Technology & Marketing Law Blog

July 01, 2009

Securities Fraud Case Premised on Click Fraud Allegations Dismissed--Brodsky v. Yahoo

By Eric Goldman

Brodsky v. Yahoo, Inc., 2009 WL 1766002 (N.D. Cal. June 18, 2009).

The legal battles over click fraud are pretty much played out, but some legacy cases are still working through the system. This lawsuit was a securities fraud action alleging that Yahoo inflated its stock price by, among other things, deliberately ignoring some click fraud activity to grab quick revenue. The lawsuit was dismissed in October of last year with leave to amend. Having tried again, the plaintiffs still didn't satisfy the judge, so the judge booted the case permanently. However, given the plaintiffs’ investments in this case, it would not surprise me if the plaintiffs appeal.

The actual opinion isn't all that remarkable. For the click fraud allegations, the plaintiffs rely principally on confidential witnesses who are former Yahoo employees. The cloak-and-dagger Deep Throat stuff is mildly interesting, but the court still wasn't convinced that these insiders had enough personal knowledge about Yahoo's revenue recognition practices (except for one witness, who didn't allege malfeasance). As I wrote in October, "it will be interesting to see if the plaintiffs can produce any witnesses who can testify about the rate of Yahoo's click fraud overcharging sufficient to satisfy legal standards." This ruling seems to answer that with a big "negative."

Posted by Eric at 09:53 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

June 10, 2009

Stop Saying "We Can Amend This Agreement Whenever We Want"!--Harris v. Blockbuster

By Eric Goldman

Harris v. Blockbuster Inc., 2009 WL 1011732 (N.D. Tex. April 15, 2009). The Justia page.

[I've been sitting on this case for a couple of months, but it's such an important case that it still deserves a write-up even at this comparatively late date.]

This case is part of the legal detritus from the Facebook Beacon program. As you recall, Facebook Beacon included purchases from third party e-commerce sites into the buyer's Facebook status reports. This required the e-commerce sites to report Facebook users' purchases back to Facebook. A Blockbuster user claimed that Blockbuster's reports to Facebook violated the Video Privacy Protection Act, which prevents disclosures of PII about video customers without their consent. (Beacon did have an opt-out of debatable efficacy). Blockbuster moved to compel arbitration of this lawsuit based on the mandatory arbitration clause in Blockbuster's user agreement.

Blockbuster used an industry-standard and entirely typical introductory clause to its user agreement, which said:

Blockbuster may at any time, and at its sole discretion, modify these Terms and Conditions of Use, including without limitation the Privacy Policy, with or without notice. Such modifications will be effective immediately upon posting. You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, you must immediately stop using this Site.

This industry-standard and entirely typical clause does not fare well in this courtroom. Among other defects, the judge notes that "there is nothing in the Terms and Conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website." As a result, the court deems the arbitration clause "illusory," an odd Texas law descriptor that appears to be a cousin of lack of consideration.

I could wax philosophic about the ontological meaning of a "contract" that one party can amend unilaterally at any time without notice. However, I'd rather focus on the simple practical implication from this ruling. I've never been a fan of the language Blockbuster used, and I had hoped many websites would reconsider the language after the Ninth Circuit trashed such provisions in 2007 in Douglas v. Talk America (also see my follow-up post). Yet, these clauses are still ubiquitous, even at big websites that "should know better," so let me boil it down for you into a single all-caps mantra:

STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REVISED TERMS TO THE WEBSITE

This language has a significant risk of killing the entire contract, which would strip away a lot of very important provisions that should be/need to be in the contract. So far Blockbuster has only lost its mandatory arbitration clause, but it's possible other important risk management clauses (warranty disclaimer, liability limits, dollar caps, etc.) will similarly fall. If those clauses fail, let the plaintiff feasting begin!

I recognize that weaning ourselves from very flexible amendment language leaves us as drafters with few good options to modify online user agreements over time. I discussed this dilemma in my post on the Douglas case. I haven't found any better solutions in the past 2 years, but I can say with confidence--DON"T DO WHAT BLOCKBUSTER DID.

UPDATE: I got the following email from a reader proposing a good alternative to current amendment notification processes: "To avoid the spam-filter problem, the provider could give notice via an RSS feed as well, and then disclaim like crazy about the problems with the email option (which would indeed simply be an option -- a link to a page where users can sign up to receive notices)." I love this idea! RSS is a true opt-in with few of the challenges of email.

Also, this brought to mind the EFF's new TOSBack service, which I'll mention more in a future blog post, that effectively provides a third party service to track amendments of various user agreements into an RSS feed. I LOVE IT! I have subscribed to TOSBack and plan to blog on interesting user agreement amendments it reveals--and I suspect I'm not the only one queued up to do so. TOSBack is a game-changer for public scrutiny of agreement amendments--sites being monitored in TOSBack are now on notice that their user agreement amendments are being watched!

Posted by Eric at 10:26 AM | Licensing/Contracts , Privacy/Security | TrackBack

June 08, 2009

May 2009 Quick Links Part 1

By Eric Goldman

Just a reminder that I'm posting some quick links exclusively to my Twitter account.

Trademarks

* Texas International Property Associates v. Hoerbiger Holding AG, 2009 U.S. Dist. LEXIS 40409 (N.D. Tex. May 12, 2009). Domainer loses ACPA claim over typosquatted domain name. The PPC advertising constituted bad faith intent to profit. Ryan Gile recaps the action.

* GunBroker.com LLC v. Heckler & Koch Inc., No. 09-cv-00051 (M.D. Ga. complaint filed May 14, 2009). Interesting lawsuit by an online auction site for guns seeking a declaratory relief action against a trademark owner who deployed an enforcement agency, Continental Enterprises, to send a driftnet takedown letter that apparently targeted used gun resales or compatible goods. Ryan Gile has more.

* Miranda v. Guerroro, 2009 WL 1381250 (S.D. Fla. May 14, 2009). Miranda is “Paola Morena,” a Latin singer. Her former manager convinced her to do some nude photo shoots in an effort to get a Playboy gig. The Playboy gig didn't materialize, and the manager stopped representing Miranda/Morena. After Morena's career took off, the manager then allegedly threatened to publicly post the photos unless she paid him $70k. Morena rebuffed the request, so the manager allegedly followed through with his threats by launching a website paolamorena.com [I got a nasty Google malware warning when I tried to visit the site], calling it her “official” site and posting some of the photos. The court enjoined the manager under trademark law. I'm a little confused how Morena had protectable trademark rights in her name. Did she make any use in commerce in the United States? Did her name achieve secondary meaning? This could be another case where trademark law is being stretched to stop bad behavior.

* Eric Menhart, the self-purported owner of a trademark in the term Cyberlaw, has gotten his very own personal gripe site.

Advertising and Marketing

* How much can Behavioral Targeting Help Online Advertising? HT Greg Linden

* Yingling v. eBay, 5:2009cv01733 (N.D. Cal. complaint filed April 21, 2009). A class action lawsuit alleging that eBay Motors overcharged merchants.

* IAB has issued its Click Measurement Guidelines designed to answer the Q “What is a Click?” See if their 28 page report actually answers the Q.

* A confusingly written LA Times article reports that 4 South Korean dissident bloggers are being criminally prosecuted for artificially inflating impression counts in order to game rankings of most popular pages.

* Perennially funny: unfortunate product names.

Copyright

* Solicitor General recommends against granting cert in Cartoon Network v. CSC.

* AV v. iParadigms, April 16, 2009. The Fourth Circuit says that the Turnitin system is fair use. My initial blog post on the district court ruling.

Security

* News.com: Interview with FBI cybercrime agent working undercover.

* Oddee: problematic CAPTCHAs. Funny.

Google

* Everyone wants to talk about whether Google is a monopolist
- In early May, I heard Susan Athey, Microsoft's Chief Economist, give a lunchtime attack speech on Google at a George Mason event
- Google is circulating a document explaining why it's good for competition
- Google is blanketing DC with lobbyists too.
- And Google says it's actually small potatoes.
- Wired: Will Wolfram Alpha forestall antitrust inquiry into Google? As I've argued before, we continue to see new entrants into the search business all the time—it’s just too big a market to ignore.
- NYT weighs in too. And the Washington Post discusses how Microsoft and others are complaining about how many Google folks are going into the Obama administration.

* Danny Sullivan: State Of Search: Google Will Stay Strong Despite Bing & Yahoo

* Wired: Secret of Googlenomics: Data-Fueled Recipe Brews Profitability

Posted by Eric at 04:03 PM | Copyright , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark | TrackBack

June 02, 2009

Web Developer Didn't "Convert" Website--Conwell v. Gray Loon

By Eric Goldman

Conwell v. Gray Loon Outdoor Marketing Group, Inc., 82S04-0806-CV-00309 (Ind. Sup. Ct. May 19, 2009)

This is a classic cautionary tale about interactions between a web developer/host and a customer. The customer retained the web developer to develop a website. The paperwork between the parties was not a model of clarity. Later, the customer orally asked the developer to modify the site; this time, there is only garbled conversations and no paperwork. The developer modified the site but the customer changed its mind and asked the developer to roll back to the earlier version. But the developer could not do so because it didn't keep a copy of the earlier version (what???), The customer stiffed the developer and the developer took the website offline. The developer sued for non-payment; the customer cross-sued for conversion on the theory that it had paid for the site and had been deprived of its property.

The Indiana Supreme Court wrestles with several questions, concluding that:

1) The relationship was governed by common law principles applicable to services, not the UCC Article 2 applicable to goods. This is a tricky area of the law, but I think this may be the more logical result for a combination web developer/host, especially one who never actually delivers any code to the customer.

2) Was there an enforceable agreement to amend? The trial court said yes, and the Supreme Court saw no reason to override that factual finding.

3) Did the developer convert the code/website by erasing the old version? The application of ancient doctrines of "conversion" to intangible bits always makes me queasy, and it's led to some confused jurisprudence. In this case, the court sidesteps all of that doctrinal messiness for the simple reason that the customer never obtained ownership of the code. This is really basic copyright law. Customers who want ownership of the work done by vendors need to spell that out in a written agreement. No written agreement specifying customer ownership, no customer ownership--it's that simple. The court says the customer didn't properly obtain ownership in the written customer-vendor agreement, so the vendor had retained copyright title to its developed code all along, and the customer never had title to be converted.

As usual, so many problems are completely avoidable through proper communication through written agreements and amendments between customers and vendors. Some other obvious observations here:

* it's hard to imagine many web development disputes that are worth taking to a state supreme court, especially one where the outstanding bill was about $5k.
* if you are a web developer's customer and you want to own the developed code, you have to say so in a written agreement
* and, if you want a copy of your website's code, make sure you say so in the contract AND actually get a copy!
* if you are a web developer, you might keep customers happier if you keep every version of their website's code instead of tossing old versions.
* this dispute would have be governed by UCC 2B or UCITA if either were the law of Indiana. I wonder to what extent the new ALI Principles on the Law of Software Contracts (acknowledged in the opinion) will help resolve future disputes like this.

This case reminded me a little of the New Mexico v. Kirby case from a couple years ago, where a customer's failure to pay its website developer while keeping the developed code led to an unexpected jail sentence. I offer more lessons about web developer-customer relationships in that blog post.

While the customer lost the battle here, the issue of when electronic records are subject to conversion doctrines is hardly going away. This court reaches the sensible result that a putative owner gets no protection from conversion unless he/she actually has title to the asset. Read literally, though, I wonder if this ruling could undercut claims over conversion of virtual world assets? After all, a virtual world asset holder may rarely have clear title to the asset; certainly the holder won't be the copyright owner of the asset. Perhaps the analysis will be different in situations where a third party (the virtual world operator) allocates "title" within its own titling system to users--it might still be possible to deprive an asset holder of "title" within that asset system even if the asset holder would have no conversion claim against the virtual world operator if the operator takes the exact same steps to deprive the asset holder.

Other comments about this case:
* Juliet Moringiello
* Eugene Volokh

Posted by Eric at 11:19 AM | Copyright , Licensing/Contracts , Virtual Worlds | TrackBack

May 03, 2009

April 2009 Quick Links

By Eric Goldman

[Just a reminder that I am posting some “quick links” exclusively to my Twitter account, so if you want to keep up with everything, follow me at Twitter or subscribe to the RSS feed.]

Marketing/Spam

* Zango is dead (and so is adware), Ken Smith, Zango's CTO, conducts a post mortem: What Zango Got Wrong and What Zango Got Right. Mike Masnick's post-mortem.

* The FDA's instructions about pharmaceutical search marketing have led to lots of confusion. See Search Engine Land and the NYT.

* NYT: "Never Mind What It Costs. Can I Get 70% Off?"

* Tsan Abrahamson on social media and marketing law.

* Asis Internet Servs. v. Consumerbargaingiveaways. A district court diverges from Mummagraphics and says CAN-SPAM does not preempt CA's anti-spam law even if there is no common law fraud.

* Jackson v. American Plaza Corp., No. 08-8980 (S.D.N.Y. April 28, 2009), A Craiglist advertiser isn't a third party beneficiary of Craigslist's contract for purposes of stopping another advertiser from breaching the contract (in this case, spamming the forum).

Defamation

* Gardner v. Martino (9th Cir. April 24, 2009). I'm not a fan of talk radio, and the 9th Circuit apparently isn't either. The court upheld an anti-SLAPP dismissal of a defamation claim against the radio talk show host because "The Tom Martino Show is a radio talk show program that contains many of the elements that would reduce the audience’s expectation of learning an objective fact: drama, hyperbolic language, an opinionated and arrogant host, and heated controversy." Accord DiMeo v. Max. As Marc Randazza notes, rulings like this pose a challenge for those who think contextually ridiculous statements should be treated as "cyberbullying" or "cyber-harassment." Cf. the Finkel v. Facebook case involving asinine but clearly meaningless chatter on a private Facebook page.

* Some big defamation losses reported by CMLP:
- Blogger hit with $1.8M damage award.
- $12.5M defamation judgment against a gripe site.

* CMLP has a page organizing all of its 47 USC 230 material.

Intellectual Property

* Publicly republishing a private email leads to a default judgment of copyright infringement.

* Bryant v. Europadisk, Ltd., 2009 WL 1059777 (S.D.N.Y. April 15, 2009). In 2000, musicians authorized distributors to distribute their [hard copy] recordings, which the defendants ultimately ripped and allowed Amazon and Rhapsody to deliver via downloading. The resulting lawsuit turned on the interpretation of the license agreement term “internet sites.” The court says the term "is not ambiguous and does not extend to websites selling digital copies of songs. At the time the parties entered into the agreements, The Orchard sold physical copies only. As its Vice President explained by affidavit testimony, digital downloads of music did not become a “viable business” until iTunes was launched in approximately April 2004, long after Media Right and Gloryvision entered into contract."

* Octomom is seeking trademark registrations.

Miscellaneous

* GeoCities is shutting down.

* eBay will referee customer disputes.

* Wilson Sonsini's VC financing term sheet generator.

* Oddee: 10 Most Bizarre [Online] Gaming Incidents

Posted by Eric at 06:31 AM | Adware/Spyware , Content Regulation , Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Spam , Trademark , Virtual Worlds | TrackBack

April 12, 2009

Q1 2009 Quick Links, Part 4

By Eric Goldman

Security

* Massachusetts Data Security regulations were amended.

* In Facebook v. Power.com, Facebook brought another lawsuit to block extraction of user data from the site (similar to the Facebook v. ConnectU lawsuit). Venkat, Masnick, News.com, NYT, Justia. In this case, I wonder if Facebook has adequately distinguished between Power.com's behavior and the operation of its own "Find a Friend" service that taps into third party email servers to extract email addresses. Power.com’s response.

* Andritz, Inc. v. Southern Maintenance Contractor, LLC, 2009 WL 48187 (M.D. Ga. Jan. 7, 2009). IP infringement isn't a cognizable harm under the Computer Fraud & Abuse Act.

Adware/Spyware

* Who says Valentine's Day is just a Hallmark holiday? Sales of spyware and other tools to track cheating SOs also increase around Valentine's Day.

* Susan Brenner on the Cybercrimes Treaty and the US's decision not to criminalize possession of malware as required by the treaty.

Venture Capital

* BusinessWeek: Silicon Valley innovation is being stifled by VCs who only want to make small bets, not big bets. But VC investing is faddish, so the wind might change tomorrow.

* $600M of VC investments in virtual worlds.

Contracts

* Burcham v. Expedia, Inc., 2009 U.S. Dist. LEXIS 17104 (E.D. Mo. Mar. 6, 2009). Buyer was bound to user agreement even though he argued (without any evidence) that someone else established the account he used. This dovetails nicely with the broad reading of who is bound by an online user agreement; see my discussion in the Lori Drew case. Jeff Neuburger's writeup. Aside: I wonder if Expedia will be insulated by 47 USC 230 for the allegedly wrong description of amenities if they got the description of the hotel from third parties. For an analogous result involving the binding of users who didn't agree to the initial contract, see CoStar Realty Information, Inc. v. Field, 2009 WL 841132 (D. Md. March 31, 2009).

* Fractional Villas Inc. v. Tahoe Clubhouse, No. 08cv1396 (S.D. Cal. Feb. 25, 2009). Citing the RMG case, the court says that merely visiting a site may be sufficient to bind visitors to a browsewrap. However, in this case, there was insufficient evidence that the defendant had ever visited the site.

* Cherny v. Emigrant Bank, 2009 U.S. Dist. Lexis 2486 (March 12, 2009). Latest case that breach of privacy policy isn’t actionable unless there are actual damages. Venkat’s writeup.

* A stat I fully believe: "studies have shown that more than half of all companies cannot even locate signed copies of 10% or more of their contracts." The Zen Master asks: if both parties think they have entered a contract but neither can find a copy, do they have a contract? (this has really happened to me before).

Taxes

* Amazon v. New York and Overstock v. New York (N.Y. Sup. Ct. Jan. 12, 2009). Kudos to New York for finally figuring out a way to break the Internet and defeat the Internet Tax Freedom Act by treating Amazon Associates as traveling salespeople for sales tax collection purposes. I imagine every state in the country will jump on this bandwagon, at which point some e-tailers will kill their affiliate program and others will end up imposing sales tax collection nationwide.

* Pitt County v. Hotels.com, L.P. (4th Cir. Jan. 14, 2009), Online travel aggregators aren't "retailers" (as referenced in the statute) for purposes of collecting local hotel occupancy taxes.

General

* Some interesting cyberspace exceptionalism developments involving cases where paper presentation may be different from electronic presentation of the exact same content. In Smith v. Under Armour, Inc., 2008 WL 5486764, web payment confirmations displayed on-screen are not "printed" within the meaning of the Fair and Accurate Credit Transactions Act. Accord Smith v. Zazzle.com, Inc., 2008 U.S. Dist. LEXIS 101050. See generally this Proskauer recap. In Saulic v. Symantec Corp., a California law prohibiting data collection with credit card sales was held inapplicable online.

* Sudduth v. Donnelly, 2009 WL 918090 (N.D. Ill. April 1, 2009). Plaintiff got stiffed on his eBay transaction and sued eBay for 1983 equal protection and conspiracy claims as well as a Title VI civil rights claim. Because eBay isn't a state actor, however, the court dismissed eBay.

* My colleague Steve Diamond is blogging every detail of the battle for SAG's soul over at his new blog, King Harvest. For example, he summarizes the travails of the Screen Actor's Guild.

* Oddee: 10 Geekiest T-Shirts. I own a t-shirt that says "I'm Blogging This" (a gift from a former student) and a mug that says "Vegetarian Blogger" (gift from a colleague).

* Oddee: 15 Most Unfortunate Town Names. I think Licking County should have been a contender.

* Is there any better sign of Cyberlaw's maturity than the publication of Internet Law in a Nutshell? [Amazon Affiliates link]

* Oddee: 12 Most Ridiculous Lawsuits. I welcome your nominations for the most ridiculous Internet lawsuits of all time. I hope to write that up some day.

* Happy birthday, Gmail! Best email software I've ever used. The battles over Gmail privacy seem so...2004!

Free Stuff

* The Ninth Circuit recently updated its website...with RSS feeds!

* Nolo Press' "NDAs for Free." Potentially useful site.

* I have one extra copy of my Fall 2008 Cyberspace Law course reader. First person to send an email with their mailing address gets it. [CLAIMED]

Posted by Eric at 12:03 PM | Adware/Spyware , E-Commerce , Licensing/Contracts , Privacy/Security , Trade Secrets , Virtual Worlds | TrackBack

March 30, 2009

CLRB Hanson v. Google Preliminarily Settles for $20M

By Eric Goldman

CLRB Hanson Industries v. Google, 5:05-cv-03649-JW (settlement papers filed March 26, 2009). The new case filings:
* The settlement motion
* The settlement agreement
* The proposed court order granting the settlement

My previous blog coverage of the case:
* my initial post from August 2005
* the August 2007 determination that advertisers were bound by the AdWords contract
* the May 2008 initial refusal to grant summary judgment to Google
* the December 2008 second refusal to grant summary judgment to Google

The long-running CLRB Hanson v. Google case (also referred to as the Howard Stern case because he is a named plaintiff), over Google's alleged mishandling of budget caps set by its advertisers, has reached a proposed settlement. The settlement needs court approval, but I would be surprised if that didn't occur in due course. Individual advertisers could choose to opt out of the settlement and pursue individual claims, but I expect few will find it economically rational to do so. In the extreme case, the deal could unravel if more than 5% of advertisers opt out of the class, but I would be shocked if this happened. As a result, I expect this development to substantially resolve the case.

The stated settlement price tag is $20M of cash. Plaintiffs' counsel are likely to get $5.25M, the named plaintiffs are likely to get $20k each, and the $14.7M balance will go into a bank account. Google will provide AdWord credits for affected advertisers who are still advertising and have a balance due to Google, and Google will get cash back from the pot for any actual credits given to advertisers. It is unclear how much of the $14.7M Google will recoup this way. Or, advertisers can opt to receive cash instead for their putative harms. If less than $200k is left over after all this, the money will go to charity. If more than $200k is left over, the parties will go back to the judge to propose how to reallocate the remaining money to the class.

in my previous post on the case from December 2008, I wrote:

I suspect the case is still around because the parties can't work out a deal on the attorney's fees--which, if this situation is anything like the click fraud cases, almost certainly will dwarf any actual monetary relief received by the putatively injured advertisers. If the parties can work out the plaintiff attorneys' cut of the spoils, I'm confident this lawsuit will settle before trial

Seeing the size of this settlement, I'm not sure I called it right. Given the fairly narrow advertiser harms left open by the judge's prior rulings, I expected the advertiser relief to be nominal (certainly less than $15M). Furthermore, unlike prior advertiser v. search engine lawsuits where advertiser credits were use-it-or-lose-it, Google could be out much of the $20M no matter what. In the end, Google probably will pay a lot more cash than I expected it would have to.

While Google can easily afford the dough, the settlement is a big enough sum to potentially attract further class action lawyers seeking their piece of the Google fortune. Contrast this with Google's stance on patent lawsuits, where it has taken a hard line on settlements with the hope that its refusal to buy out lawsuits will discourage future weak patent claims from being asserted against it. However, the plaintiffs in this case had to work pretty hard--Google fought them for nearly 4 years--so it's possible that the actual economic return for the plaintiffs' lawyers for their four years of labor wasn't especially lucrative.

I have lost track of the many lawsuits against Google, but I believe this settlement ends the 2005-era advertiser v. Google class actions. There may still be some individual click fraud claims, and there are other advertising-related lawsuits still pending (such as the Vulcan Golf and related/copycat lawsuits). Let's hope this means that Google has improved its ability to keep advertisers happy.

Posted by Eric at 06:46 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

February 20, 2009

Facebook User Agreement Imbroglio Recap (and Some Comments of My Own)

By Eric Goldman

I didn't have a chance to blog on the Facebook user agreement amendment flap in real-time, but now that Facebook has rolled back its amendments and everyone is catching their breath, the Monday morning quarterbacking is proceeding in full earnest. Some of the articles that caught my attention:

* CNET News.com: "Facebook's about-face: Change we can believe in?"

* InternetNews: "Experts: Facebook Must Rethink TOS Stance"

* EFF: "Facebook's reaction is a tremendous victory for its users." I guess that's true, in the way that getting back to zero at a casino sometimes can be considered a win.

* Bill McGeveran powerfully (and with irony) demonstrates that Facebook's terms weren't all that unusual. Et tu, Consumerist?

Some of my own observations:

* When you're a high-profile company living in the media fishbowl like Facebook, there is no such thing as a minor amendment to your user agreement.

* Facebook's amendments--and the news reports about them--were confusing for two independent but often correlated problems. First, lay readers often misread user agreements, especially broad license grants that users mistakenly read as statements of ownership. This is a well-known and long-standing phenomenon; see, e.g., the flap over GeoCities' user agreement from a decade ago. So initial news reports on Facebook's amendments were garbled and perhaps overly dramatic.

Second, Internet lawyers often draft user agreements using legalese in ways that make the agreements indecipherable to lay readers...and, not infrequently, to other lawyers. Having drafted a lot of them in my life, I'm a pretty sophisticated reader of user agreements, yet it took me a fair amount of time to parse Facebook's license terms to figure out what they were saying--and, even then, I wasn't quite sure. In particular, the "perpetual" and "irrevocable" terms in the license agreement were in seeming conflict with Facebook's promise in the same license grant to honor a user's privacy settings. In other words, if a user can set the configurations to remove content from Facebook's purview and Facebook will honor those instructions, then how is Facebook's license grant irrevocable? Unless I'm missing something big, this looked to me like a drafting error by Facebook. (And check out Nancy Kim's op-ed identifying this exact issue--in March 2008).

This suggests a drafting lesson we might internalize from Facebook's hassles (Jonathan Zittrain makes a complementary point). We as Cyberlawyers are used to parroting the exact words from the applicable statutes and caselaw because it seemingly increases the precision of the agreement, but frankly I think Facebook and other Internet companies would do a whole lot better--both legally and in the court of public opinion--if it junked the legalese and actually tried to write license grants in real English.

* Partially obscured in the haze is the lurking question of whether Facebook can unilaterally amend its user agreement without providing any notice to users. I don't even see this as a close question. From my reading of the precedents, I think the answer is pretty emphatically NO, both as a matter of contract law (and see more; but compare MySpace v. theglobe.com) and FTC law (see, e.g., the Gateway Learning case). Without a doubt, I wouldn't want to be Facebook trying to defend the new incremental changes in court.

* I got a few inquiries about whether a lawsuit against Facebook would have been successful. As Ethan explained recently, there may be unexpected hurdles to any such lawsuits.

* Now that Facebook has stirred the hornet's nest, it's not clear that they can simply roll back to the prior version of the user agreement and put everyone back in the happy apple. Instead, having called attention to its licensing policies, Facebook will be lucky if the pre-amendment terms survive as those undergo critical and jaundiced scrutiny from users. David Kirkpatrick touches on this.

* No matter how Facebook resolves its agreement, this episode has been damaging to its trust relationship with its users. It gives users yet another reason to question whether Facebook is a site we can trust. For users who lived through the Newsfeed and Beacon episodes, this may be a three-strike situation. For others, the fracas is yet another wedge in the users' relationship with Facebook. Trust is hard to earn and easy to lose.

Having said that, in the past couple of quarters, Facebook has been riding a strong network effects bull and seeing remarkable growth DESPITE Beacon. So Beacon clearly did not destroy users' trust in Facebook. At the same time, if users fall out of love of Facebook due to loss of trust, they will scale back their involvement with Facebook, which ultimately could negate the network effects benefits they are currently experiencing. IMO, this is the real risk created by Facebook's highly publicized problems.

Posted by Eric at 08:57 AM | Internet History , Licensing/Contracts , Privacy/Security | TrackBack

February 06, 2009

2008 Cyberlaw Year-in-Review

By Eric Goldman

It's a sign of my schedule that I'm just now getting to this, and this post will be more pithy than I initially conceived. This post recaps some of the Cyberlaw highlights from last year. Frankly, the two biggest stories of 2008 were the financial markets meltdown and the ascension of President Obama, neither of which have a lot of Cyberlaw angles. In light of those big developments, Cyberlaw in 2008 was comparatively quiet. However, there is still plenty of interesting developments to revisit.

Broad Themes

A few broad themes emerged last year:

* Ludicrous trademark claims. 2008 hardly had a monopoly on dumb trademark claims; those are perennial. But 2008 certainly saw some asinine entries, including putative Cyberlawyer Eric Menhart's claim to own a trademark in the term "Cyberlaw," Jones Day's efforts to claim that a web page referencing its name as the employer of some homebuyers violated its trademark rights, and putative Cyberlawyer John Dozier's claim that if his name is used as anchor text, the link must go to his website or it violates his trademark right.

* This was a good year for expansive readings and applications of user agreements. Some examples:
- the Lori Drew prosecution, where Lori was convicted of violating an agreement that someone else clicked through.
- Jacobsen v. Katzer, where a user of copyrighted material is bound by a contract that he/she never clicked through at all.
- AV v. iParadigms, where kids were not allowed to void a user agreement despite their status as minors (and despite the fact that some of them had no meaningful choice about whether or not to consent).
- JuicyCampus enforcement action, where the New Jersey Attorney General's office tried to treat a negative user behavioral restriction in a user agreement as an affirmative marketing representation that such user behavior would not occur on the site.

* One of the long-standing Cyberlaw memes is that websites must either be passive conduits to avoid liability or active editors to manage their liability, but if a website chooses the latter, the website is liable for any editorial mistakes. That is, if the website edits its site but misses something, it's fully liable for what it missed. This simply isn't true under 47 USC 230, which allows websites to choose to be passive, active or anything in between without varying liability. In the IP context, this passive v. active meme has had more traction, but 2008 saw two solid cases suggesting that if a website tries to police its premises and fails, courts will be sympathetic and excuse any omissions. Example #1: Tiffany v. eBay, where the court gave eBay extra credit for its VeRO program as a basis to excuse any counterfeit goods that slip through. Example #2: Io v. Veoh, where the court was more willing to excuse Veoh because it had undertaken extra policing efforts than was required for the 17 USC 512 safe harbor. Finally, although not an IP case, the court in Cisneros v. Yahoo also lauded search engines for their affirmative efforts to block gambling ads, which the court acknowledged was a hard challenge.

* Despite some adverse rulings early in the year, punctuated by the Ninth Circuit's en banc ruling in Roommates.com, the 47 USC 230 immunization is still extremely robust. We saw a number of expansive and pro-defense rulings per 230 throughout the year, including Craigslist, Doe v. MySpace, Cisneros v. Yahoo and Goddard v. Google. Perhaps more importantly, in the three 230 cases I've seen since Roommates.com that cited to the opinion, all three cited the opinion in ruling for the defense.

* Battles over keyword advertising are hardly over, even though Utah officially backed off its attempt to ban them. The ABA IP Section tried to get into the act, and American Airlines sued Google, settled, and then sued Yahoo.

Top 11 Cyberlaw Developments of 2008

#11: Utah Trademark Protection Act repealed. The Utah Trademark Protection Act had the potential to throw the entire keyword advertising business into turmoil. Instead, now that it's repealed, it just remains as a dramatic reminder of the Utah legislature's incompetence regarding Internet legislation.

# 9 and 10: Fair Housing Council v. Roommates.com and Goddard v. Google. The Roommates.com en banc opinion makes the list based mostly on its potential consequences, not its actual effect. It remains one of the most significant pro-plaintiff incursions into the solidly defense-favorable interpretations of 47 USC 230, but it's so riddled with contradictory and ambiguous language that no one really knows what to do with it. I think Judge Fogel's reading of the case in Goddard v. Google has the potential to become the defining interpretation of the case, and his solidly defense-favorable reading of the precedent in excusing Google for ads placed by its advertisers may only reinforce how little Roommates.com changed the law.

#8: AV v. iParadigms. This case was a terrific win for online fair use enthusiasts because the for-profit commercialization of a database of third party copyrighted works was still deemed fair use. The upholding of the contract against the minors forced to enter into it was also significant. Before this ruling, my assumption is that any plaintiff trying to form a class action lawsuit in the face of an adverse user agreement could always form the class on behalf of any minors who had the right to void the contract. This case seems to shut down that loophole in user agreement protection.

#7: Io v. Veoh. The 17 USC 512(c) safe harbor has been law for over a decade and has produced a couple dozen rulings, but few are cleaner and more decisive for the defense than this one. It was a textbook example of a court rejecting the many different arguments plaintiffs make to kick a defendant out of the safe harbor, and as mentioned before, it was a great validation for Veoh's decision to do more than 512 required.

#6: Jacobsen v. Katzer. From a doctrinal standpoint, this case raises really difficult questions about how a copyright consumer can be bound to terms that he/she never "assented" to. Even so, this case had huge implications because it effectively validated that open source licenses can be binding on licensees, giving much more legal credibility to the entire multi-billion open source software industry. However, an odd footnote: on remand, the district court denied an injunction for the plaintiff, raising more issues about what exactly the plaintiff won at the Federal Circuit.

#5: Tiffany v. eBay. A fantastic validation of eBay's practices against a very serious and sympathetic challenger who had plenty of evidence that counterfeit goods were being sold on eBay's site. The case also shows that courts can grow tired of IP owners simply making up their own rules about how online sites should protect them and then suing the sites for breaching these artificial rules.

#4: Mazur v. eBay. A more scary case to 47 USC 230 defense enthusiasts than the Roommates.com opinion. The court says that eBay isn't protected by 230 for some of the marketing representations it makes, even if those representations are rendered untrue by third parties. While this makes a lot of doctrinal sense, it is also a green light for plaintiffs to mine a website's marketing representations as a way to bypass the otherwise-fatal consequences of 230 on a lawsuit triggered by user behavior or content.

#3: Google Book Search settlement. This makes the list for two independent reasons. First, many folks were hoping the case would establish solid precedent on online fair use, and the settlement ended that hope. Second, the proposed Book Rights Registry has the potential to reshape a number of major industries, including the book publishing business, the book retailing industry and the library industry.

