Technology & Marketing Law Blog

May 29, 2012

Illinois Supreme Court Says Woman Deceived by Fake Online Relationship Can't Sue for Misrepresentation -– Bonhomme v. St. James

[Post by Venkat Balasubramani]

Bohomme v. St. James, 2012 IL 112393 (May 24, 2012)

Most people take for granted that people aren’t 100% truthful when interacting online. On one end of the spectrum, people make misstatements that are widely acknowledged to be harmless and victimless (for example, someone may tell me that "this was a wonderful blog post"). On the other end of the spectrum, people engage in subterfuge with the intent of gaining a financial benefit. (See this long Verge article for an expose of the seedy underbelly of internet marketing: "Scamworld: 'Get rich quick' schemes mutate into an online monster.")

This situation was somewhat different. The plaintiff, Paula Bonhomme, engaged in a purely online relationship with a fictitious character (“Jesse”) created by the defendant, Jenna St. James.

Background: The details of the relationship provide a window to the spectrum of peoples’ activities online, and the amount of energy that people invest in their subterfuge. Bonhomme and St. James met on the “Deadwood Boards,” a chatroom dedicated to the HBO series by the same name. A couple of months later, St. James created the persona of “Jesse,” who also posted on the boards and began a relationship with Bonhomme:

Plaintiff and Jesse began an online romantic relationship that lasted until July 2006. In addition to exchanging emails, Jesse and plaintiff exchanged personal photos, handwritten letters, and gifts. They also spoke regularly on the telephone, with defendant using a voice-altering device to disguise her female voice. [wow]

During this same period, defendant continued to maintain a relationship under her own name with plaintiff. In addition, defendant created a universe of approximately 20 fictional online characters either related to or involved with Jesse, including an ex-wife, a son, various family members, a therapist, and friends living both in the United States and abroad. These characters communicated with plaintiff from separate and distinct email accounts and even sent photos, handwritten mail, and packages from different states and foreign countries. For her part, plaintiff sent gifts totaling more than $10,000 to defendant, Jesse, and various other characters.

The story gets wackier. Bonhomme made plans to visit Jesse in person. “Jesse” cancelled the rendezvous, and St. James informed Bonhomme that Jesse had attempted suicide. Six months latter, Bonhomme and Jesse made plans to move in together. This too was derailed. This time, St. James informed Bonhomme that Jesse had died of liver cancer. After Jesse’s death, St. James continued to interact with Bonhomme, “communicating with her on a daily basis.” They actually met in person in Colorado “to visit some of Jesse’s favorite places.” Finally, St. James ended up visiting Bonhomme at her home in California. During this trip, the fiction unraveled, and Bonhomme’s friends ended up confronting St. James about “the fictional nature of the universe of people that [St. James] had created.”

Bonhomme sued, asserting claims for defamation, infliction of emotional distress, fraudulent misrepresentation, and false light.

The court’s opinion: Due to a procedural issue that’s not relevant here, the sole issue on appeal was whether Bonhomme could assert a fraudulent misrepresentation claim against St. James. The court answers in the negative, citing to the fact that the relationship between the two is purely personal in nature:

When all is said and done, what lies beneath this case is two private persons engaged in a long-distance personal relationship. To be sure, it was a personal relationship built wholly on one party’s relentless deceit, but it was a purely personal relationship nonetheless. Indeed, all of the hallmarks of ordinary human relationship are present: correspondence, conversation, intimacy, trust, mutual beneficence, emotional support, affection, disappointment, and even grief. And just as importantly, there is absolutely nothing of the commercial, transactional, or regulatory at work. Plaintiff and defendant were not engaged in any kind of business dealings or bargaining, and the veracity of representations made in the context of purely private personal relationships is simply not something the state regulates or in which the state possesses any kind of valid public policy interest.

___

The case generated a ton of media interest. (See coverage here from ABC, the Chicago Tribune, and Jezebel.) The legal question is not a particularly novel one, and as the court notes, “not a difficult question to answer” in the context of this case.

Three quick observations:

1. The court does not address Bonhomme's claims for infliction of emotional distress. She was procedurally barred from asserting them, but that would seem like the obvious route to take for a plaintiff in this scenario.

2. This case is reminiscent of the Lori Drew case in some ways, except that the Drew cases ended in tragedy. Both cases illustrate the difficulties in finding legally recognizable causes of action in these types of scenarios.

3. Most interesting to me was the extent of energy and emotional investment that went into a relationship that was spawned on a TV show message board and that took place mostly online but eventually transitioned off-line.

Other coverage:

Batavia woman can’t be sued for fake online relationship

Related:

Why We Lie (WSJ)

Posted by Venkat at 12:46 PM | Content Regulation , General , Virtual Worlds

April 23, 2012

SuperPoke! Pets Virtual Gold Dispute Worth Over $5 Million--Abreu v. Slide

By Eric Goldman

Abreu v. Slide, Inc., 2012 WL 1123367 (N.D. Cal. April 3, 2012). The Justia page.

Google bought Slide, which operated the SuperPoke! Pets online game. Wikipedia has some of the game's history. As part of the gameplay, users could buy virtual gold. Apparently a lot of them did; Google alleges that users bought $6M+ of virtual gold from October 2010 through June 2011. The plaintiffs allege that Slide whipsawed its users. After exhorting users to buy virtual gold, in June 2011 Slide stopped selling virtual gold and wiped out existing gold accounts, but it said the site was ongoing and told subscribing users they could enjoy premium accounts for life. Then, in August 2011, Slide announced a hard stop in 6 months, and Slide actually shut down in March 2012. By shutting down, the plaintiffs allege that Slide improperly wiped out virtual assets worth real money.

I'm torn about the underlying merits of this dispute. I'm sure Google has good explanations for the choices it made, and I staunchly defend the right of virtual world operators to control their environments as they see fit. Still, it's bad for consumer trust and the industry generally for Slide/Google to eliminate virtual assets that people bought with real money without providing some refunds, even if Slide made disclosures up the ying-yang about caveat emptor. We'll get to those more interesting questions later (if the case doesn't settle).

For now, the only issue in this ruling is whether the case stays in federal court or goes back to state court. To stay in federal court under CAFA, the case must meet certain standards, including having an amount in controversy over $5M. Google argues that it clears the threshold because users bought over $6M of virtual gold. The court says this allegation suffices, the plaintiffs can't adequately rebut it, and the case stays in federal court per CAFA.

Both Venkat and I wondered if Google's declaration of the $6M+ number will eventually come back to haunt Google. Neither of us couldn't think of a way it would. I imagine Google is going to argue that consumers got what they paid for, so the fact that there's over $6M in revenues is ultimately irrelevant.

Posted by Eric at 11:37 AM | E-Commerce , Licensing/Contracts , Virtual Worlds | TrackBack

April 17, 2012

MapleStory Enforcement Action Leads to Ridiculously Large Anti-Circumvention Damages--Nexon v. Kumar

By Eric Goldman

Nexon America Inc. v. Kumar, 2012 WL 1116328 (C.D. Cal. April 3, 2012)

It can be disconcerting when UGC websites turn into IP enforcement plaintiffs. Perhaps the biggest offender has been Craigslist, which has brought numerous ill-advised lawsuits (see, e.g., this post) that have developed novel Internet law precedent that seems destined to come back and bite Craigslist in the ass. But I can think of many other ill-advised enforcement actions by websites that are normally defendants, including eBay, Facebook and Zynga. Just remember, guys: live by the sword, die by the sword.

Today's opinion is a default judgment brought by MapleStoy, a MMORPG, against UMaple, a service that runs an unauthorized MapleStory server, i.e., UMaple users can play MapleStory (using the MapleStory client software) without ever touching MapleStory's servers. UMaple then solicits "donations" that lead to enhanced privileges in the UMaple environment.

As usual in a default judgment, the court doesn't question the absentee defendants' liability. Thus, the action moves to damages.

MapleStory sought profit disgorgement under copyright law. All that MapleStory can make stick is UMaples' AdSense revenue, a paltry $400. MapleStory can't get at any of the alleged donations because it can't connect the dots that the revenue was solely attributed to UMaple and not other properties or activities:

Given the myriad electronic commerce transactions allowing for-even encouraging-payment processing through trusted third-party processors like PayPal, AlertPay, and Plimus, the Court could just as easily infer that the bulk of payments Kumar received through these services were earned through legal means of electronic commerce.

It's rare to see a judge so skeptical in a default judgment. This suggests that MapleStory's advocacy failed to engender a high degree of sympathy. Instead, it looks like MapleStory's advocacy (handled by a team from Mitchell, Silberberg & Knupp) alienated the judge. Later in the opinion, the judge calls out MapleStory's lawyers for their arguments about the appropriate anti-circumvention damages calculations in various precedent cases. The judge says ominously that the advocacy led "the Court to question very seriously whether Plaintiff intended to actively mislead the Court or whether these oversights were merely the result of poor legal research." If it weren't obvious, neither conclusion would be a credit to MapleStory's lawyers. The worst part is that no stretching was required in a layup case like this. It's a default judgment, and judges will usually bless all reasonable requests.

After a paltry copyright infringement damages award, the opinion turns to anti-circumvention damages. Dun dun DUN. 17 USC 1203 sets a statutory damages minimum of $200 per act of circumvention. UMaples' client, the "UMaple Launcher," allegedly bypassed the access controls in MapleStory's client software. UMaple had 17,938 users. At $200/user (assuming 1 act of circumvention per user), the tally reaches a total of $3.5M+ in statutory damages, but the judge doesn't think this is right:

even the minimum statutory amount awardable under the DMCA in this case [is] a significant windfall to Plaintiff far in excess of any amount necessary to deter future infringing conduct. Further, the minimum award here likely bears little plausible relationship to Plaintiff's actual damages.

Nevertheless, the judge had no choice based on the formula it felt was binding, so this produces a massive anti-circumvention award. If it were collectible, it would be quite noteworthy as one of the biggest anti-circumvention awards of all time. But, it's not collectible.

As a final dis of the plaintiffs, the judge rejects the attorneys' fee award automatically produced by a formula in the local rules (about $71k). Instead, the judge only promises to award actual fees incurred.

It's hard for the plaintiff to feel good about this win. You don't expect to see such palpable skepticism from a judge when the defendant doesn't even show to protect its own interests. But this case does provide an excellent example of the ridiculousness of anti-circumvention statutory damages. $3.5M+ can't be the right damages award in this case, and it's so guffaw-inducing that it further erodes the legitimacy of our copyright rules.

Posted by Eric at 09:00 AM | Copyright , Virtual Worlds | TrackBack

April 02, 2012

Users Can't Sue Sony for Changing Online Terms to Require Arbitration – Fineman v. Sony Network Entertainment

[Post by Venkat Balasubramani]

Fineman v. Sony Network Entertainment, C 11-05680 SI (N.D. Cal.; Feb. 9, 2012)

In a move that caused a stir among consumer activists and others, Sony revised its EULA in September 2011 requiring PlayStation 3 users to choose between agreeing to submit dispute to arbitration (on an individual basis) or foregoing the right to access the “Sony PlayStation Network.” Plaintiff filed a putative class action alleging unfair competition and contract claims against Sony based on Sony’s imposition of the revised terms. The court rejects plaintiff’s claims.

The court says that a claim under California's unfair competition law requires a plaintiff to prove economic injury in the form of the loss of “money or property” to which the plaintiff is entitled. The diminution of a future property interest has been found to be sufficient by courts. The court nevertheless says that the two property rights plaintiff argued Sony deprived him of are insufficient: (1) the loss of the right to pursue class action claims outside of arbitration against Sony; and (2) the loss of access to the PlayStation Network.

With respect to loss of access to the PlayStation Network, the court says that plaintiff gave this up voluntarily when he made the choice to agree to the revised terms. The court also finds acceptance of the arbitration provision to be insufficient to support a UCL claim. While plaintiff may become embroiled in a dispute with Sony at some point in the future and arbitration may yield less in the way of money damages than litigation, at the present time plaintiff cannot allege that he has been economically harmed by Sony’s imposition of the arbitration clause. (In a footnote, the court distinguishes Fraley v. Facebook, where the court declined to dismiss plaintiffs’ claim that Facebook failed to compensate them for exploiting their publicity rights.)

Plaintiff also made an argument that imposition of revised terms by Sony devalued his PlayStation3 (i.e., he bought it expecting access to the PlayStation Network and now Sony is imposing an “additional charge” to access that network). This argument received little or no attention from the court. Plaintiff did not make a contractual argument as had the plaintiffs in some recent cases that Sony’s reservation of the right to modify the contract at will rendered the contract terms illusory or was a breach of the original agreement. (See Lebowitz v. Dow Jones: “No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing.”) The court does note that plaintiff actually accepted the revised terms so he had continued access to the PlayStation Network—perhaps it would have viewed this argument differently if the plaintiff had rejected the new terms.

Finally, plaintiff made an argument that Sony breached its implied covenant of good faith and fair dealing. The court says this is basically a disguised breach of contract claim and, because plaintiff acknowledged he was not bringing a breach of contract claim, the court dismisses this claim as well.

[Plaintiff amended his claims to assert a claim for injunctive relief but the court dismisses this without prejudice for lack of jurisdiction. Plaintiff can pursue this claim in state court.]
__

Sony's move to require arbitration of disputes was in response to the Supreme Court's decision in AT&T v. Concepcion, which said the Federal Arbitration Act preempted state laws which treated arbitration agreements unfavorably. Courts appear willing to uphold arbitration provisions in the wake of Concepcion. (See Swift v. Zynga for a recent example where a court forced a consumer to arbitrate disputes based on terms of use which included an arbitration provision.) We can expect to see more companies taking this route. The dismissal of Fineman's claims shows that it won't be easy to challenge these types of changes proactively.

It's interesting that the court didn't take a rigorous look at whether Sony's revised terms affected the underlying economic deal between Sony and the end users. Did Sony advertise access to the PSN network as part of the PS3? Was it reasonable for users to expect continued access on the terms that they initially signed up for? How about the loss of any data or virtual property that plaintiff would have forfeited had he declined continued access to the network? The court's discussion is fairly cursory on these issues.

On the other hand, even when a paid service is involved, courts are sympathetic to the needs of companies to revise terms. For example, the court recently approved Dow Jones' change to WSJ online pricing, finding that plaintiff did not state a claim for breach of contract since the contract allowed for a change in terms: "No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing."

Although California's Consumer Legal Remedies Act provides for a limited cause of action when unsoncionable terms are included in consumer contracts, Fineman did not argue that the terms were unconscionable. The court acknowledges that whether the arbitration clause is enforceable is not an issue that is before the court. If someone down the road wants to challenge enforcement of the terms based on their unconscionability, that possibility is still open. These challenges face a high bar, and this dispute will probably end up being a persuasive argument for why the revised terms were not procedurally unconscionable. Someone could also challenge the agreement on the basis that it's illusory and allowed Sony to revise it at will. (See Harris v. Blockbuster and my recent post on mixed rulings on the Qwest arbitration clauses.) However, given that Sony gave users an explicit choice and was upfront about it, I think that type of challenge would be a long shot.

Posted by Venkat at 02:55 PM | E-Commerce , Licensing/Contracts , Virtual Worlds

October 03, 2011

New Essay on 47 USC 230(c)(2)

By Eric Goldman

I have posted a new essay, Online User Account Termination and 47 U.S.C. §230(c)(2), to SSRN. I wrote this essay as a contribution to a virtual world symposium at UC Irvine, and it will be published in the UC Irvine Law Review.

The essay generally argues that 47 USC 230(c)(2) permits online providers, including virtual world operators, to terminate user accounts without liability. Academic commentators frequently ignore or fail to consider Section 230(c)(2)'s immunity when discussing user account terminations, so the essay tries to elevate Section 230(c)(2)'s profile in the discussions, especially for the virtual world community. To me, Section 230(c)(2)'s applicability to account terminations is clear, but the story is complicated and perhaps not free from controversy. In addition to explaining the nuts-and-bolts, I offer a brief theoretical defense of the immunity.

I believe this essay is the first law review article exclusively on 47 USC 230(c)(2), the overlooked and undertheorized sibling of Section 230(c)(1). (FWIW, I have another, much larger article in process on Section 230(c)(1) that I hope to complete next semester.) If I've missed a 230(c)(2)-specific article, please please please let me know. For that reason alone, I'm quite excited about this essay.

I'm also excited about this essay because it culminates a topic I've been contemplating since I began blogging--the implications of virtual world proprietors' rights to terminate for convenience. See, e.g., this post--one of my first on the blog--from 6 1/2 years ago. After all these years, I'm glad to finally organize my thoughts more completely.

The essay is in draft form, so I would gratefully welcome your comments.
________

The abstract:

An online provider’s termination of a user’s online account can be a major-and potentially even life-changing-event for the user. Account termination exiles the user from a virtual place the user wanted to be; termination disrupts any social network relationship ties in that venue, and prevents the user from sending or receiving messages there; and the user loses any virtual assets in the account, which could be anything from archived emails to accumulated game assets. The effects of account termination are especially acute in virtual worlds, where dedicated users may be spending a majority of their waking hours or have aggregated substantial in-game wealth. However, the problem arises in all online environments (including email, social networking and web hosting) where account termination disrupts investments made by users.

