StubHub Denied Section 230 Defense in Scalping Case–Hill v. StubHub

By Eric Goldman

Hill v. StubHub, Inc., 2011 WL 1675043 (N.C. Super. Ct. Feb. 28, 2011). My previous blog post in this case.

This is a putative class action lawsuit against StubHub for violating North Carolina’s anti-scalping laws, which both restrict the resales prices of tickets and service fees charged for the resale. The plaintiffs claim StubHub violates both provisions.

StubHub interposed a 47 USC 230 defense, something that StubHub has asserted with mixed success before. The court rejects the defense.

The court begins with a survey of Section 230 jurisprudence. Principally building off the bloated statements in Roommates.com, the court summarizes its legal assessment:

A review of the cases below leads this court to conclude that an internet service provider crosses the line and becomes liable for content on its website when the internet service provider (“ISP”) materially contributes to and/or specifically encourages the offending content. To “materially contribute” in this context means to influence the offending content in a way that promotes the violation of law that is represented by the offending content. To “specifically encourage” means to elicit and make aggressive use of the offending content in the business of the internet service provider. Each case must be decided on its own facts, giving deference to the public policy embodied in the statute. Cases in which the offending content is unlawful require a heightened degree of materiality and specificity. Intent to violate the law is not required. Conscious disregard by an internet service provider of known and persistent violations of law by content providers may impact the courts’ determinations of the service provider’s claim to immunity, especially where the ISP profits from the violations.

Elsewhere, the court says Section 230 “protects those ISPs which are truly innocent bystanders in use of the web.”

What is the court talking about? It is a weird way of trying to distill the state of the law (which the court mischaracterizes by saying the “case law governing the question of loss of immunity as an internet service provider is not extensively developed”). Oddly, after spending 40% of its opinion supporting various cases that led it to draw this legal conclusion, the court doesn’t explicitly use this recap to guide its analysis. Yet another reason not to give the recap much credit. One other point that undercuts the court’s credibility: the court didn’t address the highly relevant Milgram v. Orbitz case which reached the opposite result on similar facts.

In my opinion, the most interesting part of the court’s opinion relates to Section 230′s application to the ticket price. The court acknowledges that each seller sets his/her own price for the ticket. Nevertheless, StubHub can be responsible for the price sellers choose because StubHub does a number of things to manage prices on the site. (StubHub wants sellers to sell at the highest obtainable price because that maximizes StubHub’s fees; but prices above the market-clearing price mean that no deals are done, in which case StubHub doesn’t get any cut).

The court enumerates several ways that StubHub shapes the prices:

* StubHub decides which events it supports in the first place (it doesn’t allow ticket sales for every event)

* “It actively solicits listings for high-demand events. It monitors its competition for listings.”

* It cuts special deals for “LargeSellers” (a point also raised in the NPS v. StubHub case). The court says “StubHub influences the pricing of the LargeSellers” through various programmatic details.

* StubHub shows sellers pop-up windows telling them if their price is out of a targeted pricing range and encourages sellers to rethink the price.

* Later, the court gives other examples of how “StubHub is in total control of the transaction.”

The court summarizes and concludes the pricing discussion:

StubHub’s business model does not require scalping practices. It encourages them. It is designed to produce the highest volume of ticket sales at the prevailing market price for events which are sold out, and thus likely to generate market prices higher than the face value of the tickets irrespective of the fees involved on both sides. Having engaged in detailed studies of pricing and pricing habits of its users and competitors, it strains credulity that StubHub had no information about the relation of market value to face value. It could not reasonably drive its customers’ prices to market value without that information. It does not provide information on the face value of tickets to buyers on its website. Further, it controls its website to prevent communication between buyers and sellers, thus facilitating its role as the arbiter of market price.

I feel like I’m missing something pretty fundamental. Don’t all retailers–even marketplaces like eBay–try to drive their prices to “market prices”? Is there any other logical pricing outcome?

In its conclusion, the court says that StubHub

directly participated in developing the pricing on its system….StubHub encouraged illegal content. Phrased differently, the use of its website to scalp tickets in violation of North Carolina law was a predictable consequence of its business model. StubHub encouraged, materially contributed to, and made aggressive use of the pricing content on its website. It profited from tickets sold at prices higher than face value. It was consciously indifferent and willfully blind to the illegal prices being posted, knowing that the predictable consequences of its pricing model would be the generation of illegal prices. It is not entitled to immunity. It does not qualify as a Good Samaritan.

The odd thing about the court’s pricing discussion is that, by the court’s own admission, StubHub is usually encouraging sellers to reduce their offered prices. So if StubHub changes its practices in response to this opinion to improve its Section 230 defense, ironically consumers will likely pay higher ticket prices, not lower. Talk about a Pyhrric victory.

If it holds, this ruling about steering price-setting might apply to any e-commerce site that wants Section 230 protection for seller pricing choices. For that reason, obviously this opinion has risk for StubHub’s parent, eBay, but I would note that the reason could be applied to Google’s AdWords auctions. Google does a number of things to affect advertisers’ bids in the auction, and this ruling could potentially affect Google’s Section 230 coverage for those auctions. On the other hand, so much of the court’s opinion turns on the illegality of scalping. If the marketplace auctions lead to a legal price, this opinion’s rationale might drop away.

Then again, retailers have an increasingly tough time claiming 230 immunity for items they sell, especially items delivered offline. See, e.g., my post about Parisi v. Sinclair. Clearly, this judge thought StubHub was closer to a retailer than a marketplace.

The court says StubHub’s buyer’s fee is also illegal under the anti-scalping law.

StubHub’s counsel has told me that they plan to appeal this opinion. It will be interesting to see how this ruling fares on appeal.

A final note: this ruling is just the latest detritus from the legally disastrous 2007 Hannah Montana concert tour. The legal developments arising from that tour have been horking the law for years–Ticketmaster v. RMG being the flagship example. Add this ruling to the list of reasons why Cyberlawyers should hate Hannah Montana.