Advertising Law Blog

In an unusual lawsuit, ValueClick, the California-based online advertising company, has agreed to pay a $10,000,000 cash settlement in a false advertising lawsuit (case no. 2:07-cv-05411-DDP-AJW, Carl Waldrep v. Valueclick, Inc.). The unusual twist in this case is that the payments are not earmarked for aggrieved consumers, but instead will go to investors who bought stock in the company from June 2005 through July 2007. The Court will hold a hearing in early November to rule on any objections to the settlement. According to a shareholders' lawsuit filed in federal court in the Central District of California, ValueClick knowingly concealed from its shareholders its "willful and ongoing violations of federal law governing the conduct of the advertising and promotion business that lie at the heart of ValueClick's business operation."

The notice of settlement informed shareholders that the $10,000,000 settlement resolves allegations that the company "knowingly or recklessly misled investors about, among other things, ValueClicks's compliance with laws and standards applicable to its business." The class action plaintiff's theory was that the value of each share of stock traded during the time in question was devalued by fourteen cents due to management's concealment of legal violations. In ValueClick's latest quarterly financial disclosures, the company admitted its lead-generating business was "underperforming."

The conduct at issue was (allegedly) false and misleading pop-up ads promising "free" gifts to induce consumers to complete forms disclosing personal information, such as their phone numbers, e-mail and mailing addresses. This information was then used for marketing purposes while the "free" gifts ultimately required consumers to buy other items before receiving any gift.

This was not the first lawsuit ValueClick had to pay an expensive settlement to get rid of. In March 2008, ValueClick agreed to pay a then-record $2.9 million to the FTC over similar charges that it failed to protect consumers' sensitive financial information despite promising to do so. In the FTC settlement, besides paying the money, ValueClick agreed to more clearly disclose the costs and obligations required in order to receive the "free" products. However, the settlement cleared ValueClick of further liability for deceptive ads for free gifts and failure to disclose purchases were required to get what was claimed to be "free."

Thus, marketers must be aware that allegations of deceptive advertising can trigger liability from a number of fronts, and not just the usual suspects of government agencies and/or plaintiff's attorneys. Here, the company faced additional liability from its investors in addition to FTC liability.