#2: the Lori Drew prosecution. I think this may have been the most polarizing Cyberlaw development of 2008, exposing deep divides in people's appetite for punishing bad conduct online. It's hard to assess the overall implications of her conviction because no one rallied to praise Lori Drew's choices, and her case is still a ways from a final legal outcome. However, the possible implications of the case were so complex that it took a special three part series for me to explore its nuances (1, 2, 3).

#1: Cartoon Network v. CSC (the "Cablevision" case). Boy, the more I think about this case, the more important it becomes. The case upends our assumption that if we see it online, it's fixed, creating a new class of unfixed electronic works. Also, the court treats the users, not the service, as making the requisite copies, which reinforces the possibility that online providers can be just "dumb technology providers" for copyright law purposes and reinvigorates the possible defense that a service provider's copying is just done as a proxy for its users. However, the Supreme Court's ambiguous response to the cert petition--not yes, not no, but a request to the Solicitor General for comments--leaves this decision in a precarious position.

Other Developments of Special Note

47 USC 230

* Doe v. MySpace. The Fifth Circuit soundly rejects the argument that MySpace had an obligation to police its “premises.”

* Craigslist. Judge Easterbrook's language in Doe v. GTE had given plaintiffs some hope that the Seventh Circuit would provide a friendly venue to plaintiffs trying to overcome 47 USC 230. Judge Easterbrook may still love his language (which he quoted extensively in the Craigslist ruling), but his practical and no-nonsense ruling for the defense squelches the hope that the Seventh Circuit will become a plaintiff's haven.

* New Jersey's enforcement action against JuicyCampus. State AG offices HATE 47 USC 230.

Affiliate Liability

* Impulse Media. A jury thumped the FTC's overly expansive views of affiliate liability for spam.

* NY v. Direct Revenue. A state judge emphatically rejected the NY AG's office's expansive views of affiliate liability for adware.

Trademarks/Domain Names

* American Airlines' lawsuits against Google and Yahoo. No one I know fully understands why American Airlines sued Google for selling its trademarks for keyword ads. No one I know understands what concessions Google gave to American Airlines to settle the case. And no one I know understands why American Airlines decided to sue Yahoo after procuring the Google settlement. It's all a big mystery.

* NSI's grabbing of domain names in response to WHOIS queries. Is there any better example of ICANN's failings to police domain name retailers than to have one retailer selling a scarce good grabbing the good exclusively (blocking attempted sales by all other retailers) when a customer merely inquires about it?

* Kentucky's attempted seizure of 141 gambling-related domain names. As I wrote before, "Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name."

* Eric Menhart, a lawyer who claims to practice Cyberlaw, doesn't know that Cyberlaw is a generic term.

* New gTLDs. Maybe I should reserve this development for 2009...if it happens.

Others

* McCain complains about 512(c)(3) notices taking down his YouTube videos. Surprise! 512(c)(3) notices are unforgiving. Sen. McCain, now that you've had a first-hand taste of their power, maybe you'd like to revisit the statute to see if it's producing the right incentives?

* FCC's bust of Comcast. The pro-regulatory forces were queued up to pounce on any examples where an IAP violated Net Neutrality principles, and Comcast's chicanery in forging reset packets was impossible for anyone to defend.

* NebuAd's flameout. Behavioral ad targeting is in our future unless regulators stop it. NebuAd won't be the winning provider of targeting services, but legislators will keep trying to regulate it further out of existence nonetheless.

Posted by Eric at 05:50 PM | Adware/Spyware , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark | TrackBack

February 05, 2009

Publisher Promising "Visitors" Owes "Visitors," Not "Unique Visitors"--WebMD v. RDA

By Eric Goldman

WebMD, LLC v. RDA Intern., Inc., 2009 WL 175036 (N.Y. Sup. Ct. Jan. 6, 2009)

It's been a while since I've blogged about a lawsuit between an Internet publisher and advertiser, so you may enjoy this one. RDA placed a series of advertising orders with WebMD, including one order where WebMD promised "36,000 visitors" to an RDA website. RDA eventually stiffed WebMD to the tune of $350k, which is enough outstanding cash to get WebMD into court for a collections action. Once there, RDA argued that WebMD failed to perform the contract because the contract required 36,000 unique visitors and WebMD only delivered 70-80% of this number.

Most of us in the Internet advertising business immediately scoff at RDA's argument. Everyone in our industry knows that "visitors" and "unique visitors" are two very different things, and that if the parties actually meant "unique visitors," they would have said so. The court efficiently reaches this conclusion as well, saying that the term "visitors" is unambiguous and "If defendant wished to be guaranteed “unique visitors” to the site, it should have specified such in the agreement." Even if the term were ambiguous, the court still isn't sympathetic, in part because the advertiser never complained about the invoices while the parties were still in a relationship. (And, as we know, advertisers will complain if they think the deal isn't performing to their expectations!!!)

Two practice pointers from the case. First, it's critical to precisely define the metric for computing payment in advertising contracts. Often, when I'm asked to look at Internet ad contracts, I'm sent the T&Cs but not the actual IO where the payment metric for the particular ad deal is specified. That's one of the most important aspects of an ad contract, so as a lawyer, we really need to get our hands on the IO business terms in addition to the T&Cs. Second, the opinion doesn't mention any clause in the WebMD contract that WebMD's numbers control for calculation purposes. (The clause might have been in the contract, but it wasn't referenced in the opinion). Even if the court won't enforce those clauses verbatim, they can still be extraordinarily helpful in tipping any ambiguities in favor of the publisher and against the advertiser when the parties dispute the numbers.

HT: Ken Adams, who thinks that "visitors" is ambiguous. His example shows how it could be in some contexts, but it's not ambiguous in this context. Ken, in turn, links to the ContractsProf post.

Posted by Eric at 05:55 PM | Licensing/Contracts , Marketing | TrackBack

January 23, 2009

The [Non]enforceability of Privacy Promises--Pinero v. Jackson Hewitt

A recent court case reiterates that privacy policies aren't the be-all, end-all panacea for protecting online privacy.

By Ethan Ackerman

One of the main arguments against a federal online privacy law has been that website privacy policies were a self-regulatory solution that was more than sufficient, permitted more flexibility, and bound parties as surely as any federal law. Real-life court cases continue to suggest the contrary.

From mid-90s FTC staff decisions to "encourage self-regulation" to the 1998 formalization of a Clinton administration e-commerce policy framework to the extension of this policy through both terms of the G.W. Bush Administration, "self-regulation" of online privacy has been the policy of the executive branch of the federal government. Similarly, "self-regulation" has been the primary card played (the 10 of spades?) against Congressional attempts to pass federal online privacy regulation, successful in stalling any legislation on the issue since at least the 106th Congress. Online industry lobby groups still emphasize that "self-regulation" is the only needed enforcement, and online privacy advocates cite self-regulation's failures for the 'decade of disappointment' in internet privacy.

Meanwhile, outside of the policy debates, online activity has exploded, along with the collection and use of personal information online. Putting aside the real challenge of discovering unacceptable uses, sometimes that collection and use (or misuse) is egregious enough that someone sues over it. As the recent case of Pinero v. Jackson Hewitt Tax Service shows yet again, actual monetary damages matter more than egregiousness.

Ms. Pinero discovered that a Jackson Hewitt Tax Service licensee that prepared her taxes had breached its privacy policy when a local news station contacted her and provided her with her prior year tax returns, discovered in a public dumpster along with the returns of more than 100 other Jackson Hewitt clients.

Mindful of the increasing body of cases that have refused to find damages in the mere breach of protective statutes, violations of privacy policies or unlawful disclosures of personal records, Ms. Pinero's attorneys alleged specific factual emotional, physical, and economic damages in their suit. Those damages weren't good enough under the applicable state law, according to U.S. District Judge Sarah Vance. Specifically, the judge found that the plaintiff suffered no direct pecuniary damage from the breach - a heightened risk of future loss or steps taken to mitigate that loss weren't enough under Louisiana law for a negligence or breach of contract claim.

Above and beyond my brief summary, the opinion is worth a read in greater detail. The judge's detailed discussion of the pleadings reveals much work on this case. The pleading drafters clearly went to great effort to avoid precisely this outcome, claiming damages of several types with a great deal of specificity and carefully formulating claims under a variety of different statutes and causes of action, including a Consumer Protection Act and database breach statute claim. Judge Vance addresses each claim and the surrounding caselaw in good detail as well, providing scant room for a reversal on appeal by leaving every issue addressed.

The takeaway? As Eric has worried in the past, there may be no effective customer legal recourse against companies that breach their privacy policies.

[Eric's comment: we've seen a long list of situations where plaintiffs suffered some privacy invasion but were unable to obtain any legal recourse. Ethan links to the JetBlue case (which remains remarkable to me to this day), and we've blogged on others as well (see, e.g., the Acxiom and Key cases). In general, I think these opinions have often reached a sensible and pragmatic result that a privacy invasion may lead to no tangible losses, so damage awards may overcompensate the victim or overdeter the defendant. However, providing no damages awards--especially when a company breaches its self-selected promises--may under-deter and reward companies for overpromising and underdelivering. This case seems especially odd because the complaint contained allegations of specific tangible harm. Maybe we don't believe the allegations, but normally they ought to be heard.

At the same time, I fear the policy-makers may overreact to this situation by creating statutory damages. Those solve one problem (the courts' balking at plaintiffs that have no obvious damage) but create another, (IMO) much bigger problem of motivating plaintiffs and their lawyers engage in litigation frenzies with low-merit lawsuits. We've seen a lot of wasted motion in the spam context from people chasing statutory damages, and I shudder to think about the tax on our economy if we ever created a statutory damage for generalized privacy violations.]

Posted by Ethan Ackerman at 09:47 AM | Licensing/Contracts , Privacy/Security | TrackBack

January 16, 2009

AOL Loses Venue Selection Dispute in Ninth Circuit Due to an Unfortunate "Of"--Doe 1 v. AOL

By Eric Goldman

Doe 1 v. AOL LLC, 2009 WL 103657 (9th Cir. Jan. 16, 2009)

This is one of several lawsuits against AOL over AOL's 2006 posting of a database of improperly anonymized search queries. This particular lawsuit was brought by AOL members in California and alleges a variety of federal and state law claims against AOL.

AOL defended based on its venue selection clause in its member agreement, arguing that the contract required the lawsuit to be brought in Virginia. AOL has had a lot of success with its venue selection clause over the years, but it has had some prominent failures as well. One of those is America Online v. Superior Court (ex rel Mendoza) from 2001, in which a California appellate court struck down AOL's venue selection clause on public policy grounds because Virginia law did not provide adequate relief to California consumers--because, among other things, Virginia state courts do not permit class action lawsuits.

The Mendoza case was part of a broader judicial trend against online user agreements over the past decade. We've seen them fail for unconscionability, public policy and other reasons, making the successful drafting of such clauses tricky. Collectively, I think these cases have established pretty clearly that a venue selection clause designed to suppress class action lawsuits has a high risk of failure and, in California, is presumptively unenforceable.

What isn't clear to me is what, if anything, AOL did to modify its member agreement's venue selection clause in response to its Mendoza defeat. As a result, I can't tell if this court is interpreting the same contract language as was presented to the Mendoza court. But in all other respects this case is extremely similar to Mendoza: the plaintiff initiated a class action lawsuit in California, AOL defended on its venue selection clause to force the case back to Virginia, and the court is confronted with the public policy implications. Thus, if AOL did change its contract post-Mendoza, it didn't get the desired results, because it suffers another defeat here.

It appears that if the case could be heard in Virginia federal court, the class could form and the clause would not necessarily fail; but if the clause only permits Virginia state court, this is Mendoza redux and AOL loses. As a result, the court tries to figure out which venue the member agreement language specifies. AOL's agreement designates the exclusive venue as "the courts of Virginia." The court parses the grammar of the word "of" and looks at other precedent analyzing "the courts of [state]" and concludes that this language selects only Virginia state court. Because a California appellate court (the Mendoza court) had already said that Virginia state court isn't an acceptable choice for a putative class action of California consumers, the Ninth Circuit has no choice but to toss the venue selection clause.

This raises an obvious drafting point: courts are reading venue clauses specifying the venue as "state of X" to mean only state courts in the designated state, so don't use that grammar unless that's what you intend. I'm sure that most drafters using "state of X" language instead mean the parties can litigate in either federal or state court in that venue, but that's not the way courts are reading it. Accordingly, I think it would be prudent to avoid the "courts of X" grammar altogether, which isn't hard to do. Personally, I normally say "courts in X" (as opposed to "courts of X"). I would have to research the precedent interpreting that grammar (this case has made me a little nervous), but the "in" grammar should pretty clearly avoid the analysis in this Ninth Circuit opinion. Another alternative would be to expressly reference both federal and state courts as options; I've seen this language frequently, although I've previously thought that was unnecessarily wordy. Maybe it isn't.

Posted by Eric at 01:29 PM | Licensing/Contracts , Privacy/Security | TrackBack

January 06, 2009

Oracle v. SAP Updates--Third Amended Complaint, Motion to Dismiss Ruling, SAP's Latest Answer

By Eric Goldman

There have been some recent developments in the high-stakes and complicated Oracle v. SAP lawsuit.

In October, Oracle filed its third amended complaint whereby it expanded its efforts to show that SAP America and SAP Germany were both responsible for the actions of SAP America’s TomorrowNow subsidiary, which SAP has already admitted engaged in impermissible practices. The third amended complaint is supported by lots of facts that only millions of dollars of discovery can buy. The complaint a long read and still has too much PR hyperbole about how Oracle is so much better than SAP, but I thought the complaint did a good job arguing that the parent companies were more involved with the rogue subsidiary than mere stockholdership. At the same time, Oracle does look like it will have a damper on some of its copyright claims—it acknowledged that it lacks copyright registrations for many of the copied files, and it made some copyright filings as part of the lawsuit that probably will be too late to create eligibility for statutory damages. This probably means that Oracle won’t get to inflate the final damages calculation as much as it would like.

On Dec. 15, the judge ruled on SAP’s partial motion to dismiss. The ruling cleans up the case a bit but doesn’t really affect the substance of the case. Personally, I was a little confused about the ruling on copyright preemption of the breach of contract claim. The court denied the motion to dismiss the contract claim “except as to the extent that the state law claims are based on the alleged copyright infringement – in which case the parties agree they are preempted by the Copyright Act. SAP does not dispute plaintiffs’ assertion that the TAC alleges other actions (fraud, unauthorized use, and harm to private contractual rights and expectations) that form the basis of the state law claims, and which are not preempted by the Copyright Act.” Did the court say that a breach of contract can’t be based on acts that would constitute a copyright infringement? We know that would be wrong.

On Dec. 30, SAP filed its answer to the third amended complaint. Just like it did with its first answer, which it released so that the news would effectively break on the obscure newsday of the July 4 holiday, SAP once again tried to bury its news by releasing it so that the news would break on a holiday (this time, New Years). Oh please! You’re not fooling anyone with your bogus PR shenanigans, SAP.

Not surprisingly, SAP is blaming its TomorrowNow subsidiary for all misconduct--which is convenient, because SAP has already shuttered TomorrowNow, so it has nothing more to lose if it can contain the lawsuit to the subsidiary.

I must say that the overall picture doesn't look good for SAP. I am skeptical that they will emerge unscathed from this lawsuit. However, I’m still not clear what Oracle wants from SAP. It’s in the driver’s seat, so it should be able to dictate terms. What would it take for Oracle to move on? It may be that keeping the case open is hurting SAP in the marketplace, such as by spooking SAP's potential customers, so Oracle may be happy to let the case linger. Otherwise, it seems like Oracle should have enough information to state a price, and I’d like to think SAP would be prepared to write a reasonable check.

Posted by Eric at 10:12 AM | Copyright , Licensing/Contracts | TrackBack

December 30, 2008

Doe v. SexSearch Affirmed by 6th Circuit, But Not on 230 Grounds

By Eric Goldman

Doe v. SexSearch.com, 2008 WL 5396830 (6th Cir. Dec. 30, 2008)

I previously summarized this case as follows:

Defendants operate a website that helps people hook up to have sex. Roe posted a profile saying that she was 18 and wanted sex. After Doe connected with Roe via the profile, they met offline at Roe's home and had "consensual" sex. But Roe was actually 14, and Doe was busted for felony statutory rape. Doe turned around and sued the website on 14 counts, which the court summarizes as claims that "(a) Defendants failed to discover Jane Roe lied about her age to join the website, or (b) the contract terms are unconscionable."

In August 2007, the district court dismissed the case. Frankly, I always thought this should be an easy case for the reason articulated by the district court judge: "Plaintiff clearly had the ability to confirm Jane Roe’s age when he met with her in person, before they had sex, yet failed to do so." But fitting the claim into legal doctrines is trickier, and the district court relied on both 47 USC 230 and substantive contract/marketing law to dismiss the case.

On appeal, the defendant fared no better, and the Sixth Circuit has little trouble dismissing the case. However, the Sixth Circuit disavows the district court's 47 USC 230 discussion:

we do not reach the question of whether the Communications Decency Act provides SexSearch with immunity from suit. We do not adopt the district court’s discussion of the Act, which would read § 230 more broadly than any previous Court of Appeals decision has read it, potentially abrogating all state- or common-law causes of action brought against interactive Internet services.

The court instead dissects the substantive contract and marketing law claims one-by-one (all 14 of them) to show why none of them were valid. The opinion is a pithy read, so if you're interested in seeing how an online contract survives a multi-front attack, check it out. I did get a chuckle out of the part when the court explains why the contract's dollar cap wasn't unconscionable: "Given the nature of the service, which encourages members to meet in person for sexual encounters, SexSearch’s potential liability is nearly limitless. For example, arrest, diseases of various sorts, and injuries caused by irate family members or others may be the result of such hedonistic sex. When selling such services, then, it is commercially reasonable for SexSearch to limit its liability to the price of the contract."

It's easy to see why the Sixth Circuit was troubled by the 230 issues in this case. This case involves a knotty question that has become a blog perennial: when is a website liable for its marketing representations that are rendered false by user content or actions? In this case, the website said in a variety of ways that users were over 18, but it never authenticated users' ages, and Roe affirmatively lied about her age. As I've mentioned before, this creates a legal conundrum--on the one hand, websites should be responsible for the marketing representations that they choose to make; but on the other hand, this can open up a bypass to 230 as plaintiffs use the marketing representations as a proxy to hold websites liable for third party content. I'm disappointed the Sixth Circuit didn't decide to tackle this issue head-on, but I understand why they chose to sidestep the issue and make clear that they weren't ratifying the district court's rationale.

I noticed that the court also doesn't mention Doe v. MySpace, the recent Fifth Circuit 230 opinion also involving online hook-ups leading to offline statutory rapes. That case turned on a negligence-style "premises liability" theory rather than a breach of contract/false marketing representation theory, but the Sixth Circuit could have tried to equate the two if it wanted (especially in its discussion about "failure to warn").

So, where does this ruling leave us? This ruling, along with the Goddard opinion from earlier this month, reinforces that plaintiffs trying the breach of contract/false marketing representations workaround to 47 USC 230 still have to establish their prima facie substantive case or they will be dismissed (in this case, on a 12b6 motion). Plus, numerous district court cases still hold that 47 USC 230 applies to false marketing representations, including the Mazur and Friendfinder cases from earlier this year. So I think the news remains very, very good for defendants. Nevertheless, I remain confused about the precise boundaries between 47 USC 230 and breach of contract/false marketing representations, and clarity will have to wait until 2009 (or beyond).

Unless something really big happens in the next 36 hours, I'll see you in 2009. Happy new year!

Posted by Eric at 09:53 AM | Derivative Liability , Licensing/Contracts , Marketing | TrackBack

December 17, 2008

Google's Latest Attempt to Kill the CLRB Hanson Lawsuit Fails

By Eric Goldman

CLRB Hanson Industries, LLC v. Google, Inc., NO. C 05-03649 JW (N.D. Cal. Dec. 16, 2008)

CLRB v. Google is the long-running lawsuit (3 1/2 years and counting) over Google's adherence to advertising limits that advertisers set in Google AdWords. I have blogged on the case several times, including:

* my initial post from August 2005
* the August 2007 determination that advertisers were bound by the AdWords contract
* the May 2008 initial refusal to grant summary judgment to Google

Over the course of the litigation, the court has substantially narrowed the scope of claimants who have a potentially viable claim against Google to just three groups: advertisers of less than 1 month, advertisers who ended their campaign in a partial month, and advertisers who paused their campaign. Seemingly undaunted by the May 2008 ruling denying summary judgment to squash these three groups, Google again sought summary judgment on narrower grounds. Maybe Google thought it had a real chance of winning this second attempt at summary judgment, but it smelled a little "hail mary" to me. Thus, perhaps not surprisingly, Judge Ware rejected the motion and reiterated that summary judgment isn't appropriate (at one point saying, with a hint of frustration, "Defendant appears to be attempting to re-litigate an issue decided in the May 14 Order").

As a result, it appears that at least some aspects of the case appear destined for a trial--which, as far as I can recall, would be the first US trial on Google's AdWords practices. Fortunately for Google, the class is so limited that Google's damages exposure should not break the bank even if it loses badly at trial. Normally cases with light damages would settle, but I suspect the case is still around because the parties can't work out a deal on the attorney's fees--which, if this situation is anything like the click fraud cases, almost certainly will dwarf any actual monetary relief received by the putatively injured advertisers. If the parties can work out the plaintiff attorneys' cut of the spoils, I'm confident this lawsuit will settle before trial.

Posted by Eric at 05:38 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

December 16, 2008

Lori Drew Conviction Reflections, Part 3 of 3: Lessons for Cyberlawyers Drafting User Agreements

By Eric Goldman

[Note: this is Part 3 of a special 3-part series on the Lori Drew conviction. Part 1 discussed why MySpace, the putative victim of Lori Drew’s crime, might end up regretting the conviction. Part 2 discussed some problems with holding Lori Drew responsible for a contract she never clicked through. This post concludes the series.]

Last week, I went to my first CLE conference for Cyberlawyers since Drew’s conviction, and the conference included panels about online contract drafting. Given that Drew’s conviction was based on MySpace’s user agreement and contract formation process, I expected some discussion about the case’s implications. Instead, I was very surprised that the panels had no discussion about the lawyer’s role in drafting MySpace’s contract or any lessons we as Cyberlawyers should take from her conviction for drafting future contracts. The materials were identical to the discussion we would have had before the conviction.

Personally, I think this is a huge oversight. We as Cyberlawyers cannot lose sight of the social responsibilities that complement our client responsibilities. And as this case illustrates, when we draft overly expansive contract restrictions in online user agreements, we may be unwittingly turning many or all of our clients’ users into criminals. Not only is criminalizing our clients’ customers users potentially bad for their businesses, but it is irresponsible—and unnecessary.

The problem is particularly acute for user behavior restrictions that the service provider never plans to enforce. As has been pointed out elsewhere, a contract restriction saying that "kids under 18 cannot use the website" has no legal meaning (it’s designed to deal with the voidability of contracts with minors, although this might be less of an issue than we thought), but it potentially criminalizes any minors who ignore the language. Similarly, a restriction on creating accounts using false registration information might be handy in those rare cases when the service provider is chasing spammers who create bogus accounts, but it also potentially criminalizes many users who legitimately might not want to tell the complete truth to the website during registration. Thus, while there might be some limited circumstances where these clauses are appropriate, for the most part we need to dump these overly expansive behavioral restrictions from our toolkits.

Based on the Lori Drew conviction and other recent developments, such as the JuicyCampus enforcement action, I have two recommendations for how Cyberlawyers should draft user agreements in the post-Lori Drew conviction era.

Use Generalized, Not Specific, Behavioral Restrictions

First, user agreements should rely more heavily on generalized permissive statements like “the website may terminate users at any time in its sole discretion” instead of laundry lists of prohibited user behaviors. Historically, unrestricted termination clauses were considered troublesome because they were cited against Napster as satisfying the “right and ability to supervise” prong of vicarious copyright infringement. However, we have since learned that Napster was an aberrational case and it would be foolish to try to change our in-the-field practices based on the case. At this point, I see no clear legal downside to using a generalized termination right, and it obviates the need for long, ambiguous, thesaurus-driven behavioral codes.

Alternatively, liquidated damages provisions can deter unwanted behavior without establishing negative covenants. For example, MySpace’s anti-spamming liquidated damages clause paid off big for MySpace in its lawsuit against theglobe.com.

Move Behavioral Restrictions to a Separate Community Norms Document

Second, behavioral restrictions that do not need to be specifically barred in the user agreement can be moved into a separate statement of community norms/standards. This way, users are told what they can do and not do, but the statement does not have the force of law. Ideally, other users can be given tools to help them enforce the community norms. Even better, the norms can be posted on a wiki so that the site’s users can help update them as the site’s community evolves.

This community norms approach has at least three benefits. First, because the norms aren’t part of the agreement, overzealous prosecutors can’t use them as a basis of prosecution, so the site avoids unwittingly criminalizing its users. Second, if the norms are phrased right, overzealous plaintiffs cannot argue that the negative restrictions are implicit marketing representations that such user conduct will not take place on the site. This will squelch analytically corrupt claims like the ones advanced by the New Jersey’s attorney general office against JuicyCampus. Third, a separate non-legal document may be a more effective tool to communicate site expectations than embedding those rules in a user agreement that no one will read (all statistics I’ve seen indicate that well less than 1% of users read user agreements).

I realize it’s unlikely Cyberlawyers will enthusiastically change their drafting techniques in response to the Lori Drew conviction. If nothing else, I find contract drafting attorneys tend to ossify their techniques; plus a number of forces conspire to push drafting attorneys to make longer and meaner user agreements. But at the same time, I think it would further compound the tragedies of Meier’s suicide if we don’t internalize the message that our user agreements are being used to try to send people to jail, whether we intend that or not.

Posted by Eric at 09:26 AM | Licensing/Contracts | TrackBack

December 15, 2008

Lori Drew Conviction Reflections, Part 2 of 3: Who is Bound by Clickthrough Agreements?

By Eric Goldman

[Note: this is Part 2 of a special 3-part series on the Lori Drew conviction. Part 1 discussed why MySpace, the putative victim of Lori Drew’s crime, might end up regretting the conviction. Part 3 will discuss some lessons for Cyberlawyers who draft online user agreements.]

From everything I’ve seen, Lori Drew apparently never affirmatively manifested assent to the MySpace user agreement. My understanding is that Drew’s babysitter, Ashley Grills, testified that she, not Drew, created the MySpace account and clicked through the MySpace user agreement. (I understand that the jury disbelieved Grills, although I am not aware of any contrary testimony on this point). Furthermore, I am not aware of any testimony that Grills informed Drew that Grills was accepting the MySpace user agreement on Drew’s behalf or that Grills provided any other form of notification to let Drew know that a contract was being formed--let alone educating Drew about the terms of that contract.

If this is true, then how can Drew be legally connected to the contractual restrictions that she was convicted of violating? Principal-agency doctrines would be one way. If Grills was Drew’s agent, then Grills would have actual or implied authority to bind Drew contractually. However, I am skeptical that Grills was Drew’s agent for contract formation purposes. First, I am not clear about whether Grills was Drew’s employee or was an independent contractor. The latter status would cut off most forms of agency liability for Drew. Second, even if Grills was an employee, it is difficult to argue that entering the MySpace user agreement was within the scope of Grills’ employment, even if it was putatively done at Drew's request.

As a result, I think the only way Grills could bind Drew to the MySpace user agreement was via the apparent authority doctrine. This argument is not completely untenable. For example, in the 2005 Abramson v. AOL case, the plaintiff’s son bound his mother to the AOL user agreement based on his apparent authority to act on her behalf. (The court also said that mom ratified the contract by continuing to use the service knowing of the contract terms). Similarly, an earlier 2004 case, Motise v. AOL (briefly discussed here), held that a stepfather bound his stepson, who shared use of the same computer, to the AOL user agreement.

It should be obvious why the courts have reached these conclusions. After all, if a click on the clickthrough agreement binds only the clicker, but the vendor cannot authenticate the identity of the person who clicked, then online user agreements could be easily defeated by anyone who simply claims someone else using their computer did the clicking. Consider an analogy (I’ve been holding this one as a possible future contracts exam question, but oh well): is a contract formed when a retailer cashier presses the “OK” button on the credit card swiping pad on behalf of a befuddled/distracted customer who is holding up the line? I’ve seen this happen dozens of times, but could the customer renege on the contract because he/she wasn’t the one literally pressing the button?

At the same time, the Abramson and Motise cases both involved family relationships. Although family members don’t automatically have agency authority to bind other family members, judges seeking equitable results would have little discomfort holding family members accountable for their online clicks. In contrast, the Grills-Drew relationship wasn’t familial and therefore not as susceptible to equitable readings.

More importantly, it’s one thing to use apparent authority to uphold a venue selection clause in a civil lawsuit (the only stakes at issue in the Abramson and Motise cases), but it’s quite another to apply that doctrine, or something similar, in the criminal context with the consequences of depriving liberties based on a user agreement the defendant never saw and didn’t affirmatively agree to. Indeed, I am not aware of any evidence that Drew ever learned of any applicable restrictions in the MySpace user agreement or otherwise “ratified” the agreement.

Therefore, based on everything I’ve seen, Grills would have been an appropriate target for criminal enforcement predicated on the MySpace user agreement because she actually clicked through. In contrast, holding someone else legally responsible for that click, especially if they never learned of the contract terms, makes no sense. Convicting them of a crime based on these contract terms is unconscionable.

More generally, the issue of who is bound by a click (other than the clicker, of course) seems like a recurring issue for the future. I’m not sure if we can draw too many insights from Drew’s conviction on this question, but this case—combined with Abramson and Motise—does suggest that courts and juries may take an expansive view of the circle of responsibility for clicks. While this is fantastic news for the sites trying to form these user agreements, in the criminal context, it can be tragic.

Posted by Eric at 11:39 AM | Derivative Liability , Licensing/Contracts | TrackBack

December 12, 2008

Lori Drew Conviction Reflections, Part 1 of 3: Why MySpace Might Regret the Conviction

By Eric Goldman

[As I’ve mentioned before, I think Lori Drew’s conviction is a tragic denouement to an already tragic situation. After thinking more about the conviction, I initially planned to blog some brief additional commentary to my initial post. However, that post grew so long that I decided to split it into a special three-part series. This post, Part 1, explains why MySpace, the putative victim of Lori Drew’s crime, might end up regretting the conviction. Part 2 will address some problems with holding Lori Drew responsible for a contract she never clicked through. Part 3 will discuss some lessons for Cyberlawyers who draft online user agreements.]

On this year’s Cyberlaw exam, I tested students on the federal crimes exception to 47 USC 230. As I’ve thought more about that, I realized that once Lori Drew was convicted of a federal crime, everyone else associated with Drew lacks 47 USC 230 protection if the government decides to prosecute them as well.

As a result, if overzealous prosecutors decided to prosecute any of Lori Drew’s online support vendors—such as, say, her Internet access provider—these additional defendants cannot defend using 47 USC 230. Of course, prosecutors may not be able to establish a prima facie claim against these third parties, but the point remains that companies that normally expect to rely on 47 USC 230 for user behavior now face a new exposure risk.

The most obvious potential defendant who might fear this consequence is MySpace, which facilitated the fateful conversation between Drew/Grills and Meier. However, Drew was convicted of violating the Computer Fraud & Abuse Act, which protects against harms to computer servers. This means that, as a matter of criminal law, MySpace was the victim of Drew’s crime in this case.

It’s easy to forget that MySpace is the victim. First, for a victim of such a high profile case, MySpace has been surprisingly quiet in this matter. I believe MySpace provided some support to the prosecution and made a few public remarks critical of Drew, but overall my impression is that they have tried to avoid public scrutiny of their role in this tragedy. Second, it stretches credibility to believe that Drew harmed MySpace. MySpace is hardly a sympathetic victim; and if anything, given the serious problems taking place on MySpace (1, 2, 3, 4, 5), many Americans probably view MySpace as part of the problem, not a victim.

Ironically, then, MySpace could go from victim in this case to defendant in the next. For example, if any of its users use the MySpace network to commit a similarly de minimis Computer Fraud & Abuse violation against a third party website, MySpace may not be able to invoke the 47 USC 230 shield that it normally depends upon. As a result, MySpace may have to rely on prosecutorial discretion to avoid a high-risk and expensive criminal prosecution. As highlighted by Drew’s prosecution, we all know how comforting that is.

More generally, I realize that the federal crimes exception to 47 USC 230 is underexplored (making it another good paper topic if you’re looking for one). I’ve only blogged on it a few times, including my comments to the SEC anti-linking proposal, the Google and Yahoo settlement regarding gambling ads and civil plaintiffs’ (failed) arguments that civil claims deriving from federal criminal laws are not preempted (they are) (1, 2). I could see why this dearth of material might change: the angst about 47 USC 230’s broad immunization inevitably will put more pressure the immunity’s few exclusions.

(Parts 2 and 3 will follow next week).

Posted by Eric at 02:45 PM | Derivative Liability , Licensing/Contracts | TrackBack

November 26, 2008

Lori Drew Guilty of 3 Misdemeanor Violations of the Computer Fraud & Abuse Act

By Eric Goldman

According to news reports (WSJ Law Blog, LA Times, AP), the jury has declared Lori Drew guilty of "three misdemeanor counts of accessing a computer without authorization." I would like to parse the actual jury verdict form to make sure we understand what the jury actually said. For now, some preliminary observations.

First, the jury verdict is not the last step in the process. For example, the judge could still dismiss the case notwithstanding the jury verdict. Personally, I think it was a mistake for the judge to let this case go to the jury; overturning a jury ruling is always a dangerous move for a trial judge, and it would be especially awkward here for the judge to kick the case out now given the high emotions and heavy press coverage for this case. There could be a retrial (especially on the fourth charge, which resulted in a hung jury). It is also possible the jury verdict could be reversed on appeal. Finally, if none of those occur, a sentence that didn't include jail time would still be a travesty but would still have let the people have their vengeance while reducing the injustice to Drew. So it's hard to assess the meaning of the jury verdict because it's only 1 chapter in a longer story.

