Online Platform Design Issues Lead to Certified False Advertising Class

Published: Apr. 24, 2019

Updated: Oct. 05, 2020

A recent class certification decision in the Northern District of California highlights the importance of platform design. A group of hotel owners alleged that Expedia’s website provided false information about the availability of rooms at their hotels—and certified a class for injunctive relief. This case serves as a reminder to online operators about the potential legal risks that can arise from platform design and execution, including the treatment of third-party listings on a platform—and how such risks can scale quickly through the class action mechanism.

The Class Certification Decision

In Buckeye Tree Lodge and Sequoia Village Inn, LLC, v. Expedia, Inc., a proposed class of hotel owners with no contractual relationship to Expedia claimed that Expedia’s website violated the Lanham Act. Specifically, Plaintiffs alleged that Expedia advertised listing pages for plaintiffs’ hotels, providing photographs and information about the hotel—but falsely labelling them as “sold out.” Expedia also listed a phone number for each hotel that actually connected to Expedia’s call center, where potential customers were allegedly encouraged to book at other hotels that had booking agreements with Expedia.

Expedia explained that such listings were inadvertently created through various mechanisms—such as when a hotel started creating an Expedia account but never completed it, or when Expedia automatically received hotel information from third-party distribution systems but was not notified when the third party’s relationship with the hotel ended.  In such cases, the platform design may have meant that a visitor could view a hotel’s listing on Expedia’s websites, but would be informed that no rooms were available (since Expedia’s systems had saw no available inventory).

The court certified a class of all affected hotels that were “not capable of being booked on Expedia.”  The court recognized several common questions for the class, including whether “the Lanham Act impose[s] on Expedia an affirmative obligation to institute controls to ensure that its systems are not causing customers to be misled about [room] availability.”  The court also rejected an argument that a class should not be certified because the named plaintiffs’ hotels had all been removed from Expedia’s websites, finding a lack of evidence that Expedia had fixed the underlying platform design issue.

(The court did limit the proposed class in certain respects—excluding hotels that used third-party vendors connected to Expedia and rejecting a class for monetary damages due to plaintiffs’ failure to present a legitimate model for estimating each hotel’s damages.)

Takeaways from the Court’s Decision

Class certification decisions do not evaluate the merits of a case.  But the most important takeaway of this decision is structural:  legal risks arising from platform design issues can readily scale with the size of the platform and are likely to surface in class action litigation.

Even for platforms driven by third-party content, operators are not necessarily immunized against legal risks that stem from their own design decisions, rather than third-party content (for which Section 230 of the Communications Decency act provides significant protections).  Online platform operators—particularly those that present products or services from third-party businesses—should pay careful attention not only to the overall design of their platform, but to the unexpected issues that can often arise in its implementation and operation.