ 22). From 2013 through 2018, plaintiff placed a total of 55 ad campaigns on Facebook for which it paid approximately eight thousand, based on the number of clicks its ads generated from Facebook users (id. at ¶ 49). During that period, plaintiff "read and reviewed various representations by Facebook about advertising on Facebook, including the representations [quoted above and quoted in the complaint]" (id. at ¶ 48). Moreover, in "deciding to start and continue advertising on Facebook, [p]laintiff saw and reasonably relied upon representations by Facebook that it would display [its] ads to real Facebook users" (id. at ¶ 92).

In 2018, plaintiff conducted a random survey, examining some of the Facebook accounts that had clicked its ads from 2013 to 2018, for which Facebook had charged it. Plaintiff looked for certain "red flags," which it alleges are indicative of inauthentic accounts, such as a user's profile picture, the veracity of a user's stated personal information, and whether or not a user has Facebook friends in his or her purported locality (id. at ¶ 52, 54–72). Based on the results of said survey, plaintiff alleges that between 2013 and 2018, Facebook charged it for clicks that were made by thirteen different fake accounts.

These thirteen fake accounts violated Facebook's terms of service and authenticity policy "because they failed to provide the person's real identity and fail[ed] to provide accurate information" (id. at ¶ 53). Plaintiff alleges that Facebook has since deleted eight of these thirteen accounts from its platform "likely for violations of its ‘authenticity policy’ " though the remaining five purportedly fake accounts still exist on Facebook's platform (id. at ¶ 68). Nevertheless, Facebook has not refunded plaintiff the money for any of the clicks made by any of these thirteen fake accounts. Indeed, plaintiff alleges that once Facebook has determined an account to be fake, it does then retroactively refund advertisers the money they may have paid for clicks made by those fake accounts (id. at ¶¶ 2, 16–17, 22, 57, 60, 63, 66–67).

Plaintiff also makes allegations that suggest fake accounts plague Facebook's platform. For instance, plaintiff points to a Washington Post article that states Facebook removed three billion fake user accounts in a six-month period alone, which Facebook said were "caught while creating spam profiles" and "were never considered active" (id. at ¶ 77). Though Facebook has protocols in place to preemptively detect fake accounts before they become part of its monthly active user pool, by Facebook's own admission, fake users comprise five percent of this pool (id. at ¶¶ 14–15).

This putative class action alleges that Facebook violated the "unlawful," "unfair," and "fraudulent" prongs of California's Unfair Competition Law — California Business and Professions Code Sections 17200, et seq. (id. at ¶¶ 91–104).

Facebook moves to the dismiss plaintiff's complaint for (1) failure to comply with the duty-to-notify provision in Facebook's community payment terms; (2) failure to meet the heightened pleading standard of Rule 9(b); (3) failure to plead statutory standing; and (4) failure to plead a plausible claim under any prong of Section 17200. First , this order finds that Facebook's duty-to-notify provision does not bar plaintiff's claims. Next, the order holds that plaintiff has failed to plead facts demonstrating that it has statutory standing to sue under Section 17200. Because reliance is dispositive here, this order forgoes discussion of Facebook's other arguments.

1. FACEBOOK'S REQUEST FOR CONSIDERATION OF DOCUMENTS .

Along with its motion to dismiss, Facebook requests consideration of various of its webpages: two versions of its community payment terms and the current version of its self-serve ad terms — a written contract that plaintiff had to agree to in order to place ads on Facebook (Decl. Simonsen, Exhs. 1–3). Plaintiff offers no opposition.

Facebook argues that consideration of all three documents is proper based to the incorporation-by-reference doctrine, as the amended complaint is replete with citations and quotations to Facebook's terms of service, which incorporated the self-serve ad terms that, in turn, incorporated the community payment terms. See Knievel v. ESPN , 393 F.3d 1068, 1076 (9th Cir. 2005) (in considering a motion to dismiss, a court may consider documents "whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached" to the plaintiff's pleading).

Moreover, Facebook argues that consideration of Facebook's self-serve ad terms is proper for the additional reason that plaintiff's original complaint (see Dkt. No. 2 at ¶ 31) admitted that plaintiff remained bound to the agreement notwithstanding the fact that its amended complaint omits explicit mention to it (Dkt. No. 72 at 5 n.4) (citing Royal Primo Corp. v. Whitewater W. Indus., Ltd. , 2016 WL 1718196, at *3 (N.D. Cal. Apr. 29, 2016) (Magistrate Judge Joseph Spero) ("The principle that a court may look to prior pleadings in determining the plausibility of an amended complaint is well established.")).

Because plaintiff does not oppose Facebook's request for...