Because of the potentially significant consequences from online user account termination, user-rights advocates, especially in the virtual world context, have sought legal restrictions on online providers’ discretion to terminate users. However, these efforts are largely misdirected because of 47 U.S.C. §230(c)(2) (“Section 230(c)(2)”), a federal statutory immunity. This essay, written in conjunction with an April 2011 symposium at UC Irvine entitled "Governing the Magic Circle: Regulation of Virtual Worlds," explains Section 230(c)(2)’s role in immunizing online providers’ decisions to terminate user accounts. It also explains why this immunity is sound policy.

Posted by Eric at 09:10 AM | Derivative Liability , Internet History , Licensing/Contracts , Virtual Worlds | TrackBack

April 12, 2011

UC Irvine Virtual World Conference Notes

By Eric Goldman

Last week, I attended and spoke at a conference at UC Irvine entitled "Governing the Magic Circle: Regulation of Virtual Worlds." I didn't take notes for every speaker, and as usual, these notes are my impressions, not verbatim transcriptions. If you want more depth, the indefatigable Rebecca did her typical comprehensive coverage (panels 1, 2, 3, 4).

Sal Humphreys. Rebecca's coverage

What kind of space is game space? Typical argument: game space is a magic circle, separated from other spaces. Game scholars disagree with this characterization. Her approach: game space is a heterotopia = between real space and utopia (placeless) place. Game boundaries are permeable, where legal rules, community norms and game rules are overlapping.

Ex 1: David Myers and Twixt. In City of Heroes, he complied with game rules but violated social norms, so he was driven from the community.

Ex 2: WoW funeral massacre. One guild held an in-game memorial service for a deceased member. A rival guild swept in and massacred all of the memorial service attendees; then posted video to YouTube. Split reactions to this. View #1: massacring guild violated social norms by disrupting a funeral. View #2: the memorial guild imported an out-of-game social norm (respect the dead) into the game without consent. In large-scale games across cultures, it’s not possible to reach a single consensus on group norms.

Ex 3: A GLBT Guild in WoW. Community manager tried to ban the guild, saying it invited harassment. Lambda Law threatened suit, then WoW backed down.

Conclusions: rules don’t respect the magic circle. Instead, the heterotopia approach may better describe the actual situation.

Mark Lemley. Rebecca's summary.

He’s playing the role of an old Internet curmudgeon. The first generation of Internet law resembles the current regulation of virtual worlds. In the old days, the Internet was a small, insular culture with its own norms, it regulated itself through its own norms, and many activities online didn't seem that important to outsiders (like virtual worlds, which are routinely dismissed as “just games”). However, the Internet’s status as a second class citizen had a benefit—it meant the regulators left us alone. That didn’t last.

As virtual worlds become more important to more people, and as more people spend more money in virtual worlds, more regulators will take notice. We’re going to see the magic circle breached by regulation. The attitude that “it’s just a game” won’t last. Virtual worlds won’t stay “virtual.”

[Eric’s note: for a similar riff, see my Third Wave of Internet Exceptionalism paper.]

In 1994, Mark’s paper “Shrinkwraps in Cyberspace” argued that having three dozen Internets is no better than having no Internet at all. In contrast, virtual worlds don’t need to interoperate. They can act as laboratories for experimentation, and one virtual world’s failure won’t have the same catastrophic consequence as the failure of the Internet generally.

Novel technology creates the possibility of that we won’t make law-by-analogy; instead it's possible we could create zones of legal doctrinal novelty. This could teach us about new changes in law, but it could also lead to bad outcomes.

Another lesson: Openness breeds creativity. This is surprising from IP law’s perspective, which assumes openness is a failure, so it closes down/propertizes things. The law can help promote openness. Ex: 47 USC 230. But incumbents have incentives to kill that openness.

Farnaz Alemi. Rebecca's summary.

Minors are important consumers in virtual worlds arena. Kids play freemium games and rack up big charges. Who should be responsible for kids’ virtual worlds purchases? Options include parents, game providers, credit card companies and children.

Exceptions to disaffirmance:
• necessaries
• can only be used as shield, not sword
• certain labor contracts or IP licenses

Children know what they are doing online, and they understand games better than we do. So what more can gaming companies do to make things clearer to kids? Without protection, game providers will shy away from marketing games to kids.

Her argument: There should be a rebuttable presumption that kids understand what they were doing online. If kids feel they were scammed, then they can rebut.

My observations: (1) this argument discounts that kids are more easily manipulable than adults. Consider, for example, on a freemium model, a deliberately youngster-oriented site could get a child to become emotionally invested in tending a virtual cow. Then, after a period of time, the site threatens to send the cow to the burger manufacturing plant unless the child pays $X. A child might respond differently to the opportunity/threat than an adult. So even if the child “voluntarily” pays to save the cow from the meat grinder, we might still view this as an appropriately voidable transaction. (2) the presentation didn’t address the possibility that the transactions are complete and therefore no longer voidable to the children. (3) my bigger problem with kids online are when kids sign up to a mass market TOS/EULA and the vendor has no way of knowing that the person signing was a child. In these situations, it might be appropriate to suspend the voidability rules because there’s nothing different we’d want the vendor to do to accommodate the possibility of kids as customers. Surprisingly, this issue rarely comes up in the caselaw; and in the most obvious case where it has, the AV v. iParadigms case, the court found a way to stick the minors.

Ben Duranske. Rebecca's summary.

Professional responsibility issues in virtual worlds. Most obvious one: client identity issues. One avatar may be shared by many people, one person may have multiple avatars, and an avatar could be an individual or a representative of the individual’s employer. In each case, the lawyer may have issues determining client conflicts and maintaining client confidentiality.

In Second Life, avatars receive lots of unsolicited information, and an avatar identified as an attorney will get inquiries containing confidential information. Lawyers can avoid this through some type of clickthrough before allowing submissions. Better yet, don’t identify oneself as an attorney. [My note: this wasn’t clearly different than a lawyer receiving an email at a published email address. This appears to be a an unavoidable truth of modern electronic communication. So I wonder if Ben’s recommendations were unduly virtual world exceptionalist.]

Maintaining client confidentiality in the face of Second Life’s TOS that LL “may observe and record your interaction within the Service.” His solution: don’t give legal advice through Second Life.

My Talk. Rebecca's summary.

I spoke about the preemptive effect of 47 USC 230(c)(2) on many of the claims that accountholders might bring if the virtual world provider terminates their accounts. My talk slides. I have an associated paper I'm writing for the UC Irvine Law Review. My talk focuses on 47 USC 230(c)(2), but I have repeatedly blogged about the inability to sue online providers for account termination. See, e.g.:

* Facebook Not Liable for Account Termination--Young v. Facebook
* Life May Be "Rad," But This Trademark Lawsuit Isn't--Williams v. CafePress.com
* Terminated eBay Vendor Gets Day in Court Against eBay--Crawford v. Consumer Depot
* Web Host Can Terminate Customer for Abusive Call to Customer Support--Mehmet v. Add2Net
* Online Game Network Isn't Company Town--Estavillo v. Sony
* MySpace Quietly Won Goofy 230 Ruling in September--Riggs v. MySpace
* Search Engines Defeat "Must-Carry" Lawsuit--Langdon v. Google
* Google Wins Publisher's Lawsuit over AdSense Termination--Bradley v. Google

See also Hall v. Earthlink Networks.

This talk has its roots in a topic I had planned to write in the mid-2000s and never got to. See my notes for that paper. Also, in 2005, I published a prior work on virtual worlds that touches on similar issues but doesn't explore the 230(c)(2) angle. I discussed the 2005 paper in one of my very first blog posts.

Posted by Eric at 11:50 AM | Virtual Worlds | TrackBack

February 09, 2011

Second Life Forum Selection Clause Upheld--Evans v. Linden

By Eric Goldman

Evans v. Linden Research, Inc. (E.D. Pa. Feb. 3, 2011)

This lawsuit is similar to the Bragg lawsuit from a few years ago, which argued that land purchases in Second Life were equivalent to real property purchases (due to marketing representations made by Second Life), so Second Life couldn't unilaterally reclaim land from its users. In 2007, Bragg won a favorable jurisdictional ruling, defeating Second Life's invocation of the forum selection clause in its user agreement. See Bragg v. Linden Research, Inc., 487 F. Supp. 2d 593 (E.D. Pa. 2007). The parties subsequently settled. Now, another group of plaintiffs are taking a run at Second Life on the same basic theories.

I don't normally blog on forum selection clause cases any more, but this case is interesting because Second Life changed its fate. In contrast to the Bragg ruling, this opinion upheld Second Life's forum selection clause, shipping the case from ED Pa. to ND Cal. The new case involves the same basic arguments as the Bragg case, filed in the same court against the same defendant, and the decisions were written by the same judge. How did Second Life work this turnaround?

After the Bragg ruling, Second Life changed its user agreement's forum selection clause to basically mimic the approach eBay uses in its user agreement: mandatory jurisdiction/venue in Second Life's home court except for permissive virtual arbitration for low-dollar-value disputes. eBay adopted this structure in the early 2000s after it got a scary ruling in Comb v. PayPal, and since then eBay has had some litigation success with its new clause. Here, Second Life changed its contract from a mandatory arbitration clause--which failed--to eBay's mandatory jurisdiction/venue + permissive arbitration approach--which works. Nicely done.

(Personnel note: Second Life's mimicry of eBay's user agreement probably isn't an accident. Second Life's General Counsel at the relevant times, Marty Roberts, previously did a tour of duty as an in-house lawyer at eBay. See Marty's LinkedIn profile).

The court does not clearly explain how Second Life successfully amended its user agreement for any users who initially signed up under the old contract. (As I've previously blogged, retroactive contract amendments are tricky). The court says tersely "The information provided shows that each Plaintiff agreed to the March, 2010 TOS at some point before this action was brought." I would have loved to see the court explain in more detail how Second Life successfully moved everyone onto the new contract.

There are two very practical implications from this ruling:

1) If your mass-market online user agreement still contains a mandatory arbitration clause, you are playing with fire.

2) I have been recommending an eBay-style forum selection clause to my clients for many years now. Given that it is battled-tested in court, you might consider if the clause would be a useful starting point for you.

Posted by Eric at 09:27 AM | Licensing/Contracts , Virtual Worlds | TrackBack

January 24, 2011

Second Life Gets Out of Dispute Between Virtual Bunnies & Virtual Horses

By Eric Goldman

Amaretto Ranch Breedables v. Ozimals, 3:10-cv-05696-CRB (N.D. Cal.). The Justia page. The case library:
* Linden Lab's opposition to the preliminary injunction
* Ozimals' non-opposition to the preliminary injunction
* Amaretto's preliminary injunction motion
* The preliminary injunction
* The TRO against Linden Labs/Second Life
* The complaint with exhibits.
* Ozimals' C&D to Amaretto and its blogged statement on the case.

This case involves an IP dispute between virtual bunnies and virtual horses in Second Life. My previous blog post. The bunnies assert that the horses copy too much of the bunnies, so the virtual bunnies sent two DMCA takedown notices to Second Life. In a relatively rare move, the horses sued under 512(f) to enjoin further takedown notices, but in a bizarre twist, the court ordered Second Life--not a party to the lawsuit--from taking down the horses. The court's order raised both procedural and substantive issues: procedurally, how the court could enjoin a non-litigant, and substantively, how the court could restrict Second Life's editorial discretion.

Everything has turned out OK for Second Life. The bunnies acquiesced to the horses' requested injunction against sending more DMCA takedown notices to Second Life. The horses didn't directly back off of their interest in handcuffing Second Life, but the court granted an injunction that only applies to Ozimals' sending of takedown notices and makes no reference to restrictions on Second Life.

Although this ends the most interesting angle of the dispute, the bunnies vs. horses dispute remains pretty interesting on its own. Normally, I would expect a dispute like that to get resolved quickly. I'm a little baffled how the revenue streams from these virtual animals can profitably support full-scale litigation warfare. Unfortunately, the parties seem to be going down that path.

Posted by Eric at 09:12 AM | Copyright , Derivative Liability , Virtual Worlds | TrackBack

January 03, 2011

Second Life Ordered to Stop Honoring a Copyright Owner's Takedown Notices--Amaretto Ranch Breedables v. Ozimals

By Eric Goldman

Amaretto Ranch Breedables v. Ozimals, Inc., 2010 WL 5387774 (N.D. Cal. Dec. 21, 2010). The Justia page. The complaint with exhibits. Ozimals' C&D to Amaretto and its blogged statement on the case.

Here's a line you don't see every day in judicial opinions: "The gist of the copyright dispute between the parties is whether Plaintiff's virtual horses infringe on copyrights associated with Defendant's virtual bunnies." This reminded me a little of that great line from Ghostbusters: "dogs and cats living together... mass hysteria!"

The underlying dispute involves rival sellers of virtual animals that require the users to keep purchasing food to keep the animals alive. The C&D letter to Amaretto goes into some detail about what it thinks Amaretto copied. I didn't follow it all, but some of the assertions are clearly dubious (in a Baker v. Selden kind of way) and none of them seemed like a surefire winner to me. The court interpreted Ozimals' position as asserting copyright over software functionality (clearly one of Ozimals' core concerns), and the court rightly dismisses the copyright merit of that position.

This ruling addresses Amaretto's request for a TRO based on 17 USC 512(f), which the court grants. This is now the third time I've seen 512(f) used as the basis of injunctive relief--the other two being Biosafe-One v. Hawks from 2007 and the recent Design Furnishings v. Zen Path LLC (which just had a new, much clearer ruling granting a preliminary injunction). In a clearly rushed opinion, the court didn't cite either case. It's interesting to see 512(f) emerge as an important tool in fighting back against cloud service providers who are too jumpy about copyright takedown notices. [UPDATE: I had forgotten about Novotny v. Chapman, a case that raised 512(f) and injunctive relief but ultimately sidestepped it.]

What's even more unusual about this case is that the court's TRO applies to Second Life (Linden Research), not Ozimals. The specific order: "Linden Research, and all persons in active concert or participation with Linden Research, are temporarily restrained from taking down from Second Life Plaintiff's Horse Product Line."

However, Linden/Second Life wasn't a party to the lawsuit, so the court is effectively stretching FRCP 65(d) to apply to Second Life as a non-party. This takes us squarely into the territory implicated by the recent Seventh Circuit Blockowicz ruling (and a funky ruling, Giordano, I will blog soon), which said that a hosting website wasn't automatically in active concert with a user who submitted enjoined content. Perhaps copyright liability is or should be different than defamation, especially given the different structures of 47 USC 230 and 17 USC 512. Otherwise, it seems like the court's TRO may be improperly trying to bind a non-party. At minimum, the court should have explained why it was discussing a TRO against Second Life.

The order binding Second Life also raises some troubling First Amendment issues. Second Life has the First Amendment rights to decide what to publish and what not to publish. If Second Life decides, for whatever reason, that it wishes to kibosh Amaretto's content, it seems improper for a court to force it to do otherwise. This point is completely unaddressed in the court's opinion because Second Life wasn't a litigant and couldn't advocate for its own interests. I could see why Second Life would basically agree to something analogous to an interpleader (effectively turning over the user-vs.-user copyright dispute to the judge and agreeing to abide by the judge's instructions). However, in a quick perusal of PACER, I didn't see anything that looked like Second Life consented to be bound by the proceedings. Were Second Life to fight this order on First Amendment grounds, I think it would have some mojo in that challenge.

In the other two cases I mentioned, the injunctive relief restrained the copyright owner from sending more takedown notices. In light of both the FRCP 65 problem and the First Amendment, it's not clear from this brief opinion why that approach wouldn't have sufficed. That way, Ozimals' 512(c)(3) takedown notices would stop, but Second Life could still retain its constitutionally protected editorial discretion.

Posted by Eric at 10:46 AM | Copyright , Derivative Liability , Virtual Worlds | TrackBack

December 21, 2010

Ninth Circuit's Mixed Opinion in Glider/WoW Bot Case -- MDY Industries v. Blizzard

[Post by Venkat, with comments from Eric]

MDY Industries, LLC v. Blizzard Entertainment, Nos. 09-15932 & 16044 (9th Cir. Dec. 14, 2010)

The Ninth Circuit issued its opinion in the Blizzard Glider "bot" case, which is one of three cases in the Ninth Circuit that tackle the license vs. sale issue and what conditions the licensor can put in place. Vernor v. Autodesk, was the first, and Augusto v. BMG is still pending. The Blizzard ruling also covers some other ground in addition to the license vs. sale issue, including: (1) what parts of a licensing agreement support infringement claims (as opposed to breach of contract claims) and (2) the scope of a DMCA claim under section 1201. It will be interesting to see the effect of the case on two big cases from the Federal Circuit: Jacobsen v. Katzer (an open source case involving model train sets) and The Chamberlain Group v. Skylink Technologies (a garage door opener DMCA case). It took me a couple of times to read this case - it made my head spin!

The crux of the Blizzard dispute is that MDY made available a "bot" which World of Warcraft players could use to advance through levels without actually playing the game. Blizzard alleged that players' use of the Glider "bot" infringed on Blizzard's copyright (because the end user agreement contained a restriction on playing the game using a bot or other automated means), and Blizzard asserted claims for secondary infringement against MDY based on this. Blizzard also implemented measures (a software program ominously called the "Warden") to detect Glider's operation, which MDY allegedly circumvented. Blizzard asserted a DMCA claim based on this.

Copyright Infringement: Blizzard argued that MDY was secondarily liable for infringement by the players who used the bot. Blizzard's claims of infringement focused on the RAM copy made in the course of playing the game. If the transaction between Blizzard and the players was a sale, the players could take advantage of the "essential step defense," under which there is no infringement for copies that are created and used "as an essential step in the [use] of the program." (section 117(a)) The threshold question was whether WoW players were licensees or owners of the particular copies of the software that they had purchased. Applying Vernor v. Autodesk, the court concludes that the players are licensees and therefore, the RAM copies may be infringing unless they are licensed.

