U.S. District Court - Southern District of New
For Plaintiff: Carl E.
For Defendant: Jonathan M. Jacobson
Wilson, Sonsini, Goodrich & Rosati, PC
By motion dated July 27, 2006, Defendant, Google INC.
("Google"), moved to dismiss the Complaint pursuant to Rules 12(b)(3) and
12(b)(6) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P.") all counts
of Plaintiff, Carl E. Person's ("Person"), Complaint for violation of Sections 1
and 2 of the Sherman Antitrust Act, the Donnelly Act, Sections 349(a) and 350 of
New York's General Business Law, and Section 16720 of the California Cartwright
For the reasons that follow, Defendant's motion to dismiss
for improper venue is granted.
A. Procedural Posture
Plaintiff filed a Complaint with the Court on June 19,
2006. He filed a Motion for Preliminary Injunction on June 27, 2006. Defendant
filed a Notice of Motion to Dismiss on July 27, 2006. Plaintiff filed his Reply,
along with a Cross-Motion for Leave to Amend Complaint and Alternative
Cross-Motion to Transfer to California on August 3, 2006. Defendant filed a
Reply to Plaintiff's Cross-Motion on August 31, 2006. Arguments on Defendant's
Motion to Dismiss were heard on September 13, 2006. Plaintiff moved to amend his
Complaint again on September 14, 2006. His Motion to File an Amended Complaint
was denied on September 20, 2006.
Count One of the Complaint charges Google with
monopolization or attempted monopolization, along with a conspiracy to
monopolize under Section 2 of the Sherman Act (15 U.S.C. §2). Count Two charges
a conspiracy to fix prices and restrain trade in violation of Section 1 of the
Sherman Act (15 U.S.C. §1). Count Three alleges a conspiracy to restrain trade
in violation of New York's Donnelly Act (New York General Business Law §340).
Counts Four and Five allege deceptive acts and false advertising in violation of
Sections 349(a) and 350 of the General Business Law of the State of New York.
Count Six alleges a conspiracy in violation of the California Cartwright Act
Plaintiff, Person, is a 70-year-old attorney and
businessperson who lives in New York. He is running for Attorney General in the
November 2006 election. (Pl. Compl. ¶7.) Defendant is a Delaware Corporation
with its principal place of business in California, and with a place of business
in New York. (Id. ¶¶4, 9, 10.)
C. Statement of Facts
Google's internet search technology offers the world's
largest online index of websites and to anyone with an internet connection, free
of charge. Google derives its primary revenue from businesses that advertise
their products and services on its website. (Id. ¶11.) Thousands of advertisers
pay Google to advertise their websites on its search page. (Id.) Google's
AdWords program is used by businesses to promote their products and services
with targeted advertising. (Id.) Ads appear either to the right of or above a
searcher's displayed results on Google's main website; these ads are designated
"sponsored." (Id. ¶23.) The ads are linked to certain keywords chosen by the
advertisers. When a Google user searches for a particular term, only the ads
linked to that term will appear in the sponsored section. (Pl.'s Mem. in Opp'n.
to Def.'s Mot. to Dismiss at 20.) Advertisers are charged each time a user
clicks the link that is displayed along with their advertisement. (Id.)
In August 2005, Google created its quality score analysis,
which automatically evaluates whether or not to publish, and at what price to
publish ads for businesses wishing to make use of a particular keyword. (Pl.
Compl. ¶31.) The quality score is based on a number of factors, including "ad
text and click through rate (CTR) on Google, relevance of ad text, historical
keyword performance on Google, the quality of [the business' ads] landing page
and other relevancy factors," in particular the "content and layout of the page
linked from [the proposed ad]." (Id.)
Plaintiff claims that Google uses these factors engages in
order to maintain its monopoly over "keyword targeted internet advertising."