Second, I am even more convinced that it was a travesty of justice for the government to bring this case at all. The facts elicited at trial demonstrated the illogic of the government's argument that Lori Drew made unauthorized uses of MySpace's servers, including the facts that:

* Lori Drew did not create the MySpace account at issue (Grills, the babysitter, did--but she got government immunity for testifying against Drew)
* Lori Drew did not click OK to the MySpace user agreement (Grills did)
* Lori Drew did not send the final fateful message (Grills did)
* some of the messages at issue were not even sent through the MySpace network (they were sent through AOL)

These facts severely undercut the government's theories about the Computer Fraud & Abuse Act. They should also frighten each of us who may have broken an online user agreement, intentionally or not, at some point in our lives, by showing how easy it could be to violate the CFAA. The tenuousness of the law's application to the facts reinforced that the real trial was over Lori Drew's moral culpability for Meier's death...though that wasn't supposed to be on trial.

Third, regardless of how this case turns out, I remain frustrated by how pro-regulatory forces are using Meier's death--a tragic but highly anomalous situation--as grist for their pro-regulatory agendas. In particular, the push to legally prohibit "cyberbullying" baffles me. I don't even understand the term, but I do know that we cannot legislate people being nice to each other, online or off, and we don't even try in most offline circumstances. Further, as the expansive interpretation of the CFAA highlights, restrictions against "cyberbullying" could chill many socially beneficial and protected activities. So, I hope we can resist the pro-regulatory temptations. Ironically, a guilty verdict for Lori Drew might have that salutary effect by showing that existing laws can punish "bad" actors, even if legal justice is being denied to Lori Drew in the process.

UPDATES: More coverage: NYT; NYT #2 (news analysis), Christopher Soghoian (pointing out examples of egregious user agreements that convert many site users into criminals).

Private investigators are stressing about this ruling.

Posted by Eric at 01:44 PM | Licensing/Contracts | TrackBack

November 18, 2008

October 2008 Quick Links, Part 2

By Eric Goldman

Spam

* Kramer v. Perez. An Iowa court awards $236M in damages in a spam case. Venkat's comments.

* After the government lost its jury trial against Impulse Media, the court denied Impulse Media attorneys fees.

Contracts

* AT&T put its own emailed notice of amended contract terms into its spam folder. Whoops! Due to spam filters and other automated blocks, it is becoming almost impossible for websites to communicate with their users by email.

* An estimate of the massive "tax" imposed on consumers by reading privacy policies. Of course the financial drain is overstated because many people make a rational decision not to read every privacy policy, plus not every person has to read a privacy policy for marketplace responses to be effective.

* The Blizzard v. MDY WOWGlider case has reached a stipulated damages amount of $6M.

* Pulaski & Middleman, LLC v. Google Inc., 5:2008cv03888 (N.D. Cal. complaint filed August 14, 2008). The Justia page. Yet another me-too lawsuit against Google over serving ads to parked domains and error pages.

* An Israeli GPL enforcement action settled.

Trademarks/Domain Names

* Kentucky v. 141 Domain Names. Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name. More recently, the seizure was stayed.

* Speaking of inappropriate seizures, the Feds are trying to seize the trademarks of the Mongols motorcycle group. DOJ press release. LA Times article.

* Best Western Intern., Inc. v. Doe, 2008 WL 4630313 (D. Ariz. Oct. 20, 2008). Prior blog post in this case. The judge is losing patience: "These filings are wasteful in the extreme. The Court is not a forum for the parties to expend every possible dollar seeking to litigate every conceivable issue, no matter how insubstantial. The Court will no longer tolerate the excesses of this case."

* The Verizon v. Navigation Catalyst Systems domainer lawsuit settled.

* 50 Cent brings yet another questionable lawsuit. (1, 2).

Advertising

* Goddard v. Google Inc., 2008 WL 4542792 (N.D. Cal. Oct. 10, 2008). The case against Google for deceptive mobile phone ads will stay in federal court.

* Eyeblaster, Inc. v. Federal Insurance Co., 2008 WL 4539497 (D. Minn. Oct. 7, 2008). This is a collateral lawsuit to Sefton v. Eyeblaster alleging that Eyeblaster distributed spyware. Eyeblaster tendered the claim to its insurer. This court holds that the CGL policy doesn't apply because the claim relates to software problems, not physical damage to the users' computers. Further the E&O policy doesn't apply because Sefton alleges that Eyeblaster intentionally installed the spyware, bumping Eyeblaster into one of the policy's exclusions.

* Are consumers becoming more tolerant of pop-up ads? For more on consumer acceptance of new advertising formats, see here.

* A big damages award in NetQuote v. Byrd.

Posted by Eric at 06:42 AM | Adware/Spyware , Domain Names , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

November 11, 2008

Lambotte's Click Fraud Lawsuit Against IAC Survives Motion to Dismiss

By Eric Goldman

Lambotte v. IAC/InterActiveCorp, 2008 WL 4829882 (C.D. Cal. Nov. 4, 2008). Initial blog post on the filing of the first complaint.

Lambotte filed this putative class action lawsuit against IAC in May based on alleged click fraud. In July, the court granted summary judgment to dismiss portions of the lawsuit. Lambotte and two new named plaintiffs then filed an amended complaint in September. IAC moved to dismiss. This ruling largely rejects that motion.

The plaintiffs argued that the contract says that IAC would charge for clicks by "users," and reasonable advertisers would assume that "users" are "potential clients" for the advertiser, not bogus clickers. The judge is rightly skeptical of this argument, saying that the plaintiffs' definitions "may not be the most reasonable interpretations." At the same time, California law has a liberal parol evidence rule, so the judge gives the plaintiffs a chance to introduce evidence to support their aggressive definitions. I would be surprised if this claim ultimately prevails, but the plaintiffs can try.

The plaintiffs also argue that the implied covenant of good faith and fair dealing effectively requires IAC to prevent click fraud, and thus IAC breached that obligation. The court, citing In re Yahoo, says that this allegation survives a motion to dismiss.

As with In re Yahoo, this ruling is a win for the plaintiffs because they get to keep litigating the case. However, there remains some basic problems with the plaintiffs' allegations that should ultimately doom the lawsuit. If in fact the plaintiffs do lose the lawsuit, it's unfortunate that everyone had to incur the extra adjudication costs. More likely, if the lawsuit can survive another few rounds, IAC probably cuts a check to end the threat regardless of substantive legal merit.

Posted by Eric at 02:24 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

October 23, 2008

Stockholder Derivative Action Against Yahoo Based on Click Fraud Rebuffed--Brodsky v. Yahoo

By Eric Goldman

Brodsky v. Yahoo! Inc., 2008 WL 4531815 (N.D. Cal. Oct. 7, 2008). The Justia page. Previous blog coverage.

You may recall this stockholder derivative lawsuit against Yahoo alleging that Yahoo hyped its stock prices by overstating its ad business' progress and by inflating revenues through artifices like relaxed anti-click fraud standards. The court has dismissed the complaint with leave to amend, principally on the basis that the plaintiffs have not been specific enough with their allegations. Most of the opinion is rather technical legalese, but I thought the discussion about the click fraud allegations were interesting enough that I've quoted them in their entirety:

Plaintiffs also assert that Defendants made false statements about Yahoo!'s revenues over the Class Period. Plaintiffs allege that Defendants manipulated their click fraud filters and delayed refunds fraudulently to boost revenues. As a result, Defendants' financial statements were overstated by $387 million over the Class Period.

Plaintiffs arrive at the $387 million figure by citing three magazine articles and two press releases. CAC ¶¶ 204-208. Some of these sources estimate that click fraud accounted for ten percent of all pay-per-click revenue in the search industry while other sources estimate the fraud rate as high as thirty-five percent. Plaintiffs adopt the ten percent rate and allege that $387 million of Yahoo!'s $3.878 billion in sponsored search revenue was attributable to click fraud.

Plaintiffs point to the statements by CW 3, CW 6, CW 8, CW 9, CW 10, CW 11 and CW 12 to support the click fraud allegations. For the complaint to survive the pleadings stage, Plaintiffs must describe these CWs' roles in Yahoo!'s revenue recognition process, or whether these CWs had any first-hand knowledge of Defendants' accounting decisions. See In re U.S. Aggregates, Inc. Sec. Litig., 235 F.Supp.2d 1063, 1074 (N.D.Cal.2002) (accounting fraud claim not corroborated by CW statements where “none of the confidential witnesses have any first-hand knowledge of [defendant's] accounting decisions”).

CW 3 worked as an Engineering Manager for Overture until Yahoo! acquired Overture in 2003. After the acquisition, CW 3 worked in the Business Information Systems group at the Overture facility until October, 2004. CAC ¶ 22. CW 3 claims that “Yahoo! decided in late 2004 to ‘relax’ the business rules and filters in the click-fraud detection system.” CAC ¶ 22(d). “CW 3 estimates revenues generated from the relaxation in rules represented approximately 25% of Overture's operating revenue.” CAC ¶ 22(f). CW 3 learned of this rule relaxation from Yahoo!'s Loss Prevention manager. CAC ¶ 22(d). CW 6 was a sales representative for Yahoo! and had regular communication with customers who complained about click fraud. Id. CW 6 noted that “15% of the revenues generated in his/her group was created via click fraud and irrelevant clicks from poor content match.” CAC ¶ 25.

The Court has no basis to determine whether CW 5's or 6's estimates of Yahoo!' s revenues satisfy the pleading requirement under the PSLRA. For CW 5's or 6's statements to carry any weight at the pleadings stage in this action, Plaintiffs must describe their roles in Yahoo!'s revenue recognition process, or whether they had any first-hand knowledge of Defendants' accounting decisions. Also, because CW 3 was not a Yahoo! employee for most of the Class Period, the Court cannot rely on his statements to support claims of false revenue reporting for the entire Class Period.

CW 8 was a Manager of the Overture Loss Prevention organization until February, 2006. CW 8 noted that “there was an effort inside Yahoo! to relax the click-fraud detection standards.” CAC ¶ 27. CW 8 met with Defendant Decker some time after Yahoo! was sued in 2005 for click fraud, and the two discussed click fraud. Id. Through CW 8's statement, Plaintiffs successfully allege that Defendant Decker had general knowledge of the click fraud problem, but Plaintiffs have not shown how CW 8 knows about an effort to relax Yahoo!'s click fraud detection standards, or how CW 8 knows that this effort translated into misstated revenues. Similarly, Plaintiffs have not shown whether CW 8 had any firsthand knowledge of Defendants' accounting decisions. Therefore, CW 8's statements do not support Plaintiffs' allegations of revenue fraud.

*8 CW 9 worked for Yahoo! in the Customer Solutions group from December, 2003 to February, 2007. CAC ¶ 28. Defendant Decker fired CW 9 in 2007, after the Class Period, for mishandling a customer complaint that might have been related to click fraud. Id. CW 10, Engineering Director for Yahoo! until January, 2005, gave Defendant Decker access to the revenue reporting system at the Overture Pasadena facility. CAC ¶ 29. CW 10 observed that Yahoo!'s ability to filter out non-billable clicks was impacted by not having adequate resources, such as enough computer servers. Id . CW 11 worked for Overture and then Yahoo! as an advertising account manager until December, 2004. CAC ¶ 30. CW 11 described “click tsunamis” at Yahoo!, when a search brought up results that led to thousands of unwanted clicks. Id. Advertisers were charged for these clicks, but rarely realized sales from them. Id . Plaintiffs have not shown whether CW 9, CW 10 or CW 11 had a role in Yahoo!'s revenue recognition process, or whether they had any first-hand knowledge of Defendants' accounting decisions. Therefore, their statements do not support revenue fraud allegations either.

CW 12 worked for Yahoo! as an Operations Sales Manager until October, 2006. CAC ¶ 31. At weekly customer service meetings, CW 12 learned that “Yahoo!'s revenues began to decline ‘month by month’ beginning in 4Q 05.” CAC ¶ 31(g). CW 12 attended weekly Customer Service meetings where she learned that “because Yahoo! was not meeting its traffic forecasts, the Company was not attaining its revenue forecasts associated with those clicks in 4Q 05.” Id . CW 12 also recounted that the “running joke at Yahoo! Search Marketing was that there was a ‘dial’ on the click-fraud detection system which Yahoo! turned down at the end of the quarter to allow more billable click activity to be passed on to customers.” CAC ¶ 31(l). Hearing at a meeting that revenue forecasts will not be reached is not equivalent to knowing that Yahoo! misstated its revenues. Similarly, recounting jokes about altering the click fraud dial does not satisfy PSLRA's pleading requirements. See Limantour v. Cray, Inc., 432 F.Supp.3d 1129, 1141 (W.D.Wash.2006) (rejecting confidential witness statements based on “gossip and innuendo”). Therefore, CW 12's statements do not meet the PSLRA's heightened standards to prove revenue fraud either. In sum, Plaintiffs fail to plead with particularity their allegations that Yahoo! issued false financial statements.

It's nice to see the judge recognized there's a difference between click fraud rates in the abstract (whatever those mean) and the rate of actual overcharging experienced by advertisers, which is almost certainly lower. It's also good to see that the judge isn't blindly accepting the scuttlebutt from former employees, many of whom probably have worthless options or a down stock portfolio. In any case, it will be interesting to see if the plaintiffs can produce any witnesses who can testify about the rate of Yahoo's click fraud overcharging sufficient to satisfy legal standards.

Posted by Eric at 11:30 AM | Licensing/Contracts , Search Engines | TrackBack

October 14, 2008

September 2008 Quick Links, Part 3

By Eric Goldman

eBay

* Universal Grading Service v. eBay, Inc. More fallout from the National Numismatic v. eBay case--another lawsuit alleging antitrust and defamation because eBay designated some coin rating services as preferred and impliedly devalued others.

* Windsor Auctions v. eBay has been refiled in a new jurisdiction.

* Mehmet v. Paypal, Inc., 2008 WL 3495541 (N.D. Cal. Aug. 12, 2008). Upholding the consequential damages waiver in PayPal’s user agreement.

* A company's failure in the marketplace can drive up the value of its collectibles on eBay.

Google

* Stelor Productions, Inc. v. Google, Inc., 2008 WL 4218107 (S.D. Fla. Sept. 15, 2008). In the lawsuit alleging that Google causes reverse confusion of Googles.com [warning: annoying music ahead], the plaintiff doesn't get to depose Sergey or Larry yet. Rose Hagan, Google’s long-time chief trademark counsel, is the lucky substitute.

* Lots of rhetoric in the Google/Yahoo ad syndication deal. Google’s advocacy website. Google Chief Economist Hal Varian explains why the deal won’t raise ad prices in the auction. Randall Stross weighs in.

* Google has changed course and now allows religious groups to advertise on the keyword “abortion.”

* Kubit v. Google Groups, 2:2008cv00738 (M.D. Fla. complaint filed Sept. 29, 2008):

I then would like to sue Google Groups for not removing the posts when I repeatedly asked them to for 2 years. I believe I am entitled to at least a small amount of compensation for the emotional distress and lost business income that has resulted from them allowing these posts to remain on their Google Groups, even though I offered them VERY solid proof that I do not have HIV. If they had stopped the posts when they first occurred, they would not have proliferated to hundreds of websites. I became suicidal for a period of time after the posts started. I incurred a lot of emotional pain and fear because of the posts and had to seek psychiatric and psychological help to get my life back together. I still suffer from fears of dating, living a public business life and trusting others.

Yes, this is a pro se complaint. Yes, it is preempted by 47 USC 230.

Marketing/Advertising

* NebuAd is dead (1, 2). Even so, the lure of intermediaries aggregating deep data about consumers for commercial purposes will never die.

* Is Gator/Claria dead?

* The EU passed a non-binding resolution against sexual stereotypes in advertising.

* Celebrity branded merchandise run amok.

Miscellaneous

* Valleywag: "The 5 most laughable terms of service on the Net." For more laughs, see Mark Lemley’s Terms of Use paper.

* Murakowski v. University of Delaware, 2008 WL 4104087 (D. Del. Sept. 4, 2008). This reminded me a lot of the Jake Baker case from the mid-1990s.

* The Virginia Supreme Court reversed itself on the Jaynes anti-spam prosecution, and Jaynes walks. Does Virginia routinely pass unconstitutional laws?

* Becker v. Toca, 2008 WL 4443050 (E.D. La. Sept. 26, 2008). Ex-wife's alleged delivery of "Infostealer" program to grab passwords from ex-husband could violate the ECPA, SCA and CFAA.

* Interesting article on ESPN’s exclusive distribution and bundling agreements with Internet access providers.

* Funniest law firm names.

* Silly? Horrifying? A sign of the apocalypse?

Posted by Eric at 06:17 PM | Adware/Spyware , Content Regulation , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam | TrackBack

September 30, 2008

Licensing a Work, and When Licensing Doesn't Work--Reuters v. GMU

A timely Exhibit A in the argument that contract law is being used as a back-door wedge in expanding copyright.

By Ethan Ackerman

Just as Bruce Boyden seriously asks, "is the case for contracts somehow expanding copyright rights vastly overstated?" along comes a fairly conclusive 'No' in the form of Reuters v. GMU.

James Grimmelmann has an excellent summary of the Virginia-filed breach-of-contract case, noting that a George Mason University History professor developed an open-source Firefox extension called Zotero that worked with Thompson/Reuters' EndNote software. Apparently the development involved some reverse-engineering of the EndNote files or software structure. It's this act that leads to the suit, as reverse-engineering is prohibited by the EndNote site license that GMU held.

Mike Madison also notes the case and parses out the timing of the suit, filed in anticipation of a significant interoperability feature coming in an update to the Zotero software. He also sees much potential for mischief in Reuters' demands for an injunction that would apply to other Zotero users who imported data files from EndNote. Professor Madison's spot-on conclusion: "Reuters is transparent in its effort to use a software license to suppress a competitor in a product market."

Professor Michael Froomkin sees some interesting lawyering and one actual non-trivial legal question in the choice of filing a suit against a university over actions by its professors. To what extent can a state university bind its employee professors? Professor Froomkin points out that the professor in question is probably not a party to the site license agreement, and likely agreed to no such terms, so any privity comes from the fact that the professor is an employee of the university. My own brief searching on the web leads me to suspect the same thing. An academic site license end-user likely clicks on, at most, a much-reduced terms-of-service along the lines of this U.Georgia page before installing the software.

Further developing the 'privity-of-contract-through-employment-status' theory, does it matter that the development of this software by the professor was most likely outside the scope of his employment? I ask, only partially tongue-in-cheek, will this complex 'copyright-or-not, enforceable-terms-or-not, enforceable-license-or-not, injunction-or-not' case turn on the professorial field of the Zotero developer? Would it have been different if this were a computer science professor? A grad student?

So if this is a state law contract case, why all the Copyright Act talk anyway? Reverse engineering can be a fair use of a copyrighted work, something even the Federal Circuit will admit. Bringing an infringement suit against a reverse engineering that focused on something (the data file formatting) with such a thin copyright seems like a quick way to an adverse ruling. Professor Grimmelman, noting the utter inadequacy of the possible trademark claim pleading as well, suspects incompetence. Professor Madison, however, suspects an intentional end-run around reverse engineering fair use law by intentionally asserting only state-law contract claims, copying the proceedings in Bowers v. Baystate Technologies. Both see problems with the injunctive relief sought.

My only gloss on this case, otherwise excellently dissected by Profs. Grimmelmann, Froomkin and Madison, is to point out this is a great answer to Prof. Boyden's initial question about contract law being used as an expanding wedge for rights holders. This case is not even the only recent case tackling the issue, and several other recent cases would have had to face it if courts hadn't mooted the issue by finding a sale rather than a work made available subject to license.

So in summary, yes, there's an open, ongoing and unsettled problem with parties attempting to reverse, by contract clause, an issue that is addressed and settled by federal copyright law.

Posted by Ethan Ackerman at 12:05 PM | Copyright , Licensing/Contracts | TrackBack

September 09, 2008

August 2008 Quick Links, Part 2

By Eric Goldman

Net Neutrality

* The FCC gets on Comcast’s case for deceptively blocking BitTorrent connections without disclosure. While I don’t know anyone who has defended Comcast’s behavior here, at the same time there is an undercurrent of concern about the FCC’s authority to regulate Internet activities. Could this be the FCC camel's nose in the Internet's tent? We will learn more about the FCC's authority because Comcast has appealed the FCC's decision.

* A topic I haven't seen discussed very much: how the doctrine of trespass to chattels intersects with net neutrality principles. The only article I found in a 60 second search on the topic was a couple of paragraphs in J. Gregory Sidak, A Consumer-Welfare Approach to Network Neutrality Regulation of the Internet, 2 J. Competition L. & Econ. 349 (2006).

Contracts

* Jacobsen v. Katzer (Fed. Cir. Aug. 13, 2008). This ruling has been hailed as a validation of open source licenses, but I’m not sure what to make of this opinion. If the opinion merely says that breach of a copyright license can support copyright infringement, that’s no big deal. However, among other conspicuous omissions, the court does not discuss how the licensor formed a contract in this case. Thus, if the court’s conclusion is that copyright owners can impose conditions on licensees’ enjoyment of their copyright without properly forming a contract, then this opinion could undo the entire scheme of online contract formation. For example, it could support a conclusion that browsewrap-style “contracts”/terms of use should be enforceable as conditions on the accessing of copyrighted web pages. See, e.g., Ticketmaster v. RMG.

* Interactive Retail Management, Inc. v. Microsoft Online, L.P., 2008 WL 3851691 (Fla. App. Ct. Aug. 20, 2008). This is a click fraud case I hadn't heard about previously. Microsoft won at the trial court on jurisdiction grounds. This court revives the lawsuit for more jurisdictional investigation.

* Jeff Neuburger on a Wisconsin case saying that the UCC governs contract formation via email instead of UETA.

* Request for your guidance. Wikipedia has some photos that simultaneously say they are released under both a Creative Commons license and the GFDL. See, e.g., this photo. The license terms are irreconcilably inconsistent. If someone wants to use such a photo, now what?

Competition Restrictions

* Edwards v. Arthur Andersen (CA Sup. Ct. Aug. 6, 2008). The Ninth Circuit was wrong to create a narrow restraint exception to B&P 16600, the California statute voiding non-compete clauses.

* XPEL Technologies Corp. v. American Filter Film Distributors, 2008 WL 3540345 (W.D. Tex. Aug. 11, 2008). Rebecca on an odd case involving (once again) the DMCA anti-circumvention provisions as an anti-competition tool.

Miscellaneous

* Two interesting studies recently about people’s response to spam. Despite the animosity, a quarter of consumers have responded to cellphone spam and 30% say they have made purchases in response to spam. For more complementary statistics and my attempt to explain this seeming dichotomy, see here.

* The First Circuit issued an interesting DMCA 1201 case that I haven’t seen discussed. The BNA summary: “District court properly granted summary judgment to plaintiff cable television service provider on claim that defendants violated Digital Millennium Copyright Act by selling low-frequency signal filters, within plaintiff's service area, that were capable of bypassing plaintiff's pay-per-view billing mechanism, since plaintiff's pay-per-view delivery and billing system is technological measure that effectively controls access to copyrighted works, and digital cable filter allows subscribers to "avoid" or "bypass" that technological measure (CoxCom Inc. v. Chaffee, 1st Cir., 8/4/08)”

* AP v. Moreover settles. My initial post on the lawsuit.

* Funny YouTube video: "Here Comes Another Bubble," set to the tune of Billy Joel's "We Didn't Start the Fire"

Posted by Eric at 08:49 AM | Content Regulation , Copyright , Licensing/Contracts , Marketing , Search Engines , Spam | TrackBack

September 08, 2008

August 2008 Quick Links, Part 1

By Eric Goldman

eBay

* Mazur v. eBay Inc., 2008 WL 2951351 (N.D. Cal. July 25, 2008). See my previous blog post on the case. Some commentators are excited about this ruling because it rejects eBay's motion to dismiss a RICO claim.

* Missing Link, Inc. v. eBay, Inc., 2008 WL 3496865 (N.D. Cal. Aug. 12, 2008). This is a lawsuit by eBay sellers complaining that eBay didn’t immediately index their listings in its search engine and eBay raised the price on “Good Until Cancelled” listings. This is the second time the court has dismissed some claims, but even so some claims have also survived the motion to dismiss process.

* As expected, Tiffany appealed the eBay ruling. My initial post.

Google

* Vulcan Golf, LLC v. Google Inc., 2008 WL 2959951 (N.D. Ill. July 31, 2008). The court dismisses a few claims made in the plaintiff's third amended complaint. My post on the initial complaint.

* JIT Packaging v. Google (E.D. Ill. complaint filed Aug. 11, 2008) A third lawsuit against Google over the placement of AdWords ads on parked domains and other putatively undesirable pages.

* A heavily redacted version of the Google/Yahoo agreement. The SEC examiner who let the agreement go through with this many redactions was asleep at the wheel!

47 USC 230

* Bauer v. Glatzer (N.J Superior Ct. July 21, 2008). Wikimedia easily wins a lawsuit against it alleging that a Wikipedia entry was defamatory.

* Capital Corp. Merchant Banking, Inc. v. Corporate Colocation, Inc., 2008 WL 4058014 (M.D. Fla. Aug 27, 2008). 47 USC 230 defense denied against allegations that "Leonard Norwich posted defamatory statements about [the plaintiff] on three websites and Francesca Norwich allowed Leonard to use “a computer registered in her name” to make the defamatory statements." The denial makes sense for Leonard but seems clearly erroneous with respect to Francesca.

* Vanginderen v. Cornell (S.D. Cal. June 3, 2008). CMLP page. This isn't specifically a 230 case but it's still relevant. Interesting lawsuit against Cornell and related entities for electronically posting a school newspaper story from 1983 that was allegedly defamatory. The court dismisses the lawsuit on an anti-SLAPP motion.

Blogging

* A Las Vegas nightclub loses its cool and sues a blogger for, among other things, including its logo in the blog post.

* As part of the fallout from the Troll Tracker blog, Dennis Crouch, of PatentlyO fame, has received a subpoena for communications related to his blog. Dennis' comments and LegalWatch. In a related lawsuit, Frenkel (a/k/a Mr. Troll Tracker) was dismissed from a lawsuit again. Ward v. Cisco Systems, Inc., 2008 WL 4079286 (W.D. Ark. Aug 28, 2008)

Content Restrictions

* Kings English, Inc. v. Shurtleff, 2008 WL 3285898 (D. Utah Aug. 8, 2008). The judge denied the plaintiffs’ motion to reconsider its highly unfavorable prior ruling. My initial post on the lawsuit.

* Reisinger v. Perez (E.D. Wis. complaint filed Aug. 18, 2008), First amendment lawsuit against the City of Sheboygan for intimidating a woman into removing a website link to the city's police department.

* National Federation for the Blind v. Target has settled, with Target paying $6M and redesigning its site.

Posted by Eric at 09:47 PM | Content Regulation , Derivative Liability , Licensing/Contracts , Search Engines , Trademark | TrackBack

September 02, 2008

eBay Cracks Down on Cookie Stuffing--eBay v. Digital Point Solutions

By Eric Goldman

eBay, Inc. v. Digital Point Solutions, No. 5:08-cv-04052-PVT (N.D. Cal. complaint filed Aug. 25, 2008)

It is exceedingly rare for marketers to sue affiliates who are trying to game their affiliate programs. I'm sure there have been other lawsuits, but frankly I'm drawing a blank. (The only relevant precedent that came to mind was Google's tepid enforcement actions in 2004/2005 against click frauders--see Google v. Auction Experts and US v. Bradley). [Update: A reader reminded me of Land's End v. Remy, which is an on-point precedent.] The more typical remedy when commission fraud is taking place is to cancel any unpaid commissions and write off the rest as a cost of doing business (or an uncollectible painful lesson). But if someone gamed the system big--I mean, really big--maybe it would be worth hiring fancy and very high-priced counsel to go see what they might be able to retrieve...

eBay isn't saying how much it got taken for by the defendants in the case. The complaint was conspicuously silent on that juicy detail. However, the amount appears to be enough that eBay hired the premium law firm O'Melveny & Myers for a glorified collections effort. Either that, or eBay has decided to send a remarkably expensive message to other potential fraudsters.

The complaint alleges that the defendants engaged in a cookie stuffing campaign to hijack commissions through Commission Junction. Cookie stuffing occurs when a fraudster places a cookie on a third party computer that will cause the fraudster to get paid a commission that the fraudster didn't earn legitimately by doing the things that the marketer wanted to pay for. In this case, eBay alleges that the defendants used a clever technical exploit to put cookies on users' computers even though the users had not seen the requisite ads. The complaint also alleges that the defendants deployed some tricks to cover their tracks, like deliberately not cookie-ing computers in San Jose and Santa Barbara, the homes of eBay and Commission Junction respectively, to keep employees of those companies from spotting the marauding cookies.

If in fact the defendants engaged in cookie stuffing, I hope eBay nails them. However, I must say that some of eBay's legal arguments made me nervous. eBay's alleged causes of action include:

* CFAA (18 USC 1030). The allegation is that presenting a bogus cookie to eBay's servers was a misuse of the servers. Hmm...
* fraud. Similarly, the allegation is that the defendants caused web users to make a misrepresentation to eBay's servers by presenting a bogus cookie. Hmm again...
* CA Penal Code 502. There are very few cases interpreting 502, which isn't necessarily a bad thing because the statute is so broadly over-inclusive that everyone violates it routinely. Here, it looks like the lawyers weren't quite sure how to fit cookie stuffing into the statute. Take a look at para. 60 and let me know if you agree that this is an odd pleading.
* a civil RICO conspiracy claim. Given that eBay is being sued for RICO claims in the Mazur case (and, I'm sure, others), I would think eBay would want to avoid building new legal precedent that could be applied against them in other cases.

Reading the list of causes of action, I was surprised that there wasn't a more squarely applicable cause of action that governed cookie stuffing (however, I will confess, none came to mind as I drafted this post). Maybe this is due to the fact that eBay rather than Commission Junction is the plaintiff. If there isn't a better cause of action, then perhaps there is a hole in the law. However, I'm keeping my fingers crossed that a judge won't bastardize existing legal doctrines to plug it.

Posted by Eric at 09:23 AM | Licensing/Contracts , Marketing , Privacy/Security | TrackBack

July 10, 2008

eBay Not Bound By Robinson-Patman Act--Windsor Auctions v. eBay

By Eric Goldman

Windsor Auctions, Inc. v. eBay, Inc., 2008 WL 2622791 (N.D. Cal. July 1, 2008)

The Robinson-Patman Act is a Depression-era law designed to reduce the ability of manufacturers to engage in price discrimination. At the time, large buyers (such as newly emerging chain retailers) were consolidating so much buying power that they were able to strongarm manufacturers into deals that were arguably unfair to the manufacturers and competitive but smaller retailers. The Robinson-Patman Act putatively tries to prevent these buyers from engaging in "predatory" buying prices by forcing the manufacturer to sell its goods at the same price to all similarly situated buyers. Prof. Paul Stancil published a nice summary of the law in Business Law Today in 2004.

I'm skeptical about the justifications for this law in the context of the Depression, but I'm crystal-clear about its validity today. In the modern age, the law has become farcically anachronistic, and I'm not sure I've ever met a single person who thinks the law is still a good idea. In practice, the Robinson-Patman Act is one of those obscure laws that typically arises only as a "gotcha" claim against defendants who don't know better or inadvertently run afoul of its technical provisions while engaged in normal commercial decision-making. There's certainly little evidence that the law actually improves competition or the marketplace.

In the case du jour, the plaintiff sells jewelry through eBay's live auction. (It looks like Live Auction is turning into quite the lawsuit trap for eBay; see my most recent blog post about it). Windsor sold nearly $1.5M in merchandise through the site in 2005 and 2006. Windsor thought sales would double in 2007 but instead realized that its sales were decreasing. Windsor alleges that eBay gave a competitive jewelry vendor, Molayem, better listing tools than provided to Windsor, and these tools allowed Molayem's listings to get more prominent placement in eBay's interfaces than Windsor's listings. Windsor claims that eBay's differential treatment between Windsor and Molayem violated, among other things, the Robinson-Patman Act.

The court dismisses the Robinson-Patman Act claim because eBay is not providing "commodities" under the act. The act, like many others, distinguishes between goods (covered) and services (not covered). At its core, eBay's relationship with its sellers is a service relationship of providing promotional/advertising services. Windsor tries to get around this by arguing that the software tools eBay provides its sellers ("Mr. Lister"/"Turbo Lister" and the "Batch Uploading Tool") and its documentation manuals are goods. This argument is not totally ridiculous; indeed, software is routinely treated as a "good" for purposes of UCC Article 2. However, even if true, the software is just a bit part of an overall service relationship, so the court rightly rejects the Robinson-Patman Act without leave to amend. However, the case isn't entirely over, as the court left open a claim for breach of the implied covenant of good faith and fair dealing.

I think this case is closely related to the search engine bias cases such as KinderStart v. Google. A website/search engine's decisions about what content to highlight (and, by implication, what not to showcase) can have dramatic effects on both consumers and vendors--to the tune of $1.5M in perceived foregone revenues in Windsor's case. The Robinson-Patman Act was a pretty feeble legal tool to challenge a website's interface decisions, but given the cash and emotions at stake, I'm sure plaintiffs will think creatively about other legal doctrines in their quest for recourse.

Posted by Eric at 03:00 PM | E-Commerce , Licensing/Contracts | TrackBack

July 01, 2008

June 2008 Quick Links

By Eric Goldman

Trademarks/Domain Names

* Utah Lighthouse Ministry v. Foundation for Apologetic Information and Research, 2008 WL 22043807 (10th Cir. May 29, 2008). CMLP writeup. Nice 10th Circuit win for a gripe site against trademark infringement and cybersquatting. This case, plus the SKI VAIL case, indicate that the 10th circuit is making progress undoing the harm it created in the Australian Gold v. Hatfield case.

