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Payday Advance Plus, Inc. v. Findwhat.com

March 12, 2007

PAYDAY ADVANCE PLUS, INC., INDIVIDUALLY AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED AND ON BEHALF OF THE GENERAL PUBLIC, PLAINTIFF,
v.
FINDWHAT.COM, INC., AND ADVERTISING.COM, INC., DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, District Judge

OPINION AND ORDER

The plaintiff, Payday Advance Plus, Inc. ("Payday"), brings this alleged class action seeking monetary and injunctive relief on behalf of itself and putative class members who contracted with the defendant Findwhat.com, Inc. ("Findwhat")*fn1 to provide them with keyword-targeted advertising through Findwhat's Internet search engine.*fn2 The allegations also involve the defendant Advertising.com, Inc. ("Advertising"), an online advertising provider that allegedly shared revenues with Findwhat and took actions that artificially inflated the costs Payday had to pay under its agreement with Findwhat. In short, Payday claims that Advertising, at Findwhat's direction, engaged in "click fraud" by employing individuals and "robot" computer programs (commonly called "bots") to click on Payday's hyperlinked advertisements and thereby caused Payday to incur inflated charges under its agreement with Findwhat.

Payday asserts six claims in its Complaint, but it concedes that New York does not recognize a "joint venture" cause of action and that New York General Business Law Section 349 is inapplicable (Counts Five and Six, respectively). The four remaining claims are for breach of contract (Count One), unjust enrichment (Count Two), negligence (Count Three), and civil conspiracy (Count Four). The contract claim is alleged only against Findwhat, while the other three remaining claims are alleged against both defendants. Each defendant has moved to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

I.

A.

On a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the Complaint are accepted as true. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendants' present motions should only be granted if it appears that the plaintiff can prove no set of facts in support of its claims that would entitle it to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002) (citing Hishon v. King & Spaulding, 467 U.S. 69, 73 (1984)); Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; Goldman, 754 F.2d at 1065.

While the Court should construe the factual allegations in the light most favorable to the plaintiff, the Court is not required to accept legal conclusions asserted in the Complaint. See Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir. 2002); Barile v. City of Hartford, 386 F. Supp. 2d 53, 54 (D. Conn. 2005).

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the Complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Taylor v. Vermont Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir. 1991); Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); VTech Holdings Ltd. v. Lucent Techs., Inc., 172 F. Supp. 2d 435, 437 (S.D.N.Y. 2001).

B.

For the purposes of deciding these motions to dismiss, the following facts alleged in the Complaint are accepted as true.

The defendant Findwhat is a company that offers advertising services in connection with its Internet search engine. (Compl. ¶¶ 1, 12, 19.) In particular, it uses the "pay-per-click" ("PPC") marketing formula to price the advertisements it provides. Under this formula, an advertising customer bids on one or more keywords which, when entered into Findwhat's search engine by Internet users, will return a hyperlink (or "link") to the advertising customer's web site alongside the search results returned by the search engine. The customer then pays Findwhat a "per click" fee for every time that an Internet user actually clicks on the advertising customer's ad. (Id. ¶¶ 18--21.) Payments average around fifty cents per click, although they can reach one hundred dollars or more for the most sought-after keywords. (Id. ¶ 21.)

The plaintiff Payday entered into an agreement with Findwhat to provide PPC advertising services on January 3, 2004.*fn3

(Compl. ¶¶ 16, 54--57.)

The defendant Advertising is a provider of online advertising and the developer of "ClickTracker," a software measurement tool that allows tracking and measurement of sales on Internet sites. (Id. ¶ 14.) At some point prior to 2000, Advertising entered into an "affiliate relationship" with Findwhat which provided that the companies would split their revenues from PPC advertising business. (Id. ¶ 25.)

Pursuant to this relationship, Findwhat sent keyword information to Advertising, and Advertising would in return direct Internet traffic to Findwhat's search results listings. (Id. ¶ 26.) Findwhat and Advertising allegedly participated in the bidding process for keywords used to trigger PPC ads. As a result, the Complaint alleges, the PPC prices for certain popular keywords were artificially inflated through the defendants' efforts. (Id. ¶ 27.)

At the direction of Findwhat, Advertising allegedly hired people to conduct Internet searches through Findwhat's search engine using certain keywords that would trigger search results and advertising listings. Advertising instructed these people to click on certain advertising links from the search results, including Payday's links, thereby causing Payday to incur PPC charges for each such click. (Id. ¶¶ 33, 35.) Also at the direction of Findwhat, Advertising used computer programs or "bots" to click continuously and systematically on Payday's advertising links to increase the defendants' revenues. These "bots" were able to "spoof" different reference points on the Internet to make it appear that the clicks came from different sources. (Id. ¶ 34.) These methods, which Payday calls "click fraud" (id. ...


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