Contracts – Page 4 – internetcases

January 28, 2022 Contracts

Uber’s signup process did not create enforceable arbitration provision

After plaintiff Uber user was denied a ride because of her guide dog, she sued Uber for discrimination under Maine law. Uber sought to have the matter sent to arbitration and the court denied that motion. So Uber sought appeal with the Maine supreme court. That court affirmed the denial of the arbitration motion, finding that Uber’s terms of service were not binding on plaintiff.

First, plaintiff was not placed on reasonable notice that the terms existed. The hyperlink was not underlined and was muted by gray coloring. Its placement on the screen was “relatively inconspicuous.” There was a greater focus on entering payment information.

Second, the court found that even if the registration process had provided reasonable notice that the terms existed, the process was insufficient to place plaintiff on notice that her registration would constitute her assent to those terms. Merely clicking the “DONE” button in the signup process, in the court’s view, could merely have meant that plaintiff thought she was done entering her information, not signing up for an account. And that button appeared on the screen “as far as possible” from the notice and hyperlink to the terms, which were at the bottom of the screen.

Sarchi v. Uber Technologies, Inc., — A.3d —, 2022 WL 244113 (Maine, January 27, 2022)

January 5, 2022 Computer Crime, Contracts

Court refuses to enjoin use of fake accounts to access DRM-protected information

Plaintiff manufacturer of medical equipment sued a company that services such equipment for hospitals and clinics. Plaintiff claimed, among other things, that defendant violated the Computer Fraud and Abuse Act and the anticircumvention provisions of the Digital Millennium Copyright Act by using fake accounts to access proprietary documents, information and software that plaintiff had protected with digital rights management (DRM) technology.

The court denied plaintiff’s motion for preliminary injunction – which sought to bar defendant from accessing the computer systems or circumventing the DRM. It held that plaintiff had not met an essential element required for injunctive relief, namely, that plaintiff would suffer irreparable harm if the injunction was not granted.

There were two main reasons for the court’s decision. First, the court found that the assertions of irreparable harm were mere conclusions not supported by concrete facts. Second, the court found that the obligations on the defendant imposed by the contracts it had with its hospital and clinic customers would constrain defendant from engaging in the harmful activity that plaintiff sought to stop. For example, plaintiff claimed that defendant would access patient data without authorization. But the court noted that defendant was bound by confidentiality agreements and the obligation to abide by applicable data protection law. And plaintiff was worried that continued unauthorized access would increase the chances that defendant would modify the equipment. But again, the court looked to the contracts between defendant and its customers, which obligated defendant to properly maintain the equipment (thus removing any incentive to do what plaintiff was seeking to prevent).

Philips North America LLC v. Advanced Imaging Services, Inc., 2021 WL 6052285 (E.D. Cal., December 21, 2021)

January 4, 2022 Contracts, Cryptocurrency, Fraud/Misrepresentation

Exploiting blockchain software defect supports unjust enrichment claim

blockchain unjust enrichment
Most court cases involving blockchain have to do with securities regulation or some other business aspect of what the parties are doing. The case of Shin v. ICON Foundation, however, deals with the technology side of blockchain. The U.S. District Court for the Northern District of California recently issued an opinion having to do with how the law should handle a person who exploits a software flaw to quickly (and, as other members of the community claim, unfairly) generate tokens.

Exploiting software flaw to generate tokens

Mark Shin was a member of the ICON Community – a group that includes users who create and transact in the ICX cryptocurrency. The ICON Network hosts the delegated proof of stake blockchain protocol. The process by which delegates are selected for the environment’s governance involves ICX users “staking” tokens. As an incentive to participate in the process, ICX holders receive rewards that can be redeemed for more ICX. The system does not give rewards, however, when a user “unstakes” his or her tokens.

When a new version of the ICON Network software was released, Shin discovered that he was immediately awarded one ICX token each time he would unstake a token. Exploiting this software defect, he staked and unstaked tokens until he generated new ICX valued at the time at approximately $9 million.

Bring in the lawyers

Other members of the community did not take kindly to Shin’s conduct, and took steps to mitigate the effect. Shin filed suit for conversion and trespass to chattel. And the members of the cryptocurrency community filed a counterclaim, asserting a number of theories against Shin, including a claim for unjust enrichment. Shin moved to dismiss the unjust enrichment claim, arguing that the community’s claim failed to state a claim upon which relief could be granted. In general, unjust enrichment occurs when a person has been unjustly conferred a benefit, including through fraud or mistake. Under California law (which applied in this case), the elements of unjust enrichment are (1) receipt of a benefit, and (2) unjust retention of the benefit at the expense of another.

