Class-Action Lawsuit Unfolding in Boston Against Webloyalty, Fandango, Priceline, and Various Web Retailers Alleges Widespread “Coupon Click Fraud”

Updated and corrected, December 21, 2007. For details on the revisions, click here.

It is every online shopper’s nightmare (that is, if you awake to know it has even happened). You’re at the computer buying movie tickets, flowers, or pet food and, after completing your purchase, an enticing pop-up comes on the screen offering a $10 rebate. You type in your e-mail address to take advantage of the offer and the next thing you know, wham! You just unwittingly transferred your credit card number to a company you’ve never heard of and enrolled yourself in a dubious “rewards” program charging you $10 per month in perpetuity.

Such is the scenario outlined in hundreds of pages of court documents filed in a sweeping class-action lawsuit against Norwalk, CT-based Webloyalty.com and online partners that include Fandango.com, Priceline.com, justflowers.com, and others that is slowly working its way to trial in the Federal District Court of Massachusetts in Boston.

A key phase of the legal battle, known as the discovery process, will start in earnest after the holidays but won’t likely be complete until late this spring. It requires Webloyalty to produce vast numbers of corporate documents, including e-mails and minutes from meetings, as well as to allow attorneys for the plaintiffs in the case to take testimony from company employees in legal depositions. The process could reveal some eye-opening details about Webloyalty’s online marketing practices and arrangements with an estimated 75 major online retailers.

No matter the outcome, the case is being watched closely in both legal and financial circles. Lawyers say the suit could help shape the way laws governing online transactions are interpreted and enforced. Investors note that Webloyalty’s type of business, known as part of the so-called “lead generation” field, is a tempting and profitable branch of e-commerce. But, they say, any revelations from the case about deceptive practices would certainly give many would-be investors pause.

Ben Edelman, an assistant professor at Harvard Business School who has served as an attorney and expert in litigation involving online advertising fraud, says the case is important because it addresses two key issues in online lead-generation practices. “First, is there any limit to what Webloyalty and others can put in the fine print? Second, might there be some practices that are so likely to deceive that they cannot be permitted, even if disclosed in the fine print.” On this last point, Edelman is focused on the way Webloyalty gets consumers’ credit card numbers without customers explicitly handing them over. “Usually consumers know they’re entering into a contract because a retailer requests a credit card number,” he says. “But Webloyalty implemented a remarkable alternative—getting users’ card numbers directly from other merchants, and beginning to charge users who never told Webloyalty their card numbers.”

The named plaintiff in the lawsuit, Joe Kuefler, a resident of Stow, Massachusetts, bought movie tickets from Fandango back in December 2005. He claims he was unknowingly enrolled in one of Webloyalty’s so-called rewards programs after clicking on a pop-up offer, later finding a recurring $10 charge on his credit card from “WLI Reservations Rewards.” Kuefler got his money back after complaining about the charge, but the lawsuit alleges that he never gave his credit card information to Webloyalty and didn’t realize he had subscribed.

The complaint alleges violations of the Electronic Communications Privacy Act, unfair and deceptive acts and practices, invasion of privacy, and civil theft. Since this is a class-action suit, Kuefler is, of course, not alone. His lawyers say that the more than 700 consumer complaints they have reviewed attest to the validity of their allegations. The Connecticut Better Business Bureau alone says it has fielded 1,048 complaints … Next Page »

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