WoW License Agreement: Whether or not the bot-using players infringed turns on the terms of the WoW EULA. The court runs through the EULA process (which looks leak-proof) and then turns to the question of whether a violation of the no-bot provision of the license constitutes infringement. The court distinguishes between "covenants" and "conditions" -- violations of covenants are actionable as breaches of contract and violations of conditions are actionable as infringement. (A copyright infringement lawsuit has obvious advantages, such as statutory damages and injunctive relief, and in this case, infringement would have been a hook for Blizzard to hold MDY derivatively liable.) Ultimately, the court concludes that infringement by breach of a condition occurs only where the licensee:

exceeds the scope of the license in a manner that implicates one of the licensor's exclusive statutory rights.

With respect to Glider, the court holds: "Glider does not infringe any of Blizzard's exclusive rights. For instance, the use does not alter or copy WoW software." End result, no infringement by end users and no liability for infringement to MDY. But that wasn't the end of the story.

Blizzard's DMCA Claims: Although the court took a restrictive view of what violations of a license constitute copyright infringement, the court took an opposite approach with respect to Blizzard’s DMCA claim. The key question here was whether the cause of action created under section 1201(a) was "linked" to copyright infringement, or whether it created a totally separate cause of action. Blizzard implemented measures which prevented access to the game while the bot was in operation, but these measures did not prevent copyright infringement by the players (per the court's conclusion on the covenant/condition issue discussed above). The court concludes that regardless of whether the underlying use is infringing, anti-circumvention of a measure that restricts mere access to a work can support DMCA liability under section 1201. The court repudiates the Federal Circuit's approach in Chamberlain, the infamous garage door case, and concludes that:

a fair reading of the statute . . . indicates that Congress created a distinct anti-circumvention right under section 1201(a) without an infringement nexus requirement.

According to the court, Glider violated 1201(a) with respect to WoW's "dynamic non-literal elements" -- i.e. "the real-time experience of traveling through different world, hearing their sounds, viewing their structures, encountering their inhabitants and monsters, and encountering other players." The court found no violation with respect to the source code or actual audiovisual elements of the game because the anti-circumvention measures implemented by Blizzard did not effectively restrict access to these.
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This case made my head spin. Eric discusses more of the opinion's messiness below, but I wanted to offer a few quick comments.

1. Application of Autodesk to determine sale/license: the Ninth Circuit recently decided Vernor v. Autodesk where it ruled that Autodesk CAD software was licensed and not sold to its clients. One question the Autodesk decision raised is how the analysis would play out in other contexts -- i.e., where the software is less expensive, off-the-shelf, and looks more like a license. Surprisingly, the court here didn't spend much time on this, giving just one page to the treatment of the license/sale issue.

2. RAM copies and the essential step defense: The court's opinion contains this zinger:

Since WoW players, including Glider users, do not own their copies of the software, Glider users may not claim the essential step defense. 17 U.S.C. § 117(a)(1). Thus, when their computers copy WoW software into RAM, the players may infringe unless their usage is within the scope of Blizzard’s limited license.

Whether it's a matter of clunky legislative drafting or otherwise, the conclusion that people who purchase copies of software can be held liable for RAM copies that are necessary to utilize the program (i.e., "an essential step in the utilization of the computer program") is remarkable. If you were to accept the court's conclusion, I don't see much utility for section 117(a)(1) at this point. If section 117(a)(1) is not available to licensees, not many people are going to be able to take advantage of it.

3. The covenant/condition distinction: The court's conclusion that a breach of a license agreement term can constitute copyright infringement only where the licensee exceeds the scope of the license "in a manner that implicates . . . the licensor's exclusive statutory rights" drastically narrows the scope of available claims for copyright infringement in the licensing context. One big question this raises is how this squares with Jacobsen v. Katzer [pdf] where the federal circuit held that a failure to comply with certain open source attribution and "modification transparency" requirements constitute copyright infringement. The Ninth Circuit's opinion in Blizzard contains some pretty restrictive language with respect to the covenant/condition issue (the breach of license must be "in a manner that implicates one of the licensor's statutory rights"). Katzer, in contrast, referenced the fact that the requirements would inform downstream users and generate awareness for the incubation page which would further the "economic goal" of the copyright holder. How would Jacobsen have fared under the Ninth Circuit's standard in Blizzard? A 2008 EFF blog post by Michael Kwun flags the tension between the two decisions: "Condition or Covenant, and Why Should You Care?"

4. The DMCA Claim: What the Ninth Circuit taketh away with the copyright analysis, it giveth back with the DMCA analysis. After concluding that use of Glider while playing WoW does not cause the players to infringe, the court concludes that MDY violated the DMCA when it circumvented Warden. Here is the crux of Chamberlain [pdf]:

the anticircumvention provisions convey no additional property rights in and of themselves; they simply provide property owners with new ways to secure their property.

The obvious concern here is that the parade of horribles (and absurd claims) that Chamberlain warns of will come to pass if courts allow anti-circumvention claims that are divorced from copyright claims, as the court did here.

Related posts:

"Vernor v. Autodesk--Does the Right to Possession Distinguish Between Sales and Licenses?"

"Software Vendor Trumps First Sale Doctrine via License--Vernor v. Autodesk"

Other coverage:

paidContent: "New Ruling Will Impact Software Licensing Agreements"

EFF: "A Mixed Ninth Circuit Ruling in MDY v. Blizzard: WoW Buyers Are Not Owners – But Glider Users Are Not Copyright Infringers"

Wired: "Court Upholds Ban on World of Warcraft Bot"

_______________

Eric's comments:

Before I go off the rails here, let me start with the only piece of good news: I think the court reached the right result in finding for Blizzard and against MDY. I'll probably get some flack for that position, but I thought it was reasonably clear that MDY could not do what it did. As a result, if the panel had simply affirmed the lower court per curiam and vacated the lower court's opinion, I would have viewed this outcome as appropriate.

(This assessment differs from my normative view. I understand that Glider posed some potential problems for WoW gameplay, but I think Blizzard overreacted. At minimum, Blizzard should thank MDY for showing the existence of an underserved market segment worth millions of dollars. The fact that Blizzard doesn't directly capitalize on that market demand, such as by setting up a “fast play” WoW on servers separate from the normal WoW, puzzles me).

Unfortunately, the Ninth Circuit panel attempted to explain *why* it was ruling for Blizzard, and everything went to hell.

Nevertheless, I'd be more upset about this opinion if I actually believed it. The Ninth Circuit clearly makes up Internet law with each new case and each new panel, so I have no reason to think this opinion will stick any more than the dozens of other implicitly reversed Internet law opinions from the Ninth Circuit over the past 15 years. Because I think this opinion's predictive power for the next opinion is so low, I don't really believe this panel means what it says. At least, I choose not to believe it. This would be a great opinion to take en banc, although that would probably only further solidify the doctrinal disasters lurking in this opinion.

The opinion gets itself into trouble for a number of reasons, but the biggest reason IMO is that the opinion dances around the seminal cyberlaw issue of whether web browsing is infringement. We all know what copyright law says, and should say, about browsing. So long as copies into RAM are putatively infringing unless there's a defense, current copyright law says browsing can be infringement. Copyright law *should* say that browsing isn't infringement, which would eliminate some pressure that caused the court to engage in doctrinal gymnastics here.

This was not exactly a browsing-as-infringement case because Blizzard also licensed client-side software that facilitated player access to the copyrighted materials on WoW servers. However, as more websites load client-side software as part of web browsing, that distinction may be diminishing. Plus, Glider didn't modify Blizzard's client-side software; it only interacted with Blizzard's servers. As a result, Glider was part of the way players browsed Blizzard's web service.

Perhaps in response to the problems of treating browsing as copyright infringement, the court makes it clear that violating a website's EULA by browsing would most likely just be a breach of contract, not a copyright infringement. Eliminating browsing as infringement would clean up the problems applying 1201(a) because it would not treat browsing as "accessing" copyrighted works on web pages. To take this issue off judges’ minds, we would benefit from a statutory amendment saying that web browsing isn't infringement.

Treating a software license breach as sometimes creating copyright infringement and other times creating solely a breach of contract isn't new legal doctrine, but it's problematic. It does ameliorate concerns about oppressive but marginally relevant license terms buried in EULAs; in many cases, this opinion says those terms can’t be enforced via the coercive power of copyright remedies. However, trying to cleave between infringement-related and other contract restrictions sounds like a litigation morass; and I'm unclear if fancy drafting (e.g., stating that all EULA covenants are conditions on the software license) is an all-too-easy workaround. See, e.g., the provision where the court says "Although ToU § 4 is titled, 'Limitations on Your Use of the Service,' nothing in that section conditions Blizzard’s grant of a limited license on players’ compliance with ToU § 4’s restrictions." By inference, simple changes in EULA drafting could change this calculus.

I also wonder how this ruling affects open source licenses. The Jacobsen v. Katzer case held that an open source license was a condition on the enjoyment of the copyrighted software. The Jacobsen case didn't directly address the fact that the open source license failed to meet basic contract formation requirements. To the extent this case indicates that some software license agreement breaches are only contract breaches, not conditions on the enjoyment of copyright, this case leads to one of two outcomes, both of which are weird. Either (a) the "conditions" in open source licenses are not subject to the rules in this case, in which case provisions not included in a binding contract will be more enforceable than provisions in properly formed software license agreements (a result that can't be right), or (b) conditions in open source licenses are equally enforceable as software license agreements, in which case some provisions of open source licenses are enforceable only as contract breaches--but since open source licenses usually aren't properly formed as contracts, those provisions will be effectively unenforceable. Either result seems like a catalyst for anarchy.

In addition to these issues, I'll reiterate two other obvious areas of mischief noted by Venkat:

1) By reiterating Vernor's standards for ownership vs. license of material, this case does not reduce the risks that copyright owners will contractually eliminate the first sale doctrine for copyright-containing chattels (such as books) by characterizing the copyrighted material transfer as a license. I'm still hoping the UMG v. Augusto case gives us some better news on this front.

2) The court's standards for a 1201(a) circumvention raise all of the anti-competitive concerns we feared with the Chamberlain case where two independently manufactured chattel (which contain software) need to make an electronic handshake with each other. This happens all the time for interoperability purposes, including the sale of replacement or complementary goods. The court punts on the antitrust issue:

Concerning antitrust law, we note that there is no clear issue of anti-competitive behavior in this case because Blizzard does not seek to put a direct competitor who offers a competing role-playing game out of business and the parties have not argued this issue. If a § 1201(a)(2) defendant in a future case claims that a plaintiff is attempting to enforce its DMCA anti-circumvention right in a manner that violates antitrust law, we will then consider the interplay between this new anti-circumvention right and antitrust law.

Only time, and future Ninth Circuit panel flip-flops, will tell us if these fears will come to pass.

Posted by Venkat at 09:41 AM | Copyright , Derivative Liability , Licensing/Contracts , Virtual Worlds

November 05, 2010

October 2010 Quick Links

By Eric Goldman

Copyright

* Greg Sandoval discusses copyright trolls with Cindy Cohn. You may recall I had an "interview" with Cindy as a guest lecture in my Internet Law course. And a belated congratulations to Cindy for her recognition by the CA State Bar IP Section. BTW, have you considered supporting the EFF financially? I do, because I sleep better at night knowing Cindy and her colleagues are on the beat looking out for our interests.

* Triton Media settles with movie studios for providing too much support to pirate movie websites.

* Did you know that California has a law (Educ. Code 66450-66452) prohibiting the commercialization of class notes from academic courses? It raises interesting First Amendment, copyright preemption and 47 USC 230 issues.

Trademarks

* The initial interest confusion doctrine appears to be infecting EU trademark law.

* Reuters reports on buying counterfeit goods from China over the Internet.

* News.com: Trademark issues on Etsy.

* DSPT v. Nahum (9th Cir. Oct 27 2010). "Even if a domain name was put up innocently and used properly for years, a person is liable under 15 U.S.C. § 1125(d) if he subsequently uses the domain name with a bad faith intent to profit from the protected mark by holding the domain name for ransom. The evidence sufficiently supported the jury’s verdict that Nahum did so, causing $152,000 in damages to DSPT."

* Hearts on Fire v. Blue Nile settled in January. Prior blog post.

* WaPo on universities cracking down on high school teams copying the university's logos.

* An interview with Google's chief trademark counsel Terri Chen.

Content Regulation

* Lichter v. Martin, 2010 WL 3913601 (Cal. App. Ct. Oct. 7, 2010). Blog post protected by anti-SLAPP laws.

* Eoin O'Dell discusses secondary online defamation liability in Ireland. The post illustrates why we should be grateful for 47 USC 230.

* Kash Hill reports on a professor who got busted for possessing child porn, some of which allegedly was collected for an academic research project.

* The Register published an important and thought-provoking article on restitution in child porn cases.

* Doe v. Shurtleff (10th Cir.). Utah law requiring sex offenders to turn over their usernames to the government survives First Amendment challenge.

Consumer Protection

* NYT: "Under the deal with the French Competition Authority, Google agreed to adopt conditions, including a three-month notification period, when it rejected some ads from appearing next to its search results in France. The specific conditions apply only in France, and concern only ads for tools aimed at helping drivers avoid speeding tickets." Search Engine Land has more.

* Target avoids class certification in lawsuit over its website's allegedly inaccurate but obscurely presented references to "Made in the US." Rebecca's coverage.

* PA Bar Opinion: "It is the opinion of the Pennsylvania Bar Association Unauthorized Practice of Law Committee that the offering or providing [in Pennsylvania] of legal document preparation services as described herein (beyond the supply of preprinted forms selected by the consumer not the legal document preparation service), either online or at a site in Pennsylvania is the unauthorized practice of law and thus prohibited, unless such services are provided by a person who is duly licensed to practice law in Pennsylvania retained directly for the subject of the legal services."

* Rebecca on the Ewert v. eBay class certification.

* The Supreme Court denied cert in Tricome v. eBay, Inc., 2010 WL 3525737 (U.S. Nov. 1, 2010)

Miscellaneous

* Streaming video version of Alex Macgillivray's lecture at SCU from a month ago.

* Mike Godwin has left his role as Wikimedia's GC.

* Virtual world enthusiast Greg Lastowka has posted his new book Virtual Justice under a CC license.

* Pelican Trading Inc. v. Proskauer Rose LLP, 2010 WL 3905750 (D. Nev. Sept. 28, 2010). A law firm's blog post about a Nevada law did not help confer jurisdiction in Nevada.

* School district settles spy webcam case. Surprise! Lawyer gets 70% of the money.

Posted by Eric at 06:51 AM | Copyright , Domain Names , E-Commerce , Trademark , Virtual Worlds | TrackBack

November 04, 2010

Facebook Not Liable for Account Termination--Young v. Facebook

By Eric Goldman

Young v. Facebook, 2010 WL 4269304 (N.D. Cal. Oct. 25, 2010). The initial complaint.

Kashmir Hill covered the initial complaint filing in this case, and you should start with her post. The short story is that Facebook kicked Karen Young off its site, she sued Facebook and the court dismissed her suit. The court provides a few interesting conclusions along the way:

* Facebook isn't a state actor despite "contracts between Facebook and the General Services Administration allowing Facebook pages for federal agencies."

* Facebook isn't liable for failing to adhere to Young's desired "safety" levels because its contract disclaims such a duty.

* "Young also claims that Facebook has 'failed in its responsibility to condemn all acts or statements that inspire, imply, incite, or directly threaten violence against anyone.' Id. Young provides no basis from which to infer such a broad duty. Such an obligation would be inconsistent with the policy choices undertaken by Congress in the Communications Decency Act, which sharply limits the responsibility of interactive computer service providers for the content provided by third parties."

* Young's fraud allegations lacked the requisite specificity.

I think the most interesting discussion relates to Young's breach of contract claim. The court dismisses it as well, but it leaves open the possibility that capricious terminations by Facebook might violate an implied covenant of good faith and fair dealing:

As with all contracts, Facebook has an implied duty not to frustrate the other party's right to receive the benefits of the agreement actually made. The agreement in this case is to provide users access to Facebook's services subject to certain terms and conditions. While users do not pay for the services directly, Facebook benefits from user activity through the sale of advertising. Facebook expressly reserves the right to terminate the accounts of users who "violate the letter or the spirit of this Statement, or otherwise create risk or possible legal exposure" for Facebook, Compl. Ex. A-2, but it does not expressly reserve the right to terminate an account for any reason, and indicates in its Statement of Principles that users "should not have their presence on the Facebook Service removed for reasons other than those described in Facebook's Statement of Rights and Responsibilities." Compl. Ex. B-1. It is at least conceivable that arbitrary or bad faith termination of user accounts, or even termination of user accounts with no explanation at all, could implicate the implied covenant of good faith and fair dealing. [emphasis added]

However, Young's current complaint does not allege that the termination of her account was undertaken in bad faith or violated Facebook's contractual obligations. Instead, she alleges that she was deprived of human interaction the process surrounding the termination of her account. The termination provision of the Statement of Rights and Responsibilities provides that when a user account is terminated, Facebook "will notify you by email or at the next time you attempt to access your account." Id. Given the express language, Facebook could not have an implied obligation to provide a different termination process."

