LookSmart Hit With Potential Class Action Lawsuit Over Submission Program

When LookSmart changed the way it sells some of its commercial Web site listings back in April, many customers were none too pleased. Now, a proposed class action lawsuit claiming breach of contract, fraudulent business practices, and misleading advertising has been filed against LookSmart over that change.

“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 that refuse to pay new, ongoing fees risk being delisted when free credit given to them by LookSmart in association with the switchover expires.

The move has caused outrage among some LookSmart customers who feel the company is unfairly demanding additional money from them. Legal Staffing Partners, a South Carolina company that does business as Juris Resources, is one of them — and the initial plaintiff in the proposed class action suit filed in May. 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 LookSmart’s 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.”

Prior to the suit, LookSmart told me it believes itself 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 grant 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. The company did say it believes it will win any action.

“We believe the suit is incredibly baseless. We’re 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.”

The case was filed in the Superior Court of California, San Francisco County, where LookSmart’s U.S. operations are based. The court will evaluate the merits of the proposed case and determine if it can go forward as a class action suit.

“It’s 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.

How much could this end up costing LookSmart if it loses the case? The suit doesn’t name an actual figure, but it asks for restitution of all monies 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.

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