TechLaw

A proposed class action lawsuit against Yahoo!/Overture Services Inc. picked up momentum April 21, when a federal trial court in California turned back a handful of grounds for summary dismissal of claims that Yahoo! misrepresented the quality of the online venues on which it would display the plaintiffs' advertisements. The plaintiffs alleged that Yahoo! promised to display advertisements on Web sites targeted to likely customers; instead, the lawsuit claimed, Yahoo! placed the plaintiffs' advertisements in low-quality locations: inside spyware programs, on typosquatting Web sites, and on domain parking and bulk registration sites.

Among Yahoo!'s arguments for dismissal was its contention that California's unconscionability doctrine does not apply to commercial contracts. There is some support for this argument. Nearly all cases describe the state's unconscionability doctrine using the term "consumer," and many characterize the unconscionability doctrine's rationale as one of rectifying the imbalance of bargaining power between consumers and businesses. For example, a leading case, Discover Bank v. Super. Ct., 36 Cal.4th 148 (2005), summarized the fact pattern there as one in which the defendants "carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money." Language like this limits the unconscionability doctrine to consumer cases, Yahoo! argued.

Here, the court rejected the view that commercial contracts are categorically outside the protection of the unconscionability doctrine:

[A]lthough Discover Bank's holding addresses only consumer contracts, nothing in that decision forecloses the possibility that a class action waiver in a commercial contract may be deemed unconscionable under certain circumstances. Defendants point to no authority to support the contention that class action waivers in commercial contracts should be treated differently than such waivers in consumer contracts, and the Court has identified ems.bna.com. Accordingly, there appears to be no basis for concluding that class action waivers in the commercial context cannot be found to be unconscionable and unenforceable.

The court permitted the case to go forward, allowing the plaintiffs to build a factual foundation for their unconscionability claim. Did Yahoo! have superior bargaining power over the plaintiffs? Could the plaintiffs have feasibly chosen other advertising services? Would it be practical for the plaintiffs to pursue individual remedies instead of a class suit?

Taking up another issue, the court ruled that the plaintiffs would be permitted to conduct discovery for extrinsic evidence indicating that -- notwithstanding the parties' written contract -- the defendants promised in their marketing materials that the plaintiffs would receive "highly targeted" advertising services.

The case is In re Yahoo! Litigation, No. CV 06-2737 (C.D. Cal., April 21, 2008).