(Id. ¶12.) Plaintiff is running for New York Attorney General in the November
2006 election and believes that, through advertising on Google, he can build a
voter list of more than 100,000 New York residents. (Decl. of Carl E. Person ¶3,
August 2, 2006.) He alleges that he has been thwarted in this quest by
Defendant's discriminatory pricing scheme. (Id. ¶16.) He charges that there is a
hidden set of rules and software instructions that deny Plaintiff and other
small business users the ability to find and use any keywords at the advertised
minimum prices. He alleges that these prices are reserved for high volume
advertisers such as eBay! and other alleged co-conspirators. (Id. ¶25).
Plaintiff recently sought to take advantage of Google's offered minimum
price-per-click by using keywords that no other advertiser was bidding on. He
found 25 English words that when used in a search returned no advertisements.
(Id. ¶54.) Plaintiff then immediately tried to bid on these words as keywords,
but was advised by AdWords that these words were not available for keyword use.
(Id. ¶55-6.) He alleges that this is due to a specific effort by Google to keep
him from advertising on its website. (Id. ¶58.)
Plaintiff alleges that even though Defendant uses software
to regulate the content and relevancy of the ads that are linked to particular
keywords, the software is designed to overcharge its smaller customers
(Plaintiff included), and reduce costs for high-volume advertisers. (Pl. Compl.
¶18.) Plaintiff contends that Defendant uses its "quality score" to weed out
advertisers that it believes will not be profitable to them. (Pl. Opp'n. Mem.
7.) He claims that this subjective judgment directly contradicts Defendant's
claim that the bidding process for keywords by advertisers is an "auction," in
which bidders receive placement on Google's search page in relation to the price
they bid, not the quality or relevance of their landing page. (Id. at 6.)
The Complaint further alleges that Defendant has conspired
with its large-volume advertisers: eBay, Schwab&Co., John Hancock Life Insurance
Co., Lexus, Honda, Travelocity, Orbitz, Priceline, Expedia, Circuit City, Amazon
PriceGrabber, AOLShopping, Toshiba Direct, and Best Buy, among others, to
"reduce not eliminate the profitable use of AdWords by the Plaintiff and other
small businesses" (Pl. Compl. ¶¶35-40), and that Defendant is able to do this
without repercussion because its major competitors, Yahoo! and MSN, are "poor,
undesirable substitutes." (Id. ¶30A.)
Defendant asserts that as a condition of using the AdWords
program, all users, including Plaintiff, enter into a contract with a forum
selection clause, and should be held to that contract. (Def. Mem. 4.) Plaintiff
does not dispute that he entered into such a contract. (Pl. Opp'n. Mem. 4.)
Because Defendant's motion to dismiss for improper venue is granted, the other
grounds of its Motion to Dismiss will not be addressed.
The Court has original jurisdiction over the claims
arising out of the Sherman Act. See 13 U.S.C. §1337 ("The district courts shall
have original jurisdiction of any civil action or proceeding arising under any
Act of Congress regulating commerce or protecting trade and commerce against
restraints and monopolies."). The Court has jurisdiction over the state claims
because there is diversity of citizenship between the parties, and the amount in
controversy exceeds $75,000. 28 U.S.C. §1332.
B. Standard of Review
A threshold issue for a motion to dismiss based on a forum
selection clause is whether the motion should be considered under Rule 12(b)(3)
or Rule 12(b)(6). The Second Circuit has produced no definitive ruling on the
issue. See New Moon Shipping Co., Ltd. v. MAN B & W Diesel AG, 121 F.3d 24, 28
(2d Cir. 1997) ("[N]o consensus [has] developed as to the proper procedural
mechanism to request dismissal of a suit based upon a valid forum selection
clause."). Here, the issue will be considered under Fed. Civ. P. Rule 12(b)(3)
because that is how it was framed by the parties. See J.B. Harris, Inc. v. Razei
Bar Industries, Inc., 37 F.Supp.2d 186, 189 (E.D.N.Y. 1998) ("The Court does not
decide whether this issue might more properly have been raised by way of Rule
12(b)(6), as the issue is squarely framed by Defendant under Rule 12(b)(3) and
Plaintiff does not argue that this is an improper procedural mechanism.").
Upon a motion to dismiss under Rule 12(b)(3) the Plaintiff
has the burden of pleading venue. However, "the Court accepts facts alleged in
the complaint as true and draws all reasonable inferences in [plaintiff's] favor."
