LookSmart Submission Program Spurs Lawsuit

Paid listings search provider LookSmart is facing a proposed class action lawsuit over a recent change in how the company sells some of its commercial Web site listings, internetnews.com’s sister site Search Engine Watch has learned.

The suit charges LookSmart with breach of contract, fraudulent business practices and misleading advertising.

In April, amid increasing competition with rivals Overture and Google, the San Francisco-based firm moved thousands of companies that previously had paid a one-time submission fee into a new cost-per-click listing program that would be more profitable for the company by charging ongoing fees.

Companies who refuse to pay the new, recurring fee risked being delisted from the search engine altogether when a “grace period” of free credit — designed to appease clients angry with the changeover — runs out.

The move has caused outrage among some LookSmart customers who feel the company unfairly demanded 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.

“LookSmart offered one thing to a lot of small businesses and signed a contract and unilaterally changed the program,” said Jeffrey Fazio, an attorney at Hancock Rothert & Bunshoft and the lead attorney in the case.

According to the complaint, Legal Staffing Partners paid LookSmart $199 on or about June 12, 2001, to be listed within the directory. On April 12, 2002, LookSmart shifted the firm into the new cost-per-click program, which prompted its delisting from the search engine three days later, when Legal Staffing exhausted the $15 in credit it had been given as part of the switchover.

“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 that LookSmart had 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 Web site will remain in our directory as long as it complies with our submission guidelines.”

Prior to the suit being filed, LookSmart had asserted to Search Engine Watch that it believed it was 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. 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. 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.

“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,” Fazio said.

The suit doesn’t specify how much that it’s seeking in damages, but instead calls for the return of all money received by LookSmart through its one-time fee programs, in addition to interest, other damages and attorney fees.

Assuming 90,000 customers at $199 each, the restitution alone could be in the neighborhood of $18 million, though that actual amount could differ, as LookSmart has had different price points throughout the history of its programs.

Danny Sullivan is editor of internetnews.com sister site Search Engine Watch. internetnews.com Senior Editor Christopher Saunders contributed to this report.

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