Craigslist Wins $1.3M Default Judgment Against Autoposting Facilitator — craigslist v. Naturemarket

[Post by Venkat]

craigslist, Inc. v. Naturemarket, Inc., Case No. C 08-05065 PJH (MEJ) (N.D. Cal. March 5, 2010) [scribd] (report and recommendation adopted on February 5, 2010)

Craigslist obtained a 1.3 million dollar default judgment against defendants Naturemarket, Inc. and Igor Gasov.

Naturemarket (doing business as powerpostings.com [typical bad choice of name]) sold software which allowed its customers to automatically post listings to craigslist. As advertised by defendants, the software made “the difficult craigslist posting process child’s play and [helped users] manage and multi-post . . . ads.” Defendants also advertised “posting agent” services where defendants would post ads on behalf of customers. Finally, defendants sold software that scraped email addresses from the craigslist site.

Craigslist sued alleging claims under (1) copyright; (2) DMCA; (3) the Computer Fraud and Abuse Act; (4) trademark; (5) breach of contract/terms of use. Defendants failed to contest the suit. The court granted default judgment against defendants:

Copyright Infringement: Craigslist alleged it registered protectable elements of its site (the “post to classified, account registration and log-in features”) and that defendants copied these elements of the craigslist site when developing, testing, and using their auto-posting software. The court accepted these allegations at face value, notwithstanding questions as to what parts of the craigslist site were copyrightable (minus the listings themselves, obviously), how the copying here was different from search engine copying under an implied license, and the fact that it’s awkward to conclude that browsing in excess of the terms of use constitutes copyright infringement.

DMCA Violations: The court agreed with craigslist that defendants violated two provisions of the DMCA through making available, among other things, “pre-verified craigslist accounts and CAPTCHA credits.” There’s precedent that supports the proposition that at least some of these types of acts do not violate the DMCA. (See, for example Egilman v. Keller & Heckman, LLP, 401 F. Supp. 2d 105, 113-14 (D.D.C. 2005) (“using a username/password combination as intended–by entering a valid username and password, albeit without authorization–does not constitute circumvention under the DMCA.”).) Real made a similar argument to the one defendants would have made here, but this argument was rejected. Either way, the trouble with the court’s conclusion is that it’s not clear that a violation should be based on use of an anti-circumvention mechanism in a way that’s not authorized. This isn’t the type of conduct that the DMCA is necessarily meant to address. Mike Masnick flags this aspect of the ruling here.

Computer Fraud and Abuse Act: The Computer Fraud and Abuse Act claims were premised on access of craigslist computers in violation of the craigslist terms of service. This argument is often used in civil cases, but most recently received attention in the Lori Drew case, a criminal case. The Lori Drew case illustrated many of the problems with imposing Computer Fraud and Abuse Act liability based on violations of a terms of use. Professor Goldman’s post when the case first started is a good read.

Trademark Infringement: Craigslist alleged that defendants used the craigslist mark “in the text and . . . the headings of sponsored links on internet search engines to advertise their auto-posting products and services.” The court cites to American Blinds for the proposition that this will cause “initial customer confusion”. (Here’s one of Prof. Goldman’s posts on American Blinds.) It’s odd to see craigslist arguing initial interest confusion. These are the types of arguments one would expect to see against craigslist (for example by someone suing it for trademark infringement, not made by craigslist.

Breach of Contract/Terms of Service: Craigslist pointed to provisions in its terms of use which prohibited the use of automated means and posting agents to post listings. Craigslist argued that defendants violated these provisions and induced craigslist users (who were customers of defendants) to violate these provisions. The court awards $840,000 in liquidated damages based on the terms of use claims asserted by craigslist. Craigslist argued that defendants posted at least 18,200 ads or alternatively defendants posted 4,200 ads as a posting agent. The court assumes for purposes of calculating damages, that the lower number is correct and awards $840,000 based on this number. For each listing posted in violation of the terms of service, the court awarded $100 in liquidated damages (and an extra $100 for each item posted as a “posting agent”). [Note to self: be careful about posting items in violation of the craigslist terms of service!]

Attorney’s fees: Craigslist sought $83,614.45 in fees, for the work performed by 5 lawyers and one paralegal. The court found the hours expended reasonable, but reduced the hourly rate slightly, ultimately awarding $65,038.20 in fees. (As a side note, what’s up with the reduction in billing rates by one dollar in the April-June 2009 time period. The hourly rates for one partner went from $525 in 2009 to $550 in January-March 2009, to $549 in April-June 2009. Does the one dollar change in someone’s hourly rate really matter?)

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This case is similar in many ways to Ticketmaster v. RMG, where Ticketmaster sued RMG, a company that automated the ticket buying process on behalf of its customers. Following the issuance of an injunction, Professor Goldman noted that this case was “a troubling Cyberlaw development.” The claims asserted by craigslist here suffered from some of the same weaknesses as those in Ticketmaster. On the other hand, this was in the context of a default judgment, where the good faith allegations in the complaint are taken as true, and craigslist knew it had to only make colorable arguments. It wants to keep out certain perceived bad actors. In the default judgment context, I’m not sure how much it can be faulted for not fine-tuning its legal arguments. That said, it’s always tough to read through these types of rulings without cringing.

One of the more troubling things about the ruling is how the terms of use supports three separate claims: the copyright claims, the Computer Fraud and Abuse Act claim and, of course, the breach of contract claim. It’s unsettling to see the website terms of service (which are typically tough to read and digest, rarely read by end users, and incredibly one sided) be given enough clout to support serious statutory violations. But this is nothing new, and courts always seem to be willing to accept these types of arguments.

Another issue for craigslist to consider is whether any of the arguments could come back to bite craigslist. I haven’t thought through whether there was a good section 230 argument to be made here, I’m guessing not. Assuming there was, it doesn’t seem like such a good idea for craigslist to knock down that argument. It’s the classic section 230 beneficiary. At any rate, at a basic level, craigslist is ultimately suing Naturemarket based on harm caused by end users. This is exactly what state regulators did to craigslist. The initial interest confusion argument is also one that does not seem like it’s in craigslist’s interest to push.

Finally, I’m always curious as to what these damage awards accomplish. How often does the company chase down the defendant’s assets? More likely, this is something that can be waved around to other potential defendants to get them to comply and/or settle.

Related: Mike Masnick discusses some of these issues in a post flagging an early round of lawsuits filed by craigslist against spammers: “Craigslist’s Dumb Lawsuit Against Spam Tool Provider”