Caremark Therapeutic Servs. v. Leavitt, 405 F.Supp.2d 454, 457 (S.D.N.Y. 2005).
C. Forum Selection Clause
Defendant moves to dismiss based on a forum selection
clause contained in a contract signed by all users of AdWords. (Def. Repl. Mem.
1.) Initially, Defendant produced a copy of the current agreement. (See Decl. of
Sarah Ciarelli Ex. A, July 27, 2006.) Plaintiff, however, objected that the 2006
agreement is not the same as the one he signed when he became an AdWords
customer in 2003. (Pl. Opp'n. Mem. 4.) In response, Defendant produced a copy of
the contract users were asked to sign in 2003. Both contracts contain a forum
selection clause stating that disputes or claims arising out of the contract are
to be adjudicated in Santa Clara County, California.
Although Plaintiff now contends that the 2003 contract
exhibited by Defendant may not be an exact replica of the one he signed, (he did
not produce a copy of the contract he allegedly signed and did not allege that
he would be able to do so if given the opportunity. (See Transcript of Sept. 13,
2006 Hearing ("09/13 Tr.") 17-8 (THE COURT: "If you want more time to respond to
the reply papers I would consider allowing you more time to file a surreply."
MR. PERSON: "Your Honor, I don't have any additional information than what I'm
Furthermore, the only difference he claims between the
contract Defendant's exhibit and the one he allegedly signed is that there were
boxes on the latter for him to acknowledge his consent. (Id.) Plaintiff does not
dispute that he signed an agreement in November, 2003. (See id. ("I went ahead
and assented to whatever it was they gave me. I don't know what it was, but I
did assent to it.").) Nor does he allege that the agreement he signed was
different, in substance, from the 2003 contract exhibited by Defendant; he
argues only that Defendant's proffered contract is not a copy of the specific
agreement he signed. (Id. at 18.) However, prior to using AdWords, every
customer must click on a box acknowledging that they agree to the terms and
conditions of Defendant's contract. (Decl. of David DiNucci ¶5, August 31,
2006.) Thus, Plaintiff's very existence as an AdWords customer is evidence that
he agreed to the 2003 form contract proffered by Defendant. Even given the
generous factual standard applied on a Rule 12(b)(3) motion, without more from
Plaintiff, it appears that the contract Plaintiff signed did indeed contain the
forum selection clause appearing in the 2003 contract proffered by Defendant.
The mere existence of a contract with a forum selection
clause is not the end of an inquiry into proper venue; these clauses must be
examined for accuracy and fairness. Forum selection clauses were once uniformly
rejected by the federal courts. They are now, however, uniformly upheld. As the
Second Circuit has stated, aversion to such clauses is "simply a vestigial
remainder of an outmoded doctrine." Bense v. Interstate Battery Sys. of Am.,
Inc., 683 F.2d 718, 721 (2d Cir. 1982).
Forum selection clause language must, however, be
mandatory to be enforced. John Boutari & Son, Wines & Spirits, S.A. v. Attiki
Importers & Distrib., Inc., 22 F.3d 51 (2d Cir. 1994). In Boutari, the Second
Circuit overturned a dismissal based on a forum selection clause giving the
courts of Greece jurisdiction because that contract could be read to permit,
rather than insist on, Greece as a venue. Id. at 53. However, the court made
clear that where, as here, "mandatory venue language is employed, the clause
will be enforced." Id. The contract from 2003, at issue here, states that "[any]
dispute or claim arising out of or in connection with this Agreement shall
be adjudicated in Santa Clara County, California."
(DiNucci Decl. Ex. B
Sec. 15 (emphasis added).) Thus, it is clear that the venue clause at issue in
this case was meant to be mandatory rather than permissive.
According to the Supreme
Court, mandatory forum selection clauses "should be enforced unless enforcement
is shown by the resisting party to be 'unreasonable' under the circumstances."