* Georgia has a new anti-phishing law (16-9-109.1) that acts as a para-trademark law. See my comments on the analogous California anti-phishing law.

* After initiating a trademark lawsuit against a consumer review site and soundly losing in court, Lifestyle Lift paid $17,500 to settle its own lawsuit and avoid claims for legal fees under Rule 11 and the Lanham Act.

* Marty reports on a German case saying that white-text-on-a-white-background is a trademark use.

* Update on the battle over the trademark registration for "SEO."

* Will TLD proliferation lead to a new open era in domain name administration, or will the resulting anarchy just reinforce that top search engine placement is the really important online real estate? It seems like the currently limited number of TLDs has some benefits from a bounded rationality standpoint, and those benefits will be lost in a cacophony of unknown TLDs.

Patents

* My colleague Colleen Chien has posted "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission" (forthcoming William & Mary Law Review). She empirically demonstrates that the ITC mostly involves disputes between two domestic litigants, making it a redundant battleground with federal district court but nevertheless an attractive venue for plaintiffs due to a number of procedural advantages. She makes a number of recommendations to eliminate the litigation gamesmanship offered by having parallel venues. Check it out.

Search Engines

* Udi Manber, chief algorithm keeper for Google, reiterates why it's silly for lawyers and judges to put too much legal emphasis on the relative placement of search engine results, saying "it's definitely the case that if you do the same search on a different cluster, you may get slightly different results at a given time. It's also the case that if you do the same search on different days you may get different results, because some of the results are things we indexed five minutes ago."

(Over)Regulation

* In response to an enforcement effort by the NY AG's office, several Internet access providers have blocked access to newsgroups that are putatively sources of child pornography. See the NYT story and the NY AG press release. In practice, this means wholesale takedowns of newsgroups that may have nothing to do with child porn. For example, Verizon is killing all USENET hierarchies except comp.*, misc.*, news.*, rec.*, sci.*, soc.*, and talk.*. Wired suggests this is the death of online intermediary freedom as conceptualized in 47 USC 230. Of course, 230 never protected intermediaries from criminal exposure for child porn, and this isn't the first time that an access provider has knuckled under to the NY AG's office. See the BuffNet enforcement action from 2001.

* Ohm, Paul. The myth of the superuser: fear, risk, and harm online. 41 UC Davis L. Rev. 1327-1402 (2008). A neat article on how regulators manufacture a fake bogeyman, the unbeatable "superuser," as a justification for expansive regulatory power.

* No evidence that data breach disclosure laws actually help reduce identity theft. Surprised?

* The FTC wants civil enforcement authority for spyware actions. Haven't they heard that the adware battle is already over...and they won?

Contracts

* Mark Radcliffe expresses concern about the ALI's proposed software licensing project on open source licenses.

* Sarah Bird on a messy contract lawsuit involving an SEO contractor.

Anonymity

* Tendler v. www.jewishsurvivors.blogspot.com, 2008 WL 2352497 (Cal. App. Ct. June 10, 2008). A subpoena request to identify a blogger doesn't support an anti-SLAPP cause of action.

* In the AutoAdmit lawsuit, Doe 21's motions to squash the subpoena and proceed anonymously were both denied. David Hoffman provides an update on the case.

Event Tickets

* Chicago has moved against eBay for reselling tickets in violation of its amusement tax law.

* The Ticketmaster v. RMG case ended with a default judgment granting a permanent injunction and $18.2M in damages.

General

* Vanity Fair: How the Web Was Won.

* Paul Levy blogs about a plaintiff's effort to bypass 230 by suing the authors of complaints about the vendor and then joining the consumer complaint site as a necessary party as a cost-increasing tactic.

* BusinessWeek on emerging technological tools to protect workers' attention against unwanted/untimely interruptions.

* Text message-savvy kids educate the North Carolina DMV about the meaning of the term "WTF," which was used on a license plate example on the DMV's website.

* I have one free pass to OMMA Behavioral in San Francisco July 21. First person to send me an email asking for the pass gets it.

Posted by Eric at 12:32 PM | Adware/Spyware , Content Regulation , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Search Engines , Trademark | TrackBack

June 03, 2008

May 2008 Quick Links, Part 2

By Eric Goldman

Copyright

* Google says it isn't settling the Viacom lawsuit (I don't believe it).

* Interesting juxtaposition: (1) Chronicle of Higher Education: How It Does It: The RIAA Explains How It Catches Alleged Music Pirates and (2) BusinessWeek ran a lengthy retrospective on Tanya Andersen's battle against the RIAA, including her beefs against the RIAA’s investigation and enforcement tactics.

* A music warez trader was convicted by a jury of criminal copyright infringement.

Online Contracts

* Juanda Lowder Daniel. Virtually mature: examining the policy of minors' incapacity to contract through the cyberscope. 43 Gonz. L. Rev. 239-269 (2007/08). This article addresses the very important issue of contracting capacity of minors. See my most recent post on that topic.

* Adelman v. Sparks Network (Cal. App. Ct. May 20, 2008). The Jdate online dating service allegedly failed to include required language (such as notice of a mandatory cooling-off period) in its user agreement. The court dismisses the plaintiff's lawsuit nonetheless because he was a happy customer who didn't suffer any damage.

* Tom O'Toole surveys some recent online contract cases. He offers the following conclusions: (1) Contract Terms Should Be Available for Review, (2) Clickable Buttons/Links Should Clearly Signal Assent, and (3) Humans Are Not Helpful.

* I realize this point would be better explored in a full blog post, and I suspect this point has been made in the academic literature (if so, I'd appreciate some cites so I can pass them along). The issue: how might the endowment effect explain consumer antipathy towards EULAs? Wikipedia says the endowment effect means that "people value a good or service more once their property right to it has been established." This observation occurred to me when I attended a ridiculously stacked panel at the ION Game Conference on "user rights" in virtual worlds. Many of the gripes/grumbles related to very common EULA provisions that simply overrode default law. It occurred to me that maybe part of the problem was that consumers assume the defaults are appropriate rights allocations granting them the "property" right, in which case they suffer a greater psychological loss when those defaults are varied than if different defaults were set. One obvious policy consequence: as part of the considerations when setting defaults, policy makers should include the psychological costs of varying the defaults. If the interaction between EULAs and the endowment effect hasn't been written about, it would make an excellent paper topic.

Other Topics

* A military court has said that distributing a hyperlink to child porn does not constitute criminal distribution of child porn. Tom O'Toole explains the situation.

* A.B. v. State, 2008 WL 2031388 (Ind. May 13, 2008). It seems like the digital age recipe for guaranteed trouble: 8th grader + hatred towards a school principal + MySpace. How many judicial cases are we going to see with this combination? This one involves some mean-spirited and profanity-laced comments about her principal made by a 14 year old girl on a private MySpace page accessible only by 26 students. The principal saw it only because one of the students gave a printout to the principal. The court concludes that posting to a private MySpace page doesn't satisfy the criminal standards of "intent to harass, annoy, or alarm" via the Internet.

* Doe v. Friendfinder Network, Inc., 2008 WL 2001745 (D.N.H. May 8, 2008). The court denied the plaintiff's motion for reconsideration on Friendfinder's 230 eligibility for the statement "Sorry, this member has removed his/her profile."

* Another "where are they now?" retrospective on dot com boom companies, ironically running in the Industry Standard (which wiped out in the dot com bust itself).

Posted by Eric at 11:56 AM | Content Regulation , Copyright , Derivative Liability , Internet History , Licensing/Contracts , Privacy/Security , Virtual Worlds | TrackBack

May 28, 2008

Citysearch Sued for Click Fraud--Lambotte v. IAC

By Eric Goldman

Lambotte v. IAC/InterActiveCorp. (Cal. Superior Ct. complaint dated May 27, 2008) [warning: 1.9MB file]

Ever since the Google and Yahoo click fraud settlements in 2006, it's been fairly quiet on the click fraud front. See my most recent click fraud recap from February 2008.

This lawsuit launches an interesting new battlefront in the click fraud war. Instead of going after yet another search engine (of which there are only so many to sue!), the plaintiffs are suing a web publisher for running its own PPC ad program--something many web publishers have done. This means lots of new potential defendants for class action lawyers. Ca-ching!

The allegations are fairly straightforward. Citysearch sells PPC ads as part of a package of services for small business owners. It promises to proactively screen out invalid clicks in its contract/documentation, but the plaintiffs believe Citysearch isn't doing that job well. The plaintiffs claim this failure constitutes breach of contract, negligence and 17200 unfair practices.

The plaintiffs repeatedly hammer on the allegation that Citysearch compensates its salespeople based on the number of clicks delivered for their advertisers, which provides an incentve for salespeople to boost clicks fraudulently. At first, the argument really resonated with me--how slimy to incent salespeople to manufacture clicks! But then I realized that simply commissioning salespeople for advertiser revenue--a very, very common practice in the ad sales industry--would have the same effect; just like commission-driven salespeople would have incentives to manufacture pageviews for any advertiser paying on a CPM basis. So the argument sounds scary but on further reflection it's really not all that meaningful.

I also found the named plaintiff's story of click fraud surprisingly flat. The named plaintiff gives an example of how he got ~10X the number of clicks after he tried to cancel his advertising, putatively because the salesperson manufactured clicks either to boost the perceived performance or to drain the advertising account before it cancelled.

However, there are a number of potential problems with this story. First, the total number of clicks at issue is small overall (the first measuring period only involves 9 clicks total), undercutting the statistical reliability of any inferences from the dataset.

Second, the measuring periods for this click comparison are very odd--the first period is Dec. 11-25, and the second period is Dec. 26-31--basically, right before and right after Christmas. I did a search on Tom Lambotte and this LinkedIn profile says he runs www.theSanDiegoMacTutor.com, described as "Professional Help, Training & Consulting for your Apple/Mac Needs." [Note: I have emailed the plaintiff's law firm's PR guy to confirm if this is the same Tom Lambotte, but I haven't gotten a response to my inquiry.] Anyone else troubled by comparing pre-Christmas clicks with post-Christmas clicks...especially if the guy provides installation and support for Apple computer products? It seems possible that a bunch of potential customers got shiny new Apple toys for Christmas and then looked for someone to help install them. At minimum, we know that shopper traffic doesn't abate after Christmas and in some cases can increase following the holiday, so the clickthrough patterns might simply reflect normal seasonality.

Third, I don't know how long it takes Google to fully index new pages to an existing high PR website, but another possible explanation is that the new Citysearch pages promoting Lambotte got fully indexed after 2 weeks, spiking traffic to the pages and increasing the absolute volume of conversion from the page.

To be clear, even if the named plaintiff's situation can be satisfactorily explained by alternatives other than click fraud, that doesn't mean the lawsuit will or should fail. On the other hand, generally a class action lawyer will try to showcase highly compelling stories in the complaint. If this is the best story they've got so far, that's pretty weak.

More on this lawsuit from News.com.

Posted by Eric at 01:40 PM | Licensing/Contracts | TrackBack

May 26, 2008

Search Engine Advertiser Litigation Updates

By Eric Goldman

Recently, there were intermediate rulings in two long-standing cases by search engine advertisers against search engines.

CLRB Hanson Industries, LLC v. Google Inc., 2008 WL 2079200 (N.D. Cal. May 14, 2008)

This lawsuit involves the Google AdWords feature that allows advertisers to set "daily budgets." Google doesn't enforce the daily budgets strictly; instead, it gives itself the permission to deliver up to 20% overage in any day and credit the overage against future performance. The lawsuit was initially filed in August 2005. In August 2007, the judge issued an important preliminary ruling that had three main holdings:

1) Google's AdWords contract was a binding contract.
2) Much of the breach of contract claim was dismissed, but the judge left open claims by advertisers of less than 1 month, advertisers who ended their campaign in a partial month, and advertisers who paused their campaign.
3) The false advertising claim was left open.

Because the August 2007 substantially limited the remedies available to advertisers, I expected that ruling to prompt the parties to settle. But here we are in May 2008, and the parties are still going at it. This month's ruling was largely procedural in that it attempted to clean up any lingering confusion over the August 2007 ruling. As a result, it really doesn't break much new ground; instead, the opinion largely reiterates the main rulings from the August 2007 opinion. Rebecca has more thoughts on the false advertising aspects.

In re Yahoo! Litigation, 2008 WL 1882786 (C.D. Cal. April 21, 2008)

This lawsuit got a lot of press when it was first filed in May 2006 as an example of "syndication fraud." See my initial post. It relates to Yahoo's display of ads on pages promoted by adware and on typosquatted and domain name parking pages. The advertisers believed these pages had lower quality traffic than other pages, and this disrupted their expectations.

In the past two years, the case has gone through various procedural shenanigans. This ruling addresses Yahoo's motion to dismiss the second amended complaint on a number of grounds.

Yahoo invoked a clause in its advertising agreement barring class litigation against it. Under prevailing California law, these clauses are probably unenforceable in consumer contracts; but there hasn't been a lot of litigation over these clauses in business-to-business contexts, especially because it's hard to argue unconscionability in B2B contexts. The court punts the issue on Yahoo's motion to dismiss, saying that it needs more facts about the parties' respective positions, which makes this issue more appropriate for resolution on summary judgment. Tom O'Toole has more to say about this issue.

Yahoo also tries to dismiss the breach of contract claim over its alleged promise of targeted ad placement, but the court refuses to dismiss because California law freely allows extrinsic evidence to explain unambiguous contractual terms. However, though the court didn't dismiss the claim, I think the plaintiffs will have difficulty prevailing on this contract breach claim because, as the court implicitly concludes, the plain language of the contract weighs heavily against their arguments.

Yahoo made several other efforts to dismiss clams, and the court rejects all but one of them (it dismissed the claim of civil conspiracy). Because so much of the lawsuit survived, this motion to dismiss ruling appears to be largely a win for the plaintiffs. However, I still think this remains a low-merit lawsuit because it's disingenuous for advertisers to complain when they got everything they paid for. Further, two years later, this lawsuit now seems strangely anachronistic given that the Great Adware Wars of the mid-2000s are over.

Posted by Eric at 08:57 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

May 23, 2008

Lori Drew Prosecuted for CFAA Violations--Some Comments, and a Practice Pointer

By Eric Goldman

Before I get started, let me first say that my heart goes out to Megan Meier's family. They have suffered a devastating tragedy, and I cannot possibly fathom the pain they must feel. As a result, I feel a little awkward blogging on the situation because I fear my words could be misinterpreted as some sign of disrespect or lack of empathy towards the family. I definitely don't intend that.

I have also passed on blogging about Megan Meier's suicide because, until recently, I didn’t think it raised a real cyberspace issue. Assuming the publicized facts are true, MySpace played a crucial role in mediating the communications between Drew and Meier, but Drew's ruse could have been perpetrated using a variety of communication media. Indeed, for millennia (and well before the Internet), people have been sending false messages to each other as part of some manipulative effort (Les Liaisons Dangereuses comes to mind, but we could find countless other examples). The fact that Drew chose MySpace for her scheme has always struck me as uninteresting at best. I recognize that perhaps MySpace made it easier for Drew to pull off her ruse, and perhaps Meier attached more credibility to MySpace messages than she would have attached to messages delivered in other media. But given that people can do serious harm to other people using many different types of communications media, I think it's a mistake to treat this tragedy as a source of profound insight into the nature of cyberbullying or the evils of cyberspace.

Despite this, we know that a high-profile situation like this will spur overreactions. Of most interest for this blog post is last week's federal indictment of Lori Drew for crimes predicated (at their core) on violations of the Computer Fraud and Abuse Act (CFAA). See the indictment. The CFAA violation putatively occurred because MySpace's user agreement required users to:

* provide accurate registration information
* not use information obtained from MySpace to harass or abuse others
* not solicit information from kids
* not promote false/misleading information
* not promote abusive or threatening conduct
* not post photos of third parties without their consent

Allegedly, Lori Drew breached the user agreement by failing to follow these provisions; and by breaching the user agreement, she made an unauthorized criminal use of MySpace's servers.

In the civil context, plaintiffs frequently use the CFAA to attack a defendant's server usage in violation of a site's user agreement. However, as far as I (and Orin) know, this is the first time the DOJ has tried to treat a user's breach of a site's user agreement as a CFAA crime. Not only is this theory potentially unsupported by the law (see, e.g., Orin Kerr and Dan Solove), but it puts almost all of us at risk of federal prosecution (see, e.g., Wired and the AP). Implicitly, the DOJ is saying that breaching a user agreement to provide false registration to a website or post a third party's photo without permission can be a federal crime. If you have never done any of these activities, please email me so I can send you some angel wings. For the rest of us, the DOJ seems to think that we should avoid the Big House only out of their sheer grace.

Also, though Drew's actions may have been heinous, her alleged breaches of the MySpace user agreement were, to be as charitable as possible, chickenscratch. Most websites like MySpace include contractual restrictions like the ones at issue simply to preserve their ability to kick off troublesome users at their discretion--not to put every non-conforming user at risk of looking down the barrel of an FBI agent's .45.

As a result, the DOJ prosecutors appear to be trying to make the MySpace user agreement do more work than it was designed to do. In that respect, I see this case as part of a broader trend where government enforcement agencies are misreading and misusing website user agreements. Consider two other very recent examples of government folks attaching undue emphasis to restrictions in website user agreements:

* the New Jersey Attorney General's office apparently misread restrictions in JuicyCampus' user agreement to think they should constitute affirmative marketing representations

* Joe Lieberman thinks YouTube should wipe terrorist videos off its site because its community guidelines discourage users from posting violent videos

This disturbing trend prompts me to offer a practice pointer to those of you who draft user agreements. Many user agreements—including MySpace’s—have gotten bloated with lengthy lists of restrictive rules (a manifestation of the rule proliferation phenomenon I blogged about here). It's pretty clear to me that government enforcement actors, either because of their fundamental misunderstanding of contract law or for their own self-aggrandizement, will treat these restrictions as expectations that the conduct won't occur on the site. But because most websites don't proactively enforce the restrictions they announce, this sets up a mismatch between rules and actual behavior—a mismatch that enforcers appear all too happy to exploit.

Therefore, I think it is better practice for contract-drafters to rely more heavily on general restrictive clauses in website user agreement (e.g., "we can kick you off at our convenience") than on overly detailed/specific but underenforced lists of restrictions. I know this stance runs contrary to the prevailing sentiment among most Cyberlawyers, who seem to believe that for every bad user behavior, it's easy enough to add a new contract prohibition that putatively eliminates the problem. But if the contracts are being misread, rule proliferation may be doing more long-term harm than good.

Posted by Eric at 05:49 PM | Content Regulation , Licensing/Contracts , Privacy/Security | TrackBack

May 07, 2008

April 2008 Quick Links

By Eric Goldman

Anti-Gaming

* Even though Ticketmaster won its lawsuit, Minnesota overreacted to the Hannah Montana ticket crush by banning software to circumvent an online ticket allocation process. See Sec. 609.806. Check out the hyperbole in this press release! What's next? Are legislators going to make SEO a crime?

* Google modified its relevancy algorithm 450 times in 2007. And yet courts still cite to Brookfield for how search engines operate!

* The UK cracks down on shill marketing online. ClickZ: "Under the new [UK] Consumer Protection from Unfair Trading regulations, it will be illegal to "Falsely claim or create the impression that the trader is not acting for purposes relating to his/her trade, business, craft or profession," or to "falsely represent oneself as a consumer."" See also AdAge.

IP

* Speaking of SEO....the latest pathetic attempt to grab a generic term and trademark it? "SEO." Sarah Bird is on the job.

* Do student notes of a professor's lecture constitute copyright infringement? We may find out.

* Atlantic v. Howell. More on the "making available" theory of copyright infringement.

* Sarah Bird on registering copyrights in websites and blogs.

* A for-profit T-shirt listing the names of deceased Iraq soldiers sparks a publicity rights lawsuit.

General

* Bowen v. YouTube, Inc., 2008 WL 1757578 (W.D. Wash. April 15, 2008). The court upheld the forum selection clause in YouTube's user agreement.

* eBay is ending its promotion of third party live auctions. Maybe because of this loss?

* Rebecca blogs on SuccessFactors, Inc. v. Softscape, Inc., 2008 WL 906420 (N.D. Cal.), an odd case involving the Computer Fraud & Abuse Act and an "attack PowerPoint" allegedly sent by a competitor to its prospective customers.

* Kate Kaye writes about the new Internet industry lobby group, the "State Privacy and Security Coalition," designed to fight laws like the Utah Trademark Protection Act.

* Kevin Werbach, The Centripetal Network: How the Internet Holds Itself Together, and the Forces Tearing it Apart, UC Davis Law Review, Forthcoming. An interesting paper applying "network formation" theory to show how the Internet came together as a unified network and how those unifying forces are under constant stress.

Posted by Eric at 08:52 PM | Content Regulation , Copyright , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Trademark | TrackBack

April 21, 2008

March 2008 Quick Links, Part I

By Eric Goldman

It's a sign of my busy March/April that I am just now posting these...

Reputation/47 USC 230

* I have a lot to say about the JuicyCampus story (AP, MSNBC, Chronicle of Higher Education). Unfortunately, I ran out of time to write a full blog post on the subject. For now, some quick thoughts about this interesting and complex situation:
- Taken to its logical conclusion, 47 USC 230 naturally enables sites to do absolutely nothing to restrict harmful speech. (I'm not saying that accurately describes JuicyCampus--I don't have enough facts to make that claim). However, that's not an unexpected failure of the statute--it's the natural consequence of the statute's design. Any concerns about the costs of unrestricted speech fora need to compared with the costs of more regulated systems. It's not clear that one result is automatically better than the other, and certainly there are costs implicit in all solutions. Sam Bayard explores this issue more.
- Sites that lack credible information will face marketplace responses regardless of any legal rules. In JuicyCampus' case, the marketplace responses include consumers deeming the site not credible, plus intermediaries (in this case, universities) may simply block access by its core users.
- Any possible legal action by the New Jersey Attorney General over JuicyCampus' facilitation of harmful speech should be unambiguously preempted by 47 USC 230--even after Roommates.com.
- The attempted legal bypass to 47 USC 230--trying to convert a negative covenant from the users in the user agreement into an actionable affirmative marketing representation by JuicyCampus--is analytically corrupt. It's also not the law, and it's been rejected in several 230 cases (Noah v. AOL comes immediately to mind). Rebecca has more to say on this issue.
- If negative behavioral covenants by users in a user agreement are actionable affirmative marketing representations that such behavior isn't occurring, then the Internet is a target-rich ecosystem because I imagine that just about every Internet company is eligible for enforcement actions.
- Isn't it typical of an enforcement action to go after the target's vendors (in this case, JuicyCampus' ad networks) and watch them instantly fold?
- This issue reminds us that a website can't promise its users anonymity if it allows anyone else (such as an ad server) to serve up portions of its page and thereby have the ability to collect the same server log data.

* Ciolli v. Iravani: The AutoAdmit lawsuits spill over into a new battleground. As I said when I first blogged on the case, this is a "very messy situation" that has only gotten messier.

* Nemet v. ConsumerAffairs.com. Another lawsuit against an online consumer review site for publishing allegedly defamatory negative critiques.

* Steinbuch v. Cutler, 2008 WL 596747 (8th Cir. Mar. 6, 2008). Steinbuch's lawsuit against Hyperion, the publisher of the Washingtonienne book, can continue in Arkansas. His other claims must proceed in Washington DC if at all.

* Washington Post: Due to the speed at which gossip moves over the Internet, "compared with the pre-Internet era, politicians are less likely than ever to survive a sex scandal with their careers intact."

* H. Brian Holland, In Defense of Online Intermediary Immunity: Facilitating Communities of Modified Exceptionalism, 56 U. Kan. L. Rev. 369 (2008). Prof. Holland wrote a paper I had been meaning to write! He explains how 47 USC 230 enables online communities to use a variety of self-governance structures, while a different liability regime would give communities fewer choices and thereby inhibit community formation and management.

Search Engines

* A Canadian web network called Geosign received $160M of VC money but the company was rendered worthless overnight when Google changed its policies and cut off traffic. Domainers beware!

* New book worth checking out: WEB SEARCH: MULTIDISCIPLINARY PERSPECTIVES (Amanda Spink & Michael Zimmer, eds.) (Springer 2008). A nice cross-section of essays on search engine issues from multiple disciplines.

* Need some original content to improve your SEO? You can automatically generate it through splogging, or you can pay actual humans a small amount of money to write short articles. If the cost is low enough and the SEO credit for truly original content is high enough, the latter may end up being a better economic deal.

Spam

* The FTC has lost a jury trial against Impulse Media on its theory that Impulse Media is liable for the spam sent by its affiliates. This is a pretty important decision because (1) the FTC/DOJ rarely lose at trial, (2) their expansive theories about liability for affiliate behavior may be legally incorrect, and (3) the FTC has strong-armed numerous defendants into settlements based on its theory, and future defendants now be willing to fight back.

* On that topic, Cyberheat won an early round in litigation with the FTC over its affiliate practices but has now settled up with the FTC. The settlement gives some guidance about the FTC's thoughts of how marketers should police affiliates, but the Impulse Media jury loss may undermine the teaching of this settlement.

Posted by Eric at 08:32 AM | Derivative Liability , Licensing/Contracts , Marketing , Search Engines , Spam | TrackBack

March 24, 2008

Clickthrough Agreement Binding Against Minors--A.V. v. iParadigms

By Eric Goldman

A.V. v. iParadigms, 2008 U.S. Dist. LEXIS 19715 (E.D. Va., March 11, 2008),

I previously blogged that the judge was going to dismiss this case. The judge finally issued an opinion explaining his reasoning, and it's quite an interesting read.

At issue is iParadigms' Turnitin plagiarism detection service. It works as follows: a professor adopts the Turnitin service for a class. Students then submit class papers directly to the Turnitin database. Turnitin compares the submitted papers against its database, which includes Internet content, previously submitted student papers, and various commercial databases. Turnitin then provides the professor with an "Originality Report" assessing the likelihood that the paper was original to the student and not copied from one of the sources in the database. At the same time, Turnitin adds each student-submitted paper to its proprietary database so those papers create matches if submitted again.

Personally, I've never used the Turnitin service. I'm lucky enough that when I've taught "paper courses," I've been able to work closely enough with each student that a plagiarized paper would be useless. However, not every professor or teacher can interact with students enough to make these individualized assessments, and there are plenty of courses where students basically dump a paper onto professors in a relatively impersonal exchange. In those cases, I could see why Turnitin is an important or even essential tool to combat student efforts to game the grading system.

Even so, I remain troubled by some aspects of the Turnitin service. Most of my concerns relate to the implicit coercion of students to use Turnitin. Some students may not be aware that the professor will require Turnitin use at the beginning of the semester when (in theory) objecting students could freely drop the course, in which case the student is effectively required to use Turnitin to pass the class regardless of student consent. Even more problematically, students might be required to take a Turnitin-mediated course--such as when the course is a mandatory prerequisite and there aren't multiple professors teaching the course, or when students are assigned to a course without any choice (such as in high school). In those cases, students are forced to participate in the Turnitin scheme whether they want to do so or not. This isn't the biggest travesty in the world, but I'm not sure it's fair either.

The plaintiffs in this case--a group of four high schoolers--mount a solid attack on the Turnitin system for copyright infringement based on Turnitin keeping copies of their papers and occasionally republishing the papers to other professors when the papers trigger matches in future Originality Reports. iParadigms defends based on its mandatory clickthrough agreement, which every student must agree to as part of the submission process. The clickthrough was properly formed, so there's no question that it superficially demonstrates mutual assent.

However, student consent is illusory in at least two ways. First, as I mentioned, many students don't have a meaningful choice about consenting to the clickthrough agreement because they will fail their courses if they don't submit. The students attack this as duress, and the court correctly notes that Turnitin is not the source of duress; instead, the schools are the source, and the court tells the students to take it up with them. While the court is right that duress doesn't apply directly here, I could have seen other courts using the school-supplied duress as part of an unconscionability attack on the contract.

Second, the plaintiffs were minors, and well-settled law is that incomplete contracts with minors are voidable. The court sidesteps this issue by saying that the students had received the complete benefit of the Turnitin contract relationship when their papers were cleared by the Originality Report, and therefore they could not "return" the benefits conferred on them by Turnitin.

This is a ruling of potentially large significance. I've long believed that courts would struggle with dismissing claims by minors against websites because of the voidability issue, which seemingly left a large class action hole against all websites with minors as users. That hole may still exist--it depends on whether the contract is complete or not, and in many cases both parties will have incomplete obligations in a standard website EULA. Despite this, it's clear that this judge wasn't going to entertain any bypass that threatened the integrity of the Turnitin service, and I wouldn't be surprised if many other courts would reach the same conclusion in other circumstances.

The court dismisses the copyright infringement claim on the alternative ground that Turnitin's copying is fair use:
* storing the copy of the paper for plaigarism purposes is highly transformative
* the court twists the nature of work factor to weigh in favor of Turnitin, saying that Turnitin doesn't use the papers for their creative meaning
* the court also twists the amount/substantiality of the portion taken to weigh in favor of Turnitin. Even though Turnitin takes 100% of the work, it doesn't really publish the entire work (except in the occasional cases where a professor requests a copy after a match in the Originality Report) to others but simply flags the match.
* the court dismisses the effect on the market value of the work. Most student papers have no commercial value. The papers would have commercial value if resold to the term paper websites, but the plaintiffs conceded that they wouldn't authorize this usage because that would be cheating.

While I can't really quibble with the conclusion that Turnitin's use is fair, especially given the laudable objective of plagiarism suppression, other judges would have reached the opposite conclusion because Turnitin forces students to put their papers into a database that iParadigms mines for its profit.

In any case, this fair use ruling may augur well for search engine fair use cases, most obviously Google's book search and Google News--both of which pump third party copyrighted works into a for-profit database but republish only a limited portion.

The opinion also has some interesting discussion about iParadigms' counterclaims against the students. iParadigms initiated a very aggressive counterattack against the students (the words "scorched earth" came to mind). I guess iParadigms wanted to send the message--don't screw with us, because we'll make your life heck. I don't think iParadigms expected to get any meaningful payoff from their counterclaims, but they got nothing. In some sense they are lucky that it wasn't worse; I could see some judges taking such umbrage at iParadigms' tactics that they could have backfired.

iParadigms sought indemnity from the students based on a clause in its usage policy. The problem is that the usage policy wasn't presented as a mandatory clickthrough (whoops!) and the court refuses to extend the Register.com v. Verio bailout here.

One of the students obtained false credentials to log into the system at one point, but the court rejects iParadigms' claim that such a login was a trespass to chattels, Computer Fraud & Abuse Act violation or Virginia Computer Crimes violation because iParadigms couldn't make any showing of damages from this unauthorized login. This is the right result (at least with respect to trespass to chattels) per Intel v. Hamidi, but we've seen plenty of courts ignore the damages requirement from the Hamidi case.

Other comments on this case:
* Tom O'Toole
* Rebecca Tushnet
* Siva Vaidhyanathan
* Georgia Harper
* William Patry

UPDATE: According to the Chronicle of Higher Education, the students plan to appeal. Given the many conflicting norms associated with this case, I would be surprised if the appellate ruling was as decisively favorable for Turnitin as the district court opinion was.

Posted by Eric at 10:41 PM | Copyright , Licensing/Contracts , Privacy/Security | TrackBack

March 13, 2008

eBay Denied 230 Defense for Its Marketing Representations--Mazur v. eBay

By Eric Goldman

Mazur v. eBay Inc., 2008 WL 618988 (N.D. Cal. March 4, 2008)

I declared Monday "47 USC 230 Day" here at the Technology & Marketing Law Blog, but with this new case, I'm declaring it 47 USC 230 Week. This case explores one of the frontiers of 47 USC 230 jurisprudence--when can 230 preempt a claim that a website made false marketing representations? This issue has been lurking in numerous recent 47 USC 230, but it arises squarely here. Unfortunately, the legal analysis isn't clean or easy.

eBay offers its users the ability to engage in "live bidding" (i.e., bidding via the Internet on auctions taking place in physical space) through third party vendors. eBay's marketing materials described these vendors as "safe" and "carefully-screened, reputable international auction houses" and that the bidding was against "floor bidders" (i.e., people bidding on the physical floor of the auction). The plaintiff claims that instead shill bidders at the auctions caused her to overpay. eBay defends against the claims based on 230 because any falsity introduced into its statements was attributable to the actions of third party vendors.

Judge Patel found that 230 helped eBay in a number of respects:

* "to the extent plaintiff seeks to hold eBay liable for information provided by [a third party vendor], eBay is immune from liability".
* "plaintiff’s assertion that eBay knew of the seller’s illegal conduct and failed to prevent it is nevertheless under the ambit of section 230"
* "eBay’s assertion that the auction houses were screened is not actionable" because the screening is an editorial function [note: I'm not sure screening vendors for quality is really an editorial function in the traditional sense. Perhaps this particular issue would have been more appropriately handled under 230(c)(2)?]

At the same time, the court says that three other statements at issue--that live bidding is "safe," is conducted against "floor bidders" and involves "international" auction houses--are not preempted by 230. In doing so, the court distinguishes several cases, including:

* the Gentry case (involving eBay's liability for fake sports memorabilia) because eBay's communications there were distilled from user-supplied feedback
* the SexSearch case (where the site claimed its users were 18+ but a minor lied about her age) because the marketing claims "were merely a regurgitation of its users’ representations" whereas here, apparently eBay made no regurgitations
* the infoUSA case (where infoUSA said that it verified data in its database) and the Barnes case (where Yahoo failed to take down bogus user profiles) because each involved the accuracy of data, while this case involves the promise of safety. [Note: I think the court makes a rather fine distinction here. Clearly the word "safe" means something special to this judge: "eBay’s statement regarding safety affects and creates an expectation regarding the procedures and manner in which the auction is conducted and consequently goes beyond traditional editorial discretion."]

