LookSmart Hit With Potential Class Action Lawsuit Over Submission Program

A proposed class action lawsuit claiming breach of contract, fraudulent business practices and misleading advertising has been filed against LookSmart over a recent change in how the company sells some of its commercial web site listings.

"LookSmart offered one thing to a lot of small businesses and signed a contract and unilaterally changed the program," said the lead attorney behind the case, Jeffrey L. Fazio, of Hancock Rothert & Bunshoft.

In April, LookSmart moved thousands of companies that previously had paid a one-time submission fee into a new cost-per-click listing program. Companies who refuse to pay the new, continuing fees risk being delisted when free credit given to them by LookSmart in association with the switchover runs out.

The move has caused outrage among some LookSmart customers who feel the company is unfairly demanding additional money from them. Legal Staffing Partners, a North Carolina company that does business as "Juris Resources," is one of those customers and the initial plaintiff in the proposed class action suit filed on May 9. If approved by the court, other parties will be able to join the case.

Legal Staffing Partners paid LookSmart $199 on or about June 12, 2001 to be listed within the directory, according to the complaint. It was then shifted unilaterally by LookSmart into the new cost-per-click program on April 12 of this year and delisted on April 15, when the $15 in free monthly credit it had been given by LookSmart was exhausted.

"Contrary to the terms of its agreement with customers, which states that no additional payments will ever be required, LookSmart is halting all internet traffic used in its search listings to those customers who made the 'one-time payment' for its services," the suit says, summarizing the contention of breach of contract.

The complaint cites statements from a past LookSmart FAQ page about its one-time submission fee programs as evidence LookSmart promised customers that no further submission fees would be charged.

"For your one-time payment, your site will be listed in the LookSmart network indefinitely. Once you submit, there is no need for additional payments and no need to submit your site to any of LookSmarts partners or affiliates," said the LookSmart FAQ page on December 17, 2000, according to the suit. It further cites, "For your one-time payment, your website will remain in our directory as long as it complies with our submission guidelines."

Previous to the suit, LookSmart had asserted to Search Engine Watch its belief to be on firm legal ground in moving "one-time fee" customers into the new cost-per-click program because the terms of the old programs granted LookSmart the sole right to change any part of the agreement at any time.

Now that a lawsuit has been filed, LookSmart said it couldn't comment on specifics but did say it believes it will win in any action.

"We believe suit is incredibly baseless. Were going to defend it vigorously," said Robert Goldberg, LookSmart's senior vice president of sales and marketing. "We feel we are in a very strong legal position."

Will LookSmart reserving the right to change its terms at will pose a problem to the case's success? Not according to the opposing party.

"It's kind of problematic when what you mean by that is that you are going to change the basic terms of the agreement fundamentally because you determine it is more lucrative. That you cannot do," Fazio said.

In another spin on the case, LookSmart's Goldberg suggested that this type of action is just something that happens as part of being in a "litigious society."

"It's hard for any company to avoid these regardless of merit," Goldberg said.

That's a weak argument, in my opinion. There has never been a lawsuit before involving a search engine's paid submission programs, and LookSmart, Yahoo and others have run these type of programs for several years. If society was so litigious, why has it taken until now for LookSmart to make history as the target in a legal action?

The answer is that far from being something "hard to avoid," LookSmart set the stage for such an action by refusing to "grandfather" existing listing clients and exclude them from continuing fees.

In contrast, when Yahoo shifted to an annual submission fee structure last December, all previous customers were excluded from being charged. Similarly, when Overture moved to a minimum bid model in the United States in March 2001, requiring customers to pay at least 5 cents per click, it allowed anyone with bids under that amount to retain them. In both cases, lawsuits over the changes have not emerged.

The case was filed in the Superior Court of California, San Francisco County, where LookSmart's US operation is based. The court will now evaluate the merits of the proposed case and determine if it can go forward as a class action.

"Its approving the case to proceed, a determination that there are a lot of plaintiffs and that it makes sense to proceed with this one case rather than many and if the complaints are similar and can be tried at one time," said Fazio.

The case seeks to cover anyone who made a "one-time payment" to LookSmart between May 13, 1998 to the present. However, LookSmart first launched its one-time fee program in January 2000 and ended it in April 2002, so it is likely that these dates will be the real beginning and end for the class period.

How long wording remained on the FAQ page about "no need for additional payments" is also likely to be important. The suit says such wording was present in December 2000, and in reviewing my own copies of past LookSmart FAQs, I can see it as early as August 2000. It was not present in the FAQ associated with the program's launch in January 2000, however.

As for going forward, the complaint says that LookSmart "continued representing a 'one-time payment' for its services with 'no need for additional payments' in subsequent and revised versions of its FAQs" but doesn't provide any further evidence of this. This potentially could limit the class period more, though evidence to support this claim could be introduced at a later date.

How much could this end up costing LookSmart, if it lost the case? The suit doesn't name an actual figure but asks for restitution of all money received by LookSmart through its one-time fee programs, interest, damages and attorney fees.

A ballpark figure on just the money received? Assume 90,000 customers at $199 each and you get about $18 million. The actual amount could be higher or lower, because LookSmart has had different price points throughout the history of its programs.

LookSmart
http://www.looksmart.com

Hancock Rothert & Bunshoft
http://www.hrblaw.com/

Hancock Rothert & Bunshoft: Contact Form
http://www.hrblaw.com/contactus.htm

Those interested in joining the suit, if it is approved, should make contact using this form.

Legal Staffing Partners / Juris Resources
http://www.jurisresources.com

Legal Staffing Partners v. LookSmart
http://searchenginewatch.com/sereport/02/06-text.html

Text of the lawsuit filed by Legal Staffing Partners against LookSmart.

LookSmart Changes To Cost-Per-Click Listings
The Search Engine Update, April 17, 2002
http://searchenginewatch.com/subscribers/articles/02/04-looksmart.html

Pay -- and keep paying -- or don't appear, LookSmart told existing and new listing customers in April, in a significant change to how the human-powered search engine lists web pages from commercial web sites. A full rundown on the changes.

LookSmart Reports First Quarter 2002 Results
LookSmart Press Release, April 29, 2002
http://www.shareholder.com/looksmart/releaseDetail.cfm?ReleaseID=79156

Presumably, this is the April 29, 2002 press release where the suit claims "LookSmart admitted that some customers who were promised services for a 'one-time payment' with 'no need for additional payments' may be unwilling to adopt the new 'cost-per-click' program." However, I could not locate these references.