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). The Second Circuit
has made clear that reasonableness will be presumed unless the plaintiff can
make a strong showing otherwise. This "presumption of validity" regarding a
forum selection clause can only be overcome:
(1) if [the clause's]
incorporation into the agreement was the result of fraud or overreaching ; (2)
if the complaining party "will for all practical purposes be deprived of his day
in court," due to the grave inconvenience or unfairness of the selected forum ;
(3) if the fundamental unfairness of the chosen law may deprive the plaintiff of
a remedy ; or (4) if the clauses contravene a strong public policy of the forum
Roby v. Corporation of Lloyds, 996 F.2d 1353, 1363 (2d
Cir. 1993) (quoting M/S Bremen, 407 U.S. at 18).
1. Fraud or Overreaching
Plaintiff's sole claim of contractual fraud is his
allegation of false advertising by Defendant. (Pl. Compl. ¶¶152-58.) He claims
that calling the process by which AdWords' customers obtain keywords an
"auction" is misleading because it fails to acknowledge the subjective component
of Defendant's selection of ads. (Pl. Opp'n. Mem. 20.) In other words, Plaintiff
claims he was seduced into doing business with defendant based on a false claim
of an auction process, characterized by objective awards based solely on bidding
price. Id. Even if Plaintiff could make out a colorable claim of false
advertising, which he cannot,1 the fraudulent actions capable of
overcoming the presumption of validity for a forum selection clause must be
directly related to that clause, not the contract more generally. See A.I.
Credit Corp. v. Liebman, 791 F.Supp. 427, 430 (S.D.N.Y. 1992)("A party may not,
however, avoid the effect of a forum selection clause by merely alleging fraud
or coercion in the inducement of the contract at issue. Rather, the party must
show that "the inclusion of that clause in the contract was the product of fraud
or coercion.") (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14
(1974)(emphasis in the original)). Plaintiff does not claim that the inclusion
of the forum selection clause in the AdWords agreement was the product of fraud.
He has not met that ground for rejecting the forum selection clause.
2. Deprivation of Plaintiff's Day in Court
Plaintiff claims that dismissing this case for improper
venue will deprive him of his right to a meaningful hearing because he is
running for Attorney General of New York in November 2006 and needs to compile a
voter list in advance of his election bid. (Person Decl. ¶¶3-6.) He alleges that
he brought this case in New York because it is where he lives, and is a more
convenient forum. While Plaintiff's urgency is understandable, it does not rise
to the level of deprivation meriting a refusal to honor a forum selection
clause. See Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 11 (2d Cir. 1995)
(Plaintiff's allegations of inconvenience of Greece as forum did not "deprive
[plaintiff] her day in court within the traditional meaning of the phrase.");
Olsen v. Muskegon Piston Ring Co., 117 F.2d 163, 165 (6th Cir. 1941) ("[T]he
right to a day in court means not the actual presentation of the case, but the
right to be duly cited to appear and to be afforded an opportunity to be
Plaintiff does not assert that he was unable to initiate
this suit in California. He claims only that New York is a more convenient forum
and that there is urgency to his Complaint. However, as stated in his Complaint,
Plaintiff has been a customer of AdWords since 2003, and Defendant has been
using its allegedly discriminatory pricing scheme since at least December 2005.
(Pl. Compl. ¶8, 32.) Plaintiff did not bring this suit until June 2006. In view
of his failure to act promptly, he cannot now allege that it would be this
court's dismissal for improper venue that denied him his urgent remedy.2
Furthermore, he is seeking damages as well as injunctive relief. (Id. ¶97-8.)
His damages claim will remain viable even after the election has taken place.
3. Fundamental Fairness
Plaintiff alleges that he assented to the agreement, only
because it was a prerequisite to becoming an AdWords user. Unlike the contracts
at issue in Bremen, and Roby, the AdWords contract is not the product of an
arms-length negotiation. Instead it is an agreement that was drawn up entirely
by Defendant, and signed by every AdWords customer. Plaintiff alleges that the
agreement is a "contract of adhesion." (See 09/13 Tr. 25 ("THE COURT: You're
arguing it's a contract of adhesion." MR. PERSON: "I'm sorry, yes, adhesion, a
contract of adhesion.").) Such contracts require a more "refined" scrutiny for
fairness. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593 (1991)
("In evaluating the reasonableness of the forum clause at issue in this case, we
must refine the analysis of The Bremen to account for the realities of form
According to the Second Circuit, "[t]ypical contracts of
adhesion are standard-form contracts offered by large, economically powerful
corporations to unrepresented, uneducated, and needy individuals on a
take-it-or-leave-it basis, with no opportunity to change the contract's terms."