The court doesn't discuss the Accusearch case, which seemed like the most analogous case to me. That case involved a vendor's resale of illicit phone records that were procured by third parties via pretexting, and the court held that 230 didn't protect the vendor even though the underlying asset being sold was information from a third party. The Accusearch opinion doesn't directly hold the vendor responsible for marketing these illicit records as legitimate, but that would be a fair way to read the opinion. The court also could have cited (but didn't) the CafePress opinion, which also involved a 230 denial for a website selling tortious third party goods.

So, what does all of this mean? The bad news is that this case seems to open up a major bypass to 230 for plaintiffs. They don't need to sue a website for a third party-caused tort by asserting the prima facie tort against the website; instead, following the "logic" in this opinion, all a plaintiff needs to do is find that the website made a marketing representation somewhere that says or implies the tort wouldn't occur, and the claim for bad marketing should be outside 230's coverage. [Note: I understand that's not exactly what Patel said because she did reject the claims for eBay's marketing representation about screening. But the claim over "safety" fits this pattern neatly.]

On the other hand, I'm not sure this case reached the wrong result. Assume for a moment that per 230, eBay isn't liable for the marketing claim that its vendors are "safe." This seemingly would mean that eBay could freely make such claims, true or not, reap the economic benefits from consumer choices driven by those claims, and yet completely avoid liability. I don't think 230 should provide a free pass for commercial misrepresentation. eBay picks the words to describe its business; it should own those words.

In any case, as this case illustrates, I think it's fair to say that 230's preemption of marketing representations remains a major open area in 230 jurisprudence. If you're looking for a term paper project, this looks like a good one to me.

Even if 230 doesn't apply, eBay has other defenses against liability for the alleged marketing misrepresentations. The court rejects eBay's defense based on the release in the eBay user agreement, but it does dismiss the fraud claim (with leave to amend) because it lacked the requisite specificity.

The opinion also discusses one of the auction vendor's user agreements, which specified a highly expedited extrajudicial adjudication as the sole dispute resolution option. The court tosses the contractual adjudication procedure as unconscionable due to the contract's formatting and substantive unfairness. Along the way, the court casts some doubt on extrajudicial adjudication clauses that have "no witness" provisions. If you're interested in forming enforceable online user agreements, you should check out this opinion.

Posted by Eric at 09:40 AM | Derivative Liability , E-Commerce , Licensing/Contracts , Marketing | TrackBack

February 26, 2008

Click Fraud Talk at SMX West

By Eric Goldman

At SMX West, I participated on a panel about recent search engine law developments with Clarke Walton, Sarah Bird and Jeffrey Rohrs as moderator. Jeff asked me to address click fraud developments, so here's a recap of my very brief talk:
______

From a legal standpoint, I think click fraud is a relatively unexciting topic. Principally, click fraud is a fairly routine contract interpretation issue--the advertising contract defines the payment mechanism, so search engine-advertiser click fraud cases simply involve the interpretation of that provision. As a result, click fraud cases don't really break any new theoretical ground; the basic legal doctrinal are squarely covered in a first year Contracts course.

The click fraud topic has gotten even less interesting following the 2006 settlements by Google and Yahoo. Since then, I think we've seen a gradual but unmistakable decline in the attention and emotional energy directed towards the topic. Google and Yahoo settled up in part to put the issue behind them, and it looks like they did just that. Let’s consider the denouement from the 2006 settlements:

* Google and Yahoo paid fairly nominal amounts of cash (by their standards)
* The plaintiffs’ attorneys made off with a nice chunk of change (by their standards)
* Advertisers got almost no value from the settlements. My understanding is that the dollar value of credits requests pursuant to the settlement was trivial.
* Hundreds of advertisers opted out of the settlements, and some of those opt-outs have matured into standalone lawsuits of relatively low import (and, IMO, relatively low merit), such as the Feldman v. Google lawsuit. There are some ancillary lawsuits, such as the ongoing Miva securities litigation, that I also think are chickenscratch cases.

Looking forward, I see two main open issues about click fraud:

1) Just how bad is the click fraud problem? We still don’t know the exact rates or volume of click fraud (a topic that has sparked an irresolute war of words and statistics), and advertisers still don’t have a good way to quantify it for themselves. As a result, many advertisers are still mad about click fraud, but at the same time I don’t see any obvious suppression of the click-based advertising market either. I’m sure some advertisers have checked out due to click fraud, and other advertisers have reallocated a portion of their dollars to advertising media less susceptible to fraud, but on the whole the click-based advertising market remains robust, healthy and profitable for all involved. I think this is one of the main reasons that click fraud is receiving less attention.

Another possible reason is that perhaps advertisers are doing a better job managing click fraud despite their imperfect tools. Certainly, advertisers who can track ROI from their click-based advertising can adjust their click bids to account for any valueless clicks. For those advertisers, I recommend that they reduce their bids downward to reflect the value they actually derive. Let your competitors overpay for those clicks.

2) Will there be new class action lawsuits against Google and Yahoo? While the 2006 settlements cleaned up Yahoo and Google’s past liability for click fraud, in theory a new class of advertiser-plaintiffs has been developing since the settlement dates. In light of the sweet deal that the plaintiffs’ attorneys got in the last settlements, it seems inevitable that some entrepreneurial plaintiff-side attorneys are going to round up a new class of post-settlement advertisers.

For more on the click fraud topic, in May 2007, I gathered my blog posts on the click fraud topic into a single PDF.

Posted by Eric at 10:20 PM | Licensing/Contracts , Search Engines | TrackBack

February 15, 2008

Turnitin Lawsuit to Be Dismissed--AV v. iParadigms

By Eric Goldman

A.V. v. iParadigms, LLC, No. 07-0293 (E.D. Va. removal from trial docket Jan. 9, 2008)

iParadigms, the operators of the Turnitin plagiarism detection tool, issued a confusing press release earlier this week announcing that the lawsuit against them was going to be dismissed. To make sense of the press release, I pulled the applicable court filing--see it here. The main operative provision says:

"It appearing to the Court that Plaintiffs' Motion for Summary Judgment should be granted as to the counterclaims and Defendant's Motion for Summary Judgment should be granted as to the Complaint, it is hereby ORDERED that the this [sic] case is removed from the Court's trial docket, and a Memorandum Opinion and Order will be forthcoming."

It is unusual for a judge to foreshadow an opinion like this. I'm guessing the judge was trying to schedule another trial and needed the space, so the judge issued this order before he had time to write up his thoughts. As of this morning, the opinion still hadn't been posted to PACER. I'm not sure why iParadigms waited a month to issue this press release but then decided to release it now prior to the actual opinion. In any case, I'm sure the opinion will be an interesting read on the contract or copyright topics (or both), but we'll have to wait to see the judge's thinking.

Posted by Eric at 09:32 AM | Copyright , Licensing/Contracts | TrackBack

February 12, 2008

Jan. 2008 Quick Links (Non-IP Edition)

By Eric Goldman

47 USC 230

* Doe v. SexSearch, the case absolving a website for age verification of its users, has been appealed.

* The Supreme Court denied cert in Parker v. Google. See 2008 WL 114262.

* NYT update on the Subway v. Quiznos lawsuit. I'm still waiting to see how the CCBill case affects the legal analysis.

Ripoff Report

* CMLP reported that Energy Automation Systems v. Xcentric Ventures has settled.

* A lot of people would love to take down the Ripoff Report. The latest (perhaps unexpected) opponents--the SEO crowd. See here, here and here. Definitely not a group I'd want to have gunning for me...

* Sarah Bird wrote the blog post I wanted to write: a recap of all of the litigation involving the Ripoff Report and its related entities. She updates a number of cases I've blogged about here.

Privacy

* The quest to find defendants in the AutoAdmit lawsuit has spilled over to unrelated websites whose URLs were posted to AutoAdmit, on the theory that AutoAdmit users were likely to have visited there prior to or after the links were posted. See the plaintiff's motion. This has proven to be a controversial move; see critiques from Mike Masnick and Sam Bayard.

* World Privacy Forum's Top Ten Opt Outs.

* The Privacy Rights Clearinghouse has compiled a master list of all the data breaches that have been announced.

Spam

* Venkat on 4 years of CAN-SPAM. I think the best we can say is that CAN-SPAM hasn't destroyed email as a communication tool, but I am skeptical that its significant transaction costs are outweighed by its benefits.

* Search Engine Land shows Wired that its wiki isn't spam-proof and then apologizes for it.

Marketing/Advertising

* Greg Linden predicts a dot-com crash in 2008 where a dry-up of investment capital will lead to marketing desperation: "Much like we saw after the 2000 crash, it is likely that those with little to lose will attempt scary new forms of advertising. The Web will become polluted with spyware, intrusiveness, and horrible annoyances. None of this will work, of course, and there will be lawsuits and new privacy legislation, but we will have to endure it while it lasts."

* Oddee has some vintage ads that couldn't be made today.

Blogging

* Examples of how blogging is actually increasing some companies' sales.

* Giving in to cyberspace exceptionalism, a divorce court judge ordered a husband to stop blogging about the wife. Fortunately, the judge soon realized his error and reversed course, basically throwing up his hands saying "I don't know what to do here." Garrido v. Krasnansky, No. F 466-12-06 (Vt. Fam. Ct. Jan. 14, 2008).

Miscellaneous

* Once again, Mike Masnick says what I was thinking better than I could: "Both Microsoft And Google Are Probably Best Off Shutting Up About Monopolies."

* Wired has a great article on scraping data from major Internet players, many of whom themselves use scraping-like methodologies to gather data: "But beneath all the kumbayas, there's an awkward dance going on, an unregulated give-and-take of information for which the rules are still being worked out. And in many cases, some of the big guys that have been the source of that data are finding they can't — or simply don't want to — allow everyone to access their information, Web2.0 dogma be damned."

* The FTC has cracked down (again) on a website for inadequate security. This time, the e-tailer "Life is good" promised that "all information is kept in a secure file" but a hacker got good stuff (credit card #s, etc.) anyway. The FTC pointed to several deficiencies, including (1) the retailer's failure to store the sensitive data in encrypted format, (2) inadequate efforts to identify and patch security holes, and (3) inadequate monitoring of intrusions.

* Krause v. Chippas, 2007 WL 4563471 (N.D. Tex. Dec. 28, 2007). Court says a website user was bound to the contract when "lead page" of website said "USE OF THIS SITE AND OR SERVICES OFFERED WITHIN THIS FUTURESCOM.COM SITE SIGNIFIES YOUR AGREEMENT TO THIS SERVICE AND USAGE AGREEMENT."

* An interesting British study explains the downsides of government-mandated disclosures to consumers. HT Rebecca.

* I participated in a 30 minute podcasted conversation on the Lawyer 2 Lawyer show on the topic of social networking sites.

* I have 2 copies left of my 2007 Cyberspace Law course reader. First 2 people to email me with a request and their mailing address get them. [UPDATE: Gone!]

Posted by Eric at 05:50 PM | Derivative Liability , Licensing/Contracts , Marketing , Privacy/Security , Spam | TrackBack

January 16, 2008

Contract Formed Even If Customer Never Received It--Schwartz v. Comcast

By Eric Goldman

Schwartz v. Comcast Corp., 2007 WL 4212693 (3d Cir. Nov. 30, 2007)

This case just crossed my desk, and I'm surprised it hasn't gotten more attention. (Declan at News.com wrote about it with a misdirected headline, and other coverage has been thin). The opinion provides a surprising answer to the thorny existential question of how to form a contract without forming a contract.

Schwartz is a disgruntled Comcast customer (is there any other type?) because he thinks Comcast has overpromised and underdelivered (Comcast claimed that it was "always on," except for the 10 days it was off for Schwartz). Schwartz wants his day in court. Comcast prefers that he have his day in arbitration per the terms of its subscriber agreement--which, not incidentally, also handily says that there are no class actions in arbitration. Comcast says that it included a copy of the subscriber agreement in its welcome kit for all new customers and posted a copy on its website, but Schwartz claims he never saw the subscriber agreement. The court's response to this factual dispute is rather amazing:

Comcast's evidence of its consistent practice regarding delivery of subscription agreements and of the conduct of the parties in this case constitute prima facie evidence that Schwartz was aware that the services he accepted were being offered pursuant to a subscription agreement

Isn't this a complete non sequitur? Sure, Comcast can enter evidence that it spams its new customers with the subscriber agreement, but it's also likely that this process is not 100% effective--surely, some errors in the system cause some customers not to receive the agreement. The court cites a Federal Rule of Evidence that says a corporate routine is relevant to prove that the routine was followed in this case. So when Comcast claims it has a pattern of spamming its users with the subscriber agreement, the court says that it will treat all customers as having agreed to those terms--even if they never saw those terms, let alone actually manifested assent to them.

That's a pretty neat parlor trick. Too bad it's not contract law. There's no question that Schwartz and Comcast have a contract for services. Most likely, it formed when Schwartz placed his order and Comcast accepted (or, less likely, when Comcast made its offer and Schwartz accepted by ordering). All we're haggling about is what terms were included in that contract when it formed. [Note: because this contract is for services, the UCC-based contract cases saying "pay now, terms later" do not automatically apply here...not that any of them were cited by this court.] This court says that Schwartz is bound to terms that were sent post-formation (a dicey proposition) even if Comcast can't prove that Schwartz received the terms (let alone assented to them) (a doubly dicey proposition). How in the world can those terms become part of the bargain?

The court bolsters its shaky conclusion with two other facts:

* Schwartz signed a piece of paper when he disconnected his cable service (but not his Internet connectivity) that said "If other non-installation work was provided, I agree to continue to be bound by the current Comcast Subscriber Agreement" and contained the cryptic reference "O/L PRO SERV" which stood for "Online Pro Internet Service." I'm not sure what to make of this language because (1) I don't know what the term "if other non-installation work was provided" refers to, (2) we're haggling over the terms of the original subscriber agreement, so this language doesn't clarify the terms, and (3) the cryptic reference makes no sense to anyone other than a Comcast employee.

* the subscriber agreement was on the web. Noting this, the court makes this remarkable statement: "the terms of the contract were available to Schwartz via the web site, and thus they are binding, despite the fact that he was unaware of them." I don't think the court could possibly mean what it says.

Even though the court went out of its way to form the contract, it did remand the case to consider if the arbitration clause is unconscionable. (According to PACER, nothing has happened since the remand). There's good reason to consider the unconscionability question given that a primary goal of Comcast's arbitration clause was to destroy class actions. Courts have been striking down arbitration clauses for this reason with some frequency, so perhaps the district court will do so here.

The court designates the opinion non-precedential and otherwise clearly communicates its hope that no one other than the litigants will read the opinion. Given the opinion’s sloppiness, that is an appropriate desire. Accordingly, I'm not sure how much wisdom we can salvage from this case. A couple of points:

* the case seems to reinforce that a mandatory clickthrough process (i.e., every user has to go through the same process) should be well-received by a court because it reflects the kind of corporate routine the court lauds here.

* even though the court bailed it out here, it looks like Comcast (and, I suspect, many other telecommunications, cable and Internet providers) have a lot of work to improve their contract formation process so they don't have to rely on parlor tricks to form their contracts.

Posted by Eric at 05:46 PM | Licensing/Contracts | TrackBack

December 13, 2007

Oct.-Nov. 2007 Quick Links, Part 1

By Eric Goldman

I was so jammed at the beginning of November that I didn't have time to post my quick links from October. Never fear; that omission is being corrected with a double shot of quick links covering October and November:

Wikipedia

* Slashdot: Has Wikipedia peaked? If true, I'm not surprised.

* The new status symbol of the digital age? A personal Wikipedia page. FWIW, my personal Wikipedia page was crunched and rolled into a general criticism of Wikipedia page. I found this ironic given that the Wikipedians had already caucused about the merits of my page and decided not to kill it; and then a single Wikipedian swept through and ignored that decision. Sounds like the process worked really well there, guys.

* The newest fork from Wikipedia: Veropedia.

Google

* Webmasters give preference to the Googlebot over other search engine robots in robots.txt files.

* Searchers prefer Google results in a blind taste test. But...searchers also prefer search results when they are branded Google!

* For years, people have speculated that Google advertisers get extra bounce in organic search results. Search Engine Guide lays out the case.

* Carl Person isn't giving up in his (unquestionably futile) fight against Google. The latest: he's appealed his case to the Ninth Circuit. HT Links & Law.

Adware/Spyware

* FTC Commissioner Leibowitz thinks bigger civil fines would help shut down more spyware operators. Then again, it seems like the market is doing that job for them; another adware vendor, DirectRevenue, has gone under.

* Zango has appealed Zango v. Kaspersky to the Ninth Circuit. I wasn't a fan of this lawsuit from the outset, so pursuing the case sounds like a mistake to me.

Virtual Worlds

* Herman Miller (maker of the famous Aeron chairs--I had one at Epinions) is combating the makers of fake virtual Aeron chairs in Second Life.

* Bragg v. Linden Lab has settled. The case involved a claim that Linden Lab improperly impounded some virtual assets.

* Wired: "Cheaters in multiplayer online games beware: Game developers are turning to advanced financial fraud-detection software to keep you from crooking your way to online riches."

47 USC 230

* Roskowski v. Corvallis Police Officers' Ass'n, 2007 WL 2963633 (9th Cir. Oct. 10, 2007). A summary opinion upholding a dismissal based on 47 USC 230. See my blog post on the district court ruling. Michael Erhman's comments.

* The US Supreme Court denied certiorari in Perfect 10 v. ccBill.

* The AutoAdmit plaintiffs filed an amended complaint that dropped Ciolli as a defendant and reworked the substantive allegations. Coverage: Above the Law, Concurring Opinions (1, 2), WSJ Law Blog.

* A former student informed me that a judge on the show Boston Legal (the Nov. 13 episode, "Attack of the Xenophobes," episode 74) applied 47 USC 230--correctly!--to dismiss a lawsuit against YouTube for a defamatory video. See the episode recap.

Online Contracts

* Adsit Co. v. Gustin (Ind. Ct. App. Oct. 16, 2007). Daughter-in-law gives credit card number to mom-in-law to complete online transaction. Court holds that mom-in-law acted as daughter-in-law’s agent and thus bound the daughter-in-law to the vendor’s clickthrough agreement. Accord: the Hofer and Abramson cases.

* Whitnum v. Yahoo, Inc., 2007 WL 2609825 (NY Supreme Court, Sept. 5, 2007). Woman sought damages because Yahoo shut down her website the same day she got a good publicity hit. Yahoo pointed to the liability limits in its user agreement, and the court found that those limits supported a motion to dismiss. Given the ubiquity of similar provisions in web hosting contracts, this case nicely illustrates that web hosting customers really don’t have any recourse if their vendor just shuts them down. This is also why I find 17 USC 512(g) (the DMCA limit on liability if a web host honors a counter-notification) so baffling—web hosts don’t need any help from the statutory safe harbor when they have already eliminated the risk through their contracts.

Posted by Eric at 02:05 PM | Adware/Spyware , Derivative Liability , Licensing/Contracts , Search Engines , Virtual Worlds | TrackBack

October 24, 2007

Interesting Contract Interpretations in Eighth Circuit Fantasy Baseball Case--CBC v. MLB

By Eric Goldman

CBC Distribution and Marketing, Inc., v. Major League Baseball Advanced Media, L.P., No. 06-3357/3358 (8th Cir. Oct. 16, 2007)

You've already heard about this case, which held that MLB's right of publicity claim against a fantasy baseball league provider was barred by the First Amendment. Personally, I found that ruling only mildly interesting. The First Amendment defense to ROP claims is so squirrelly that I have no idea when we'll see it again, so the precedential impact of this ruling is unfortunately low. Instead, the court should have ruled that publishing player statistics in an online commercial database isn't a commercial exploitation (i.e., lacked the requisite "commercial advantage") of any player's publicity rights any more than publishing a book compiling such statistics would be. That would have been a more sensible ruling and would have provided a lot greater certainty for the future.

In any case, I think the discussion about the expired CBC-MLB contract is way more interesting than the right of publicity discussion. The court lays waste to the standard interpretation of at least 2 very commonly used contract provisions, and this provides a cautionary tale to drafters.

Representation/Warranty of Authority

The contract said that the licensor "represents and warrants that it has the authority to grant the rights licensed herein." Normally, this R&W is made as part of a series of ownership R&Ws--typically that the licensor (1) owns its licensed stuff, (2) has the right to grant licenses to the stuff, and (3) use of the licensed stuff won't infringe any third party rights. When these R&Ws are poorly drafted, they can be effectively redundant (i.e., a third party claim of infringement triggers all three R&Ws), but #2 does pick up two additional situations compared to #1: (a) where the licensor owns the stuff but has granted an exclusive license to a third party that would conflict with the newly granted license, and (b) where the licensor itself in-licenses stuff, in which case the R&W tests if the licensor has appropriate sublicensing rights.

Here, the court rejects the licensee's argument that the Players Association (the licensor) breached the R&W because it didn't have good title (because there were no enforceable publicity rights). Instead, the court reads the R&W as an R&W of agency--that is, that the Players Association is the agent of the players.

FWIW, personally, I rarely use R&Ws of ownership. Usually, I handle infringement risks solely through an indemnity. So I would be unlikely to encounter this issue in a contract I drafted. But I have seen this language hundreds of times in other contracts, and I believe the parties have always intended to ascertain the licensor's good title. As a result, this court seems to have completely misread this provision, and its interpretation jeopardizes the interpretation of the language in the many, many other contracts where it appears.

Declaration of Ownership

The court also interprets the language that the Players Association "is the sole and exclusive holder of all right, title and interest" in and to the players' names/statistics. I call this type of provision a declaration of ownership--typically intended to clarify the respective ownership rights between the parties. Personally, I hate these provisions, especially in licenses of public domain data. What does it mean to declare the licensor the "owner" of public domain data? And I've had way too many pointless/fruitless negotiations over the ownership about user data that are unquestionably hindered by the weak grammatical structure of such a declaration.

The Eighth Circuit gives us another reason to hate the declaration of ownership clauses. They say that "quite obviously" the language is an R&W of ownership, which the Players Association breached because, in fact, it didn't have enforceable right of publicity rights. So watch out for those declaration of ownership clauses--they could become an unintended backdoor warranty of ownership!

Enforceability of Post-Termination Restrictions

The MLB contract had provisions waiving a licensee's right to challenge MLB's ownership rights (the no-challenge clause) and restricting post-termination use of the data (the no-use clause). The no-challenge clause isn't that unusual in the trademark license context, but it's extremely aggressive with respect to licenses of public domain data. (I can't recall ever seeing it in a right of publicity license). The no-use provision is very common among licenses of public domain data. Without the clause, immediately after the license, the licensee will have an electronic copy of the data and can exploit it freely without paying for it, thus undermining the licensor's business model.

The district court struck down both clauses on public policy grounds. This was a sensible approach with respect to the no-challenge clause, which has the effect of precluding judicial oversight over dubious claims of ownership. As for the no-use clause, I'm reminded of the Listerine case and the survival of confidentiality restrictions in a trade secret license even after a trade secret has lapsed in the public domain. Normally we tolerate these trade secret restrictions that make the licensee worse off than if the licensee had never signed the contract in the first place. I'm not sure it's a good policy result, but it's well-established as a legal doctrine.

Whenever I did data in-licenses, I would always contractually preserve our post-termination ability to procure replacement data from other sources for this very reason (just like I always include a provision in trade secret licenses/NDAs removing the confidentiality obligations if the trade secret is in the public domain). My guess is that MLB was a real bear about such negotiations, so they probably would have resisted the inclusion of such a provision. But without that provision, there is a risk that the court would enforce the post-termination obligation in a way that effectively made the data licensor a monopoly supplier of the data in the future.

The court sidesteps all of this by finding the declaration of ownership provision was a warranty that the licensor breached and thus released CBC from the reciprocal obligations. This sure seems like a roundabout way to reach the result that CBC isn't contractually restricted from using public domain data. It would have been cleaner if the court would have categorically restricted such clauses on public policy grounds. Instead, because the court took this convoluted process, licensees of public domain data either have to (a) include sufficient warranties (or clauses that a court will misinterpret as a warranty) that will allow the licensee to escape post-termination restrictions on public domain data, or (b) as I always do, include a post-termination right to obtain the data from other sources, which is usually painful to negotiate.

Posted by Eric at 06:13 PM | Licensing/Contracts , Publicity/Privacy Rights | TrackBack

October 22, 2007

AOIR Regulating Virtual Worlds Panel, and My Notes on Investment Expectations in Virtual Worlds

By Eric Goldman

Last week at AOIR's annual meeting (AOIR 8.0) in Vancouver, Greg Lastowka, James Grimmelmann, Tyler Ochoa and I presented on the topic of regulation of virtual worlds. My notes from the presentations are below. See Mark Bell's recap too.

Greg Lastowka, Rules of Play

Greg discussed how game rules can increase the fullness and beauty of life. Yet, legal rules may be too rational. For example, a traditional economic analysis would encourage the development of markets for virtual property, regardless of any EULA restrictions, because these markets would facilitate Pareto exchanges (i.e., both parties better off; no one worse off). However, lawyers can't understand peoples' need to live in beauty or how gameplay can facilitate this.

My comment to Greg: how much are rules of play exogenous to the players (i.e., imposed from the top down by the VW providers) and how much are just codifications of rules that the community of players demand on a bottoms-up basis. At Epinions, our users demanded that we vigilantly police the conduct of other players, in many cases forcing us to impose more rules or police them more vigorously than we would have done if the choice was solely ours.

James Grimmelmann

James talked about the metaphysics of virtual objects/experiences. The VW provider has the power to determine people's perceptions within the world. For example, if the VW provider deletes an object, everyone agrees that the object ceases to exist in the world.

Also, the VW software is proprietary, so there's no check on a provider's autocracy. Even if the software creation was open sourced, it still wouldn't solve the normative determination of what's fair to do to players.

James thinks that virtual worlds need healthy virtual governance--specifically, that there should be a public sphere within virtual worlds as a way for players to discuss the providers' autocratic decisions.

I made two comments: (1) is there anything unusual about the metaphysics in virtual worlds? It seems to me that we have many shared hallucinations in realspace (like when our government lies to us, and we accept the lie rather than listen to our inner skepticism). (2) If the risk of provider exercise of arbitrary autocratic power is a problem, couldn't providers outsource an auditing function to third parties? For example, accounting firms audit the financial statements of companies.

Tyler asked what's so good about liberty and fairness? I think he was driving at the fact that VWs could in fact involve benevolent dictators, and this could lead to better outcomes than we could accomplish in the real world.

There was a good Q for James that if virtual property is real, does that mean that cybertorts committed in the virtual world equally "real"? For example, is hate speech in a virtual world just as tangible as virtual property?

Tyler Ochoa, Who Owns Avatars?

Tyler acknowledged that the first response to this topic is that avatar ownership should be determined by the EULA. He made his arguments why the default ownership of avatars matters:

1) EULAs may not be binding (see, e.g., the Bragg decision, which put Second Life's EULA in serious jeopardy)
2) some things can't be assigned by contract, such as the 17 USC 203 termination of transfer right. (So, in 35 years, someone might come back and demand the copyrights to their avatar!)
3) the default copyright rules may determine the applicability/enforceability of contract rules

He noted the numerous aspects of an avatar that may be protected, including the avatar's appearance, capabilities, behavior and communications.

He thinks the more that a provider gives choices to consumers to configure avatars, the more that the avatar looks like the creation of a user. As a result, he advocated that avatars should be thought of as a contribution to a collective work (although, depending on the facts, they could be a derivative work, a compilation or a joint work). He explained why this solved some of the problems about avatar ownership.

I asked Tyler whether the more appropriate model would be for providers to treat avatars as a specially commissioned work for hire as part of an audiovisual work. This would require providers to characterize the avatar as a work for hire in their EULA, but this seems like a complete solution for providers (maybe not for users!).

In his talk, Tyler asked about the appropriate remedies if a hacker deleted someone's avatar. This seems like a problem outside of copyright law, but tangible property law could in theory apply. See, e.g., Kremen v. Cohen.

Tyler also asked what remedies users would have if their avatars were included in a derivative work (like a movie based on the VW). Again, copyright may or may not provide an adequate remedy, but it made me wonder if users have a publicity right in their avatar. I haven't researched it, but I assume that the ROP can cover pseudonyms, nicknames, etc. If so, it seems like a derivative work may need permission from avatar alter egos irrespective of the copyright disposition.

Eric Goldman, Investment Decisions on a Shaky Virtual Foundation

Here are my notes from my talk. I am thinking about writing this up into a short essay, so I would gratefully welcome any comments.

_______________________________________________

Investment Decisions on a Shaky Virtual Foundation

There has been lots of discussion in literature about who owns virtual property. However, I’m more interested in *how* virtual property comes into existence in the first place because it gets created in a seemingly poor environment for investment decisions.

Obviously, some virtual property is generated as part of the ordinary course of gameplay. We generally don’t need to worry about the incentives to create this property; the gameplay provides the needed incentive. And I believe we don’t need to protect the investment “expectations” for this property—because the gameplay provides the motivation, there are no *investment* expectations to protect. (There may still be unhappy users who feel screwed by gameplay or providers’ monkeying with the gameplay, but this seems wholly internal to the game itself).

In other cases, virtual property will be protected by default IP laws (such as copyrightable works created within the context of Second Life). These investment decisions are no different than the creation of any other IP.

Despite these two motivations, there is still plenty of other investments made on spec or with the hope of a return, and these investments can be wiped away in a moment. There can be in-world reasons, like inflation, exploits or in-game theft. More importantly, the VW’s user agreement may give the provider unlimited ability to moot the agreement, such as by kicking the user off the site or stripping the user of assets.

The most obvious example is Second Life, where there is no gameplay per se but still plenty of real-world investment capital being invested. Second Life's EULA makes it clear that all of this investment could be wiped away at its discretion. From its user agreement:

Sec. 1.4: You agree that Linden Lab has the absolute right to manage, regulate, control, modify and/or eliminate such Currency as it sees fit in its sole discretion, in any general or specific case, and that Linden Lab will have no liability to you based on its exercise of such right.

Sec. 2.6: Linden Lab has the right at any time for any reason or no reason to suspend or terminate your Account, terminate this Agreement, and/or refuse any and all current or future use of the Service without notice or liability to you. In the event that Linden Lab suspends or terminates your Account or this Agreement, you understand and agree that you shall receive no refund or exchange for any unused time on a subscription, any license or subscription fees, any content or data associated with your Account, or for anything else.

Sec. 5.3: When using the Service, you may accumulate Content, Currency, objects, items, scripts, equipment, or other value or status indicators that reside as data on Linden Lab's servers. THESE DATA, AND ANY OTHER DATA, ACCOUNT HISTORY AND ACCOUNT NAMES RESIDING ON LINDEN LAB'S SERVERS, MAY BE DELETED, ALTERED, MOVED OR TRANSFERRED AT ANY TIME FOR ANY REASON IN LINDEN LAB'S SOLE DISCRETION.

So investment decisions in Second Life are made on the foundation that Second Life can moot those investments at any time for any reason. This should substantially shorten the time horizon for investment return, or at least increase the discount rate of future cash flows substantially. Yet, users still make substantial/sizable investments in Second Life and other VWs with similar policies. Why?

Hypothesis #1: Users are making irrational investment decisions because (1) they don’t know the rules governing their investments, and/or (2) they apply too low a discount rate

Evidence: <1% of users read user agreements; consumers may make mistaken inferences from the user agreements (i.e., majority of users think that the existence of a privacy policy automatically means their data must be protected-see Annenberg studies and http://www.law.berkeley.edu/clinics/samuelson/techade_report_final.pdf)

Possible policy implications: (1) improve user education, (2) match legal terms to reflect consumer expectations, (3) caveat emptor

Hypothesis #2: People are making rational investment decisions because (1) they are applying appropriate discount rate and expect short-term payoffs, or (2) they are trusting appropriate exercise of provider discretion based on market forces/brand/reputation

Possible policy implications: do nothing—market is working fine. But what if people are underinvesting due to investment uncertainty? (1) Market gives providers incentives to provide greater certainty if profitable, or (2) regulatory intervention is necessary to stabilize markets.

This got me thinking about alternative situations where people make investment decisions predicated on contracts that may be terminated for convenience. In general, US law tolerates this construct and does not establish limits on, in fact, exercising contractual rights of termination for convenience. See, e.g., United Airlines Inc. v. Good Taste (Alaska Sup. Ct. 1999). Catering company gets 3 year contract to cater United Airlines flights from Alaska, but 90 day termination for convenience clause. To perform the contract, the catering company invests $1M that (apparently) was designed to be amortized over the 3 year term. Instead, United terminates for convenience after 1 year. Catering company is unable to avoid this termination and, presumably, loses some of its investment. Indeed, in most cases involving termination for convenience, parties make some investments to perform, and contract law normally stays on the sidelines.

But in the case of franchises and distributor protection laws, we restrict a vendor’s ability to terminate for convenience even if both parties agree to a termination for convenience clause (the provider must terminate for cause or pay damages). Analogies to VW investors:

• both require upfront investment predicated on long-term support from the vendor
• vendors have substantially more leverage over contracting party—in VW context, presented on take-it-or-leave-it basis.

But noticeable differences:

• franchisors/vendors get long-lasting benefit from work of franchisees/distributors—get marketing investments/building of customer base. No direct equivalent in VWs
• franchises are heavily regulated investment decisions

More generally, does it still make sense to restrict contract freedom among franchise/distributor contracts? Or is this just an archaic paternalism?

In the case of VWs, no reason to restrict contract freedom without evidence of a problem.

• no evidence of market failure. Investments still growing rapidly
• We can rely on existing consumer protection laws (such as false advertising) provide substantial protection for any VW provider deception

Posted by Eric at 12:07 PM | Licensing/Contracts , Virtual Worlds | TrackBack

October 21, 2007

Ticketmaster Wins Big Injunction in Hannah Montana Case, But Did the Public Interest Get Screwed?--Ticketmaster v. RMG

By Eric Goldman

Ticketmaster L.L.C. v. RMG Technologies, Inc., 2007 WL 2988403 (C.D. Cal. Oct. 16, 2007)

You may remember Ticketmaster's multi-year battle against Tickets.com over data aggregation and deep linking. Ticketmaster never got a solid win in that case, but here Ticketmaster successfully advances the same legal theories against someone gaming its allocation of tickets. Hannah Montana fans might cheer this ruling, but some of the court’s analysis makes this a troubling Cyberlaw development.