Personally, I think 47 USC 230(c)(2) typically trumps a website's implied covenant of good faith and fair dealing regarding account termination, even if the user alleges that the termination was capricious. I will be speaking on that topic in the context of virtual worlds at UC Irvine in April 2011; and I will be writing up a paper in support of this argument in the Spring. Stay tuned.

For more on this ruling, see Evan Brown's coverage.

Some related posts:

* Life May Be "Rad," But This Trademark Lawsuit Isn't--Williams v. CafePress.com
* Terminated eBay Vendor Gets Day in Court Against eBay--Crawford v. Consumer Depot
* Web Host Can Terminate Customer for Abusive Call to Customer Support--Mehmet v. Add2Net
* Online Game Network Isn't Company Town--Estavillo v. Sony
* Anti-Spyware Company Protected by 47 USC 230(c)(2)--Zango v. Kaspersky
* AOIR Regulating Virtual Worlds Panel, and My Notes on Investment Expectations in Virtual Worlds
* KinderStart v. Google Dismissed--With Sanctions Against KinderStart's Counsel
* Search Engines Defeat "Must-Carry" Lawsuit--Langdon v. Google
* Termination of Accounts in Virtual Worlds
* My virtual worlds article: Speech Showdowns at the Virtual Corral

Posted by Eric at 07:10 AM | Derivative Liability , Licensing/Contracts , Virtual Worlds | TrackBack

July 07, 2010

Q2 2010 Quick Links Part 2

By Eric Goldman

Marketing and Advertising

* Good talk from FTC Chair Leibowitz: “we have great hopes for self-regulation….So long as self-regulation is making forward progress, the FTC is not interested in regulating” behavioral targeting.

* NYT on teaching middle schoolers how to interpret ads. We're going to need to teach kids how to consume information if we have any chance to survive infoglut.

* The LA Times and Chicago Tribune are integrating paid text links into story content.

* Search Engine Land: Google: Now Recommending Brands For Searches.

* Keeller v. Groupon Inc., No. 10 CH 8666 (Ill. Cir. Ct. Cook Cty. March 2, 2010). Groupon settles lawsuit over expired and unused coupons.

* NYT: Online coupons may not be as anonymous as people assume.

* An inside look at the MPAA's self-regulatory effort to police movie ads.

* Avi Goldfarb & Catherine Tucker, Privacy Regulation and Online Advertising.

* Microsoft sues for click laundering. Coverage at Search Engine Land and WSJ

* The FTC shut down Pricewert/3FN.net.

Contracts

* News.com: Second Life sued by its users for changing the terms of land “ownership.” Evans v. Linden Research complaint.

* Shell v. AFRA: website venue selection clause not binding just because web visitors viewed it.

* Omri Ben-Shahar & Carl E. Schneider, The Failure of Mandated Disclosure. This paper shows why mandatory disclosures fail in part because regulators think in terms of what consumers SHOULD want to know rather than what information consumers ACTUALLY want to know.

* WaPo: Reality TV secrets are hard to keep in the age of social media. My 2003 analysis of using contract law to keep reality TV secrets.

* Want to be on the TV show Survivor? Check out its contract first.

* Anderson v. Bell, No. 20100237 (Utah June 22, 2010): “electronic signatures may satisfy the Election Code’s requirements under section 20A-9-502 regarding unaffiliated candidates wishing to run for statewide office.” Tom O’Toole’s writeup.

Trademarks/Copyrights

* Jim Jansen: “Only 4% of sponsored ads were triggered by competitors’ trademarked terms. When it does happen, the results are pretty much what consumers are use to seeing, so there doesn't appear to be many negative consequences….Thus, competitive use of trademarked terms to trigger online ads does not appear to be a widespread phenomenon and is similar to the query suggestion feature that many search engines employ.”

* Michael Geist on the first Canadian keyword advertising ruling (a nice defense win).

* 2010 Joint Strategic Plan on Intellectual Property Enforcement.

* Qassas v. Daylight Donut Flour Company LLC, No. 09-663 (N.D. Okla. June 10, 2010). A company and its entrepreneur are liable for their web developer's infringements when creating the company's own website.

Miscellaneous

* Stephen Wu on Estate Planning for Online Assets

* Declan at News.com lauds Justice Stevens' Internet jurisprudence. We owe Justice Stevens many thanks for helping the Internet bloom.

* Anthony v. Yahoo!, Inc., 2010 WL 1552819 (9th Cir. April 20, 2010). Upholding Yahoo's settlement in a class action lawsuit over its online dating site. My original blog post on the case.

* Tom O'Toole reports on various stupid state efforts to regulate technology, inadvertently making the case that they are a terrible laboratory of experimentation.

* Vacation Club Services Inc. v. Rodriguez (M.D. Fla. April 22, 2010). No CFAA action against the buyer of data from a database the seller allegedly acquired in violation of the CFAA.

* Lawyers behaving badly on the Internet.

* 23 state AGs have contacted Topix about its takedown procedures, including its fee for expedited takedown review.

Posted by Eric at 03:18 PM | Copyright , E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark , Virtual Worlds | TrackBack

March 31, 2010

March 2010 Quick Links

By Eric Goldman

Internet Exceptionalism

* Stern v. Sony Corp., CV 09-7710 PA (C.D. Cal. Feb. 8 2010) "to the extent Plaintiff is suing Sony as a manufacturer of video games, and the provider of online services, Sony is not a ‘place of public accommodation’ and is therefore not liable for violating Title III of the ADA" Nice complement to the Estavillo case. My prior post on Internet exceptionalism.

Online Competition

* Microsoft’s head algorithms guru says that Google's search engine beat Microsoft because Microsoft ignored the long tail of search queries. If Google and Microsoft made different product design choices and the marketplace liked Google's choices better, doesn’t this make it hard for Microsoft to complain about Google’s "anti-competitive" practices? I wonder if this talk was pre-cleared by Microsoft’s antitrust counsel.

* SJ Mercury News: Google's most recent 10-K lists some new self-identified competitors, including Yelp, Kayak & WebMD. By identifying some vertical players as competitors, such as Kayak and WebMD, does Google lend credence to the arguments by TradeComet and myTriggers that Google does compete with vertical search engines?

* In re eBay Seller Antitrust Litigation, 2010 WL 760433 (N.D. Cal. March 4, 2010). eBay wins summary judgment in an antitrust challenge: "Despite the voluminous briefing permitted in connection with both of the instant motions-which includes hundreds of pages of supporting documents-Plaintiffs have not drawn the Court's attention to any actual proof of antitrust injury caused by eBay's alleged anticompetive acts-on an individual or a classwide level."

Online Pornography

* U.S. v. Beckett, 2010 WL 776049 (11th Cir. March 9, 2010). A man posed as a 17 year old girl on MySpace and AOL, engaged boys in discussions, induced them to send nude photos, and then coerced them to have sex with him to prevent his dissemination of the photos.

* Miller v. Mitchell, No. 09-2144 (3rd Cir. March 17, 2010). This is the case where the government prosecutor threatened to bring felony charges against girls for "sexting." The court upholds a preliminary injunction against requiring the girls to go through an education program in lieu of felony prosecution.

* U.S. v. Durdley, 2010 WL 916107 (N.D. Fla. March 11, 2010). No privacy expectations in a flash drive left in a public computer.

Online Security

* Cormac Herley of Microsoft Research, "So Long, And No Thanks for the Externalities: The Rational Rejection of Security Advice by Users." In my observations, users are actually intensely rational when it comes to privacy and security issues, and privacy and security advocates who don't fully account for this user behavior do so at their peril.

* Reuters takes a deep look at Innovation Marketing, a Russian scareware operation.

User-Generated Content

* Who does what on Wikipedia.

* Josh King explains why Avvo supports the proposed federal anti-SLAPP law.

* T.V. ex rel. B.V. v. Smith-Green Community School Corp., 2010 WL 935574 (N.D. Ind. March 11, 2010). Denying class formation for a lawsuit in response to a ridiculously harsh school suspension for a MySpace photo of ribald off-campus activity.

* Melton v. Boustred, 2010 WL 881919 (Cal. App. Ct. Mar 12, 2010). Boustred throws a ragin' party and advertises it via a MySpace open invitation. The plaintiffs show up and were beaten and stabbed at the party by unknown assailants. The court concludes that Boustred isn't liable for the physical injuries. Note to self: stay away from parties advertised via MySpace.

* Yelp Litigation Mania!
- Cats & Dogs Animal Hospital v. Yelp first amended complaint
- LaPausky v. Yelp complaint. A write-up.
- Levitt v. Yelp complaint.
- ClickZ: Ex-Yelper Helps Law Firms Go After Yelp

Anonymity

* Park West Galleries, Inc. v. Global Fine Art Registry, LLC, 2010 WL 742580 (E.D. Mich. Feb. 26, 2010). Using an online pseudonym can lengthen the defamation statute of limitations.

* White v. Baker, 2010 WL 1009758 (N.D. Ga. March 3, 2010). Mandatory reporting of Internet usernames by registered sex offenders violates the First Amendment.

Advertising and Marketing

* ClickZ: New Facebook Policies Clamp Down on 'Loose' Ad Copy.

* Coyote Pub., Inc. v. Miller, 2010 WL 816936 (9th Cir. March 11, 2010). Upholding the constitutionality of Nevada's restrictions on advertising prostitution.

Trademark

* WSJ: It's a crowded namespace for bands.

* 1-800Contacts, Inc. v. Memorial Eye, P.A., 2010 WL 988524 (D. Utah March 15, 2010). It was not objectively baseless for 1-800 Contacts to bring a trademark enforcement action over competitive keyword advertising.

* Rhea Drysdale tells how she busted the trademark application for "SEO."

* The Utah governor has signed SB 26, which (among other things) creates a bastardized version of ACPA. My initial comments on the proposed bill.

Copyright

* James Grimmelmann on Reed Elsevier v. Muchnick.

* Ben Sheffner has some updates in the Scribd lawsuits. My initial post on Scott v. Scribd.

* Ars Technica on an experiment to block users who are using ad blocking software from accessing its site.

General

* Hudson v. University of Puerto Rico, 2010 WL 1131462 (D. Minn. March 23, 2010). Passive blog does not confer general jurisdiction.

* Doe 1 v. AOL LLC (N.D. Cal. Feb. 1, 2010). "Plaintiffs' claims for violation of the ECPA (Count I), unjust enrichment (Count VI) and for public disclosure of private facts (Count VII) are subject to the forum selection clause because none are California consumer law claims." Prior blog post.

* Commonwealth v. Interactive Media Ent’mt and Gaming Ass’n, Inc., No. 2009-SC-000043-MR (Ky. Mar. 18, 2010). Challenge to Kentucky's seizure of 141 gambling-related domain names tossed on standing grounds. Prior blog post.

Posted by Eric at 08:42 AM | Content Regulation , Copyright , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark , Virtual Worlds | TrackBack

January 11, 2010

Top Cyberlaw Developments of 2009 (Eric's List)

By Eric Goldman

Guest blogger John Ottaviani recently dropped by to offer his perspectives on 2009’s top Cyberlaw developments. While I like his list a lot, I independently developed my own top 10 list that has a different emphasis. You might enjoy the contrasts. My list:

#10: Louis Vuitton v. Akanoc. After the judge ordered a web host to stand trial, a jury awarded the trademark owner $32 million due to the web host’s contributions to trademark infringement by its customers. This case stands out for the big damages award and as a rare example where an online provider was held liable under a contributory trademark liability theory. Many trademark practitioners are scratching their heads trying to figure out the import of this case, however. Does this case represent a dangerous new frontier of online liability? Was this a bad jury verdict fueled by poor defense lawyering? Or was this an appropriate outcome because the web host actually engaged in bad behavior that distinguishes it from most “legitimate” web hosts? 2010 may help us understand if this case is part of a new trend or an aberration.

#9: Gordon v. Virtumundo. We’ve seen a lot of silly anti-spam litigation, including the emergence of an entirely new group of entrepreneurs called “spam litigation entrepreneurs” who try to make a living on anti-spam lawsuits. These folks have a true love-hate relationship with spam; they hate it so much that they devote their lives to fighting it, but they love getting spam because each one is a potential revenue source. In general, judges hate spam a lot too, so over the years we have seen a number of doctrinally unsupportable results where judges bent the law to make sure spammers lost.

However, the judicial pendulum has swung in the opposite direction, and in Gordon v. Virtumundo, the Ninth Circuit destroyed a serial anti-spam plaintiff’s entrepreneurial business in a doctrinally questionable but strongly worded opinion. In short order, a number of other spam litigation entrepreneurs have seen their lawsuits shut down with emphasis. Due to this ruling, the era of anti-spammers partying in courts may be on the wane.

#8: Zango v. Kaspersky. The question raised in this issue is simple to state but hard to answer: who should decide what constitutes spam, spyware or a virus? Vendors of software designed to curb these threats would like unfettered discretion to make their classifications; businesses who are classified as a threat would like judges to overturn adverse decisions. As it turns out, in a relatively obscure provision (47 USC 230(c)(2)), in 1996 Congress said that software vendors get to make classifications decisions and unhappy businesses can’t complain about them. In June, the Ninth Circuit upheld Kaspersky’s decision to classify Zango’s software as a threat and rejected Zango’s efforts to take the classification decision out of Kaspersky’s hands. This ruling gives enormous freedom to vendors of anti-spam/anti-spyware/anti-virus software to do their best to keep us safe.

#7: Columbia Pictures v. Fung. This case came out just before the Christmas holiday, so it got lost in the holiday hoopla a bit, but it’s a case of potentially significant import. First, it held that the specific torrent sites at issue induced copyright infringement. Second, the court denied the torrent sites’ eligibility for the DMCA online safe harbors. In part, the court said that an inducing website was categorically disqualified from the DMCA online safe harbors. Like the Akanoc case, it’s not entirely clear if this result was a legal aberration or an appropriate reaction to the defendants’ poor choices. Either way, it is possible that more “legitimate” websites may change their behavior to minimize their exposure based on the legal precedents in this case. If they do, this case could have a major impact on UGC websites.

#6: Lori Drew’s acquittal. Megan Maier’s suicide remains a heartbreaking tragedy, but unfortunately, overzealous prosecutors compounded the tragedy by prosecuting Lori Drew using bogus legal doctrines. The tragic facts got a jury to convict Drew of some misdemeanor crimes. Fortunately, the judge recognized the legal errors of the prosecution’s theory and the jury’s conclusions and granted Drew an acquittal despite the jury findings. The judge finally got to the right result as a matter of Cyberlaw, but the case remains a chilling testament to prosecutorial power.

#5: Harris v. Blockbuster. The rule is really clear. Service providers can't amend online user agreements in the provider’s sole discretion without notice. As the Ninth Circuit informed us in 2007, those contracts don’t fare well in court. So although these provisions are in just about every online user agreement, they don’t work--as Blockbuster found out the hard way.

As part of the litigation detritus from the Facebook Beacon experiment, users sued Blockbuster for sharing their rental transactions with Facebook and all of their friends, allegedly in violation of the Video Privacy Protection Act. Blockbuster tried to bust the class action by invoking the contract’s arbitration clause. Instead, because Blockbuster had the impermissible amendment provision in its user agreement, the court said the contract was illusory and refused to send the case to arbitration.

This case should signal the end of the ridiculous amendment clauses. We’ll see how long it takes the lawyers to give the provisions up.

#4: Battles Over the First Sale Doctrine. We have seen numerous legal battles this year over the First Sale defenses in both copyright and trademark law.

Copyright owners try to engage in price discrimination by carving up the world into geographic territories with different prices for the same product. If they can use copyright law to keep the cheap products from entering the other geographic market, this keeps the product from effectively price-competing with itself.

This year, two cases involved European textbooks which were functionally equivalent to the textbooks being sold in the United States at higher prices. Entrepreneurs were buying the cheap European texts, shipping them to the US and then selling them online. The entrepreneurs invoked the First Sale doctrine, which says that copyright law can’t prohibit the legitimate purchaser of a tangible copyrighted item from reselling the item to whomever they want at whatever price they want.

However, copyright law has another provision that allows copyright owners to block the importation of copyrighted works into the United States. In the 1998 Quality King case, the US Supreme Court said that the First Sale doctrine trumped the importation right when the goods were manufactured in the US, sold overseas, and then imported back to the US. However, in Pearson v. Liu and John Wiley & Sons v. Kirtsaeng, the judges said that the importation right trumps the First Sale doctrine when the goods were initially manufactured overseas. This issue is ripe for further adjudication, though. A similar importation case, Costco v. Omega, is pending before the US Supreme Court, which is deciding whether or not it wants to hear the case. If it does, we may get clearer instructions about the interplay between the First Sale doctrine and the copyright importation right.

Copyright’s First Sale doctrine was also at issue in Vernor v. Autodesk, where the purchaser of a software disk wanted to resell the disk on eBay despite restrictions in the software licensing agreement barring such resales. The court held that the First Sale doctrine applied and allowed the resale. There are other cases percolating through the court system involving the resale of tangible media contained copyrighted material despite contractual restrictions on resale, so this issue remains a hot one.

Trademark owners also try to prevent competition with their products that leak out of their official channels of distribution. eBay has been the site of a couple battles over the First Sale doctrine in trademark law. In Mary Kay v. Weber, the court held that the trademark First Sale doctrine may not permit the eBay resale of expired cosmetics by a Mary Kay independent beauty consultant. In Beltronics v. Midwest, a trademark owner shut down the eBay resale of radar detectors that had leaked out of the manufacturer’s channel and were being sold (at a cheaper price) without the manufacturer’s warranty.

