Despite hitting 19 aces and winning three-quarters of his first serves, Ljubicic fell to Viktor Troicki of Serbia 6-4, 7-5, 6-4 in 2 hours, 20 minutes. Ljubicic squandered a 3-1 lead in the third set as Troicki saved eight break points.
Ljubicic, a former top-three player now ranked 48th, won the inaugural Zagreb title in 2006 and was runner-up in the last two years. A year ago he was the top seed, and returned this month unseeded after back problems in 2008.
Croatia's best hope of a home player winning the title remained second-seeded Marin Cilic, who beat Florent Serra of France 6-2, 7-5.
Cilic led 5-1 in the first set and 3-1 in the second before allowing Serra to briefly get back into the match.
"(I) played good and served good,'' said Cilic, who will face Antonio Veic in an all-Croatian quarterfinal.
Veic, a wild card who eliminated Guillermo Canas in the first round, defeated Evgeny Korolev of Russia 3-6, 7-6 (5), 6-4 to reach his first ATP quarterfinals.
The first round was completed when fourth-seeded Paul-Henri Mathieu of France beat Roko Karanusic of Croatia 6-7 (6), 6-1, 7-6 (3), and Victor Hanescu of Romania defeated Lovro Zovko of Croatia 6-3, 7-5.
Ljubicic falls; Cilic, Mathieu win in Zagreb
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Ljubicic falls; Cilic, Mathieu win in Zagreb