Introduction

This case involves what I'll call "ticket sniping"--the practice of quickly snapping up highly-sought-after tickets when they first go on sale and then reselling them at higher prices. When it comes to hot concerts--such as the upcoming Hannah Montana tour--Ticketmaster's price may be well below the prices people are willing to pay in the secondary market. Why don't event promoters use auctions or other dynamic pricing scheme to capture this upside on the first sale? I'm reminded of the odd pricing systems for IPOs--just like that market, perhaps Ticketmaster (as an intermediary) deliberately underprices below the market-clearing price to increase its profits.

In any case, initial ticket buyers from Ticketmaster can get an economic windfall, which naturally motivates people to game the initial first-come, first-served ticket allocation system. RMG was one such gamer. They developed software that helped its customers beat other buyers in the rush to get hot tickets. Ticketmaster sued RMG to stop their gaming activities; the court issues a preliminary injunction:

Copyright

The court says that RMG directly infringed Ticketmaster's copyright in its web pages by browsing them to test the operation of its software tool. Effectively, then, the court says that web browsing is copyright infringement. This isn't the first time a court intimated as much, but it's troubling every time we see it.

The court overlooks any implied license to browse because Ticketmaster's "browsewrap" on its home page (which says "Use of this website is subject to express Terms of Use which prohibit commercial use of this site. By continuing past this page, you agree to abide by these terms") acts as an express restriction on browsing, so any access in contravention of those terms constitutes copyright infringement.

One of the key Qs is how RMG's software differs from other search engine robots. The court skirts this Q, simply pointing to Perfect 10 v. Amazon as excusing the cache copies made by web users who follow search engine links. Of course, search engine robots make lots of other copies, and we think these copies are excused because the final presentation (the display of search results snippets) doesn’t infringe. The court doesn't address this at all.

The court also says that RMG is indirectly infringing based on a Grokster inducement theory because RMG's marketing said it's offering "stealth technology [that] lets you hide your IP address, so you never get blocked by Ticketmaster." This is a pretty expansive interpretation of copyright inducement because the marketing references IP address blocks, not copyright infringement, but it's very consistent with the court's moral condemnation of RMG's behavior.

Anti-Circumvention

The court says that website pages are protected by copyright, and the website used a CAPTCHA to restrict access to these copyrighted works. Thus, distributing the software tool designed to circumvent the CAPTCHA to access the copyrighted website violates 1201(a)(2) and 1201(b)(1). Not only does this give unexpected copyright protection for CAPTCHAs, this ruling seems inconsistent with several precedents holding that bypassing a password protection system doesn't violate 1201.

Breach of Contract

As indicated above, the court upholds Ticketmaster's browsewrap. Admittedly, Ticketmaster has improved its contract formation processes since it litigated against Tickets.com, but I'm not sure this was as easy as the court treated it.

Computer Fraud & Abuse Act

Surprisingly, the court denies relief for this claim because Ticketmaster couldn't allege $5,000 of loss. I tell my students that if they can't construct $5,000 of loss under the CFAA, then they aren't thinking creatively enough.

Conclusion

It's easy to point at RMG and its customers as the bad guys. After all, they are trying to get an unfair advantage in the first-come, first-served allocation of scarce tickets for their economic benefit, with the result that later comers have to pay more to get the same tickets.

But what about Ticketmaster's role in this situation? They haven't designed a technologically gaming-resistant allocation of tickets, so they need legal help to solve that deficiency. I also remain suspicious about Ticketmaster's incentives here, both in setting prices and in policing against ticket allocation gaming. Their motives may not be nearly so consumer-friendly as they try to portray.

And this opinion is hardly pro-consumer either. This ruling won't be a problem if future courts limit this ruling solely to a company's efforts to legally protect a competently designed anti-gaming strategy. But some of the more dramatic rulings are anything but consumer-friendly, such as the implicit holding that browsing is copyright infringement and the upholding of Ticketmaster's browsewrap. If other courts apply these principles more broadly, Hannah Montana concertgoers may have gotten a benefit at the expense of us all.

Posted by Eric at 03:45 PM | Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Privacy/Security | TrackBack

October 07, 2007

September 2007 Quick Links Part II

By Eric Goldman

Contracts

* Manasher v. NECC Telecom, No. 06-cv-10749 (E.D. Mich. Sept. 18, 2007). NECC included the following language on its invoices: "NECC's Agreement 'Disclosure and Liabilities' can be found online at www.necc.us or you could request a copy by calling us at (800) 766 2642." Not surprisingly, an arbitration clause in the referenced document wasn't incorporated into the contract because (among other deficiencies) there was no "call to action" that communicated that the referenced document was part of the agreement. HT: Tom O'Toole.

* Hofer v. The Gap Inc., No. 05-40170 (D. Mass. Sept. 28, 2007). 2 friends decide to vacation together in Jamaica. Friend 1 books the travel arrangements for both of them through Expedia. Friend 2 suffers a personal injury at the resort and wants to hold Expedia liable. Expedia invokes the liability protections in its user agreement, but Friend 2 never consented to or even saw that user agreement. No problem, says the court--Friend 1 was Friend 2's agent and therefore automatically bound Friend 2 to Expedia's agreement. For an analogous case involving software installed on a home computer, see here. HT: Tom O'Toole.

Web 2.0

* Video Professor, Inc. v. Doe (D. Colo.). Video Professor believes a bunch of individuals are committing false advertising, disparagement and other torts by bashing Video Professor's products. Video Professor knows it can't sue the intermediaries per 47 USC 230, so instead it's seeking subpoenas to unmask the gripers. This lawsuit seems misarchitected from a legal standpoint (at least, the Lanham Act portions), but it's also a really bad idea from a business standpoint--the chance of this lawsuit rehabilitating their online reputation is near-zero, and the chance of raising the profile of the gripers' comments in the search engines is near-one. Fortunately, Paul Levy is fighting back. HT: Consumer Law & Policy Blog.

* Michael Erdman reports that the Chicago Lawyers Committee v. Craigslist appeal is moving again. For a while, the case was deliberately sitting idle at the Seventh Circuit, presumably to facilitate settlement, but the Seventh Circuit has now issued a briefing schedule.

* Gary Price reports on the move in Wikipedia Germany to have all page edits reviewed by "trusted editors." More on this from the New Scientist. Yet more evidence that Wikipedia is looking increasingly like other editorially controlled content databases.

* Want to see a user community in the midst of turmoil? Check out the troubles at RateItAll. The consequence: 4 power users are gone, taking 20,000 items of content with them.

* News.com: 9 Fun Ways Web 2.0 Startups Can Commit Legal Suicide

Search Engines

* Jayne v. Google Internet Search Engine Founders, 2007 WL 2852383 (M.D. Pa. Sept. 27, 2007). This was a ridiculous pro se lawsuit that the court easily dismisses on its face. The interesting aspect is that the court says that Google isn't a state actor. This isn't the first court to say so, but it reinforces that Google and other search engines aren't subject to Constitutional restrictions.

* Google filed a motion to dismiss the American Airlines lawsuit. HT Gary Price.

* MediaPost: Personalized search results expand the number of search results that users look at and strongly improve clickthrough rate.

Content Regulation

* I missed this when it was first filed: Interactive Media Entertainment & Gaming Association v. Gonzales (D.N.J. complaint filed June 5, 2007), a First Amendment challenge to the Unlawful Internet Gambling Enforcement Act of 2006.

* American Booksellers Foundation for Free Expression v. Strickland, 2007 WL 2783678 (S.D. Ohio Sept. 24, 2007). Another state level anti-Internet porn law was struck down (this time in Ohio), but only on First Amendment grounds. Influenced by the upholding of state anti-spam laws, the court rejects a challenge to the law on dormant commerce clause grounds. This is a rare opinion saying that a baby CDA state law didn’t violate the DCC.

For Fun

* Happy birthday, smiley!

Posted by Eric at 08:33 AM | Content Regulation , Derivative Liability , Internet History , Licensing/Contracts , Search Engines , Trademark | TrackBack

September 06, 2007

August 2007 Quick Links, Part I

By Eric Goldman

Search Engines

* Google extended its ad serving technology to consider a user's past search phrases in addition to their current search term.

* Greg Linden: "Google is teasing too many lions."

* BusinessWeek: Some VCs are cranky that Google is competing with them by actively investing in start-up deals.

* From Answers.com's press release in August: "Answers Corporation (NASDAQ: ANSW) announced today that, due to a search engine algorithmic adjustment by Google, Answers.com has seen a drop in search engine traffic starting last week. As a result, overall traffic is currently down approximately 28% from levels immediately prior to the change...This change only demonstrates the sound business rationale behind our agreement to purchase Dictionary.com, because it underscores a primary motivation for the deal: to secure a steady source of direct traffic and mitigate our current dependence on search engine algorithms."

Intellectual Property

* Question: Any theories why the Copyright Office hasn't yet issued "final" regulations for the DMCA 512 registration of an agent for notice...9 years after the DMCA passed?

* From the EFF: RIAA v. the People: Four Years Later. A terrific overview/recap of the RIAA's campaign against online dissemination of music. I'm planning to assign this report to my Cyberlaw students when we discuss file-sharing.

* New York Mercantile Exchange v. Intercontinental Exchange, No. 05-5585-cv (2d Cir. Aug. 1, 2007). Second Circuit says that mercantile exchange settlement prices are not protectable due to the copyright merger doctrine. It would have been better if the court had said that prices aren’t copyrightable, but perhaps we should take our victories where we can find them. HT Patry.

* Bensbargains.net, LLC v. XPBargains.com, 2007 WL 2385092 (S.D. Cal. August 16, 2007). Plaintiff aggregated various "deals" into a website and claimed a copyright in the aggregation. Defendant took the deals and integrated them into its website. Copyright infringement? The judge sets an arbitrary cutoff: "there is insufficient similarity to survive summary judgment where either the percentage of Plaintiff's deals that were copied or the percentage of Defendants' deals that were derived from Plaintiff's website is less than 70%." Evan has more.

* Lennar Pacific Properties Management, Inc. v. Dauben, Inc., 2007 WL 2340487 (N.D. Tex. August 16, 2007). Trademark owner gets an ex parte TRO against a domainer. More from Evan.

* WSJ: The KSR case has noticeably improved prospects for patent defendants.

* The EFF is challenging UMG's practice of stamping a "promotional use only, not for resale" label on promotional CDs.

Marketing/Advertising

* NYT on car ad-wrapping. See my previous post where I proclaimed ad wrapping as a relic of the dot com boom. It looks like the practice still lives! Open invitation: anyone who would like to pay me $800/mo to wrap my car, please call me! For that amount of cash, I'll drive the ugliest ad imaginable.

* There was a new ruling in NetQuote v. Byrd, which I styled as the “lead fraud” case. Rebecca recaps the action.

* Apparently, in Florida, a lot of senior citizens dining out at restaurants will ask for some lemon wedges and a glass of water, then add a few Sweet-and-Low packets to create their own tableside-brewed lemonade for free instead of ordering a drink off the menu. One restaurant owner got fed up and charged a diner $1.29 for the unadvertised menu item of self-brewed lemonade. Now, the sparks are flying!

* More unfortunately placed ads.

Contracts

* Cohn v. TrueBeginnings LLC, No.B190423 (Cal. Ct. App. July 31, 2007). Another court upholds a mandatory clickthrough even when the actual terms are hyperlinked. Tom O'Toole comments and provides screenshots.

* Ken Adams demonstrates, step-by-step, how he edits a contract.

Lexicon Watch

* New word alert: "bacn" = transactional email from websites you have a relationship with. Personally, I think we need to get off the meat metaphors.

* William Gibson says the prefix "cyber" is passe.

Posted by Eric at 04:27 PM | Copyright , Domain Names , Licensing/Contracts , Marketing , Patents , Search Engines , Trademark | TrackBack

August 28, 2007

Douglas v. Talk America Revisited

By Eric Goldman

Last month, I blogged on the Douglas v. Talk America case. I think it's fair to say that a lot of lawyers are scratching their head about this case. The case *might* stand for the proposition that websites cannot unilaterally amend their user agreements simply by posting new terms to the website, making it a significant case that would invalidate a broad swath of current online user agreements. On the other hand, we're not exactly sure what the case says because the court opinion is cagey about the exact sequence of events and contract terms at issue.

To sort through this, it would helpful to see AOL's actual contract. I haven't found that yet, but a trusted source sent me a declaration from the case that attaches a copy of a Talk America user agreement. Unfortunately, we're not sure how this agreement differs from the initial AOL agreement or to what extent the court considered this agreement in its discussions.

In any case, the self-described amendment procedure (Secs. 1(b), 7(d) and 8) is complicated and provides a variety of ways that notice can be effected--per 7(d), many types of changes can be effected unilaterally by posting to the website, but other mechanisms can be used, such as publishing a newspaper ad. I have no idea what that means! Perhaps Talk America didn't contemplate that it would amend the contract that way. Otherwise, a newspaper ad announcing a major contract change but published in a single newspaper in some obscure corner of the world satisfies the literal requirement.

This type of odd provision suggests why the Ninth Circuit may have ruled as it did. In my opinion, as someone who has drafted plenty of aggressive user agreements, this agreement is imbued with an extraordinary amount of hubris and arrogance about Talk America's ability to unilaterally abuse its users. If I were a judge presented with this contract, I wouldn't like it either, and I would be inclined to eviscerate its provisions. I'm not sure if the Ninth Circuit was similarly influenced, but it's a good reminder that an online user agreement must be written in a way that won't alienate judges.

Posted by Eric at 09:09 AM | Licensing/Contracts | TrackBack

August 27, 2007

Google's AdWords Contract Upheld Again, But Advertiser Lawsuit Against Google Continues--CLRB Hanson v. Google

By Eric Goldman

CLRB Hanson Industries LLC v. Google Inc., 5:05-cv-03649-JW (N.D. Cal. Aug. 21, 2007)

This lawsuit is one of several advertiser lawsuits against search engines from 2005 (see my initial post when the lawsuit was filed). Many of those lawsuits involved click fraud allegations and have subsequently settled. In this particular lawsuit, advertisers claim that Google did not honor some budget limits set by advertisers.

At its core, this is a breach of contract lawsuit, but the plaintiffs contended that they were not bound by Google's AdWords contract. The court rejects those arguments, holding that Google properly formed the AdWords agreement when it used the following process:

In this case, before being permitted to register for AdWords, Plaintiffs were provided with a scrollable box of “Terms and Conditions.”10 The first sentence of the “Terms and Conditions” was: “Introduction. This Agreement between you and Google, Inc. (“Google”) consists of these AdWords Select Standard Terms and Conditions (“Terms and Conditions”), the AdWords Select Program (the “Program”) Frequently Asked Questions, which may be revised periodically, and the terms of any advertising campaign you submit or modify.” The sentence, “By creating my AdWords Select account, I agree to the above Terms and Conditions,” appeared directly below the scrollable box; immediately below that sentence was a button, “Sign me up for AdWords Select.”

This is at least the third case where Google's AdWords contract has been upheld. The other two that come to mind are the Person and Feldman cases.

Although Google's contract governs the dispute, the court didn't dismiss the breach of contract claims. Instead, it identified two classes of advertisers who might still have viable claims:

1) advertisers who ran campaigns for less than 1 month or ended a campaign with a partial month (i.e., less than 30 days). These advertisers may have been charged more than expected because Google treated an advertiser's "Daily Budget" limit as an input to compute a monthly cap. So if an advertiser set a $10 daily cap in a 30 day month, the advertiser would not be charged more than $300 in the month, but in a period of less than 30 days, Google may have "overdelivered" on some days to run up a bill that exceeded [# days x daily cap].

2) advertisers who "paused" their campaigns prior to Sept. 2006, Google's language may have implied that these advertisers would not be charged for the time the campaign was paused, but Google' system treated the pause as an underdelivery that was eligible to be "caught up" by overdeliveries later in the month.

While surely Google isn't thrilled about this ruling, it does appear to severely limit the amount of money at risk in this lawsuit. The only money at risk--even for big advertisers who have run multi-million dollar campaigns--is for the last month of an advertiser's relationship or for those months where an advertiser used the pause feature. Because the court's ruling had the clear effect of substantially suppressing the maximum possible damages, the parties should now have enough data to work out a settlement.

The judge also left open plaintiff's false advertising claim based on what advertisers would think the words "daily budget" mean.

Finally, the court addressed Google's contract provision saying that "Customer waives all claims related to charges unless claimed within 60 days after the charge..." These types of provisions are pretty common in contracts as a way of trying to encourage customers to speak up fast if they have a problem with their bills, but I don't know that lawyers actually expect them to be legally binding. Here, the court quickly rejects the clause as an unreasonable reduction of the statute of limitations (taking the normal 4 year SOL for contracts to 2 months). Personally, I don't include this provision in my contracts because I think they are too aggressive, and this ruling gives me no reason to change my thinking.

Despite the fact that Google couldn't dismiss this case completely, this ruling is still mostly good news for Google. First and foremost, yet another court upheld its AdWords contract. Second, this opinion should prompt a settlement that will not materially affect Google's quarterly financials--like the click fraud settlements, I expect any settlement of this lawsuit to bring significant joy to plaintiffs' lawyers and no appreciable financial benefit to advertisers.

Posted by Eric at 11:44 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

August 25, 2007

Website Isn't Liable When Users Lie About Their Ages--Doe v. SexSearch

By Eric Goldman

Doe v. SexSearch.com, 2007 WL 2388913 (N.D. Ohio Aug. 22, 2007)

Introduction

This case adds to the burgeoning 230 jurisprudence involving people looking online for love or sex. (Others that come to mind include Carafano, Anthony, Landry-Bell, Barnes and Doe v. Myspace) The court broadly construes 47 USC 230 to absolve the website of liability for user-supplied content--in this case, a user's misrepresentation of her age. It's a particularly refreshing discussion/outcome after the Ninth Circuit screwed up 230 jurisprudence in the Roommates.com case, which seemingly could have applied but was not discussed at all by the court.

47 USC 230

Defendants operate a website that helps people hook up to have sex. Roe posted a profile saying that she was 18 and wanted sex. After Doe connected with Roe via the profile, they met offline at Roe's home and had "consensual" sex. But Roe was actually 14, and Doe was busted for felony statutory rape. Doe turned around and sued the website on 14 counts, which the court summarizes as claims that "(a) Defendants failed to discover Jane Roe lied about her age to join the website, or (b) the contract terms are unconscionable."

The Defendants defended the lawsuit on 47 USC 230. On its face, it looks this like this lawsuit might very well fall into one of the cracks opened by the Roommates.com decision, especially because the website apparently used structured data collection to build the profile and gather the age information. However, the plaintiff appears not to have cited Roommates.com (although the Carafano case was cited and discussed). Instead, the plaintiff rehashed the lame and futile arguments that the website loses 230 when it reserves the right to edit the content and that 230 only preempts defamation. These are loser arguments and I cannot believe plaintiffs still try those arguments. Hey plaintiffs, if your lawsuit might be preempted by 230 and these are the best arguments you can make, save your time and money and skip the lawsuit altogether.

In any case, the court has no problem concluding that (1) the website is an ICS, (2) the user supplied the content at issue (on the structured data issue, the court says "the mere fact SexSearch provided the questionnaire Jane Doe answered falsely is not enough to consider SexSearch the developer of the false profile"), and (3) 230 preempts "all civil liability" (other than the statutorily enumerated exceptions), whether the claim is based in tort or otherwise.

Contract Claims

However, this case exposes a troublesome area for 230 jurisprudence. Plaintiff alleges that the website represented that all members were over 18. This statement is the website's own words presumably written by its employees, but the statement can be untrue only if users provide false info. Is such a marketing statement protected by 230 when, in fact, users do lie? (For a slightly analogous circumstance, see Anthony v. Yahoo, which was cited by the court). This court wasn't asked this Q in this manner, so we don't get a definitive answer. I think the answer should be yes, though it may depend on the exact words of the marketing statement. For example, if the website said that it confirms that all members are adults by checking their drivers' license, but in fact it doesn't check drivers' licenses, then I think we're outside 230's reach--the falsity is in the website's description of its behavior, not in the user-supplied information. In this case, the plaintiff alleged that the website said it verified profiles, but there was no allegation of age verification.

The court independently dismisses the contract claims because the user agreement said that the website does not "assume any responsibility for verifying[ ] the accuracy of the information provided by other users of the Service."

The court also dismissed the UCC breach of warranty claim because the membership was a non-UCC service. While this isn't entirely wrong, a lot of us (outside of Virginia and Maryland lawyers) treat online services as governed by the UCC, so this casual dismissal may raise some future complexity.

The court also rejects a challenge to the contract on unconscionability grounds. If you're interested in unconscionability analyses of online user agreements, check it out.

Conclusion

Lurking in this case are some deeply troubling issues about how and why a 14 year old girl accessed an adults-only online sex site, solicited sex from a stranger and had sex with him at her house. However, the court rightly realized that the legally significant event did not occur when Doe read Roe's online profile and self-reported age. Instead, the locus of harm occurred offline--as the court says, "Plaintiff clearly had the ability to confirm Jane Roe’s age when he met with her in person, before they had sex, yet failed to do so."

Posted by Eric at 09:41 AM | Derivative Liability , Licensing/Contracts | TrackBack

August 22, 2007

Online Reputation and its Implications for Online User Agreements

By Eric Goldman

Shmuel Becher and Tal Zarsky, E-Contract Doctrine 2.0: Standard Form Contracting in the Age of Online User Participation

Right now, the rules applicable to online user agreements are a doctrinal mess. We want to encourage businesses and consumers to strike private bargains, but the reality is that non-negotiable user agreements may restrict freedom of contract more than they promote it. As a result, courts have fractured in their interpretation of online user agreements (and particularly mandatory arbitration clauses); some courts have no problems with them because they are part of a private exchange, other courts are ripping them up because they aren't really negotiated.

Becher and Zarsky approach this issue with a powerful insight. Consumers may not have the ability to negotiate online user agreements, but they can blog about the ridiculous terms in them, and collectively the noisy reactions of bloggers will give some power back to consumers that will hold companies accountable for their choice of contractual terms and force companies to moderate the terms accordingly. I have my own work-in-progress on the implications of online word-of-mouth on trademark law, so I instantly agreed with their assumptions. However, I'm not sure consumer behavior will work as they describe. It remains unclear to me just how much users really care about the substance of their user agreements, so even if the bloggers gang-tackle a company for offering bum boilerplate, I wonder how many companies will actually be affected by market forces accordingly? Perhaps, as we saw with the search engines' recent movements on privacy policies, the watchdog effect of the blogosphere can reverse a race-to-the-bottom and turn it into a race-to-the-top. More likely, I suspect there will still be more of a lottery effect: a few companies will get tagged for bad press (as they do today) and the rest of the scrutiny won't change anyone's practices.

Even though I'm suspicious about its conclusion, this paper is provocative and raises important issues, so I thought this was a very good paper. The abstract:

The growing popularity of e-commerce transactions revives the perennial question of consumer contract law: should non-salient provisions of consumer standard form contracts be enforced? With the focus presently on an ex-ante analysis, scholars debate whether consumers can and should read standardized terms at the time of contracting.

In today's information age, such a focus might be misguided. The online realm furnishes various tools, so-called Web 2.0 applications, which encourage the flow of information from experienced to prospective consumers. The article, therefore, reframes the analysis of online consumer contracts while taking into account this new flow of information. In doing so, we draw out several typical ways in which such information flows in the online realm, while addressing the role of search engines, blogs, message boards and social networks. The article also accounts for the major challenges to the success of such information flow: the motivations of both information providers and receivers, and the accreditation of the data which might be compromised both unintentionally and maliciously.

After applying the key law and economics and behavioral law and economics insights pertaining to consumer contracts to the new dynamic created by the online environment, we conclude that this online information flow will strengthen market forces' ability to generate a fair and balanced contractual equilibrium. We accordingly provide new policy recommendations that are better tailored to deal with online consumer contracts and thus limit the need for legal intervention in the market for consumer contract terms.

Posted by Eric at 12:02 PM | Licensing/Contracts | TrackBack

August 04, 2007

Taking Intangible Electronic Files is Criminal Fraud--NM v. Kirby

By Eric Goldman

New Mexico v. Kirby, 2007-NMSC-034 (N.M. June 13, 2007)

This is a very confusing case, so maybe you can help me figure out what it means. At minimum, this case highlights the problems that can be arise when a web design/development relationship goes sour. More broadly, it also contributes to the already confused case law about when intangible electronic records can be "stolen," but this lesson comes at a high cost--in this case, 18 months of jailtime for the defendant.

Facts

According to the Supreme Court's statement of facts, Kirby retained Collett, a website designer, to "develop[] and/or improv[e] a World Wide Website to be installed on the client's web space on a web hosting service's computer." I believe the site at issue is environmentalbenefits.com. The agreement specified that Collett retained the copyright "to the finished assembled work of web pages" and Kirby would be "assigned rights to use as a website the design, graphics, and text contained in the finished assembled website" after Kirby paid the contract price of $1,890 plus tax.

But Kirby never paid Collett--although, according to this site, Kirby paid with an allegedly bum check. Kirby also changed the password for the designed website, which effectively cut off Collett's ability to access those files--the files that, per the contract, Collett still owned.

If Kirby stiffed Collett, it seems like Collett had several legal options, including breach of contract and copyright infringement. Instead, this case went to state prosecutors, who prosecuted Kirby for criminal fraud based on Kirby having taken "a Website Design belonging to Loren Collett, by means of fraudulent conduct, practices, or representations." The jury convicted Kirby, and the Supreme Court affirmed. According to this site, Kirby was sentenced to 18 months in jail.

Questions

This case raises some tough issues, including:

* Why did NM prosecutors pursue this case? On its face, this looks like a garden-variety $2000 commercial dispute. Heck, it could have been handled in small claims court. Instead, Kirby get a felony conviction and jailtime. Huh?

* Did Collett retain a duplicate copy of his files in his possession? If so, how did Kirby "take" non-rivalrous electronic files?

* In that vein, why isn't this crime preempted by copyright law? Copyright preemption is inherently confusing, so I don't feel too bad about being confused here. Indeed, on its face, a commercial fraud crime should be sufficiently removed from copyright law to avoid preemption easily. But in this case, Kirby was prosecuted for converting Collett's intangible files. This sounds a lot like copyright infringement to me. Of course, this ruling isn't completely unprecedented: cases like Kremen v. Cohen and Thyroff have held that intangible electronic records can be converted, though I think the copyright preemption analysis in these cases is hardly satisfying (plus, the recent Utube case held that an intangible asset could not result in trespass to chattels). Though the case talks about copyright a lot, there's no reference at all to preemption--perhaps it wasn't raised by the public defender?

Lessons

1) This case reminds us of the importance of drafting a website development agreement properly. For example, the contract's provision that Kirby would be "assigned rights to use" the website is fatally ambiguous. I wrote a lot on the issues associated with web development agreements in the 1990s; see, e.g.,
* A Fresh Look at Web Development and Hosting Agreements (1998) with sample web development agreement
* Top 10 legal issues for clients of Web developers (1996)
* Pitfalls in Outsourcing Your Website (1996)

In particular, the excerpted contract language indicates that the parties were struggling with defining their respective ownership interests. This is a typical area of confusion; I racked up a fair amount of billable hours in the late 1990s on this very point with people (including opposing lawyers) who didn't get it. Even when the deal value is low, a savvy lawyer can add significant value, at relatively low cost, helping the parties understand this topic.

2) This case reminds us that, unless the contract specifies otherwise, the web designer owns his/her web development work product even if the retaining party pays for the work. This isn't new either (web development lawsuits from the 1990s addressed this point), and here the parties actually expressed addressed ownership in their contract. Nevertheless, caveat emptor!

3) This case extends the meme that intangible electronic records are just as tangible as chattel for conversion purposes. I remain concerned in general about this trend. We may benefit from a careful rethinking about the implications of rivalrousness on conversion doctrines.

4) I'm trying to figure out how broadly this case could apply. For example, would it apply in other circumstances where a party cuts off another party's access to electronic files by changing a password? With little effort, I can think of two: (1) divorcing spouse cuts off spouse's access to shared account containing copyrighted works, and (2) website terminates customer by changing the password, cutting off access to copyrighted material stored in the account (I'm assuming the contract doesn't expressly grant this right). Each fact pattern appears indistinguishable from the elements at issue in this case, although there may not be the requisite scienter to find fraud. if there were (for whatever reason), this case could expand the realm of criminality much further than we might have anticipated.

5) No matter what, the Supreme Court opinion and some of the source materials at this site strongly indicate that the New Mexico judicial system still doesn't understand Internet technology very well. If this were a typical civil case, that would be a shame; if this technological confusion directly led to jailtime for the defendant, it may have produced a travesty.

Posted by Eric at 04:05 PM | Copyright , Internet History , Licensing/Contracts | TrackBack

July 23, 2007

Ninth Circuit Strikes Down Contract Amendment Without Notice--Douglas v. Talk America

By Eric Goldman

Douglas v. US District Court ex rel Talk America, No. 06-75424 (9th Cir. July 18, 2007)

In this case, the plaintiff initially procured telephony services from AOL, which subsequently sold its telephony business to Talk America. Talk America posted revised terms (including a new arbitration clause) to its website. When Douglas sued Talk America in court, Talk America sought to compel arbitration. The district court agreed, but the Ninth Circuit reversed. It pointed out that Douglas hadn't been back to Talk America's website, and even if he did, there was no reason he would have investigated the user agreement. The court says curtly, "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side."

But, could the parties agree otherwise at the outset? Unfortunately, the opinion is vague about whether AOL's initial contract with Douglas had a provision whereby he agreed that AOL could amend the user agreement simply by posting changes to its website. If AOL didn't, then of course one party to an already-existing valid contract can't simply change terms either by unilaterally notifying the other party or by posting its desired new terms to its website. But I'm assuming the court bounced this amendment despite a contract provisions putatively permitting unilaterally posted website amendments which put the onus on users to check back frequently for updates.

I've never been a fan of these "we can amend simply by posting new terms to the website" provisions for two reasons. First, as the court points out, "Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed." This isn't practical or sensible, so it's not surprising that courts will reject such an obligation. Second, even if the court was willing to accept this method as a valid amendment process, there would be strict limits on the substantive changes that a website can make unilaterally. Indeed, the court independently concludes the arbitration clause is unconscionable. I expect courts will aggressively police these unilateral amendments using unconscionability and other limiting doctrines.

So, what should a website do? There are three main options when a website wants to amend its user agreement terms, none of them ideal:

1) Get all existing users to re-up to the amendment using normal contract formation processes (including offer, acceptance, consideration). This isn't ideal because the website will have to create new consideration, plus no website wants to lose any customers who say no. And in many cases, websites have a large group of dormant users that won't respond to a call to action.

2) Include a provision in the initial contract saying that the website can amend the terms unilaterally after providing notice to users. Ideally this is coupled with a bona fide right to reject the terms, but this would involve giving the users an ability to terminate the contract. Even if not, merely giving notice would appear to satisfy the Ninth Circuit here, at least with respect to unconscionable amended provisions. However, in practice, giving users notice isn't all that easy. A mass-email to the userbase is likely to get flagged as spam by many IAPs, plus many users will be annoyed by the seemingly worthless email (or may discard it instantly as a possible phish). Alternatively, notice can be given when the user comes back to the website and logs in, but obviously only a limited number of legacy users come back to the website to log in. I like eBay's approach, which lets users self-configure the notification about user agreement amendments.

3) Assume that it's impossible to unilaterally amend the contract, regardless of any specified unilateral amendment rights in the initial contract. In this case, if the website wants to change terms, it can only apply those new terms against new users; legacy users will be stuck on the old terms. This method is the only guaranteed method to work from a legal standpoint, but it creates some difficult situations dealing with users on different versions of the contract, and it hinders websites' freedom to evolve their offerings over time.

Although I don't have any great practice-oriented recommendations based on this opinion, I do hope this opinion will help contribute to the demise of the "check back frequently for amendments" provisions in online user agreements. I've always considered those among the worst excesses of the dot com era.

HT: BNA

Posted by Eric at 10:57 AM | Licensing/Contracts | TrackBack

July 17, 2007

Patent Contingency Fee Agreements

By Eric Goldman

Patent litigation is hot, but I rarely see much discussion about the fee agreements used by patent litigants. So I was very interested to hear Stephen Susman (from the well-known Susman Godfrey firm) speak at the May UT Austin Technology Law Conference about fee agreements for patent contingency work--a topic he knows well, as he said he spends 70% of his time on such matters.

Plaintiff-side patent contingency cases pose a number of unique challenges to lawyers. Most obviously, the cases represent a major upfront investment by the law firm. Susman said his baseline is $3M of attorney time to complete a trial, plus $2M of out-of-pocket expenses (mostly) for experts. Further, these investments are subject to significant risk by the rapidly evolving patent jurisprudence; any defense-favorable Supreme Court opinions (such as the AT&T v. Microsoft case) mid-stream can eviscerate a case's economic value.

To reduce these risks, Susman Godfrey does the following:

* the firm invests significant money (he estimated $100,000) diligencing a potential case, including getting validity and infringement opinions. During this diligencing phase, Susman Godfrey enters into a “standstill agreement” to freeze the client from going to a different lawyer. Susman didn’t provide a copy of the standstill agreement, but I would love to see it! An agreement getting clients to temporarily restrict their choice of counsel and forebear their litigation rights should raise particularly interesting and complicated professional responsibility issues. (Sounds like an excellent exam question!)

* the firm only takes on cases that receive a majority vote of all of the firm’s lawyers (with every lawyer, from associate to senior partner, receiving an equal vote). This reminds me a little of the Wisdom of Crowds approach to decision-making.

* the firm joins forces with a patent firm for each case. Susman’s view is that it’s better to have 50% interest in two cases than 100% interest in one.