Clearly, the First Sale doctrine matters a lot to eBay and other consumer-to-consumer e-commerce websites. With a possible pending Supreme Court case and lots of IP owners looking to stifle competition from goods they have already profited from, expect the First Sale doctrines to get lots of attention in 2010.

#3: 47 USC 230. In my opinion, 47 USC 230 is the most important Cyberlaw statute, so new 230 developments will make my top 10 list for the foreseeable future. This year, there were three federal appellate court rulings interpreting 47 USC 230(c)(1):

* in Barnes v. Yahoo, the Ninth Circuit held that 230 protected a website’s negligent delay in removing user content. However, if the website had promised removal to the user, the user could have a viable claim for promissory estoppel that would not be preempted by 230.
* in FTC v. Accusearch, the Tenth Circuit held that a website’s resale of pretexted phone records—even if those records were supplied by third party suppliers—did not qualify for 47 USC 230 protection because of their illegality.
* in Nemet Chevrolet v. ConsumerAffairs.com, the Fourth Circuit held that a consumer review website was not liable for user-supplied reviews, even when the website worked with the user to submit the review, and despite the plaintiff’s unsubstantiated claims that the website had fabricated the reviews itself.

Really, the big 47 USC 230 news in 2009 is the absence of big news. Specifically, 2009 reinforced that the Ninth Circuit’s 2008 Roommates.com decision—one of the most significant defense losses under 47 USC 230—did not rip open a major hole in the statutory protection of websites. Of the 13 cases that I have seen that have cited the Roommates.com en banc opinion, eleven have cited the case in favor of the defense. (See the list here). The two exceptions are the Accusearch case, mentioned above, and the New England Patriots’ lawsuit against StubHub over season ticket resales, an odd opinion that may not have much influence. Therefore, despite our fears about Roommates.com, the 47 USC 230 immunity remained healthy and vibrant in 2009. For more on this topic, see my special recap of 47 USC 230's year-in-review for 2009.

#2: Keyword Advertising Battles. Keyword advertising battles are another perennial topic on these year-in-review lists. A multi-billion dollar a year industry has sprung up around the sale of keyword-triggered advertising, including some keywords that may be third party trademarks, and trademark owners don’t like it at all. This has led to a multi-front battle between trademark owners, keyword advertising sellers (such as Google), and keyword advertising buyers.

One of the biggest Cyberlaw cases of the year was the Second Circuit’s ruling in Rescuecom v. Google. In the district court in 2006, Google won an easy victory against a trademark owner because the court said that Google did not make the requisite “use in commerce” of the trademark. The Second Circuit reversed the district court, sending the case back for further proceedings. The reversal does not ensure Google’s defeat; Google will now litigate other legal doctrines and might very well win on one of those. However, the Second Circuit’s opinion largely spells the end of any “use in commerce” defense by either keyword advertising sellers or buyers.

Because of the “use in commerce” defense’s demise, keyword advertising cases will now likely turn on whether the advertisements create a likelihood of consumer confusion. One case, Hearts on Fire v. Blue Nile, offered up a new and complicated test for gauging consumer confusion. If other courts adopt this test, keyword advertising cases will get even more expensive and complicated—highlighting how important it was that the Rescuecom case eliminated an easy way to end these lawsuits early.

Meanwhile, despite the fact that keyword advertising battles have been taking place for at least a decade, we have not heard what a jury thinks about the practice—until the November jury ruling in Fair Isaac v. Experian. In that case, the jury found for the defense that the keyword-triggered ads did not create the requisite likelihood of consumer confusion. It remains to be seen if other juries reach the same conclusion. If they do, keyword advertising lawsuits should slowly fade away over time because the trademark owners can’t win in the end.

As for now, keyword litigation is going strong and hardly fading away. In Spring, Google made two changes to its trademark policies where it voluntarily agrees to take down certain types of ads at the trademark owner’s request. In May, Google extended its more liberal US-based policy to nearly 200 other countries, replacing the more restrictive policies it had in place there. Shortly thereafter, Google modified its US policy to do less for trademark owners in situations involving product resales, review websites and sales of complementary/replacement parts. Trademark owners were none too pleased with these changes. In response to these changes and the door opened by the Second Circuit Rescuecom decision, Google got hit with about a dozen new lawsuits, including some class action lawsuits, of which I believe 10 are currently still active.

Finally, all of the wrangling in court and over voluntary trademark policies could be mooted by legislative action, and for the third time, the Utah state legislature considered resolving the keyword advertising issue itself. A law regulating keyword advertising passed the Utah house but died in the Utah senate. Expect the pro-regulatory forces to round up the troops for a fourth try in 2010.

#1: FTC Endorsement Guidelines for Bloggers. The Obama administration has breathed new life into a pro-regulatory FTC, and the FTC sure is interested in all things Internet. The FTC has been nosing around Internet privacy and Internet marketing practices pretty carefully, and I expect 2010 to bring more FTC pronouncements designed to tackle the Internet.

But nothing stirred up a hornet’s nest of confusion and anger in 2009 like the FTC’s Endorsement and Testimonials Guidelines. I think it’s fair to say that the FTC’s guidelines rollout was a complete failure. As usual, the FTC’s guidelines were mealy-mouthed and filled with conditional statements (the FTC hates to lay out bright line rules that might constrain their future discretion). However, the FTC’s general gist was clear: bloggers should disclose when they receive financial or other consideration for their blog posts.

Unfortunately, this general principle leaves open some fairly fundamental questions, like when is disclosure required in situations less clear than straight cash-for-posting, and where should disclosure be made, especially in space-constrained media like Twitter. Needless to say, unhappy bloggers can be very noisy, so blogger response to the FTC’s announcement was loud and vituperative. The FTC tried to backpedal a little by saying that it did not intend to pursue individual bloggers, but this announcement only reinforced that bloggers do not understand what the FTC wants from them.

Meanwhile, the FTC’s proposed guidelines also took an interesting position about an advertiser’s liability for rogue blogger’s posts. This position is generally consistent with government enforcement agencies’ views that commercial players can be legally responsible for content they endorse or link to (see, e.g., my comments on the SEC’s liability-for-linking policy), but this position runs directly contrary to 47 USC 230’s provisions that say A isn’t liable for B’s online content. As a result, I believe that part of the FTC’s proposed guidelines violate 47 USC 230 and would not survive a court challenge.

Overall, the firestorm over the FTC’s Endorsement and Testimonials guidelines is a small part of a larger effort to regulatorily separate advertising from content. The Internet has collapsed those distinctions, perhaps irreparably, so regulators may be trying to accomplish the impossible. Nevertheless, the FTC seems determined to prop up the distinction, and I expect 2010 will bring more FTC efforts on this front.

* * * * *

While that concludes my top 10 list, there were a number of other interesting developments in 2009 that are worth a brief note:

* Moreno v. Hanford Sentinel. A woman trashed her hometown in an obscure but public MySpace posting and learned there is no “do-over” for Internet content publication. My vote for the most factually interesting Cyberlaw case of 2009.

* Google’s keyword metatag announcement. Courts generally treat the inclusion of third party trademarks in keyword metatags as per se trademark infringement. But Google has confirmed that it ignores keyword metatags. Will courts get the message?

* Google Book Search settlement. If the Google Book Search settlement ever gets approved, it may reshape the book industry, redefine libraries, and make all kinds of other socially significant changes. But the list of opponents to the settlement is long and growing. Professor James Grimmelmann of New York Law School is our community’s maven for all things “GBS.”

* Kindle book deletion. The Kindle store sold e-books it didn’t have the right to sell, so it took them back. Users learned of a key factual difference between physical books and e-books—the vendor can remotely make e-books go poof.

* States’ efforts to impose sales tax efforts based on marketing affiliates. For years, states have been looking for ways to make online retailers collect sales tax for them. They are generally stopped by Supreme Court precedent, but in 2008 New York finally figured out a workaround. The New York statute said that marketing affiliates were like traveling salespeople and thus created the physical nexus required for a state to impose sales tax collection obligations. The New York statute survived its first legal challenge, which opened the floodgates of other states passing similar laws hoping to get their piece of the action. Meanwhile, online retailers aren’t just rolling over; instead, they are threatening to cut off (or actually cutting off) marketing affiliates in states that enact these laws—thus potentially costing the states income tax from the marketing affiliates’ revenue, and creating the potential for the entire affiliate industry to be torn apart.

* Maine kids privacy law. Maine thought it could pass a law banning marketing to kids. It was wrong. The state had to withdraw the law and go back to the drawing board.

* UMG v. Veoh. Veoh won another nice DMCA online safe harbor victory.

* US v. Kilbride. The Ninth Circuit says that online obscenity prosecutions need to evaluate national attitudes towards obscene content, not local community standards.

* Kentucky domain name seizure. Kentucky tried to grab 141 domain names that enabled Kentucky residents to engage in illegal gambling. But those domain names also serviced customers for whom the gambling was completely legal, so the Kentucky courts are rethinking the grab.

* FTC v. Sears. As another example of the new pro-regulatory winds blowing through the FTC, the FTC cracked down on Sears for installing spyware on users’ computers that looked at the users’ hard drives, even though Sears paid the users for the installation and disclosed the spyware’s snooping in the user agreement (though in an inconspicuous manner). This case has made a lot of lawyers concerned that adverse disclosures in user agreements won’t satisfy the FTC.

* Facebook the Drama Queen. Ah, Facebook. Love it. Hate it. Facebook is a pretty nifty site and part of my daily routine, but boy, they sure do have a knack for stirring up trouble.

- In February, they made a relatively modest change to their user agreement that caused people to freak out.
- In response to this, Facebook took the provocative step towards user self-governance. Facebook let users vote on some choices and promised to be bound by the results, but with an asterisk: Facebook decided what options users could vote on, and Facebook would honor those choices only if a prohibitively large number of users exercised their franchise. Still, it was a nice gesture towards cyberspace community self-governance.
- In summer, they tried to settle their Beacon litigation, but that also reminded folks of how much Beacon irritated them in the first place.
- Summer also brought allegations of click fraud on Facebook, and lawsuits followed.
- Finally, in Thanksgiving, Facebook rolled out some changes to its privacy options that it pitched as giving users more choices, but it also took away some choices and defaulted users into some options that surprised them.

Given this track record, is it unrealistic to expect more Facebook drama in 2010?

* Estavillo v. Sony. Speaking of self-governance, virtual world enthusiasts would love to establish the legal proposition that virtual worlds are legally equivalent to governments and therefore obligated to restrain their actions just like governments are. One virtual world enthusiast sued Sony for kicking him off the network, claiming that Sony was legally governed as a “company town” and therefore lacked the discretion to kick him off. WRONG (and it wasn’t even close).

* Wikipedia's policy change. In August, the English-language Wikipedia announced that it was going to tighten up its editorial policies, and people Freaked Out. (In fact, I have predicted that Wikipedia cannot avoid increased editorial restrictions over time, so this change should not have been surprising). However, it turns out that everyone got it wrong, and Wikipedia’s editorial changes are far less dramatic (and consequential) than initially reported. I will post a separate recap on Wikipedia shortly.

If you would like a stroll down memory lane, you can see my previous top 10 lists from 2008, 2007 and 2006. Before that, John Ottaviani and I put together a list of top Internet IP cases for 2005, 2004 and 2003.

Posted by Eric at 10:46 AM | Content Regulation , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark , Virtual Worlds | TrackBack

December 27, 2009

November-December 2009 Quick Links, Part 2

By Eric Goldman

Copyright

* Want Ad Digest Inc. v. Display Advertising Inc. (N.D.N.Y. Sept. 3, 2009). A classified ads publisher wants to stop a competitor from republishing its classified ads. The court said that advertisers, not the publisher, generally own the copyrights to each individual ad, but the publisher claimed it had edited those ads sufficient to claim a copyright interest in them as well. This factual allegation prevented summary judgment. The publisher also claimed a compilation copyright based on the organization of individual ads into various headings and subheadings. The court said that the placement of ads within headings and the headings themselves weren't protectable. The organization of subheadings might support a compilation copyright, but the republisher didn't use the same organization and therefore didn't violate any compilation copyright. A little known fact: one of my key summer associate projects in 1993 was to analyze republication of classified ads. Note to my assigning attorney: it may be 16 years later, but I think I got my analysis right!

* Moberg v. 33T LLC, 08-625(NLH) (D. Del. Oct. 6, 2009). Publication of a photo on a German website does not constitute "publication" in the United States sufficient to require the copyright owner to register the photo before suing for copyright infringement in a US court.

* Sony v. Tenenbaum. Downloading copyrighted works via peer to peer software isn't fair use (something we already knew from BMG v. Gonzalez), but it might have been a closer call with a better litigation strategy by the defense.

* Rebecca on EsNtion Records v. TritonTM, an impressive copyright infringement and 1202 defense win.

Virtual Worlds

* The FTC thinks virtual worlds should clean up their act to keep kids away from online porn.

* GameSpot: Estavillo has appealed his loss in the Sony case and expanded his litigation to Microsoft and Nintendo.

* Prof. Miriam Cherry on employment law issues in virtual worlds.

Defamation

* Marine Pile Drivers, LLC v. East Coast Marine Pile Drivers, LLC, 2009 WL 3753526 (W.D. La. Nov. 9, 2009). Allegedly defamatory blog post gives rise to jurisdiction in the plaintiff's home court.

* Salyer v. The Southern Poverty Law Center, Inc., 2009 WL 4758736 (W.D. Ky. Dec. 7, 2009). The CMLP page. Subsequently linking to and referencing an allegedly defamatory online article does not reset the statute of limitations under the single publication rule.

* Colette Vogele put together an excellent presentation discussing plaintiff-side considerations when pursuing anonymous posters.

Miscellaneous

* The Feds dropped their appeal in the Lori Drew case, finally bringing to an end a case that never should have been brought.

* The FTC and other agencies have promulgated model Gramm-Leach-Bliley privacy policies. Five years in the making and battled tested by consumers. The instructions are pretty specific about font size, font color, page orientation, etc. Although the tabular format should make scanning the notices easier, it will be interesting to see if these notices actually do a better job than the current notices on any dimension that matters.

* LA Times: An in-depth look at Facebook's “judicial system.”

Posted by Eric at 08:41 AM | Content Regulation , Copyright , Privacy/Security , Virtual Worlds | TrackBack

November 27, 2009

Web Host Can Terminate Customer for Abusive Call to Customer Support--Mehmet v. Add2Net

By Eric Goldman

[This is a relatively minor pro se case, which is why I've let it sit this long, but it has a couple of interesting facets that make the case worth blogging even at this late date.]

Mehmet v. Add2Net, Inc., 2009 WL 3199876 (N.Y.A.D. Oct. 8, 2009). The opinion (starting on page 39).

This case is a nice example of online providers' broad discretion to terminate their users. The dispute involves a web host and its customer. The customer stopped payment, so the host (apparently legitimately) turned off his site. In response, the customer left a nasty voicemail containing an "obscene word." The provider then wrote back to say the relationship was finis. In support of this, the provider cited a user agreement provision banning customers from "abusing" any of the web host's employees. The host took the position that the customer's voicemail breached this clause, justifying the final termination.

The user agreement's exact clause says that customers agree "not to abuse whether verbally or physically or whether in person, via email or telephone or otherwise ... any employee or contractor." Have you ever seen a clause like this? I haven't, nor would I choose to include such an amorphous clause in any contract I drafted. I do appreciate the provision's spirit, especially with all of the mania about anti-cyberbullying and providing safe employment environments, but I have a hard time imagining a covenant that would be enforced more inconsistently or arbitrarily. As a result, a clause like this is virtually tantamount to saying that the vendor can turn off customers whenever it wants.

So, should online service providers add these provisions to their online user agreements? In the wake of the Lori Drew prosecutions where the courts and prosecutors have been overinterpreting user agreements, I have argued against laundry lists of negative covenants in user agreements, but here the clause proved useful. Then again, the customer's initial failure to pay might have given the web host all of the recourse it actually needed.

For virtual world enthusiasts, I would connect the dots between this case and the recent Estavillo v. Sony case, which said that virtual worlds are not company towns. In this case, relying on the ridiculously overbroad negative covenant, the web host wiped out all of the customer's data files in the final termination. Thus, this ruling would seem to support that a virtual world provider similarly could include overbroad negative covenants in its user agreement, arbitrarily enforce a breach against a customer, wipe out the customer's online presence (and all of the digital assets stored in the virtual world), and face no recourse for the loss of those digital assets. I trust this reinforces the uneasiness of virtual world enthusiasts.

More perspectives on the lawsuit from Mehmet himself. It appears he is a serial plaintiff. That may have been material to the court's consideration.

HT: Evan Brown

Posted by Eric at 01:37 PM | Licensing/Contracts , Virtual Worlds | TrackBack

October 27, 2009

Zittrain on the Dark Sides of Crowdsourcing

By Eric Goldman

Last week, Cyberlaw expert/rock star Jonathan Zittrain of Harvard Law School (visiting at Stanford Law School this term) spoke as part of SCU's lecture series on IT, Ethics and Law. An overflow crowd of over 100 people came to the talk, and as usual Jonathan did a wonderful job. You should attend his talks if you have a chance. They are always highly entertaining and thought-provoking.

Overview

Jonathan's talk was opaquely titled "Minds for Sale: Ubiquitous Human Computing and the Future of the Internet." I think his talk really covered the Dark Sides of Crowdsourcing. Normally, such a talk would immediately raise red flags about the speaker’s intentions and net-savviness. However, Jonathan has sterling credentials as a crowdsourcing enthusiast, so he can raise concerns without sounding shrill or regressive.

