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Facebook v. MaxBounty, 10-Cv-04712 (N.D. Cal. Sept 14, 2011)

Facebook v. MaxBounty, 10-Cv-04712 (N.D. Cal. Sept 14, 2011)

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Court denies MaxBounty's motion to dismiss in a lawsuit brought by Facebook alleging misleading advertising practices by MaxBounty.
Court denies MaxBounty's motion to dismiss in a lawsuit brought by Facebook alleging misleading advertising practices by MaxBounty.

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Published by: Venkat Balasubramani on Sep 26, 2011
Copyright:Attribution Non-commercial

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12345678910111213141516171819202122232425262728This disposition is not designated for publication in the official reports.
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Case No. 5:10-cv-04712-JF (HRL)ORDER DENYING MOTION TO DISMISS(JFEX1)
**E-Filed 9/14/2011**
IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF CALIFORNIASAN JOSE DIVISION
FACEBOOK, INC., a Delaware corporation,Plaintiff,v.MAXBOUNTY, INC., a Canadian corporation,Defendants.Case Number 5:10-cv-04712-JF (HRL)ORDER DENYING MOTION TO
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DISMISS[Re: Docket no. 39]Pursuant to Fed. R. Civ. Pro. 12(b)(6), Defendant MaxBounty Inc. (“MaxBounty”) movesto dismiss Claims One through Three asserted by Plaintiff Facebook, Inc. (“Facebook”) for failure to state a claim upon which relief may be granted. The First Amended Complaint(“FAC”) includes claims for: (1) violation of 15 U.S.C. § 7701 (“CAN-SPAM Act”); (2)violation of 18 U.S.C. § 1030 (“Computer Fraud and Abuse Act”); (3) fraud; (4) tortiousinterference with contract; (5) breach of contract; (6) violation of 15 U.S.C. § 1125(c) (federaltrademark dilution); and (7) violation of 15 U.S.C. § 1125(a) (false designation of origin).Facebook seeks compensatory, statutory, and punitive damages.
Case5:10-cv-04712-JF Document46 Filed09/14/11 Page1 of 9
 
12345678910111213141516171819202122232425262728This information is available on http://www.maxbounty.com/faq.cfm.
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Case No. 5:10-cv-04712-JF (HRL)ORDER DENYING MOTION TO DISMISS(JFEX1)
I. BACKGROUND
Facebook is a popular social networking website with more than 500 million active users.(FAC ¶ 10) It is designed to be “a network that helps people communicate more efficiently andeffectively with their friends, family, and co-workers.” (
 Id 
.) To become a Facebook user anindividual must provide his or her real identity. (
 Id 
. at ¶¶ 11-12) Commercial, political, andcharitable organizations also may establish a presence on Facebook by creating “pages” to whichusers can connect their profiles. (
 Id 
. at ¶ 14) All users must agree to Facebook’s statement of rights and responsibilities. Facebook’s advertising guidelines prohibit false, misleading,fraudulent, and deceptive advertisements. (
 Id 
. at ¶ 38(c)) They also prohibit advertisements thatare “deceptive or fraudulent about any offer made,” (
 Id 
. at ¶ 38(d)), and any advertisement thatincludes a “discount or free offer . . . must link to a page that clearly and accurately offers theexact deal the advertisement has displayed . . . .” (
 Id 
. at ¶38(h)) Moreover, advertisements thatcontain, facilitate or promote spam are prohibited, (
 Id 
. at ¶ 38(j)), and if obtaining the promoted benefit requires user enrollment in a third-party subscription service then that requirement must be stated both in the advertisement and on the Facebook page. (
 Id 
. at ¶ 38(k))MaxBounty is an advertising and marketing company that uses a network of publishers todrive traffic to its customers’ websites. Its marketing program is based on a cost-per-actionmodel (“CPA”). As explained on MaxBounty’s website, “an advertiser under the CPA model pays only when a specific action is taken on their website. The advertiser defines the action inadvance and only pays when the action is taken . . . [g]enerally speaking, the more involved theaction, the higher a publisher would expect to be paid for generating it.”
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MaxBounty acts as anintermediary between its network of publishers (advertisement content creators) and itscustomers (third-party advertisers). MaxBounty appears to generate revenue for its CPA program through a shared compensation agreement with its network of publishers.Facebook alleges that MaxBounty engaged and continues to engage in impermissibleadvertising and commercial activity on Facebook.com. (FAC ¶¶ 41-42) It asserts that
Case5:10-cv-04712-JF Document46 Filed09/14/11 Page2 of 9
 
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Case No. 5:10-cv-04712-JF (HRL)ORDER DENYING MOTION TO DISMISS(JFEX1)
MaxBounty misleads its affiliates “into believing that Defendant’s campaigns are approved byFacebook . . . .” (
 Id 
. at ¶ 51) It claims that MaxBounty facilitates traffic to its contractingadvertiser websites by “provid[ing] instruction and support on how to design these unauthorizedFacebook campaigns, and [by] provid[ing] substantial advance payments to its affiliates thatagree to participate in these campaigns.” (
 Id 
.) Facebook also claims that MaxBounty’s conducthas caused it economic damage, has “tainted the Facebook experience,” has resulted in users’“real economic loss in the form of undisclosed subscription fees,” and has caused and continuesto cause significant harm to Facebook’s reputation and goodwill. (
 Id 
. at ¶¶ 58-59)
A. The Alleged Fraudulent Scheme
Facebook alleges that MaxBounty, through its network of affiliates, creates Facebook  pages that are intended to re-direct unsuspecting Facebook users away from Facebook.com tothird-party commercial sites. (FAC ¶¶ 42-57) It provides examples of two such pages in thecomplaint. (
 Id 
. at ¶¶ 44-48) Both pages utilize a similarly structured, multi-step scheme: in thefirst step, MaxBounty establishes a network of affiliates; in the second step, MaxBounty’saffiliates create numerous Facebook pages that function like (and in effect are) advertisements; inthe third step, the page displays a message indicating that upon registration a user will be able totake advantage of a “limited time offer,” such as receiving a gift card or becoming a producttester for a high-end product (e.g. an Apple iPad); in the fourth step, the Facebook user isinduced by the page and begins the registration process. (
 Id 
.) The registration process requiresthree discrete user actions: (1) to become a “fan” of the page, (2) to invite all of his or her Facebook friends to join to the page, and (3) to complete additional administrative registrationrequirements. (
 Id 
. at ¶¶ 44, 47) Upon completion of these requirements, Facebook users are notsent the promised item but instead are directed “to a domain registered to and managed by theDefendant that then redirected the user to a third-party commercial website . . . .” (
 Id.
at ¶¶ 45,50) The third-party commercial site informs the user that he or she must complete still moresteps in order to obtain the promised item. (
 Id.
at ¶¶ 46) Such additional steps include signingup for numerous “sponsor offers,” which typically are offers for memberships in subscriptionservices. (
 Id.
) Facebook asserts that “[MaxBounty] received payment for the traffic it delivered
Case5:10-cv-04712-JF Document46 Filed09/14/11 Page3 of 9

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