Klos v. Polskie Linie Lotnicze, 133 F.3d 164, 168 (2d Cir.1997). It should be
noted at the outset that Plaintiff does not match the picture of a victim of a
contract of adhesion painted by the Second Circuit. He cannot claim to be
"unrepresented, uneducated and needy" since he is an experienced lawyer, who, as
is clear from his complaint and supporting memorandum, is highly intelligent and
should be well able to understand the terms of a form contract. Google, on the
other hand, is certainly a large, economically powerful company. Moreover, as
mentioned earlier, in order to do business of any kind with AdWords, a user must
sign an agreement drafted entirely by Defendant. Thus, it is appropriate in this
dispute to treat this contract as one of adhesion, and scrutinize it more
carefully to ensure the fairness of the forum choice.
As Judge Baer noted in Caremark, "[a]ny review of a forum
selection clause for 'fundamental fairness' must begin with the seminal case of
Carnival Cruise Lines, Inc." 385 F.Supp. at 198. In Carnival, the Supreme Court
dealt with a forum selection clause included on a passenger ticket for a
commercial cruise. The Court disapproved of the language in the lower court
opinion, which stated that a "nonnegotiated forum-selection clause in a form
ticket contract is never enforceable simply because it is not the subject of
bargaining," id. at 593. The Court ruled that the terms of the forum selection
clause were "subject to judicial scrutiny for fundamental fairness." Id. at 595.
Among the factors the Court considered were (i) whether or not Carnival Cruise
was forum shopping when it selected Florida as a venue; (ii) whether or not the
passenger's assent to the contract was the product of "fraud or overreaching"
and: (iii) whether the passengers had notice of the forum selection clause. See
a. Forum Shopping
Plaintiff contends that Defendant selected the forum
because they believe it will give them an edge in antitrust litigation-
that they are, in essence, forum shopping. (See Pl. Opp'n.
Mem. at 4 ("Google effectively select[s] its judge in antitrust cases.").)
Plaintiff, however, presents no reason to believe that federal judges in
California have any reason to be prejudiced in favor of Defendants. He only
asserts that Google's headquarters are located in the area. The fact that
Defendant is located in California suggests another, highly plausible, reason
why it would include a forum selection clause-in order to locate the myriad
suits inevitably brought against a such a sizeable company in a single,
convenient forum. See Carnival Cruise, 499 U.S. at 595 (forum shopping claim
belied by the fact that "Petitioner has its principal place of business in
Furthermore, Plaintiff has requested a transfer to the
Northern District of California should the motion to dismiss for improper venue
be granted. (Pl. Opp'n. Mem. at 25.). Apparently, he has not reached the
conclusion that the courts in California will decide in favor of Defendant if he
wishes to pursue his complaint there.
b. Fraud or Overreaching
As indicated above, Plaintiff has made no claim of fraud
or overreaching in obtaining his assent to the forum selection clause.
Finally, there is no indication that Plaintiff did not
have notice that the forum for suits against Defendant were to be brought in
Santa Clara County. In order to do business with AdWords, Plaintiff had to
assent to the terms of its contract. (See DiNucci Decl. ¶5 ("Before an
advertiser's account will be activated, the advertiser [must agree to] the
AdWords agreement.").) By clicking on a link, a user is taken to the agreement
before assenting to its terms. Id. In Carnival, passengers were not notified of
the terms of the agreement until they had their ticket in hand since the
agreement was the ticket. See 499 U.S. at 587 ("The face of each ticket, at its
left-hand lower corner, contained [the forum selection clause]."). Here,
Plaintiff had more notice than the Carnival plaintiffs did since he had an
opportunity to view and reject Defendant's terms before spending any money with
Scrutiny of the contract between Plaintiff and Defendant
does not uphold Plaintiff's allegations of unfairness.