He pointed to numerous examples throughout his talk, but one of his principal targets is Amazon.com's Mechanical Turk. Mechanical Turk describes itself as "a marketplace of work. We give businesses and developers access to an on-demand, scalable workforce. Workers select from thousands of tasks and work whenever it's convenient." LiveOps is also on his mind; the site hires individuals to provide live customer support for third party businesses from their homes on a flexible and dynamic basis.

The Problems

From the worker's perspective, Jonathan raised several potential concerns about Internet marketplaces for labor, including:

* surveillance. LiveOps can track and monitor every aspect of workers’ performance, including when they were online and where they connected from. This does depend on the employer’s specific technological architecture; I’m not sure if Mechanical Turk gets such deep looks into its workers' behavior.

* alienation. Online workers are often retained to do pieces of a larger project without understanding the whole project. Thus, they may apply existing rote skills but not broaden their expertise.

* moral valence. Because workers may not understand the greater project, they could help projects that are morally objectionable without realizing it. Jonathan gave some terrific examples, such as spammers distributing the work of breaking CAPTCHAs and the government asking citizens to identify folks in group/crowd photos for law enforcement or possibly dissident-busting purposes.

Jonathan also raised some systematic concerns that could arise from these online labor marketplaces, including:

* without uniform labor laws, employers could trigger a race to the bottom where the work flows to jurisdictions with the laxest worker protections. We’ve already seen an analogous situation as states try to enact “Amazon affiliate sales tax” laws designed to trigger sales tax collection obligations based on the presence of marketing affiliates in the state, which has prompted some Internet companies to dump affiliates overboard in some of those states based solely on their regulatory policy.

* crowding out. As it becomes easier for workers to monetize their time in smaller units, they may become less willing to contribute their labor to non-paying enterprises like Wikipedia. I address some of these dynamics in my Wikipedia paper.

Possible Solutions

Jonathan identified some possible solutions, including:

* revitalized labor standards, such as minimum wage laws or anti-child labor laws. As one example, he proposed that worker reputation should be “portable” so that good workers for an online enterprise can have their accomplishments follow them to future employers. Ironically, this may be unintended Internet exceptionalism because IMO worker reputation isn’t portable in physical space due to the collapse of the job reference market.

* unionize online workers. Unionization was a natural proposal given the talk’s tenor, but I found it anachronistic. How can unions be relevant to online labor markets where people can "change jobs" with a few clicks of a mouse? The Internet has much more competition among employers than any geographically restricted labor market, and the employees’ friction to change jobs online is so much lower than it is in physical space. For example, unhappy Mechanical Turkers can easily click to a large number of competitive websites that will gladly pay them for their contributions. At the same time, the Internet globalizes labor forces in ways that are unprecedented in physical space, so the value for “commodity” labor plummets. Both dynamics seem to doom any efforts to unionize online labor.

* disclosure. Employers should have to disclose who they are and why they are asking for the work to be done.

* opt-out. When people are doing work without knowing it, they should have the opportunity to opt-out. For example, the RECAPTCHA project uses human CAPTCHA-solving to correct OCR scanning errors. Zittrain thinks people should be given a choice not to provide those services.

Jonathan's final takeaway message was to express a general reservation that money is pervading our relationships and activities. He gave the example of how a Mechanical Turk employer offered to pay other Turkers to do kind acts--something, Jonathan pointed out, is oxymoronic because paying people to be kind means they aren’t actually being “kind.”

My Comments

Whether intended or not, Jonathan’s talk had a strong Marxist undercurrent that is tough for many of us to embrace. The Internet makes labor markets more efficient. It also increases the heterogeneity of ways that people can find gainful employment they can perform at the time and place of their choosing. Both generally sound like strongly positive developments to me.

I thought Jonathan’s strongest point was his dystopian view of bad actors (e.g., repressive governments and spammers) crowdsourcing socially detrimental work without workers knowing it. Disclosing the employer’s identity and motivations would be a partial but necessarily incomplete solution. More transparency would prevent people from inadvertently contributing to bad projects, but some people need cash so desperately that they will take it regardless of the moral valence. (I'm ignoring the malcontents who would gladly pay for the chance to facilitate social disruption).

Jonathan’s talk became harder to follow as he addressed examples well beyond online labor marketplaces. Specifically, a number of his examples seemed to conflate work activities, play activities and other ways that people voluntarily allocate their time. (FWIW, I’ve been accused by Timothy B. Lee of doing the same thing in my Wikipedia paper). For example, he treated Google’s use of website links for its PageRank algorithm as a form of “work” where Google gets the benefit of individual linking decisions. (In turn, he lauded Google’s nofollow link as a good example of how laborers can have an opt-out mechanism). While we collectively create value for Google by establishing links to third party sites, I don’t see how linkers are “working” for Google. Instead, I think the links are a positive externality captured by Google. We create positive externalities through our online (and offline) activities all of the time, and I think trying to characterize those as “work” is not the right direction. See, e.g., Frischmann and Lemley’s critique of regulatory overresponses to spillovers.

Similarly, Jonathan gave examples of “games” where the players provide valuable outputs to the game organizers through their ordinary gameplay. An example is where people are asked to tag photos as part of a game, where the tagging can become commercially valuable metadata. In this situation, the game organizers get an undisclosed private benefit (the beneficial work) from what is otherwise a fair market transaction (people voluntarily enjoying the game). Normally, we don’t worry about undisclosed private benefits; in fact, they occur in most economic transactions, even in efficient marketplaces. While increased disclosure about the game organizer’s motivations might help game players make more informed decisions about whether to play the game or how to price their participation, it’s not clear to me that such disclosures would actually help the game player’s make better decisions or enjoy the game more.

Terri Griffith, a colleague of mine in the SCU business school, wrote up her perspectives on the talk.

UPDATE: Mike Sardina, an SCU Law student, also wrote up a recap with commentary.

UPDATE 2: The Markkula Center provided a summary of the talk, and SCU student Courtney Meehan posted on it as well.

Posted by Eric at 12:06 PM | General , Internet History , Virtual Worlds | TrackBack

October 18, 2009

Q3 2009 Quick Links, Part 4

By Eric Goldman

Spam

* Ars Technica: "a disturbing number of e-mail users respond to spam, and not just because they're dumb—some of them did so because they were actually interested in the product or service." I collected some empirical research establishing this point in 2004.

* SpamFighter: Software Creator Admits to Aiding & Abetting Spam

Fraud

* Reuters: A virtual bank rips off depositors in EVE Online.

* Click fraud concerns at Facebook: TechCrunch; Unified ECM v. Facebook complaint (one of at least three pending).

* There can be legitimate circumstances where it makes sense for a vendor to automatically pass a user's credit card number to another vendor, but the practice seems ripe for regulation.

Contracts

* BNA: End of the Notice Paradigm?: FTC's Proposed Sears Settlement Casts Doubt On the Sufficiency of Disclosures in Privacy Policies and User Agreements (BNA Subscription required)

* In August, the NYT interviewed David Vladeck, who suggests that the FTC v. Sears settlement could signal a changing of the guard at the FTC.

* Jonathan Ezor on common drafting mistakes in privacy policies.

* Hines v. Overstock.com, Inc., 2009 U.S. Dist. LEXIS 81204 (E.D.N.Y. Sept. 4, 2009). Browsewrap terms aren’t enforceable “because the website did not prompt her to review the Terms and Conditions and because the link to the Terms and Conditions was not prominently displayed so as to provide reasonable notice of the Terms and conditions.”

* Timothy D. Cedrone, Morals? Who Cares About Morals? An Examination of Morals Clauses in Talent Contracts and What Talent Needs to Know, Seton Hall Journal of Sports & Entertainment Law. I have given my first year contracts students an exercise involving morals clauses that I think worked pretty well (see the links on this page under the "endorsement contract" bullet).

Miscellaneous

* The USPTO has not renewed the peer-to-patent program.

* ABA Journal: E-Discovery is $4B/yr industry but is experiencing consolidation.

* Paul Ohm's paper on re-identification of putatively anonymous databases. This may be one of the more important privacy law papers in some time, as it indicates that we cannot meaningfully distinguish between personally identifiable and non-personally identifiable information.

Posted by Eric at 02:43 PM | E-Commerce , Licensing/Contracts , Patents , Privacy/Security , Spam , Virtual Worlds | TrackBack

October 01, 2009

Online Game Network Isn't Company Town--Estavillo v. Sony

By Eric Goldman

Estavillo v. Sony Computer Entertainment America, 2009 WL 3072887 (N.D. Cal. Sept. 22, 2009)

Sony's PS3 online network isn't a company town or otherwise a state actor subject to First Amendment obligations. As a result, Judge Whyte of the Northern District of California dismissed pro se Estavillo's First Amendment challenge against Sony for kicking him off its network.

Judge Whyte’s analysis is fairly terse because this was such an easy case. He says:

Sony's Network is not similar to a company town. The Network does not serve a substantial portion of a municipality's functions, but rather serves solely as a forum for people to interact subject to specific contractual terms. Every regulation Sony applies in the Network is confined in scope only to those entertainment services that Sony provides. Although the Network does include "virtual spaces" such as virtual "homes" and a virtual "mall" that are used by a substantial number of users (Pl.'s Reply in Supp. of Opp'n. to Dismiss 1), these "spaces" serve solely to enrich the entertainment services on Sony's private network. In providing this electronic space that users can voluntarily choose to entertain themselves with, Sony is merely providing a robust commercial product, and is not "performing the full spectrum of municipal powers and [standing] in the shoes of the State." Hudgens, 424 U.S. at 519 (quoting Lloyd Corp. v. Tanner, 407 U.S. 551, 568-69 (1972)).

Sony does not have a sufficient structural or functional nexus to the government. Plaintiff has not suggested that Sony is part of the state or federal government. The Network was not created to further government objectives. The government retains no permanent authority to appoint any directors of Sony or the Network, or any other private body associated with the Network. There is no indication that Sony has assumed functions traditionally reserved to the government, or that the government had any part in encouraging Sony to create the Network. Count one of the complaint does not state a plausible First Amendment claim for relief, and therefore must be dismissed. Iqbal, 129 S.Ct. at 1940.

This discussion is appropriately brief because we've known for many years that private online companies aren't state actors, and at least a dozen precedential cases have reached this conclusion. For more on this, see my 2005 article Speech Showdowns at the Virtual Corral.

Nevertheless, this case could have significant import for academic discourse about the virtual worlds. I believe this is the first ruling to squarely conclude that an online game/virtual world isn’t a company town. As a result, this opinion emphatically rejects a meme that has become pretty popular among virtual world exceptionalists. Some exceptionalists have favored the company town analogy because it enable virtual world customers to reduce an operator's ability to run its business capriciously.

At the same time, as I explain in my 2005 article, importing constitutional doctrines into paying vendor-customer relationships could have untold detrimental effects on the entire online industry. This efficient ruling will hardly be the last word in that debate, but it should take a little wind out of the sails of the virtual-world-as-company-town meme that gets invoked so frequently in virtual world exceptionalist circles.

For more on this opinion, see Rob Heverly's blog post. Rob sees more merit in Estavillo’s argument than I do, but still he concludes that the case “was probably rightly decided.”

Posted by Eric at 09:57 AM | Content Regulation , Virtual Worlds | 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

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 19, 2008

Content Generation and the Law

By Eric Goldman

Last week I participated on a panel at the ION Game Conference in Seattle to discuss UGC in virtual worlds and online games. You can see a reasonably faithful transcript of the discussion here. Here's a recap of the main points I made:

The Interface Between Content Generation and the Law: Game providers should think about how to generate both more UGC and the right kind of UGC. There are three main sources of law governing the UGC content generation choices:

* the site's EULA. Most EULAs give providers maximum flexibility to manage UGC as they see fit, but if I were researching the issue, I'd start with the EULA to see how the provider may have restricted itself.
* 47 USC 230. Many people operate under the outdated myth that a site must choose to be either a publisher or a passive conduit. Fortunately, the law facilitates heterogeneous approaches to UGC. Per 230, a VW isn't liable for third party content with limited exceptions. Ownership doesn't matter; editing doesn't matter, prescreening/policing doesn't matter. Most VW providers remain unaware of 230's power and import. Due to 230, providers have the choice of various UGC generation strategies, all of which have the same legal treatment.
* 17 USC 512. 512 doesn't go as far as 230 at enabling different content generation approaches, but it still provides some insulation from liability for user-caused copyright infringement.

In addition to these sources, many sites develop their own adjudicatory systems, including ways for users to report problems with other users, expedited takedown procedures (such as VeRO), and customer support representatives (CSRs) as private adjudicators.

How to Increase UGC: Obviously, users can be motivated through incentives/disincentives (carrots and sticks). For example, at Epinions, we used both cash and credit. There is also value in supporting and empowering a site's meta-community (the offsite interaction of power users).

Working with Power Users. I'm often amazed at just how much work users will do for a site for free if you just ask them/empower them. However, in asking users to do more work, sites should be cognizant of the amorphous boundary between independent contractors and employees. Recall the class action lawsuits against AOL and About.com over their volunteer labor force.

Site Responses to UGC Problems: I talked about the problem of "rule proliferation": in response to a new test case involving user behavior, a site often promulgates a new restrictive rule. This may happen infrequently, but even if it happens only 1X/week, that adds up to 50+ new rules/year. The collective effect is a burgeoning body of code and common law that eventually becomes unwieldy and unmanageable. To avoid this code creep, sites should promulgate new common law reluctantly.

What Works with UGC/What Doesn't: Sites should try to address two partially contradictory forces. Most users want to do the right thing, so sites should make it easy for them to do so. At the same time, sites need to build systems that are robust enough to squash the inevitable vandals and bad actors.

If you want a little more on the topic of this panel, I also did an interview for ION's pre-conference newsletter.

Posted by Eric at 12:01 PM | Content Regulation , Copyright , Derivative Liability , Virtual Worlds | TrackBack

April 22, 2008

March 2008 Quick Links, Part II

By Eric Goldman

Copyright

* A lot of action on whether “making available” a file in a P2P share directory is copyright infringement, including Elektra v. Barker and London-Sire v. Doe. Patry summarizes the action.

* Ticketmaster L.L.C. v. RMG Technologies, Inc., 2008 WL 649788 (C.D. Cal. March 10, 2008). Copyright misuse is not an independent cause of action; it's only a defense. HT Evan Brown.

* A student asked me a good Q that I couldn't answer. Given that copyright work transfers are subject to the risk of a non-waivable termination of transfer 35-40 years after the transfer, how do companies account for that risk on their financial statements?

* A man whose Youtube video was taken down by lawyers for Van Morrison strikes back with a new video: "The Lawyers Pulled My Video Down."

Trademark

* The Utah governor signed SB 151, the repeal of the Utah Trademark Protection Act.

* Wilson v. Yahoo! UK Ltd., No. 1HC 710/07, Feb. 20, 2008. A UK court says that buying the broad-matched keyword "spicy" does not constitute an actionable use in commerce of the trademark "Mr. Spicy." In response, Google liberalized its keyword policy in the UK and Ireland to match its US and Canada policy.

* Vulcan Golf, LLC v. Google Inc., 2008 WL 818346 (N.D. Ill. March 20, 2008). This is another interesting development that I just didn't have time to blog (see my earlier post when the lawsuit was filed). In a lengthy opinion, the district court rejected most of the significant motions to dismiss, saying that she wanted to let the case develop. Ironically, she also complained about the workload in the case--perhaps this is obvious, but granting some motions to dismiss would help clear your docket queue! Unfortunately, most of the opinion isn't insightful because so many issues were reserved for further development. Perhaps the most interesting discussion relates to the "use in commerce" question, and the court rejected a motion to dismiss on that basis: "The plaintiffs have alleged that Sedo and the other Parking Defendants transacted in and improperly profited from domain names that are deceptively similar to the plaintiffs' trademarks. Such statements sufficiently allege the "use" of a domain name to allow the infringement claims against Sedo and Oversee to move forward on this issue." Some other commentary on the case: Sarah Bird and David Fish.

* American Airlines loves Google (except for the part where it's suing Google). HT Search Engine Land.

State Regulation of the Internet

* Some state legislators are becoming privacy entrepreneurs about behavioral targeting. Venkat does a recap. But Zachary Rodgers points out that some of the operative provisions track NAI's self-regulatory guidelines. More angst about deep packet inspection by IAPs.

* Ewert v. eBay, Inc., 5:07-cv-02198-RMW (N.D. Cal. March 31, 2008). eBay isn't an "auctioneer" or an "auction company" as defined by California's Auction Act.

* The Tennessee legislature is considering a goofy response to the Hannah Montana ticket furor.

* Ken Magill at Direct wrote an article entitled "Psychotic Law Clowns in Utah at it Again." A highlight: "Whenever I think of Utah's state legislature, I envision a room full of Jack-in-the-Boxes straight out of a never-made Twilight Zone episode. Every fall, when it's time for the next legislative session, their cranks begin to turn, a chorus of "Pop Goes the Weasel" begins, and on the note for "pop" the lids fly open and dozens of psychotic clown heads spring out of the boxes chanting: "New Internet Law! New Internet Law!""