Given the significant dollar values of a patent judgment, there is a higher-than-average risk of litigation between lawyer and client when it comes time for fee payoffs. Plus, it can be difficult to value patent settlements, which might include cross-licenses, running royalties, equity investments or obligations to purchase future widgets. Thus, when negotiating a patent contingency fee agreement, Susman strongly encourages clients to get their own independent counsel to review the agreement as a way of increasing the agreement’s likely enforceability.

Susman Godfrey’s fee agreement includes a provision allowing the firm to unilaterally terminate a representation if the firm decides the case is a loser. The goal of this provision is to address the moral hazard risk in contingency fee cases where clients feel no economic disincentives to pursue a case to trial even if there’s a low chance of victory, but the firm wants to cut its losses. Susman acknowledged that this clause would be difficult to enforce in court, but he said that the firm included the provision after their ethics professor/expert concluded that the provision wasn’t likely to jeopardize the enforcement of the other provisions even if the judge tossed that provision out.

Susman said that his firm never initiates any settlement/licensing talks with defendants before the firm files a case in a favorable forum. This prevents the defendant from initiating a declaratory judgment action in an unfavorable (to the plaintiff) forum, but it also struck me as crummy that no deal is discussed before the case consumes court resources. This may be another good reason to include venue limitations in any patent reform bill.

Susman said that the firm’s malpractice carrier would prefer that the fee agreement’s dispute resolution provision specify a non-jury trial to preserve the ability to appeal, but the firm has chosen to specify mandatory arbitration to help preserve client confidentiality, a particularly important issue when patents (and trade secrets) may be on the line.

Susman didn’t discuss typical contingency fee percentages, but he did say that typically the percentage increases at various milestones. For example, the percentage bumps up 60 days prior to trial because of the major ramp-up in work starting then. He also said that if the firm advances expenses for the client, the percentage is typically 5% higher to compensate for the extra risk (the expenses may be recouped before the remainder is split). The downside is that if the client doesn’t have any skin in the game, they may be unreasonable about settlements. That’s why he said patent trolls make good clients; they are sophisticated players that evaluate settlement offers rationally (he described them as “professional gamblers, not casual gamblers”).

I haven't seen the Susman Godfrey fee agreement form online in total, but you can see the first couple pages here.

Posted by Eric at 09:49 AM | Licensing/Contracts , Patents | TrackBack

July 03, 2007

SAP Has Bad News in Oracle Lawsuit, But Tries to Bury It

By Eric Goldman

Oracle Corp. v. SAP AG, Case No. 07-CV-1658 MJJ (N.D. Cal. answer filed July 2, 2007)

You're an international corporate giant with some bad news in a high-profile case that you want to bury. What do you do? One possibility: hold a press teleconference for 11 pm Pacific on July 2--just late enough to miss the newspaper deadlines for July 3, so the news will effectively break on the July 4th holiday. Genius!

But SAP does have lots of bad news in its Oracle lawsuit, and it substantially undercuts SAP's initial claim that it was going to defend this lawsuit aggressively. After all, it's hard to be aggressive when your hand has been caught in the cookie jar, and SAP admits that its wholly-owned subsidiary TomorrowNow (TN) engaged in some unambiguously rogue downloading.

Worse, with respect to the downloads that SAP claims weren't rogue, SAP's main defense is doomed to fail as well. SAP argues that TN's customers authorized it to download the materials on their behalf--what I call a "proxy defense," i.e., we were just a proxy for our customers' legitimate behavior. Unfortunately, there is typically no proxy defense for most types of claims--certainly not for claims like trespass to chattels or the Computer Fraud and Abuse Act, and usually not for copyright infringement either. In other words, Oracle can control the manner and means by which people access its servers, so even if it permits its customers to access the site, that permission isn't automatically extensible to third parties acting on the customers' behalf. Indeed, Oracle expressly precluded such behavior in some cases.

As a direct-on-point example, see the lawsuit by Facebook against ConnectU for grabbing data from Facebook's servers. ConnectU said that Facebook's users gave their credentials to ConnectU and asked them to get the data on their behalf. This permission did not change ConnectU's relationship to Facebook, which had expressly said that third parties couldn't use its servers to engage in the behavior ConnectU was doing. Thus, the court held that ConnectU trespassed Facebook's chattels. I could cite dozens of other examples where the proxy defense fails. It isn't likely to succeed here either.

Even worse still, SAP announced that the DOJ is probing the matter. As I said earlier, this could be a serious criminal matter. There remains a serious risk that people will be prosecuted here.

From my perspective, given SAP's admissions, the only open Qs are:

1) How big of a check will SAP/TN write to Oracle?
2) After checks are written and injunctions are issued, will TN survive this lawsuit? Or, will SAP "burn" its limited liability subsidiary to insulate the larger enterprise?
3) Will this lawsuit degrade SAP's ability to position itself as an ethical competitor?
4) Will anyone be going to jail?

Some other observations:

* I find it remarkable that some analysts have downplayed--and continue to downplay--the import of this lawsuit. Oracle's allegations go far beyond day-to-day ethical competition.

* On that front, SAP's materials implicitly suggest that SAP knew of TN's behavior but tried to insulate itself from information gathered by TN. At best, this suggests SAP engaged in willful blindness. As a result, even if no SAP employee took the rogue actions, SAP may not be able to avoid responsibility.

* In an effort to provide faux transparency, SAP launched a lawsuit portal. It's nice to have this resource, but a real portal would provide a complete repository of the relevant documents, including Oracle's complaint. And if SAP wants to foster real transparency, it should provide explain in full detail exactly what behavior it admits was rogue.

UPDATE: TN appears to be losing business from the lawsuit. And SAP's CEO seems to think this whole problem could have been handled with a phone call from Oracle to him instead of a lawsuit.

Posted by Eric at 08:22 AM | Copyright , Licensing/Contracts | TrackBack

July 02, 2007

June 2007 Quick Links

By Eric Goldman

Email

* Spam cases are coming at a regular clip, and it's tricky divining the latest state of the law. Two recent cases that caught my attention:
- US v. Impulse Media Group, 2007 WL 1725560 (W.D. Wash. June 8, 2007). This case involved a porn site that used affiliate marketers who didn't comply with the porn spam labeling requirements. The government argued that the advertiser should be strictly liable for this breach, but the court fairly emphatically rejected that (same as Cyberheat). But the news isn't all good for the defense, as the court also rejected its SJ motion, showing that the question of scienter about affiliate behavior remains a tough one for courts. Venkat's writeup.
- Kleffman v. Vonage Holdings Corp., No. 07-2406 (C.D. Cal. May 22, 2007). A nice complement to the Facebook v. ConnectU case, each holding that aspects of California's anti-spam laws are preempted by CAN-SPAM. In this case, the targeted behavior was the fact that the emailer may have used multiple email addresses to bypass electronic spam filters, but there wasn't anything false/deceptive about each email itself. See the BNA write-up and Venkat's writeup. I've lost track of the preemption cases, but it seems like state anti-spam laws are really getting munched after the Mummagraphics case.

* NYT on the pros/cons of captchas.

* Goodmail has expanded its pay-to-email system to Comcast, Cox, Roadrunner and Verizon.

Intellectual Property

* In Explorologist v. Sapient, involving the posting of a video deconstructing Uri Geller's act, the defendant is arguing (per CCBill) that 47 USC 230 preempts British copyright law.

* A rushed high school yearbook editor downloads lots of Facebook photos and adds them to the yearbook to fill space. Not a good idea!

* Techdirt: Who owns the right to license the design of military weapons to toy manufacturers?

* Marty on intellectual property protection for sexual activity.

Contracts

* A California man claims he bought a Gateway computer that never displayed text properly. Is he bound to the clickthrough agreement displayed on bootup? If this is the only way Gateway presented its contract, the answer should be no.

* At a conference at Southwestern Law School, I heard Prof. Lon Sobel talk about "idea submission" law. He illustrated the phenomenon that "where there's a hit, there's a writ": he suggested that hit TV shows produce an average of 6 "you stole my idea” demand letters. The great 1980s movie Coming to America produced 12 such letters, which resulted in 7 actual lawsuits. Interestingly, Prof. Sobel made the case (implicitly, not explicitly) that there is no separate law of "idea submissions," but rather any such doctrines are subsumed within standard contract law.

eBay

* eBay has changed its stance towards fighting counterfeiters, and it now does more policing itself.

* eBay shill bidder pays $400k to settle with NY AG.

Social Networking/Blogs

* The NCAA kicked a reporter out of the stadium for live-blogging the event. Tip to NCAA: It’s neither possible nor wise to control the flow of real-time information. Get over it. HT: Techdirt.

* Just came across this article: Stacey Schesser, MySpace on the record: The admissibility of social website content under the Federal Rules of Evidence, First Monday, volume 11, number 12 (December 2006).

* Wired: 7 MySpace sex offenders busted.

Marketing/Advertising

* AMCO Ins. Co. v. Lauren-Spencer, Inc., 2007 WL 1795970 (S.D. Ohio June 20, 2007). Insured offers jewelry from a website. Third party claims that the insured's jewelry constituted copyright infringement. Insured tenders the lawsuit to her insurance company under the advertising injury policy. Insurance company seeks a DJ of no coverage. The court says that the website constitutes advertising for the products, and so the policy applies to photos of the allegedly infringing jewelry items, even if the photos themselves were created by the insured. Observation #1: The advertising injury policy is very helpful to web businesses. Observation #2: Due to cases like this, I suspect insurance companies are reducing their willingness to offer advertising injury coverage to web businesses.

* Taylor v. XRG, Inc., 2007 WL 1816142 (Ohio App. Ct. June 21, 2007). The defendant was a vendor retained by bulk fax senders that handled consumer responses, including opt-outs from future faxes. Court held that the vendor wasn't liable for any TCPA/state anti-junk fax laws allegedly broken by the fax sender.

* Newish ad format: ads running 2 seconds in duration.

Search

* It's taken me a while to digest some of Google's new efforts. First, Google released two tools (a new toolbar button and a new personalized tab) to anticipate searchers' needs based on their past searches. Second, Google expanded its search history to incorporate all aspects of a user's searching through its services (what it calls "web history"). Meanwhile, Google has reduced its storage of personalized search data from 18-24 months to 18 months before that data gets anonymized. FWIW, I've been using Google personalized search since November 2005 (presumably, some of my data will be flushed any time now). Google has now captured almost 12,000 searches (with a high so far of 255 searches in a single day). Despite this, Google still doesn’t do a good job making predictions for me.

* Another great study from Jim Jansen (see the last one I blogged about). This one presented identical search results branded from different search engines and found that consumer ratings of relevancy varied based on the brand (Yahoo and Google came out on top). The logical inference--branding does matter to perceptions of relevancy. HT: SEL.

* Matt Cutts on the various ways humans affect Google search.

Domain Names

* Denmark's .dk TLD registry has enacted rules targeted at wiping out domainers. See here (Sec. 8.3.6).

* What's hotter than iPhones? iPhone-related domain names.

Adware/Spyware

* Declan on the latest legislative rally against spyware, the Senate's Counter SPY Act.

* The FTC issued final approval for the DirectRevenue settlement of $1.5M. Commissioner Leibowitz dissented, saying the cash payment was too light.

Online Reputations

* Avvo has filed a motion to dismiss the lawsuit over its ratings of attorneys. The motion is very heavy on the 1st amendment and very light on 230. HT: WSJ Law Blog.

* The Washington Post gushes about Reputation Defender and its competitors, without really acknowledging the value of reputational accountability or the potential for takedown/pushdown abuse.

* Entrepreneurs figured out a way to game FICO scores. Fair Isaac will try to close the loophole.

* Ed Magedson of Rip-Off Report was the victim of a vicious harassment campaign demanding that he remove complaints from the site.

* Lengthy NYT article on Wikpedia. Not much new there, but it does hint at the young age of Wikipedians, and it talks about how "pride of ownership" motivates Wikipedians.

Other

* June 26 was the 10 year anniversary of the classic Reno v. ACLU Supreme Court opinion.

* The NYT has launched a new technology blog called BITS.

Posted by Eric at 02:37 PM | Adware/Spyware , Content Regulation , Copyright , Derivative Liability , Domain Names , Internet History , Licensing/Contracts , Marketing , Search Engines , Spam , Trademark | TrackBack

June 10, 2007

Cavazos Presentation on Open Source

By Eric Goldman

At the UT Austin Technology Law Conference in May, Ed Cavazos spoke about open source issues. He proffered seven common myths about open source:

#1: the phrase “open source” is meaningful, or developers understand all this so I don’t have to.
#2: open source software is all in the public domain, or open source licensing isn’t consistent with copyright ownership
#3: contributors to open source developments have the necessary rights to contribute, or the SCO lawsuit proves that all liability risk is FUD
#4: all open source software is “viral” and can change proprietary code to free code, or you can inadvertently give away your proprietary code with bad open source license compliance.
#5: the GPL is a well-written document, or millions of adopters can’t be wrong
#6: lawyers can answer the tough questions if they spend enough time on them, or a $30,000 memo on “linking” or “derivative work” is a good idea
#7: scrapping non-compliant code is the only option, or the sky is falling.

Heather Meeker was scheduled to present but was a last minute scratch, but Ed relayed her assessment of the three generations of M&A representation about open source software:

* circa 1999: sellers were asked to represent that they didn’t use any open source software—a ridiculous representation that was almost always untrue
* circa 2002: sellers were asked to disclose all open source software they used—a virtually impossible task that still lead to widespread non-compliance by sellers
* circa 2007: sellers are being asked to represent that they are in compliance with all open source licenses—a much more reasonable solution that seems to get at the only important issue. But why limit this to open source? Presumably buyers care about compliance with proprietary software license agreements as well. Therefore, ultimately I think a discrete open source representation should go away and the issue should be addressed by the typical material agreements representation.

Posted by Eric at 02:25 PM | Licensing/Contracts | TrackBack

June 03, 2007

May 2007 Quick Links

By Eric Goldman

Spam

* MySpace Inc. v. The Globe.com Inc., No. CV 06-3391 RGK (C.D. Cal. Feb. 27, 2007). This case has some personal interest because theglobe.com was one of my flagship clients before I left the law firm in 2000. This ruling held theglobe.com liable under CAN-SPAM, California's anti-spam law and the user agreement for spamming within the MySpace network. See the BNA writeup. Among other remarkable angles of this ruling, the court upholds the liquidated damages clause based on the anti-spam restrictions in the contract. Based on this adverse judgment, in April the parties settled for over $2.5M —basically, all of theglobe.com’s remaining cash, leaving its survival in serious jeopardy.

Domain Names

* Domainers are hot. Business 2.0 article on Kevin Ham, a major domainer who has wildcarded Cameroon's .cm TLD. NYT article on NameMedia, which owns 725,000 domains.

* From the AP: Entrepreneurs loaded up on Virginia Tech- and victim-related domain names following the massacre.

Marketing

* Broadway producer Scott Rudin was annoyed that the New York Times' website published user-submitted reviews of his play. To tweak them for doing so, the play cherry-picked some comments from the users' submissions and ran them in ads for the play with the attribution "The New York Times Online." An NYT editor objected to that attribution because it connoted an editorial judgment of the paper, rather than the paper's readers. Read the fun back-and-forth between Rudin and the editor.

* From the Washington Post: Billboards are the second-fastest growing ad category (after the Internet) due to increased traffic congestion and new digital billboard technology. And a technologist has developed eye-tracking technology that may let billboard advertisers accurately count eyeballs.

* Optima Funding, Inc. v. Strang, 2007 WL 1430699 (Cal. Ct. App. May 16, 2007). A mortgage company said it never sent unsolicited faxes or authorized anyone to do so on its behalf, but it did use lead generation companies. Strang sued Optima repeatedly in small claims court for TCPA violations. Optima struck back with a 17200 claim, basically saying that Strang was falsifying evidence to connect Optima to the faxes. In this ruling, the California Appellate Court upholds Strang's anti-SLAPP motion to strike.

* NYT: Custom postage stamps haven't really caught on. (Note: I just tested on them in my IP course exam).

* NYT: "The High Price of Creating Free Ads." Advertisers may not save any money by relying on user-generated ads. See my previous blog post about the legal costs of UGC ads.

* Rebecca discusses false advertising developments in one of our least favorite 1201 cases, Static Control v. Lexmark.

* AP: Wisconsin bar owner gets a ticket for serving Coors Light beer using a Miller Lite-branded tap. He should have known better than to cross the only major brewery still in Brewtown by serving Colorado beer.

Search Engines

* Brodsky v. Yahoo (C.D. Cal. complaint filed May 11, 2007). A stockholder derivative lawsuit against Yahoo alleging that Yahoo inflated its stock price by hyping its ad businesses. I read through the lengthy complaint and found it mostly nonsensical. For example, consider this allegation of wrongdoing: "whereas Yahoo!’s rivals were paying high-traffic vendors to route traffic through their Web sites, Yahoo! was charging large vendors for access and was dependent on that revenue to make its revenue targets, making Yahoo!’s Web site a less desirable location for vendors to drive traffic to." Huh? Search Engine Land has more.

* Google has blacklisted all term paper websites from its AdWords program. Reminds me a little of Macellari v. Carroll

Intellectual Property

* Grisman v. YouTube, Inc., C-07-2518 (N.D. Cal. May 10, 2007). Second class action lawsuit against YouTube (and third major broadside, including the Viacom lawsuit). Appears to be highly derivative of the Football Association Premier League lawsuit (see the WSJ Law Blog for more on this).

* Clark v. Amazon.com, CIV S-05-2187 (E.D. Cal. May 10, 2007). Clark published a book, sold 187 copies and gave away 234. He sued Amazon (and other online booksellers) claiming that he alone had the exclusive right to distribute the book, so their resales were infringing. Amazon responded that the resales were covered by the First Sale doctrine. Clark responded by saying that Amazon sold more copies than he sold/gave away, but that's because Clark mistakenly believed that a seller's lifetime transactions rating were all based on sales of his book. Summary judgment for Amazon.

* Like other content producers, pornographers are feeling the sting of online competition--especially due to the low barriers to entry of amateur-produced content.

* From Washingon Post: Appraisers are going to war over recycling of data they generate during appraisals, which they claim violates promises made to them. When I was guest-blogging at Concurring Opinions, I blogged on the possible IP angles of this dispute.

* BusinessWeek: "Faking out the Fakers: Faced with a tidal wave of counterfeit goods, companies are turning to secretive sci-fi technology. But crooks catch on fast." It's like the analog version of DRM.

* The USPTO's collection of aural TMs.

Miscellaneous

* Bray v. QFA Royalties LLC, 2007 WL 1306517 (D. Colo. May 3, 2007). Posting a suicide note on a private franchisee-group's website isn't grounds for termination of franchises. See Wiggin and Dana's writeup.

* Nazaruk v. eBay, Inc., 2007 WL 1417287 (10th Cir. May 15, 2007). In a non-substantive opinion, the 10th Circuit upheld the venue clause in eBay's user agreement. My post on the district court opinion.

* Washington Post article on individuals declaring "email bankruptcy," i.e., deleting everything in their in-box and starting afresh.

* To mitigate risk, the Concurring Opinions multi-contributor blog has been converted into an LLC.

* University of San Francisco has created a single page aggregating blogs from the entire USF community.

Posted by Eric at 12:59 PM | Content Regulation , Copyright , Derivative Liability , Domain Names , Internet History , Licensing/Contracts , Marketing , Search Engines , Spam , Trademark | TrackBack

June 01, 2007

"Last Call" Draft of GPL3 is Posted

By John Ottaviani

The Free Software Foundation posted the "last call" draft of version 3 of the GPL on its website yesterday for comment.

The General Public License (GPL) is one of the most widely used open source licenses. Version 1 was released in 1981, and Version 2 in 1991.

I have not had time to review the new draft yet. According to FSF's press release, changes in this draft from the third discussion draft adress the following issues:

---GPLv3 is now compatible with version 2.0 of the Apache License.

---Distributors who make discriminatory patent deals after March 28 may not convey software under GPLv3. Apparently, Novell is not prohibited from distributing software under GPLv3 because the patent protection they arranged with Microsoft last November can be turned against Microsoft to the community's benefit.

---Terms have been added clarifying how one can contract for private modification of free software, or for a data center to run it.

---A reference to a US consumer protection statute has been replaced by explicit criteria, for greater clarity outside the US.

There is a 29 day comment period for this draft. The final GPL v3 will then be approved by FSF's board of directors on or about June 29, 2007.

Posted by John Ottaviani at 01:30 PM | Licensing/Contracts | TrackBack

UCC 2B/UCITA Resurrected--ALI's Principles of the Law of Software Contracts

By Eric Goldman

Let me start with two relatively uncontroversial propositions:

1) UCC Article 2, drafted principally in the 1950s, was designed to govern the sale of tangible items, not software
2) Accordingly, Article 2 fits awkwardly when applied to "intangible goods" like software

Given this, it seems eminently logical that the UCC should have an Article 2 complement written specifically for intangible goods. This premise animated the efforts to draft the proposed UCC Article 2B back in the 1990s. It sure seemed like a good idea at the time. The project may have made some poor drafting decisions (particularly the decision to extend 2B to apply equally to both functional software and "inert' data, which makes logical sense but also quickly expanded the effort's enemies), but the project was ultimately doomed by politics.

When the 2B project died, in its wake it left the same perceived doctrinal hole and a very large draft document. That draft morphed into UCITA, a draft with most of the same objections as UCC 2B and fewer supporters. I was always amazed that anyone adopted UCITA at all, but the early adopters--Maryland and Virginia--now look a little foolish. They are stuck with a highly complex law that is non-standard compared to the rest of the nation; and numerous states adopted anti-UCITA laws making the Maryland/Virginia law inapplicable to their residents. The contracts I've done with Maryland/Virginia companies invariably exclude the application of UCITA; and I'm reasonably confident that UCITA causes Maryland and Virginia companies to routinely lose negotiations over venue selection clauses in their contracts. With no one invested in UCITA and lots of remaining resistance to it, it just seems like a matter of time before Maryland and Virginia repeal UCITA.

Meanwhile, perhaps the third time is a charm. The American Law Institute is trying again to develop a law to govern software contracts in a project entitled "Principles of the Law of Software Contracts." The reporters are Robert Hillman from Cornell and Maureen O'Rourke from BU.

The project has two interesting architectural aspects. First, it purports to apply only to software, not content, so it seeks to avoid the topical sprawl that doomed the 2B/UCITA effort. Second, as a "Principles" project, it is not intended to be a model law, and there's no expectation that a final draft will be proposed to any legislature for adoption. Of course, this raises the question about the value of the effort--if it's not a model law, and it's not a treatise, what is it, and how will it help?

I skimmed through the first draft and, despite the amorphous purpose, it struck me as a thoughtful starting point for discussion on an important topic. More work needs to be done, and I will need to organize my thoughts about some of the points that didn't make sense to me. Fortunately, there's no immediate rush. ALI's projects tend to take several years, so we'll hear more on this project in the next few years.

Posted by Eric at 10:45 AM | Internet History , Licensing/Contracts | TrackBack

May 30, 2007

Zango's Busy Litigation Docket

By Eric Goldman

I got a tip that Zango's lawsuit against PC Tools had been removed to federal court, which prompted me to search for "Zango" in PACER for the Western District of Washington. I learned that Zango has a surprisingly busy litigation docket, with 4 lawsuits filed in its home court in the past two months:

* I previously blogged on Zango v. PC Tools. That case has been removed to federal court (W.D. Wash., case no. 2:07-cv-00797-JCC).

* Zango filed a similar but less well-publicized lawsuit against anti-virus software vendor Kaspersky, which also has been removed to federal court. Zango Inc. v. Kaspersky Lab Inc., 2:07-cv-00807-JCC (W.D. Wash.). Because the lawsuit was initially filed in state court, PACER doesn't have the complaint. However, here's Zango's motion for a TRO.

In addition to these 2 lawsuits against anti-spyware software vendors, Zango claims it's been stiffed by two advertisers to the tune of about $1M:

* Zango Inc. v. Internet Brands Inc., 2:07-cv-00506-RSL (W.D. Wash. complaint filed April 6, 2007). See the complaint.

* Zango Inc v. Mainstream Advertising, 2:07-cv-00507-MJP (W.D. Wash. complaint filed April 6, 2007). See the complaint.

Looks like it's a rough-and-tumble world out there!

Posted by Eric at 09:44 AM | Adware/Spyware , Licensing/Contracts , Marketing | TrackBack

May 24, 2007

At the Intersection of Copyright and Contract

By John Ottaviani

A long simmering debate among museums and other visual archivists is whether (and how) one can charge for digital images of works in a collection that may or may not be covered by copyright any longer. The issue presented in a real life dispute last week. A non-profit organization, public.resource.org, has challenged the copyrights and restrictions on images being sold by the Smithsonian Institution. The non-profit group has not resorted to court action (at least not yet). Rather, the group downloaded over 6,000 photos online and posted them to the free-photo-sharing website flickr.com.

The debate squarely presents the question of how and whether digital archives can protect, and perhaps generate revenue from, valuable images, which may no longer be covered by copyright. The Smithsonian’s on-line terms of use in general permit fair use, and permit use of the materials for non-commercial educational purposes. However, the terms on the website explicitly prohibit commercial publication or exploitation of the photos and other content without obtaining prior written permission from the Smithsonian Institution. Can the Smithsonian protect works that are no longer protected by copyright with contractual restrictions?

Generally, the archives and museums have felt that one could impose contractual restrictions on photographs and images that the entity owned. If one owns a painting that is no longer under copyright, one can still control who can view the painting. In fact, one does not need to make it available to the general public at all. Here, the argument is that control of the digital file (which may have cost the institution a great deal of time and money to create) is analogous to control of the physical object. Because we do not need to make it available to the public at all, then if we do, we can decide under what terms.

Of course, the opposing view is that images that are no longer covered by copyright should be publicly available to all or any purpose.

Many archives, libraries and museums are dedicated to making information in their collections as widely available as possible. Yet the staff is pushed by their governing bodies to try to use the collections to raise revenue. The debate presented by the Smithsonian dispute mirrors this internal debate.

We have known since the Federal Circuit’s decision in Bowers v. Baystate Technologies, Inc. that the Copyright Act does not pre-empt contractual restrictions on reverse engineering. This case may explore the boundaries of that decision and how far contract restrictions can go.

The Smithsonian debate has other overtones, which may not be applicable to private museums and archives. One of the issues in dispute is whether works created by Smithsonian employees are considered to be in the public domain as works made by federal government employees. We will need to see whether any precedent in this area is limited to government works, or spills over into the private sector. More likely, the parties will settle the matter privately. Hopefully, this will not expose the archives of others.

Posted by John Ottaviani at 01:37 PM | Copyright , Licensing/Contracts | TrackBack

May 22, 2007

Click Fraud Resources

By Eric Goldman

I'm a little surprised that click fraud remains such a hot topic. Last summer, I thought the Google and Yahoo class action lawsuit settlements resolved the bulk of the problems, and most people would move on to a new hot topic du jour. Instead, everyone still wants to talk about click fraud; I'm giving three practitioner talks on click fraud in the span of a month. My presentation slides on click fraud. A collection of my blog posts on click fraud.

Posted by Eric at 02:14 PM | Licensing/Contracts , Search Engines | TrackBack

May 01, 2007

April 2007 Quick Links

By Eric Goldman

* Rebecca blogs on CollegeNET, Inc. v. XAP Corp., 2007 WL 927946 (D. Or. March 26, 2007), where a jury awarded $4.5M in damages under 43(a) because the defendant had a privacy policy saying it wouldn't disclose personal information to third parties "without the user's express consent and direction," but when users affirmatively said “yes” to "Are you interested in receiving information about students loans and financial aid?," the defendant sold the name to a third party. This is the right result because the combination of the two statements--we won't disclose to third parties, and a lack of pronouns about who would send the information about loans/financial aid—clearly imply that the information would come only from the defendant. However, it would have been easy to avoid this result! As the court points out, the defendant could have added one more line to the privacy policy ("If you ask for more info on loans/financial aid, we may provide your name to third parties") or pronouns to the call-to-action ("Are you interested in receiving information about students loans and financial aid from us or selected third party vendors?"). While the result is right, the damages sure seem high.

* Claria has taken its PersonalWeb tool out of beta. This tool creates a personalized navigation page for consumers by inferring their preferences rather than requiring them to proactively customize the personalization, which only 10% of users did.

* From BusinessWeek: To capture interest in a hot story, media entities buy keywords like "Virginia Tech massacre" immediately following tragedies.

* MailChannels' technology deliberately introduces latency into its server's handshakes, effectively creating a slow lane for spammers.

* Internet Archive v. Shell has settled. John O. may have more thoughts on this.

* Latest evidence that consumers don't always want to have their say: less than 0.2% of visits to YouTube and Flickr are for the purpose of uploading content.

* Todd J. Hollis' lawsuit against dontdatehimgirl.com has been dismissed for lack of jurisdiction. Unfortunately, the court deliberately sidestepped the 47 USC 230 issue, which would have been a simple way to clear the docket permanently.

* BusinessWeek article on how dictionary-makers are struggling to sort through the proliferation of new well-known words via the web.

* A historian raises some quality concerns about Google's book scanning efforts. I think the metadata issue is particularly serious, as many people will expect Google's metadata to be accurate and will cite it accordingly. HT Rebecca.

* Lawsuit over a botched tattoo. Whoops! Speaking of bad-idea tattoos, check out my archive post on tattoo advertising.

* New York councilman wants to ban "menu spam."

* Thyroff v. Nationwide Mutual Insurance Co., No. 41, 2007 N.Y. LEXIS 264 (N.Y. Mar. 22, 2007), holding that electronic records are protected by a state law against "conversion." This is certainly consistent with some precedent, such as Kremen v. Cohen, 325 F.3d 1035 (9th Cir. 2003) saying that domain names can be converted, but this broad holding seems plainly wrong. With respect to copyrightable electronic records, federal copyright law should preempt state anti-conversion laws. What am I missing?

* Some items that made me laugh this month:

- Dilbert on crowded trademark namespaces

- Comedy Central has the amazing story of My-T-Boy, the cute branded character who lapsed into the public domain

- Marge Simpson googles herself and doesn't like what she sees from the satellite image of her home. Very funny!

Posted by Eric at 06:20 PM | Derivative Liability , Licensing/Contracts , Marketing , Privacy/Security , Spam , Trademark | TrackBack

April 09, 2007

March 2007 Quick Links Part 2

By Eric Goldman

Yesterday I posted the Google edition of my list of interesting items from March. Today I post the remainder of items that caught my eye last month.

Trademarks/Brands

* Bosley Medical Institute v. Kremer, 2007 WL 935708 (S.D. Cal. Mar. 22, 2007). On remand from the Ninth Circuit, the district court denies Kremer's motions to dismiss/for SJ. Michael Atkins recaps the ruling and case's history.

* Milbank Tweed Hadley & McCloy LLP v. Milbank Holding Corp. d/b/a Milbank Real Estate Services, No. CV 06-187-RGK (JTLx), (C.D. Cal. Feb. 23, 2007). After passage of the Trademark Dilution Revision Act, the court rejects the existence of "niche fame" as support for a dilution action. I’m a little surprised that this plaintiff would bring this losing argument.

* ICANN votes down a .XXX TLD. Again.

* NYT on the increasing challenges of creating a unique global brand in very crowded namespaces.

* Trademarked Sentences: A tool that helps you generate poetry by mixing trademarked slogans.

Blogs/UGC

* BidZirk v. Smith, No. 06-1487 (4th Cir. March 6, 2007). The Fourth Circuit, in a non-substantive opinion, denied a company's request for an injunction against a griping blogger's use of its trademarks. My initial write-up of the case. With this loss, the plaintiff's ill-advised decision to appeal the case is now even more clearly a complete waste of the plaintiff's money and our judicial resources.

* Chapman v. Merchandise Mart Properties, 2007 WL 922258 (D. Vt. Mar. 23, 2007). Woman tries to get TRO against physical-space trade show based on trademark interests in the term "GreenStyle," which is her blog’s title. The court rejects the request, but interestingly doesn't seem fazed by the argument that she may have a trademark interest generated from her blog name. Blog names can be trademarkable with sufficient use in commerce, a factor the court ignored completely.

* Sifry: "70 million weblogs. About 120,000 new weblogs each day, or...1.4 new blogs every second."

* A nice retrospective on the history of blogging.

* Wikipedia is requiring some credentialing after getting burned by a pseudonymous contributor who falsely claimed he was a professor.

* Ed Felten has some terrific observations about building distributed reputation systems like Digg (and, for that matter, Epinions). Ed is 100% correct that reputation systems need substantial stabilization; they don't just work deus ex machina.

Contracts

* Dorr v. Yahoo, No 3:07-cv-01428-MJJ (N.D. Cal. complaint filed March 7, 2007). Yahoo offered a premium subscription service allowing users to send email without Yahoo's ads attached. Then, allegedly, they changed the service's terms, and some of the paying customers were unilaterally bumped to a tier where Yahoo's ads were again attached to their email. Steve Bryant has more. In general, if people pay to eliminate ads, during that period of time, Yahoo should not be able to unilaterally amend the terms so that the user is paying but still getting ads.

* Ken Adams blogs on Affinity Internet, Inc. v. Consolidated Credit Counseling Services, Inc., 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006), where the court held that a contract clause saying "This contract is subject to all of SkyNetWEB's terms, conditions, user and acceptable use policies located at http://www.skynetweb.com/company/legal/legal.php" was insufficient to incorporate an arbitration clause contained in the referenced document. Ken's suggested fix: "The SkyNetWEB user agreement located at http://www.skynetweb.com/company/legal/legal.php constitutes part of this agreement."

Government Agencies

* The National Do Not Call Registry: Annual Report to Congress for FY 2006 Pursuant to the Do Not Call Implementation Act On Implementation of the National Do Not Call Registry (April 2007): "The Commission believes that the fundamental goal of the National Do Not Call Registry — to provide consumers with a simple, free, and effective means to limit unwanted telemarketing calls — has been realized." My curmudgeonly take on why the do-not-call registry isn’t great policy.