4. Against Public Policy of Forum
The Supreme Court has said that "[a] contractual
choice-of-forum clause should be held unenforceable if enforcement would
contravene a strong public policy of the forum in which suit is brought, whether
declared by statute or by judicial decision." Bremen, 407 U.S. at 18. It is
clear, from Second Circuit precedent, however, that far from being against
public policy in this Court's jurisdiction, forum selection clauses are
considered "presumptively valid." Roby, 996 F.3d at 1363. Thus, the fourth
factor of the test for reasonableness is also resolved in Defendant's favor.
5. Conflict with Anti-Trust Laws
Finally, Plaintiff claims that allowing Defendant to
contractually designate a forum for antitrust claims, such as this one, will
"emasculate the federal statutes providing antitrust plaintiffs with a greater
choice of venue than provided to plaintiffs in other types of cases." (Pl. Opp'n.
Mem. 4-5.) However, the Second Circuit has addressed this point directly and
decided to the contrary in Bense, 683 F.2d 718. There, the plaintiff argued that
the "congressional purpose underlying the broad venue provision of [federal
antitrust laws] was to promote vigorous private enforcement of the antitrust
laws, and he contend[ed] that this precludes enforcement of contractual
forum-selection clauses." Id. at 720. The Second Circuit was not persuaded by
this argument, noting in particular that "[the plaintiff] [has] made no showing
that his antitrust action could not be prosecuted as vigorously in Texas as in
Vermont, nor has he demonstrated that the Congressional purpose would be
subverted by enforcement of forum-selection clauses." Id.
Similarly, here, Plaintiff has made no showing that a
federal court in California would be less likely to give credence to his claims
than a court in New York, nor has he shown that the forum selection clause at
issue in this case tends to subvert the purpose of federal antitrust
D. Plaintiffs' Cross Motion to Transfer
In his reply to Defendant's Motion to Dismiss, Plaintiff
cross motions the Court to transfer his Complaint to the Northern District of
California, pursuant to 28 U.S.C. §§1404(a) and 1406(a). (Pl. Opp'n. Mem. 25.)
Defendant contends that Plaintiff's method of raising this issue was not proper.
(See Def. Repl. Mem. 3 n.1. (Claim presented without "any formal motion papers
evidence nor argument in support of motion.).)
Even if Defendant's allegation is true, it is immaterial.
Courts dismissing for improper venue can transfer a complaint without motion
from either party "in the interest of justice." 28 U.S.C. §1406(a). The Second
Circuit has stated that "[c]ourts enjoy considerable discretion when deciding
whether to transfer a case in the interests of justice." Daniel v. American Bd.
of Emergency Medicine, 428 F.3d 408, 435 (2d Cir. 2005). However, a court should
not "waste judicial resources by transferring a case that is clearly doomed."
Id. at 436 (quoting Phillips v. Seiter, 173 F.3d 609, 610 (7th Cir. 1999)).
Though it does appear that Plaintiff's claims will be difficult to sustain, it
does not appear that they are "clearly doomed." Thus, the dispute is hereby
transferred to the Northern District of California at San Jose, which is in
Santa Clara County, the forum selected by the contract.
IT IS SO ORDERED.
State Office Seeker's Suit Against Google TransferredTo
California Pursuant to Forum Selection Clause
1. Defendant produced a printout from its AdWords website,
which made quite clear that the bidding process for keywords was not a typical
auction, and that the awarding of keywords was based on an examination of the
relevance of the chosen word to the advertiser's website, the advertiser's click
through rate, and several other factors. (See Ciarelli Decl. at Ex. B.) Thus, it
does not appear that Plaintiff was misled, by the suggestion that he was
entering a typical auction, into doing business with Defendant.
2. A definitive ruling on Defendant's 12(b)(6)
motion would similarly fail to meet Plaintiff's time table given the multiple
claims he has asserted and his desire to amend his complaint for a second time.
(See Letter of September 18, 2006 (requesting leave to file a second