Other Stuff

* The Economist: The Battle for Wikipedia's Soul. "To create a new article on Wikipedia and be sure that it will survive, you need to be able to write a "deletionist-proof" entry and ensure that you have enough online backing (such as Google matches) to convince the increasingly picky Wikipedia people of its importance. This raises the threshold for writing articles so high that very few people actually do it. Many who are excited about contributing to the site end up on the "Missing Wikipedians" page: a constantly updated list of those who have decided to stop contributing. It serves as a reminder that frustration at having work removed prompts many people to abandon the project." See a similar article in the NY Times Review of Books.

* FTC busts Goal Financial for inadequate security practices.

* The DOJ is busting people who click on a link that purportedly offered child porn, prosecuting them for attempted downloading of child porn.

* Orin Kerr, "Criminal Law in Virtual Worlds," University of Chicago Legal Forum (forthcoming). Orin sensibly argues against virtual world exceptionalism with respect to criminalizing activities in virtual worlds.

Posted by Eric at 10:09 AM | Content Regulation , Copyright , Domain Names , Marketing , Privacy/Security , Trademark , Virtual Worlds | TrackBack

January 30, 2008

State of the Net Conference Recap

By Eric Goldman

Today I attended the State of the Net conference, sponsored by the Congressional Internet Caucus Advisory Committee. This event has become the "go-to" event for Internet policy wonks. Well over 300 people attended, including many well-known folks. If you deal with Internet policy, you should be at this conference.

A few notes from the event:

The morning keynote was delivered by Mary Bono Mack, who delivered one of the most true believer IP-maximalist talks I've heard in a long time. It was almost cartoonish. Based on the fire-and-brimstone talk, I imagine she would support just about any expansion of IP rights proposed to her. In response to a Q&A, she said that she had been previously misquoted and that she doesn't support a perpetual copyright duration. But she thought the Eldred opinion vindicated Congress' previous term extension as a reasonable policy; she must have read a very different opinion than the one I read. See Anne Broache's writeup of Mary's talk.

I've now heard a few different suggestions that server-level filtering by IAPs would drop them out of 512(a) coverage. (Today, Gigi Sohn raised this issue). This arises in response to AT&T's proposal to filter for copyrighted material, but it's also a subtext of the net neutrality discussion. I'm not sure if this is an accurate reading of 512(a), though. 512(a) says it applies only if the "the transmission, routing, provision of connections, or storage is carried out through an automatic technical process without selection of the material by the service provider." (Emphasis added). What does it mean for a service provider to select material? In context, I think the statutory language means that the user, instead of the service provider, selects the particular file moving over the IAP's network. I don't see how this exclusion was meant to cover automated filtering. In contrast, if the language is read to apply to filtering; would any type of filtering, including spam and virus filtering, knock out IAPs from 512(a)? If so, then no one could ever qualify for 512(a). It's not beyond Congress to draft a safe harbor that describes a null set of activity (see, e.g., 512(d)), but I suspect the courts will be more flexible in their reading than this.

The always-entertaining Federal Trade Commissioner Jon Leibowitz spoke about social networking sites. He implied that if Facebook hadn't backed down on Beacon, he was going to encourage the FTC to investigate it. He also wondered how online speech could receive the same level of protection as offline speech, and specifically referenced Marsh v. Alabama (the company town case) in suggesting that some online sites might be analogized to essential facilities. I'm not really sure what to make of this, as every court that has reviewed these state action arguments as applied to private online sites have rejected them squarely. But I'm sure virtual world exceptionalists will be thrilled to know that an FTC Commissioner might be sold on weighting player rights over provider rights.

At the post-event technology exhibition, I had the most remarkable demo from a woman at Quova, the geolocation company that claims 97% accuracy to the state level and 95% accuracy to the city level. I don't feel comfortable repeating some of the things she said because I haven't been able to validate them, but suffice it to say that all of you privacy advocates who freaked out about ChoicePoint may have a new company to freak out about. Among the questions that I'd like to see answered about Quova:

* what websites supply them with IP address data based on their users' activities? If it's the companies she named, then I'm pretty confident that at least some big Internet brands have been regularly violating their privacy policies.
* what government agencies are Quova's customers? And what are they doing with the data?
* what kinds of subpoenas is Quova getting from private plaintiffs, and how are they handling those subpoenas? Based on what I heard, it sounded like plaintiffs have been wasting their time tendering subpoenas to individual websites when Quova may offer some interesting one-stop-shopping.

If you have any insights into any of these Qs, I'd welcome your thoughts.

Posted by Eric at 11:14 PM | Copyright , Privacy/Security , Virtual Worlds | 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 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

September 07, 2007

August 2007 Quick Links, Part II

By Eric Goldman

* e360 Insight v. Spamhaus Project, 2007 U.S. App. LEXIS 20725 (7th Cir. Aug. 30, 2007). An email marketing company was listed on Spamhaus' ROSKO and sued for defamation and other torts in Illinois. Spamhaus took the position that US courts have no authority to render a judgment on a UK-based operation. The district court ultimately awarded $11.7M in damages and various equitable relief. The Seventh Circuit affirmed the default judgment but vacated the damages and equitable relief, sending those back to the district court to reevaluate the appropriate remedies. I understand that Spamhaus wanted to make a philosophical point by not fighting the lawsuit in the US, but had they overlooked their philosophical objections, they should have won a quick victory per 47 USC 230(c)(2).

* Perfect 10 has appealed its Ninth Circuit 230 loss in ccBill to the US Supreme Court.

* Search Engine Land had a good overview/recap article on geolocation technology. It provides a clear and easy-to-read explanation why the folks who think online businesses can just stay out of a state that enacts dumb regulations are full of crud.

* Pisciotta v. Old National Bancorp, No. 06-3817 (7th Cir. Aug. 23, 2007). Another court (this time, the Seventh Circuit) says that consumer fretting about possible future identity theft isn't enough harm to support a lawsuit. See the analogous JetBlue, Acxiom and Key cases.

* Wikipedia Scanner--an automated tool to determine who is editing Wikipedia pages. Katie Hafner's NYT article on the matter. David Hoffman does a little sleuthing on law firm edits.

* NYT: In the 1990s, a lot of people sought to build an infrastructure for micropayments. Consumers resisted them, but today those efforts seem a little silly--AdSense advertising can generate the same financial benefits for a web publisher without the overhead. Meanwhile, the credit card systems are being stretched to cover micro-transactions because merchants are aggregating a consumer's orders and processing them in bulk (rather than processing each one individually) as a way to reduce the transaction costs.

* NYT: "As video games have surged in popularity in recent years, politicians around the country have tried to outlaw the sale of some violent games to children. So far all such efforts have failed."

* AP: Chinese animated cops will be patrolling the Information Superhighway beat.

* Tired of negative reviews on Yelp, a San Francisco restaurant put up a sign saying "no Yelpers." I wonder if a sign like that lessens or exacerbates negative publicity.

* NYT: Book authors obsessively check Amazon sales rankings and try to game them.

* Facebook accidentally posted some of its source code to a public website. Surely an interesting development for ConnectU's discovery team!

* Another Internet company hires its own in-house economist--this time, virtual world Eve Online.

* A nice retrospective on the Cleveland Free-net, which at one point was a prominent component of the Cyberspace community.

* I have one free guest pass to the CLE International New Media Law conference in SF on Oct. 1-2. Free to the first person who sends me an email request. [SORRY--TAKEN!]

Posted by Eric at 09:48 AM | Content Regulation , Derivative Liability , E-Commerce , General , Internet History , Privacy/Security , Virtual Worlds | TrackBack

August 01, 2007

July 2007 Quick Links, Part II

By Eric Goldman

Virtual Worlds

* After a remarkable run as media darlings, Second Life is now experiencing some of the inevitable backlash. Case in point: Wired's "How Madison Avenue Is Wasting Millions on a Deserted Second Life." In this respect, Second Life reminds me a little of Keen.com--both provide fantastic platforms for monetizing user-generated content, but that powerful economic platform is likely to take root primarily in the sin businesses (porn, gambling, etc.). (FWIW, Keen.com appears to have cleaned up the dial-a-porn and is now focused exclusively on dial-a-horoscopes). As a result, it will be interesting to see what happens to Second Life's numbers in response to their anti-gambling crackdown. Meanwhile, lawyers--the classic late adopters--are gushing about Second Life's potential as a business generator--an interesting counter-perspective to the Wired article.

* World Copyright Law Report: "Some residents have been using a rogue version of a program called CopyBot to make a copy of anything in the Second Life world, thus threatening to undermine the whole basis of the Second Life economy."

Wikipedia

* More marketers wake up to the value of inserting links into Wikipedia despite Wikipedia's nofollow tag. See my earlier explanation of this. Meanwhile, a Wikipedia administrator talks about what Wikipedians consider white hat practices for marketers.

* Willing to cite to Wikipedia in your legal briefs? Need some custom-tailored authority to support your argument? Edit Wikipedia to say what you want!

* Mike Godwin has become Wikimedia’s GC. You may recall that Mike and I bet about Wikipedia’s future; it appears he has raised the stakes on that bet substantially!

User Generated Content

* "GC's Client from Hell": Whole Food's CEO John Mackey pseudonymously posted about his company's stock and his competitor's stock on Yahoo Finance. The WSJ article has some of the juiciest postings. The NYT on CEO "sock puppetry."

* A restaurant owner used consumer reviews from Yelp as part of deciding to fire employees.

* Interesting interview with the pseudonymous founder of a pay-for-Diggs business.

Blogs

* The ABA Journal has entered the crowded field of blawg directories with one of their own.

* Blawgworld 2007: 77 blawgers chose their favorite posts, which were compiled into an e-book. The compilation turns out to be a great way to get noisy blawgers to promote their brilliant contributions to the e-book, which generates traffic and link love for the publisher, which in turn creates a nice delivery vehicle for sponsored content/advertising.

Miscellaneous

* Asch Webhosting, Inc. v. Adelphia Business Solutions Investment, LLC, 2007 U.S. Dist. LEXIS 52932 (D. N.J. July 23, 2007). IAP terminates customer based on complaints that customer was a spammer. Court holds that the consequential damages waiver applies, effectively negating customer's alleged damages. Rejecting the customer's argument that the termination was in bad faith, the court says: "Plaintiff’s arguments about the accuracy of the spamming complaints do not change the Court’s determination because regardless of the ultimate accuracy or veracity of the spamming complaints, defendant was entitled to rely on those complaints so long as it did so in good faith, and plaintiff has not demonstrated any bad faith by defendant." HT: Technology Law Update.

* Consumer Law & Policy Blog: "companies in two recently filed federal cases explicitly invoke [the recent Supreme Court decision in] Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online."

* Declan on whether anti-spyware vendors are screening for "fedware" (government keystroke loggers designed to capture data before it's encrypted).

Fun

* More proof that technology can save lives: During a power outage at a hospital, doctors were able to complete a surgery using the light of open cellphones.

* I’m a new fan of Oddee. Some recent posts (it helps to think about sexual connotations when interpreting the photos):
- "15 Unfortunately Placed Ads."
- "Most Unfortunate Logos Ever"
- "Unfortunate Business Names.”

Posted by Eric at 11:06 AM | Adware/Spyware , E-Commerce , General , Internet History , Marketing , Spam , Virtual Worlds | TrackBack

April 18, 2007

Judge Kozinski Talks About Cyberlaw

By Eric Goldman

Last October, Judge Alex Kozinski of the Ninth Circuit chatted with me in my Cyberspace Law course for 75 minutes. If you listen to the recording, you'll hear Judge Kozinski's humorous thoughts on receiving gifts when he speaks (he auctions them on eBay), selling on eBay (he's very proud of his feedback rating), blogging (he hates bloggers--told me that right to my face at breakfast after I told him I was a blogger) and being a judicial male "superhottie," as well as a less spirited discussion about the law of virtual worlds and the Sex.com case (it's hard to pin down sitting judges on substantive legal doctrines). Hope you enjoy the interview.

Posted by Eric at 04:05 PM | Domain Names , Publicity/Privacy Rights , Virtual Worlds | TrackBack

February 02, 2007

January 2007 Quick Links

By Eric Goldman

* Marketers (including Microsoft) are paying authors to write Wikipedia entries. Surprised?!

* Also on the topic of Wikipedia and marketers, Wikipedia has tagged all of their pages NOFOLLOW so that there's no way a marketer or website can get PageRank credit from inserting a link in Wikipedia. A reporter emailed me to ask "Do you think this move staves off the potential demise you have predicted?" My response: "No. This was actually raised in the comments to my initial post on the topic in Dec. 2005. Two points: (1) People who recycle Wikipedia content on their own site (such as Answers.com) may not use the nofollow attribute, so there still may be a PageRank payoff by inserting links on Wikipedia pages. (2) More importantly, marketers may want Wikipedia traffic directly (rather than the indirect boost in search engines). Wikipedia is already highly placed in the search engines, so it is a big traffic source in its own right."

* Speaking of my prediction of Wikipedia’s future, NPR picked up on it.

* Now that MyBlogLog is owned by Yahoo and thus increasing its traffic, Greg Linden reports that it's getting spammed.

* I previously reported that ICANN was thinking about retiring some TLDs. The first casualty? .um (for US Minor Outlying Islands, such as the Midway and Johnston Atolls), which got chucked because the registry operator didn't want to continue operating it and there were no registrations in the TLD.

* "The Search Tax: Are Search Engines Leeches?" This article discusses the role of search engines as intermediaries between consumers and marketers, able to charge marketers for access to consumers (hence, the "tax" reference). The article also discusses the value of buying trademarked keywords:

What's difficult for marketers to swallow, however, is the clear evidence the search engines (and affiliate marketers with good organic rank on brand terms) have the power to insert themselves between the consumer and the brand, even when consumers clearly have an interest in the brand (as indicated by their search query containing the brand or trademark).

Marketers' temptation may be to refuse to pay for brand keywords, sticking instead to the generic keywords that are also clearly aimed at any given target audience. In every case we've tested (and I have tested many and will likely test many more), that would be a mistake, even when the marketer has high organic rank on his brand. The results of every test we've executed indicate the incremental gain received when paying for traffic on a brand term has a very high net ROI (define) because: [1] Significant additional screen real estate on the SERP is gained. [2] The total control over title and description allows for greater offer control. [3] Top positions on one's brand usually aren't very expensive due to the engines' relevance algorithms. [4] The ability to control and tune the landing page results in a conversion rate percentage in many cases is higher for the combined pages than for one alone.

* We might consider the contrast between the prior post and this one: "Should Google Pay Off Brand Owners With Cut Of Keyword Sales?"

* Brand advertisers resist using Google because Google doesn't allow third party ad serving technology. But compare a BusinessWeek article reporting that big brands are buying up CPC inventory and pricing out small- and medium-sized advertisers.

* Google revised its algorithm to eliminate most of the famous Googlebombs (like "miserable failure"). Danny's recap. Google hasn't specified details, but I'm assuming that Google has somehow reduced the weight given to anchor text.

* A search engine marketer predicts the death of SEO with the emergence of personalized search. I agree! (HT: Greg Linden).

* eBay is blocking the auction of virtual assets due to the "legal complexities" of such sales. Because of its differentiated EULA, Second Life virtual assets can still be auctioned. The News.com article suggests that these transactions will move from eBay to other trading fora. Even so, this might inhibit the liquidity of these secondary market transactions, which could reduce the return of virtual asset speculators.

* According to Jakob Nielsen, about 1/2 of online giftcard recipients either junked their email notification or didn't trust it (i.e., thought it was phishing).

* HER, Inc. v. Re/Max First Choice, LLC, 2007 WL 43747 (SD Ohio Jan. 5, 2007). Competitor 1 registers domain names containing Competitor 2's trademarks, Competitor 2's principals' names and the principals' home address and phone number. The domains roll over to Competitor 1's website. Competitor 1 then sends a couple of gripe spam to Competitor 2's employees from some of the registered domain names bashing Competitor 2's business practices. The court isn't sympathetic, granting a PI based on ACPA and trademark infringement. While this type of competitor-bashing isn't permissible (and, frankly, registering domain names with the target people's home address and phone number is bizarre), Competitor 1 should have been able to find ways to deliver the same content without running afoul of the law.

* Google has lost an appeal at the OHIM in Europe over the rights to use the trademark "Gmail" for its email services.

* Does a "lactivist's" t-shirt saying "the other white milk" infringe the Pork Board's trademark in "the other white meat"? No, and what a dumb question!

* The RipOffReport.com has appeared on this blog several times (see here and here, among others). The Phoenix New Times (the local Phoenix alternative weekly) runs a lengthy and interesting story about the Ripoff Report and its principal, Ed Magedson. Worth reading.

Posted by Eric at 02:08 PM | Domain Names , E-Commerce , Licensing/Contracts , Marketing , Search Engines , Spam , Trademark , Virtual Worlds | TrackBack

October 30, 2006

Sex.com -- An Update

By Eric Goldman

Judge Alex Kozinski recently guest lectured in my Cyberspace Law course, which prompted me to reread Kozinski's opinion in the Kremen v. Cohen Sex.com case. Because that opinion came out in 2003, it made me curious--what's happened to the lawsuit and the domain name since then?

Before getting into specifics, a quick recap. The Sex.com story has been oft-told, yet it's such a classic tale that it bears repeating. In early 1994, an enterprising Gary Kremen registered Sex.com with Network Solutions back when registrants could register domain names for free with just an email. In Oct. 1995, an interloper, Stephen Cohen, "stole" the domain name by submitting forged transfer papers to NSI. When Kremen discovered the transfer and demanded that NSI fix its mistake, NSI shrugged its shoulders and said to Kremen that he would have to go to court to resecure the domain name. Kremen did exactly that, sparking a decade-long legal battle over perhaps the most valuable domain name of all time. In the interim, Cohen allegedly reaped enormous profits (at least $40M, maybe hundreds of millions) from Sex.com during the time he possessed it.

