Adpocalypse LawsuitGoBoom–ZombieGoBoom v. YouTube

March 8, 2018 · by · in Derivative Liability, E-Commerce, Licensing/Contracts, Marketing

In 2017, YouTube reconfigured its ad delivery algorithm to screen out videos that it thought advertisers disfavored. The resulting turmoil was popularly called the “Adpocalypse” because it dried up revenues for many YouTube channels. This includes the operator of the Zombiegoboom YouTube channel, who allegedly had revenues of $300-500/day that dropped post-Adpocalypse to $20-40/day. Furthermore, allegedly, a buyer of the Zombiegoboom channel’s content dropped a $60k purchase offer, and Zombiegoboom lost sponsorship dollars off YouTube. Zombiegoboom brought a class action lawsuit against YouTube for slashing its payouts.

YouTube defended on its TOS (specifically, the Partner Program Terms), which included this key provision: “YouTube is not obligated to display any advertisements alongside your videos and may determine the type and format of ads available on the YouTube Service.” Zombiegoboom attacked the key provision on several grounds:

Unconscionability. Zombiegoboom argued that YouTube’s contract was substantively unconscionable because YouTube could unilaterally amend it. The court says that the specific term at issue has “been in the contract from its inception and is not a unilateral modification provision.” This term-specific analysis of unilateral modification clauses strikes me as a novel way for courts to parse this issue. In a footnote, the court acknowledges that YouTube’s contract has a general unilateral modification provision, but says “that provision is not at issue here.”

Implied Covenant of Good Faith and Fair Dealing. Zombiegoboom argued that the provision at issue makes the contract illusory unless it’s limited by the implied covenant. The court replies:

Regardless of how YouTube exercised its discretionary power in determining whether to display advertisements under the Partner Program Terms, the agreement (which consists of both the TOS and Partner Program Terms) between Zombie and YouTube was supported by adequate independent consideration. In particular, YouTube allowed Zombie to post videos on its forum free of charge in exchange for getting a license to its content….The ability to post videos, even without advertising revenues, can be valuable to content providers in reaching a wide audience. Moreover, the YouTube Partner Program encompassed more than just advertising revenues; content can be monetized in other ways such as subscription revenues….Accordingly, the provision of the Partner Program Terms conferring upon YouTube complete control over decisions regarding advertisements need not be deemed subject to the implied covenant of good faith and fair dealing in order to prevent the agreement from being illusory.

The court also says there is no other good faith limit on how YouTube applies its discretion specified in the key provision.

As a result, the court dismisses all of Zombiegoboom’s claims with prejudice. I assume Zombiegoboom will appeal to the Ninth Circuit. Given the court’s handling of this case, it wouldn’t surprise me if the Ninth Circuit affirms in a memo opinion.

Implications

Google-Hater Disappointment. When this case was filed, a lot of Google-haters (especially in the content world) excitedly hoped this case would force limits to Google’s discretion to pay content producers. NOPE.

No Reference to Section 230(c)(2). Section 230(c)(2) provides a safe harbor for “any action voluntarily taken in good faith to restrict access to or availability of material” the service provider deems objectionable. Arguably, the reduction of payments to objectionable content would fit within this provision; but the opinion turns solely on internal contract law doctrines, and Section 230(c)(2) doesn’t get a mention. For more on Section 230(c)(2), see my 2011 article.

Never Rely on a Dominant Revenue Source. Over and over again, content producers become dependent on platforms for a large portion of their revenues. We’ve seen this behavior with YouTube channels; news publishers that depend on clickbait traffic from Facebook or Twitter; junk content sites SEOing Google’s search index; and many others. It’s always precarious to build a business that depends on a third party platform to generate revenues, because inevitably the platform will change its rules to the producer’s financial detriment, or the platform will try to capture back some of that value for itself. So Zombiegoboom can’t be really surprised that YouTube dried up its channel revenues; that was entirely predictable from day 1.

But note how this dynamic also exposes platforms to some risk. If the platform makes the ecosystem too risky for content producers to make profitable investments, then those investments won’t materialize and the platform will suffer. So YouTube had to balance several competing concerns when implementing the Adpocalypse. My guess is that it wasn’t really torn up by whatever content got shaken off YouTube due to the Adpocalypse.

Everyone Wants to Tell Platforms How to Make Their Editorial Decisions. This case is a microcosm of the broader effort by pro-censorship forces seeking to override the Internet companies’ editorial discretion over their platforms. This ruling turns on narrow issues of contract law, so it doesn’t provide much insight into the broader issue. However, note the inverse: the Internet companies must win each and every one of these lawsuits to avoid censorious outcomes.

Case citation: Sweet v. Google, Inc., 2018 WL 1184777 (N.D. Cal. March 7, 2018). The initial complaint.