* Implementing the Children's Online Privacy Protection Act: A Federal Trade Commission Report to Congress (February 2007). The FTC remains pretty pleased with itself about COPPA, but it's worried about social networking sites and the continuing lack of age verification technology. I'm not as impressed with COPPA as the FTC is; see here and here. In any case, if you're doing COPPA research, this report helpfully recounts the 12 COPPA enforcement actions to date.

* Hard to believe, but payola busts are still being made. The latest: a $12.5M settlement. See the NYT and WaPo .

* Terrific post by the EFF’s Seth Schoen about a misguided report on P2P file sharing by the USPTO and the issues with empowering users to control their computers. A must-read.

Miscellaneous

* ACLU v. Gonzales, No. 98-559 (E.D. Pa. March 22, 2007). On remand from the Supreme Court, the court once again holds that the 1998 Child Online Protection Act is unconstitutional.

* CRS Report for Congress: An Overview of Recent U.S. Supreme Court Jurisprudence in Patent Law, March 16, 2007, discussing the last 8 Supreme Court patent cases.

* We've all heard about the magic of network effects. But as this Mercury News article explains, when an Internet start-up company's network takes root principally overseas, it can leave the company with a large audience of unmonetizable users.

* Jacob Loshin, Property in the Horizon: The Theory and Practice of Sign and Billboard Regulation, 30 Environs 101 (2006). A thoughtful discussion of the history of billboard regulation and some regulatory considerations.

* Coca-Cola's launch campaign for "Coke Zero" is premised on the idea that the executives of Coca-Cola want to sue the executives of Coke Zero (i.e., other executives within the same company) for "taste infringement" because the taste is so similar. Personally, I find commercials about faux lawsuits HILARIOUS. Ha ha ha. Except...if there isn't currently a cause of action for "taste infringement," with the expansion of IP rights, it may only be a matter of time... This turns the joke about how hard it would be to establish taste infringement on its head. Ironically, the commercial features Coke's actual lawyers. Yet more on this sorry story.

Posted by Eric at 09:14 AM | Content Regulation , Copyright , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Trademark | TrackBack

April 08, 2007

Oracle v. SAP Lawsuit Comments

By Eric Goldman

Oracle Corporation v. SAP AG, 3:07-cv-01658-EMC (N.D. Cal. complaint filed March 22, 2007)

I realize I'm a couple weeks late to this story, but it's too important/interesting a case not to address.

TomorrowNow (TN) is a company started by former Oracle employees. They offer maintenance services for Oracle software competitive with Oracle's standard maintenance program, but at much-reduced prices: Oracle charges 22%/yr while TN charges half that (11%/yr).

But how is TN able to undercut Oracle's pricing so drastically? One possibility is that Oracle charges supra-market rates due to the lock-in effects of tying maintenance services to software licenses. On that front, I'll note that back in the 1990s, my software vendor clients typically charged 15%/yr for maintenance--a substantially lower number than Oracle's breath-taking 22% figure. So perhaps TN is able to charge 11% as a modest start-up discount off the industry-standard 15%, and Oracle's been getting away with a great deal for a long time.

An alternative story, told by Oracle in its complaint, is that TN could undercut Oracle only by stealing. TN has a very thin development team compared to the Oracle behemoth, so Oracle might incur all of the development expenses necessary to provide maintenance services, and TN might just take those assets for free to engage in competitive free-riding. Specifically, Oracle alleges that TN gets switching Oracle customers to give TN their passwords to Oracle's website/database for its maintenance customers and then send robots to download everything (manuals, patches, etc.) it can find, which then allows it to provide services comparable to Oracle’s.

Perhaps TN, even if had engaged in such a scheme, would have been a nettlesome gnat as a standalone company, but it got scooped up by German software giant SAP, one of Oracle's main rivals. At this point, TN becomes problematic to Oracle in a variety of ways. TN is poaching some maintenance revenue outright, while it is putting price pressure on the maintenance business that Oracle retains. Further, Oracle customers who switch to TN have an easier path to migrate their overall software needs to archrival SAP.

Oracle has struck back in court with a tightly drafted complaint. Oracle claims that the scheme of getting former Oracle customer passwords and downloading lots of content from Oracle's maintenance database violates (among other things) the CFAA and Cal. Penal Code Sec. 502 and constitutes trespass to chattels and interference with prospective economic advantage. This is a well-pleaded complaint, in the sense that there are no obvious deficiencies with Oracle's pleadings. I don't love everything about Oracle's practices. For example, it makes no sense that Oracle made it possible for customers to root around the entire database for stuff, even if it didn't relate to the customer's software. Also, I would definitely have drafted and implemented the contracts differently than Oracle did. But these are quibbles; Oracle's contracts and practices are serviceable for this lawsuit's purposes.

Having said that, there are two obvious omissions from the alleged claims. First, Oracle didn't allege copyright infringement yet because it needed to get its copyright registration applications on file, so it expects to file an amended complaint. Second, Oracle didn't allege that the claimed misuse of switching customers constituted a 1201 circumvention. I'm not 100% sure why. It could be that this claim will be added along with the other copyright infringement claims, or it could be that Oracle is sufficiently deterred by the handful of cases holding that mere misuse of a legitimately issued password isn't a circumvention.

Also, it's noteworthy that Oracle didn't sue its switching customers for allegedly providing their passwords to TN, although it seems like at minimum Oracle would have breach of contract claims against them. I assume Oracle isn't suing customers because that's never good for business. Indeed, part of the lawsuit is about wooing customers; there is some hilarious and gratuitous marketing language in the complaint designed to impress Oracle customers and to rattle the confidence of customers thinking of switching to SAP.

Putting aside what's not in the complaint, if Oracle's complaint accurately states the facts, SAP could be in deep legal trouble. Of course, it's fairly typical for the plaintiff to draft a great complaint and the defendant then tells a very different story. As just one example, Oracle ties the downloads to TN via IP addresses; but IP addresses are spoofable, so it's theoretically possible that someone spoofed TN. So we have to wait until we hear both sides before we can make any rigorous assessments of merit.

Even so, I'm a little unnerved by the software industry analysts who have claimed this lawsuit is no big deal. Perhaps in the grand scheme of things, this lawsuit won't have a great deal of effect on the competitive position of SAP and Oracle. Sure, the lawsuit casts some doubts in the minds of customers who are thinking of leaving Oracle for lower-cost options that SAP/TN will be a long-term trustworthy vendor, but such doubt-sowing initiatives are fairly common the bare-knuckle competition for enterprise database software. Plus, if SAP just cuts off TN altogether, presumably the overall effect on SAP and Oracle revenues will be comparatively modest.

But this lawsuit could be a Big Deal because the facts alleged by Oracle might support criminal prosecutions for CFAA, CA Penal Code 502, criminal copyright infringement and other crimes. It's not clear if the criminal prosecutors are going to get involved in this case or if Oracle even wants them to do so, but I suspect a number of SAP employees have procured their own personal attorneys. To the extent TN was a rogue operation operating without oversight or permission from SAP corporate, then again the financial impact may be small, even if the affected individuals might suffer severe consequences. But if TN wasn't a rogue operation, any criminal prosecutions could have major ripple effects throughout the entire SAP organization.

I think the Cadence v. Avant lawsuits are illustrative, especially given the many parallels. In that case, a bunch of former Cadence employees started up a competitive company, Avant. However, to get a jumpstart on the competition, the employees walked out the door with Cadence source code. Perhaps aided by this unfair head start, Avant had a very successful marketplace run, growing into a major public company with hundreds of millions of dollars of revenue. But after the civil and criminal prosecutions, Cadence got damage awards of hundreds of millions of dollars, multiple Avant employees went to jail, and Avant was effectively knocked out of the marketplace.

I need to reiterate that we don't know yet if Oracle's alleged facts are true, or if anyone committed a crime, or if any criminal prosecutions will ever be launched. However, I think it's too breezy for software industry analysts to brush this case off as a low-risk threat. If Oracle’s alleged facts are true, this isn't business-as-usual; instead, this would constitute illegal marketplace behavior, with potentially severe consequences for the business generally and the decision-makers individually.

I have additional edgy things to say about this case in this interview. Other resources:
* WSJ Law Blog
* BusinessWeek article pitching this lawsuit as just bare-knuckle competition between giants
* A collection of industry analysts' comments

Posted by Eric at 11:08 AM | Copyright , Internet History , Licensing/Contracts , Privacy/Security | TrackBack

April 07, 2007

AFP v. Google Settles

By Eric Goldman

The Agence France-Presse v. Google lawsuit has settled. See news reports: AP, CNET News.com. Like it did with the Associated Press, Google struck a licensing deal for AFP content, including indexing it in Google News. Financial terms weren't disclosed, but I would shave my head if money wasn't moving from Google to AFP. Two observations:

1) This settlement is another example of a more content-owner-friendly Google striking deals with content owners rather than intransigently fighting them. We've seen the new warm-n-fuzzy Google working with content owners on YouTube, plus the AP deal last year, and now the AFP settlement. I expect Google to show even more conciliation with content owners in the future, not less.

2) Historically, Google's margins have been ridiculously high. If I'm right and Google is paying off both AP and AFP, I think Google's margins will decline over time as it has to pay more for content. See, e.g., Zell's announcement that he wants Google to pay up for indexing Tribune content.

More comments about the case at InfoWorld.

Previous blog coverage:
* Initial Assessment of AFP v. Google (March 2005)
* AFP v. Google Update (March 2005)
* An AFP Licensee Tells His Story of Being Kicked Out of Google News (March 2005)
* Answer in AFP v. Google (July 2005)
* Google Loses Belgium Copyright Case--Google v. Copiepresse (February 2007)

Posted by Eric at 09:58 PM | Copyright , Licensing/Contracts , Search Engines | TrackBack

April 05, 2007

Google AdWords Contract Upheld (Again)--Feldman v. Google

By Eric Goldman

Feldman v. Google, Inc., 2007 WL 966011 (E.D. Pa. March 29, 2007)

Yet another click fraud lawsuit, this time involving one of the 556 plaintiffs that opted out of the Google click fraud settlement. In my prior post, I predicted a lot of chicken-scratch litigation from those opt-outs. Here's one!

In this case, a law firm advertised via Google AdWords and allegedly was click frauded. The lawyer then sued (on behalf of his law firm) Google for click fraud in Pennsylvania. Google defended based on its AdWords contract, which has a mandatory venue provision specifying that all lawsuits shall be brought in California. We saw virtually identical facts in the initial Person v. Google case, which also involved the AdWords contract (though that lawsuit was brought in NY). The result was the same in both cases--each time, the court upheld the AdWords contract's mandatory venue clause and transferred the case to California.

Snarky aside: There's one more fact in common between Person and Feldman--both of them were lawyers bringing the lawsuit on their own behalf (pro se). Indeed, I can think of two more pro se lawyer v. Google lawsuits, the Field and Bradley cases. In each of these four cases, the lawyer representing himself got his clock cleaned by the court. Maybe this confirms the old maxim that "A person who represents himself has a fool for a client." At minimum, these pro se lawyers aren't bringing honor to themselves or our profession.

Mechanically, Google's contract formation process is bullet-proof. As the court describes:

To open an AdWords account, an advertiser had to have gone through a series of steps in an online sign-up process. (Hsu Decl. ¶ 3.) To activate the AdWords account, the advertiser had to have visited his account page, where he was shown the AdWords contract. (Hsu Decl. ¶ 4.)

Toward the top of the page displaying the AdWords contract, a notice in bold print appeared and stated, “Carefully read the following terms and conditions. If you agree with these terms, indicate your assent below.” (Hsu Decl. ¶ 4.) The terms and conditions were offered in a window, with a scroll bar that allowed the advertiser to scroll down and read the entire contract. The contract itself included the pre-amble and seven paragraphs, in twelve-point font. The contract's pre-amble, the first paragraph, and part of the second paragraph were clearly visible before scrolling down to read the rest of the contract. The preamble, visible at first impression, stated that consent to the terms listed in the Agreement constituted a binding agreement with Google. A link to a printer-friendly version of the contract was offered at the top of the contract window for the advertiser who would rather read the contract printed on paper or view it on a full-screen instead of scrolling down the window. (Hsu Decl. ¶ 5.)

At the bottom of the webpage, viewable without scrolling down, was a box and the words, “Yes, I agree to the above terms and conditions.” (Hsu Decl. ¶ 4.) The advertiser had to have clicked on this box in order to proceed to the next step. (Hsu Decl. ¶ 6.) If the advertiser did not click on “Yes, I agree ...” and instead tried to click the “Continue” button at the bottom of the webpage, the advertiser would have been returned to the same page and could not advance to the next step. If the advertiser did not agree to the AdWords contract, he could not activate his account, place any ads, or incur any charges. Plaintiff had an account activated. He placed ads and charges were incurred.

As I teach in my Cyberspace Law class, the very best online contracts are "mandatory non-leaky clickthrough" agreements. Like this one.

To get around this, the lawyer claims he was ignorant of the mandatory venue clause because he didn't read the contract. Hmm...a lawyer entering into a contract that he didn't read. Even if the contracting party weren't a lawyer, this is a pathetic argument. Every lawyer learns very, very early in their first year Contracts course that a party is bound to contract terms they assent to, even if they chose not to read the terms.

The court also slams down the plaintiff's other attacks on the contract:
* the contract didn't contain a definite price. However, the contract contained the exact formula for computing the price.
* procedural unconscionability. The court rejects this because the "Plaintiff was a sophisticated purchaser, was not in any way pressured to agree to the AdWords Agreement, was capable of understanding the Agreement's terms, consented to them, and could have rejected the Agreement with impunity."
* substantive unconscionability. The court finds many of the contract terms reasonable.

This case is a nice win for Google for two reasons. First, by upholding the mandatory venue clause, it should inhibit AdWords advertisers from suing Google all over the country. Therefore, all lawsuits will have to be in Google's home court, which raises the costs of lawsuits for most plaintiffs and gives Google some other home-court advantages. Second, by holding that this plaintiff is bound by the AdWords contract and those terms aren't substantively unconscionable, Google can now invoke its risk management clauses (like the warranty disclaimers, limits of liability, etc.) to cut the economic heart out of the click fraud claim.

Posted by Eric at 05:38 PM | Licensing/Contracts , Search Engines | TrackBack

March 28, 2007

New Discussion Draft of GPL3 is Posted

By John Ottaviani

The Free Software Foundation posted draft 3 of GPL3 on its website today.

The General Public License (GPL) is one of the most widely used open source licenses. Version 1 was released in 1981, and Version 2 in 1991.

I have not had time to review the new draft yet. However, it reportedly has made GPL3 more compatible with GPL2. One of the criticisms of the prior drafts was that it could cause a "fork" in GPL licensing, with some products remaining under GPL2 and other derivatives of those products falling under GPL3. There are also changes to the patent licensing and digital rights managment provisions to address concerns in the open source community with these provisions in earlier drafts.

According to FSF's press release, changes in this draft also include a provision where first time violators can automatically have their license restored if they remedy the breach within thirty days.

There is a 60 day comment period for this draft. Then the comments will be considered and a "last call" draft will follow with thirty days for discussion The final GPL 3 will then be approved by FSF's board of directors.

Posted by John Ottaviani at 01:31 PM | Licensing/Contracts | TrackBack

March 19, 2007

Click Fraud Lawsuit Survives Motion to Dismiss--Payday Advance v. FindWhat

By Eric Goldman

Payday Advance Plus, Inc. v. Findwhat.com, Inc., 2007 WL 760437 (S.D.N.Y. Mar. 12, 2007)

The high-profile click fraud lawsuits against Google and Yahoo settled last summer, but other lesser-known lawsuits appear to be in the pipeline, such as this lawsuit against FindWhat (now Miva). In this ruling, the defendants attempt to shut down the lawsuit and they met with some success; the defendants eliminated 5 out of the plaintiff's 6 claims (at least temporarily). However, the most dangerous claim--breach of contract--survived the motion to dismiss. This case is a long way away from final resolution, but I'm sure FindWhat would have loved to have squashed the case entirely without incurring more litigation costs.

Introduction

The plaintiffs initially filed this lawsuit in 2005 in California, but it was dismissed for improper venue. The plaintiffs refiled the lawsuit in NY claiming 6 causes of action: breach of contract, unjust enrichment, negligence, civil conspiracy, "joint venture" and a violation of NY GBL Sec. 249 (a consumer protection statute). The plaintiffs voluntarily capitulated on the last 2 causes of action. In this ruling, the defendants moved to dismiss the remaining four causes of action per 12(b)(6).

The plaintiffs allege that FindWhat entered into an affiliate arrangement with Advertising.com where Advertising.com would drive traffic to FindWhat's search listings in exchange for a cut of the revenue. The plaintiffs allege that Advertising.com boosted the plaintiffs' costs by competitively bidding on the same keywords (thus raising keyword prices) and by engaging in both manual and automated click fraud.

The Court's Analysis

It sounds relatively simple--KEEP A COPY OF YOUR SIGNED CONTRACTS. But, the plaintiff can't find its copy. FindWhat introduced what it thinks is the governing contract, but the plaintiff disagreed that FindWhat's version is the contract it signed. On this basis alone, the court can't dismiss the contract claims because the parties don't even agree on the contract terms. Unless the plaintiff magically finds its signed contract, the judge ultimately may need to choose between various possible contracts.

The court also discuss the language that the plaintiffs would pay FindWhat for "actual clicks." I've said before that I hate the word "actual" in this phrase, which introduces unnecessary ambiguity. The right way to draft this language would be to say that advertisers pay for all clicks except those that FindWhat determines are illegitimate, or to define "actual clicks" that way.

Either way, the determination of clicks is governed by the "implied covenant of good faith and fair dealing." Courts apply this implied covenant inconsistently, so in many cases it has no effect so long as the parties engage in profit-maximizing behavior. In other cases, the covenant allows the judge to opine on the business ethics of the parties and declare some behavior out-of-bounds. For example, even if the contract said unambiguously that advertisers pay for each and every click, many courts nevertheless would use the implied covenant to dishonor any clicks by the search engine's employees done for illegitimate purposes. Thus, the court says:

The facts alleged in the Complaint, if taken to be true, suggest that Findwhat could have violated its implied covenant by inflating the bidding prices for search terms and by directing Advertising to generate “clicks” on Payday's website by people or “bots” who had no purpose for visiting the site other than to generate revenues for Findwhat and Advertising. Because this tactic would allow Findwhat to increase its profits solely at its discretion and with no benefit to Payday, it is plausible that it could be found to “destroy[ ] or injur[e]” Payday's rights under the contract. Dalton, 663 N.E.2d at 291. It is furthermore likely that a reasonable advertiser entering into such a contract would expect that, whatever the external risks of unproductive “clicks,” it would not be subjected to unbounded increases in its prices at the hands of its promisor or at its promisor's direction. (emphasis added)

This leaves open several inquiries, including (1) does outright click fraud engineered by the search engine constitute a breach of the good faith covenant, and (2) can the plaintiffs introduce evidence showing that FindWhat, in fact, engaged in such condemnable behavior? Therefore, the plaintiffs still have a lot of work to reach a payday here (sorry for the pun). But, they live another day to try to make that showing.

The court spent a lot less time dismissing the other claims. The unjust enrichment claim is dismissed because it is subsumed by the breach of contract claim. The negligence claim is dismissed because, under NY law, a contract relationship does not give rise to a duty to avoid tortious negligent behavior. The civil conspiracy claim is dismissed because there needs to be an underlying tort advanced by the conspiracy, and the plaintiffs didn't allege any. The plaintiffs want to allege that FindWhat engaged in fraudulent concealment but failed to make strong enough statements to support that. The judge gave them another chance to amend the complaint.

Conclusion

Due to the successful motion to dismiss, Advertising.com is now out of the lawsuit, leaving FindWhat/Miva as the only remaining defendant. It's too early to assess FindWhat/Miva's ultimate risk exposure, but presumably the plaintiffs will use this opportunity to do some hard-hitting discovery to see if they can get some juicy facts.

Posted by Eric at 01:40 PM | Licensing/Contracts , Search Engines | TrackBack

March 16, 2007

Dumb Domain Name Dispute Du Jour--Korb v. Maxmedia

By Eric Goldman

Korb v. Maxmedia, Inc., 2007 WL 734423 (E.D. Mich. Mar. 9, 2007)

I rarely blog on domain name disputes for two reasons. First, there are too many of them, and each one tends to look like the others. Second, most of them are completely stupid in that the parties spend way too much money to fight over an asset worth far less than the litigation costs.

With those principles in mind, this domain name dispute nevertheless caught my eye because of the omigod mistakes by both parties. Here's the background: Both Korb and Maxmedia are in the "interactive media" business and both (apparently independently) adopted the "maxmedia" trademark in 1996. Korb scored the domain name maxmedia.com in Nov. 1996. The opinion doesn't say what kinds of interactions the parties had from 1996 to 2005, but in April 2005, Maxmedia approaches Korb, first to buy the domain name and then to propose an employment relationship. On May 19, 2005, the parties sign a 1 year employment agreement that includes a $10,000 "signing bonus" that was conditioned on Korb's transfer of the domain name. The check is cut and Korb apparently changes the domain name's IP address, and Maxmedia launches a website under its new domain name. However, Korb didn't change the domain name's registrant information.

Not surprisingly, the relationship doesn't work out, and Maxmedia fires Korb on Sept. 1, 2005. But surprise! Maxmedia can't control the domain name, and suddenly Korb is nowhere to be found. Litigation ensues, with both parties suing each other. In this March 9 ruling, the court addresses Korb's effort to dismiss Maxmedia's claim that Korb is infringing Maxmedia's trademark. The court says that the trademark issue is a fact issue that can't be dismissed on summary judgment.

OK, but let's rewind. How many mistakes can we find in this scenario? Based on the court's description of the facts, some obvious mistakes on Maxmedia's part:

1) Bundling the employment and domain name acquisition. This leaves open the question of whether the signing bonus was just a signing bonus, or was it an acquisition payment for the domain name? It would have been better to use separate agreements to keep the domain name acquisition independent of the employment arrangement. Otherwise, the documentation appears to leave open the possibility that the domain name transfer will fail if Maxmedia ended the employment relationship early (as it did).
2) Not buying the trademarks as part of the domain name. A domain name buyer should always acquire any trademark rights of the seller--especially in a case like this, where the parties apparently co-existed/competed for 9 years.
3) Not completing the domain name transfer ASAP. This is an easy one. A domain name buyer should require the seller to fill out the transfer paperwork as part of the transaction documents--and DEFINITELY before the check is cut.
4) Not doing housekeeping before terminating Korb. Another obvious one. Before you can an employee, you make sure you've identified all of the assets in the employee's control and taken as many steps as possible to get those assets back in your possession. Because, as we know, a canned employee typically isn't a cooperative former employee.

And how about Korb's mistakes? Based on the court's writeup of the facts, there's no way that Korb is going to keep the domain name (probably based on breach of contract, but maybe other theories too). So this looks like a doomed-to-fail attempt to extract some extra cash for a domain name that he already sold once. Or, if he can find a way to keep the domain name, it seems pretty likely that he's going to have to cough up the $10,000 bonus. Either way, what a waste of time and money.

Posted by Eric at 10:23 AM | Domain Names , Licensing/Contracts | TrackBack

March 14, 2007

Can A Spider Enter Into A Binding Contract?--Internet Archive v. Shell

By John Ottaviani

Can a spider enter into a binding contract when the terms and conditions on the website declare that copying or distributing anything on the site indicates an agreement to or acceptance of terms, and the spider copies the website content? Does the result depend on whether or not the terms have been viewed by a “live” individual?

In Internet Archive v. Shell, No. 06-cv-01726-LTB-CBS (D.Col. 2/13/2007), the Colorado federal district court decided that more facts were needed and refused to dismiss the breach of contract claim for failure to state a cause of action. Whether or not the claim will survive a summary judgment motion remains to be seen.

The case involved the Internet Archive’s “Wayback Machine,” which systematically browses the Internet, reproducing content from websites and placing it in a searchable Internet Archive. The Wayback Machine does not actively seek the permission of website owners prior to reproducing website content. However, the Internet Archive’s website explains how website owners can remove material from the Archive and prevent it from being copied. According to the decision, Internet Archive also removes material on request from website owners.

Shell owns a website devoted to providing information, services and other advocacy on behalf of individuals accused of child abuse or neglect. Her website contains a copyright notice, stating that:

“IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS SITE—YOU ARE ENTERING INTO A CONTRACT. READ THE CONTRACT BEFORE YOU COPY OR DISTRIBUTE. YOUR ACT OF COPYING AND/OR DISTRIBUTING OBJECTIVELY AND EXPRESSLY INDICATES YOUR AGREEMENT TO AN ACCEPTANCE OF THE FOLLOWING TERMS:”

These terms include charging the user $5,000 for each individual page copied, granting Shell a perfected security interest of $250,000 “per each occurrence of unauthorized use” of the website in all of the user’s assets and personal property, a charge of $50,000 for each occurrence of failure to prepay for use of the website, “plus costs and triple damages,” as well as provisions waiving various defenses.

According to the decision, the copyright notice was accessible through an icon located on Shell’s website. According to Internet Archive, the notice did not pop up as a separate screen that the user must “click through” in order to access web material and did not require users to agree to these terms before accessing material. The record was not clear on what statement actually appeared on Shell’s home page, precisely where the copyright statement was located on the Website, nor on how the user was informed of the existence of terms of the copyright notice.

After Ms. Shell unsuccessfully demanded payment of $100,000 from Internet Archive for copying her website, Internet Archive filed its action seeking a determination that it did not violate Shell’s copyrights. Shell filed counterclaims against the Internet Archive for copyright infringement, conversion, civil theft, breach of contract, and racketeering under the federal and Colorado racketeering statutes.

A few thoughts about this decision:

· The Court properly dismissed the state law conversion and civil theft claims for failing to state a claim. Dismissing the conversion claim, the court analogized to cases where it was held that the possession of copies of documents, as opposed to documents themselves, does not amount to an interference with the owner’s properties sufficient to constitute conversion. There is no reason the rule should be different in Cyberspace.

· The Court properly refused to dismiss the contract claim because it did not have all of the facts in front of it. There were contradictory statements as to the location of various notices of the terms.

· Several colleagues and I wrote a paper a few years ago entitled “Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements” (59 Business Lawyer, 279 (2003)), in which we set forth a four-part test for courts to use in determining whether a user has validly assented to the terms of a browse-wrap Agreement: (1) the user is provided with adequate notice of the existence of the proposed terms; (2) the user has a meaningful opportunity to review the terms; (3) the User is provided with adequate notice that the taking of a specified action manifests assent to the terms; and (4) the user takes the action specified in the notice. While the Colorado court did not cite our article or explicitly use our test, maybe it will do so if it is required to address a summary judgment motion.

o It appears that, in this case, there is adequate notice that taking an action manifests assent to the terms, and the user (or the spider) took the action specified. The notice seemed to be adequate to put a reader on notice that an act of copying or distributing indicates agreement and acceptance to the terms.

o The bigger problem seems to be whether there was “an adequate notice of the existence of the terms” and a “meaningful opportunity to review” the terms. What constitutes adequate notice of the existence of terms should be judged both in terms of the physical presentation of the notice and the content of the notice. According to the court, the record does not disclose this in insufficient detail. The parties will need to develop a more detailed record.

o Ms. Shell’s website today shows a statement at the bottom of the home page which says: “IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS WEBSITE, YOU ARE ENTERING INTO A CONTRACT. SEE COPYRIGHT NOTICE AND SECURITY AGREEMENT (READ BEFORE ACCESSING THE WEBSITE)”, with a link to the terms. Clicking on the link brings up a pop-up box that says: “I agree to the site’s terms of use and purchase” but does not provide one with an opportunity to review the terms. It is not clear, however, whether or not this is the same notice that was in effect at the time Internet Archive was visiting the site. (The Wayback machine no longer provides access to archived pages of Ms. Shell’s website). If so, there is no meaningful opportunity to review the terms before one is required to assent to the terms, and Ms. Shell’s contract claim would fail.

· Another interesting aspect of this case is Internet Archive’s attempts to have the conversion and civil theft and breach of contract claims dismissed as being pre-empted by the federal Copyright Act. The court properly found that the conversion, breach of contract claim and civil theft claim are not pre-empted, as each contains an “extra element” which makes the claim qualitatively different from, not subsumed within, a copyright infringement claim.

· What about capacity? The Uniform Electronic Transactions Act (UETA) validates contracts formed by electronic agents. The Internet Archive made the argument that Shell’s breach of contract argument failed because no human being at Internet Archive was ever aware that the agreement existed. The court sidestepped the issue, holding that the complaint was sufficient to put Internet Archive on notice of the claim, and that more facts were needed before the motion to dismiss could be resolved. If it comes up again, section 14 of UETA should defeat Internet Archive’s argument. Section 14 provides that “[a] contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agent’s actions or the resulting terms and agreements.” Clearly, this section negates any claim that lack of human intent, at the time of contract formation, prevents contract formation. The lack of human interaction may still be relevant to the issue of whether the terms have been adequately presented, but should not bar contract formation.

Posted by John Ottaviani at 01:51 PM | Copyright , Licensing/Contracts , Search Engines | TrackBack

March 07, 2007

University Report on Tech Transfer and the Public Interest

By Eric Goldman

Twelve academic institutions have released a white paper entitled In the Public Interest: Nine Points to Consider in Licensing University Technology. The report purports to articulate "best" practices by universities in the technology transfer business. The report contains pearls of wisdom such as "it reflects poorly on universities to be involved in 'nuisance suits'" (true, but this statement applies to all plaintiffs, not just universities!) and "universities would better serve the public interest by ensuring appropriate use of their technology by requiring their licensees to operate under a business model that encourages commercialization and does not rely primarily on threats of infringement litigation to generate revenue."

Generally draped in high-minded rhetoric (e.g., "Universities have a social compact with society"), the report reads more like the kind of pronouncements that a cartel would issue to conform the behavior of rogue constituents--complete with example licensing provisions that are designed to become industry standards. Nevertheless, it's a implicit admission from universities that they can do serious violence to social innovation when they engage in regressive and rent-seeking licensing practices. But so long as universities view tech transfer as an important revenue source that's not dependent on capricious legislators or government bureaucrats, what incentives will university tech transfer offices have to fold public interests into their licensing or enforcement equations?

Posted by Eric at 09:43 AM | Licensing/Contracts , Patents | TrackBack

March 01, 2007

February 2007 Quick Links

By Eric Goldman

* The California Highway Patrol (which, for reasons unclear to me, has investigatory power here) has concluded that the Angelides campaign did not break any laws when they reverse-guessed URLs on Schwarzenegger's website and found an unrestricted page with a video of the Gov wondering about Assemblywoman Bonnie Garcia's "hot'' temperament because of her mixture of "black blood'' and "Latino blood'' and referring to Assembly Republicans as a "wild bunch." The CHP did recommend that Schwarzenegger's team tighten up their website security. Silly reminder: if you really want keep information a secret, don't put it on a website without password protection.

UPDATE: Greg Haverkamp points me to this document, which explains that the CHP has enforcement power over Penal Code 502 violations involving state computers. Interesting. In my mind, I see Erik Estrada revving up his PowerBook to bust some baddies...

* Voda v. Cordis Corp., 2007 WL 269431 (Fed. Cir. Feb. 1, 2007). Patent owner can't litigate infringement of foreign patent rights in US court as part of supplemental jurisdiction over a US patent infringement claim. Patry's writeup.

* NYT on how YouTube indirectly motivates teens to deliberately do stupid things just for the opportunity to post them and perhaps get notoriety. I had a first-hand observation of this when I trolled through YouTube looking for a Listerine commercial that I might show in class while teaching a case involving Listerine. A search for the word "Listerine" in YouTube produces video after video of people doing stupid things with Listerine, like eating big stacks of their breath film or snorting the breath spray and then writhing in pain. Watching video after video of people repetitively doing stupid stunts, I felt like shouting to these people: "IF YOU'RE GOING TO DO SOMETHING STUPID ON YOUTUBE, AT LEAST BE ORIGINAL!"

* From Steve Bryant at eWeek: Shannon Stovall sues Yahoo for including her photo in Yahoo's welcome email, claiming Yahoo violated her rights of publicity/privacy to the tune of $10M compensatory damages and $10M punitive damages.

* Digg users may mark content they don't agree with as "spam." The most recent example is Danny Sullivan's post on SEO, which got Dugg and then was eliminated when anti-SEO Digg users flagged it as spam. If a website defers content grading to its users, it has to trust that they are reporting their feedback accurately. If they aren't, the whole user grading process breaks down. And speaking of breakdowns, there is an active secondary market for Digg votes--check out how Annalee Newitz bought front page placement on Digg for about $100.

* The always-colorful Chris Hoofnagle has released a new paper, "The Denialists' Deck of Cards: An Illustrated Taxonomy of Rhetoric Used to Frustrate Consumer Protection Efforts." By his standards, I suspect I've dealt a full house with some of my rhetoric! Now, I wonder if he's going to create a complementary deck for bogus rhetorical tactics used by consumer protection "advocates"?

* From the EFF: "Debbie Foster, a single mom who was improperly sued by the RIAA back in 2004 for file sharing, has won back her attorneys' fees." Capitol Records v. Foster, No. 04-1569-W (W.D. Okla. Feb. 6, 2007). Unfortunately, that hasn't stopped the plaintiff from advancing nonsense arguments in the case, including the specious argument that a computer owner is automatically responsible if third parties use the computer to infringe copyrights. Fred at the EFF rightly debunks this argument.

* Wikipedia article: "Wikipedia is Failing." Your perspective about success or failure may be influenced by the impressive traffic gains that Wikipedia is experiencing--Wikipedia is now one of the top 10 most trafficked websites. Most of that traffic is coming from Google.

* Doe v. Josef Silney & Assoc., No 07-04167CA15 (Fla. Cir. Ct. complaint dated Feb., 13, 2007). Golfer Fuzzy Zoeller sues an alleged vandal of