The legal battle can be organized into 3 different fronts.

Kremen against Stephen Cohen

Kremen's first attack was against the interloper, Cohen. Kremen won a $65M judgment (which included a $25M punitive damages award) against Cohen in 2001. However, as I stress in my Cyberspace Law course, winning a judgment is a win only if it's enforceable. In this case, Cohen did everything possible to frustrate collection by fleeing the country (to Mexico, then Monte Carlo, and back to Mexico) and using clever machinations to move his money offshore and out of reach. Kremen was able to execute against 2 homes of Cohen's, including a house in upscale Rancho Santa Fe outside of San Diego that Kremen still uses as a personal residence. Meanwhile, based on Cohen's repeated acts in contravention of the judge's orders, the judge issued a contempt order and arrest warrant for Cohen.

After Kremen unsuccessfully offered $50,000 to bounty hunters to find Cohen, there was a break in the case in October 2005. Cohen was located in Tijuana, arrested by the Mexican police and extradited to the US. The judge has demanded that Cohen spill the beans about the location of the money, and Cohen refuses to do so. As a result, Cohen still sits in jail on the contempt order.

Kremen against Network Solutions

When it looked like Cohen wasn't going to pay up, Kremen went after Network Solutions as the domain name registrar, alleging breach of contract and conversion. The district court rejected the claims, but on appeal, Judge Kozinski reversed the conversion claim dismissal, concluding that California law permits intangible assets to be converted. The case was remanded to district court, but NSI settled the case in 2004. The settlement amount was confidential, but reports have put the amount at $20M.

Reading through the opinion again, I was struck by how Kozinksi's arguments could be used to support a conversion claim for other types of intangible assets, such as virtual world assets. I probed Kozinski on this very point in my class, and in his mind there's a distinction between assets taken within the game rules and outside the game rules.

I think this is right, but it may depend on the defendant. In the Kremen v. NSI case, the defendant was the service provider; but this was a truly unique situation where the customer (Kremen) and the service provider (NSI) didn't have a valid contract for the domain name registration because domain names were free. Thus, there was no consideration from Kremen for the domain name registration contract. In contrast, there is typically an airtight contract between the VW user and the service provider, and that contract will likely contain provisions that protect the service provider from any liability for asset conversion. I don't think Kozinski's reasoning could be read to extend conversion liability to the service provider in the face of such a contract. However, some other interloper who takes a virtual world asset outside of game rules could face conversion liability under the Ninth Circuit rule.

One more point about this case. When Kozinski's Ninth Circuit decision was issued, a number of commentators hailed it as a landmark case on protection of cyberproperty. It might ultimately be that, but I did a citation count and there are actually a surprisingly small number of cases citing to it so far (and none of particular note). So I personally think the Ninth Circuit decision is so fact-specific (service provider conversion of an intangible asset without any governing contract) that it's unlikely to be a true watershed decision.

Kremen against ARIN

The Sex.com battle has quietly spilled onto a third front. As part of Kremen's 2001 judgment against Cohen, the court imposed a constructive trust on all of Cohen's assets, including a large block of IP addresses assigned by ARIN. ARIN has refused to transfer the block as Kremen has asked, instead directing Kremen to follow ARIN's internal transfer policies, which Kremen apparently refuses to do. So in April 2006, Kremen sued ARIN for antitrust violations, conversion, unfair business practices and breach of fiduciary duties. See the complaint in Kremen v. American Registry for Internet Numbers (N.D. Cal.).

This is a case worth watching. ARIN is a relatively obscure and insular group, and over the years I have heard lots of frustration about their IP address block allocations and restrictions on transfer. This lawsuit has the potential to challenge these practices and change the process for IP address block allocations.

The Status Today

In Jan. 2006, Kremen sold the domain name to a low-profile pornography company, Escom, for $12M-14M. As a result, Kremen has received, so far, over $30M and 2 properties for the domain name, plus a pending $65M judgment (now over $80M including interest) against Cohen, plus any ongoing revenues he generated during the time he possessed the domain name. Talk about a lucrative domain name!

Earlier this month, Escom announced a strategic partnership with Playboy Enterprises, with the practical consequence that Sex.com has turned into a marketing portal for Playboy's content. Given the apparent value of this domain name, I'm sure we haven't heard the last word on its exploitation.

If you are interested in more of this story, Kieren McCarthy is publishing a book, Sex.com, in Britain in 2007.

UPDATE: Violet Blue writes an entertaining recap.

Posted by Eric at 05:44 PM | Domain Names , Internet History , Licensing/Contracts , Virtual Worlds | TrackBack

March 03, 2006

NCSoft Sued in South Korea for ID Theft

By Eric Goldman

NCSoft has been sued in South Korea for allowing users to improperly register Lineage/Lineage 2 accounts in other people's official Korean ID number (I'm inferring this is similar to a social security number). More than 3,500 people have joined the class action so far, although the affected number is in the hundreds of thousands.

Based on this report, my understanding is that an organized crime ring stole a large number of Korean IDs from a third party shopping website, used those IDs to create Lineage accounts, used Chinese gold farmers to manufacture in-world wealth, and then converted that to physical-world wealth.

Assuming this is true, I don't immediately understand how NCSoft could be liable to the people whose IDs were stolen. It's not clear that NCSoft played any role in the initial ID theft, and so far the news reports indicate that the people whose IDs were stolen have not suffered any damage. If NCSoft had no role in the initial theft and the people whose IDs were stolen suffered no damages, I'm having a hard time seeing how this is NCSoft's problem. Certainly, in the US, I can't see how the plaintiffs in this situation could state a valid cause of action.

As a result, this lawsuit smells fishy. The organizers run a case auction service that matches victims with lawyers for all types of lawsuits. (From their website: "Case Auction is a bidding system of which clients find out lawyers to handle his/her case through the auction.") Could this lawsuit just be a traffic driver for the website?

Alternatively, lawyers just may be trying to capitalize on consumer outrage. I'm inferring from news reports that NCSoft collected the ID number unnecessarily and consumers are ticked about the security breach and its possible implications (even if no damages were caused here). If the analogy is that an online service provider collected social security numbers are part of their authentication process, I see why some people would want answers about the necessity of such data collection. This article recaps some of the controversy.

Thanks to Matt Goeden for pointing this out. More coverage at Terra Nova.

Posted by Eric at 01:14 PM | Derivative Liability , Privacy/Security , Virtual Worlds

December 14, 2005

City of Heroes Lawsuits Settled

By Eric Goldman

A complex but interesting legal fight between Marvel and NCSoft, about City of Heroes players generating characters that look like Marvel-owned characters, has come to an end. The press release announcing the settlement.

Settlement terms were not disclosed, except that no money changed hands and NCSoft isn't changing its character creation engine. Based on the tone of the press release, I suspect that NCSoft will make stronger warnings to players about respecting IP; NCSoft may have also agreed to be a little quicker on the trigger taking down potentially infringing characters (all of this is speculation--I have no inside knowledge).

In any case, this looks like a terrific victory for NCSoft. Maybe NCSoft got some helpful leverage in the settlement negotiations when it went on the offensive and won a key motion in August.

From a policy standpoint, I'm glad to see this lawsuit settled without a definitive legal conclusion. Although the rulings to date largely went NCSoft's way, the risk of getting an adverse or confused judicial ruling was high enough that it's best to leave this issue open for another day.

Thanks to Greg Lastowka for calling my attention to this.

UPDATE: News.com article with some good quotes.

UPDATE 2: News.com now reports that NCSoft had a little "swagger" when refusing to describe the settlement.

Posted by Eric at 04:53 PM | Copyright , Derivative Liability , Trademark , Virtual Worlds

September 16, 2005

City of Heroes Lawsuit--New Ruling on False DMCA Takedown Notices

By Eric Goldman

Marvel Enterprises v. NCSoft Corp., CV 04-9253-RGK (C.D. Cal. Aug. 23, 2005).

Given the interest in this case, I'm surprised that this ruling appears to have been overlooked (I found it through BNA [subscription required]). In late August, there was an interesting new ruling in the City of Heroes lawsuit, with another good win for NCSoft.

NCSoft, the game operator, sued Marvel under 17 USC 512(f) for sending bogus takedown notices. The takedown notices specified 2 character names, but did not specify what servers those characters resided in. Accordingly, NCSoft removed those characters across all of its servers, leading to some very bummed users whose characters were killed off. In response, NCSoft alleged the following facts:

* Marvel sent takedown notices on characters that Marvel itself created or that had already been removed

* Marvel knowingly sent notices to have NCSoft remove identically-named characters across multiple servers, even though some of those characters were legitimate

* the consequences were material because NCSoft added terms to its block list and deleted innocent players' characters

* these caused damages of lost goodwill, lost subscriptions and investigation expenses.

These facts were enough to survive a motion to dismiss. We'll see if the plaintiff can prove the requisite facts, but this ruling is a pretty significant development. Many of us have hoped for stronger consequences to inhibit copyright owners from sending poorly-conceived takedown notices, and this ruling gives extra teeth to the 512(f) cause of action.

One other odd argument re. 512(f)--Marvel claimed that to qualify as a 512 service provider (for purposes of bringing a 512(f) claim), the service provider must be "passive" and "innocent." This is just a specious argument, as the text of 512(k)(1) is entirely clear on this point (it defines a service provider as "a provider of online services"). Fortunately, the court emphatically rejected this arugment.

NCSoft has also gone on the offensive by claiming that Marvel infringed its trademark in "City of Heroes" based on Marvel's use of the term "City of Heroes" in some promotional copy on some comic books. The trademark claims survived a motion to dismiss. I'm a little worried about how far NCSoft is trying to stretch its trademark against a slogan use by Marvel, but I support the aggressive response by NCSoft generally. Marvel is quickly learning that there are potential unexpected costs of enforcing its IP rights, and those include counterclaims.

Finally, in an ironic twist, Marvel sought protection under California's anti-SLAPP laws. For reasons too complicated to explain here (as all anti-SLAPP rulings tend to be), the court rejected this effort.

Posted by Eric at 05:44 PM | Copyright , Derivative Liability , Trademark , Virtual Worlds | Comments (3)

July 18, 2005

Virtual Worlds Paper

I have posted the published version of my virtual worlds paper, Speech Showdowns at the Virtual Corral, to SSRN. The abstract:

"This Essay considers the rights of virtual world providers to terminate their customers or otherwise control their worlds. The Essay argues that virtual worlds are not meaningfully different from other online environments and therefore do not warrant virtual world-specific legal rules. The Essay also explains why society benefits by letting virtual world providers decide how much control they want to exercise over their environments."

The first draft of this paper already sparked some conversation in the virtual world community, a fair amount of it critical. See Terra Nova and Second Life Herald. I'm grateful to the commenters for their feedback; I made a number of changes directly in response to the comments.

Posted by Eric at 09:18 AM | Virtual Worlds

May 24, 2005

Compartmentalization v. Immersion in Virtual Worlds

Over the weekend, I heard an interesting presentation by Helene Michel, a business school professor from France. She described the experience with Vacheland.com, a simulation where visitors can manage a virtual farm. The project was initiated by a public agency to increase awareness of farm issues and to help address negative perceptions due to mad cow disease. The thinking was the participants' attitudes would be positively affected by their experiences managing the virtual farm.

On one level, the project is a success, with 320,000 people tending a virtual farm and an active community developing to discuss the game and figure out how to optimize participation.

However, on the more important level, the simulation failed to accomplish its goals. Many participants compartmentalized the experience, distinguishing between their virtual cow/farm and their attitudes towards real cows and farms. The paper has some great quotes explaining that participants clearly segregated the experience in their minds.

This, of course, strikes at the heart of any arguments that virtual worlds are unique/special/different because they are "immersive." In Vacheland, despite the richness of the simulation, there was no blurring of reality and fantasy. Instead, Vacheland occupied a distinct place in the participant's life. If this conclusion holds true in other simulated environments, then we will have to carefully scrutinize any arguments that virtual worlds warrant unique legal treatment because of their immersive quality.

Posted by Eric at 01:05 PM | Virtual Worlds | Comments (3)

March 12, 2005

Copy of Marvel v. NCSoft Ruling

CE Petit has posted a copy of the court’s March 9 opinion in Marvel Enterprises v. NCSoft Corporation (CV 04-9253-RGK). The opinion is rather unremarkable—mostly it deals with motions to dismiss, so the standard for upholding the pleadings is pretty generous. The court does dismiss the contributory and vicarious trademark infringement claims on the basis that Marvel did not allege that the game users were using the character names in connection with goods and services in interstate commerce. I’m surprised Marvel couldn’t find some facts to support this pleading. Given the extensive trading of virtual world characters and items on eBay and elsewhere, I would think Marvel could find something.

Posted by Eric at 03:29 PM | Copyright , Derivative Liability , Trademark , Virtual Worlds

March 11, 2005

Ruling in Marvel v. NCSoft

NCSoft has won some favorable rulings in its lawsuit with Marvel. Marvel sued NCSoft because users could use NCSoft’s software in its City of Heroes MMORPG to generate characters that looked like Marvel characters. From the news/press reports, it appears that the judge struck the direct and contributory trademark claims but left open the direct and contributory copyright claims. I couldn’t find a copy of the ruling either in Westlaw or on the Central District of CA site. If anyone has a copy, I’d be grateful to get it.

UPDATE: See my follow up post.

Posted by Eric at 03:39 PM | Copyright , Derivative Liability , Trademark , Virtual Worlds

February 18, 2005

More on Termination of Virtual World Accounts

Greg Lastowka of Terra Nova blogged on my previous post about termination of virtual worlds accounts. If you’re not familiar with Terra Nova, it is the leading blog on virtual world issues. Good comments over there too. Check out the discussion.

Posted by Eric at 10:00 AM | Licensing/Contracts , Virtual Worlds

February 13, 2005

Termination of Accounts in Virtual Worlds

I attended Santa Clara’s Rules & Borders conference on Friday, and the subject of virtual worlds came up extensively. One issue in particular is continuing to vex me. Some virtual world participants invest significant time and money in their online characters—earning (or otherwise obtaining) virtual money or items, gaining experience/levels, creating or customizing online “property” (such as houses or widgets that are for sale in the virtual economy) and forming social networks. In some cases, participants purchase items, cash or characters with real cash either directly from the provider or in a secondary market like eBay. All of these “investments” can be lost or diminished if a virtual world provider terminates the individual’s account or otherwise changes the rules or environment of the world.

Intuitively, it seems problematic that participants can lose their investments. On the other hand, most (all?) EULAs says a provider can terminate accounts or change rules at any time. Let’s assume that the EULA is properly formed as a contract (i.e., there are mutual manifestations of assent). With a EULA like this, there seems to be a conundrum: the participant has invested time/money in a world in which the fundamental ground rules appear to provide no protection for those investments. Given the shaky foundation, why should we care if participants in fact lose those investments?

I’ve been trying to think of other circumstances where a customer’s investments in a vendor relationship are protected even if the contract clearly says that the vendor may terminate the contract for convenience. I have been able to think of only two examples of this:

· franchise agreements. Franchising programs involve the sale of a business and share a lot of similarities with other sales of securities. As a result, many state laws limit franchisors’ rights to terminate the franchise as a way to protect the franchisees’ investments in the business.
· distributor protection laws. Some states restrict a manufacturer’s rights to terminate distributors of their products. Like franchise laws, these distributor protection laws implicitly protect investments made by distributor in the distribution business.

There are, of course, other ways in which a contracting party’s termination rights may be limited beyond the contract terms, such as rescission rights for fraud or other remedies for marketing misrepresentations. In addition, there may be statutory limits on a vendor’s ability to fire a customer for illegitimate reasons (such as racial or gender discrimination).

One other analogy comes to mind, even though it’s not a classic vendor/customer relationship—the laws limiting employment termination at will. In some (increasingly rare) cases, laws limit an employer’s right to terminate an employee at will. While these laws do not explicitly protect an employee’s “investment” in the relationship, they do so implicitly (protecting out-of-pocket and opportunity costs incurred by the employee by joining the employer).

I am sure there are other situations that limit a vendor’s ability to terminate a customer for convenience. I’m opening comments on this post—if you can think of any, please speak up.

However, for now I’m struck by how rarely the law protects a customer’s investment in a contract relationship when the relationship says that the contract may be terminated for convenience. The general approach seems to be that customers who make those investments without a solid contract footing are making speculative investments.

The recent Second Circuit opinion in Hall v. Earthlink Networks provides a good case study. Hall opened up a personal Earthlink account (not to be used for business purposes). Earthlink’s backbone provider erroneously notified Earthlink that Hall’s account was sending spam, so Earthlink terminated the account and put the account on the spam watch list. Hall’s lawsuit for breach of contract and breach of implied covenant of good faith and fair dealing got zero traction (although, interestingly, the court didn’t even discuss the EULA to dismiss the complaint).

As the case illustrates, Hall was told not to use his email account for business purposes, did so anyways, had his economic expectations frustrated when Earthlink did exactly what it said it could do in its EULA, and walked away empty-handed in court. Is there any reason why should we treat virtual world participants any differently? If the EULA clearly says that all investments the participant makes are at their risk, I’m struggling to think of any reason why we should be sympathetic when, in fact, the participants lose those investments.

Posted by Eric at 11:03 AM | Licensing/Contracts , Virtual Worlds