Moving toward trial

In this case, the court disagreed with Shin’s arguments. It held that the members of the community had sufficiently pled a claim for unjust enrichment. It’s important to note that this opinion does not mean that Shin is liable for unjust enrichment – it only means that the facts as alleged, if they are proven true, support a viable legal claim. In other words, the opinion confirms that the law recognizes that Shin’s alleged conduct would be unjust enrichment. We will have to see whether Shin is actually found liable for unjust enrichment, either at the summary judgment stage or at trial.

Examining the elements of unjust enrichment, the court found that the alleged benefit to Shin was clear, and that the community members had adequately pled that Shin unjustly retained this benefit. The allegations supported the theory that Shin materially diluted the value of the tokens held by other members of the community, and that he “arrogated value to himself from the other members.” According to the members of the community, if Shin had not engaged in the alleged conduct, the present-day value of ICX would be even higher. (It will be interesting to see how that will be proven – perhaps one more knowledgeable than this author in crypto can weigh in.)

Shin v. ICON Foundation, 2021 WL 6117508 (N.D. Cal., December 27, 2021)

November 8, 2021 Contracts, Copyright

Copyright ownership transfers must be in writing

If you are hiring an independent contractor to create copyrightable subject matter, and you want to own the copyright in the resulting work product, be sure to have that contractor sign a written contract that specifically states that copyright ownership is being transferred. Even if you have paid the contractor for the work, and you both intend that ownership be transferred, the contractor will still own the copyright in the deliverables unless there is a writing, signed by the contractor, to the contrary. This is a key concern if your contractor has created subject matter that will be critical to your business – software, graphics, text, photos, any kind of protectable digital asset. If you do not secure ownership, the contractor may later object to how you are using the works differently than intended at the time of the contract, and claim infringement. Or the contractor could grant a license in the same work to another party, even one of your competitors.

The Copyright Act contains a couple of provisions that relate to this issue. The first one pertains to the definition of “work made for hire”. If an employee creates copyrightable subject matter within the scope of his or her employment, that is a work made for hire, and the employer owns the copyright. But note how that relates to employers and employees. Contractors are in a different category. There are other kinds of works that are “ordered or commissioned” that can be considered works made for hire, even if created by an independent contractor. But in any event, the Copyright Act says that these are works made for hire only “if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”

Let’s say you have not established that the contractor’s work is a “work made for hire”. You could still have the contractor assign his or her rights in the deliverables. Again, the Copyright Act requires this to be in writing. You cannot just agree on a handshake that ownership of copyright has been transferred. The statute provides that “[a] transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” Note that the contractor – the one making the assignment – has to sign the written document.

Paying attention to these issues on the front end of hiring an independent contractor will help ensure clear rights in the future, avoid future tangles and disagreements, and ultimately save time and money by avoiding costly dispute resolution.

Evan Brown is a technology and intellectual property attorney in Chicago. Twitter: @internetcases

June 8, 2021 Contracts

No contract formed via URL to terms and conditions in hard copy advertisement

Online terms of service found at URL in hard copy advertisement were not enforceable.

Plaintiff visited a Subway restaurant. One of the Subway employees referred plaintiff to an in-store, hard-copy advertisement. On the advertisement, Subway offered to send special offers to plaintiff if she texted a keyword to a short code. Plaintiff sent the text message to Subway, and Subway began responding, including by sending her, via text message, a hyperlink to an electronic coupon.

Later, plaintiff wanted to stop receiving the messages, so she requested that the messages cease. But they kept arriving. Plaintiff then sued under the Telephone Consumer Protection Act (“TCPA”). Subway moved to compel arbitration, arguing that a contract was formed because the printed in-store advertisement that contained the keyword and short code to text included a reference to and URL for “terms and conditions”. Those terms and conditions required plaintiff to settle the dispute by arbitration.

The lower court denied the motion to compel arbitration. Subway sought review with the Second Circuit Court of Appeals. On appeal, the court affirmed the denial of a motion to dismiss, finding that plaintiff was not bound by the terms and conditions.

The appellate court held that plaintiff was not on notice of the terms and conditions, which contained the arbitration clause, because Subway failed to demonstrate that such terms and conditions would be clear and conspicuous to a reasonable person in plaintiff’s position. More specifically, the court held that the following facts showed plaintiff did not know what the terms said:

Subway failed to provide evidence regarding the size of the advertisement at issue, or the print size contained within that advertisement;
the reference to “terms and conditions” was buried on the advertisement in a paragraph that was printed in significantly smaller font relative to the other text on the advertisement, and the reference itself was surrounded by a substantial amount of unrelated information;
the advertisement only vaguely referenced “terms and conditions,” and did not state that a consumer would be agreeing to those terms if she sent a text message to Subway’s short code, nor did it otherwise direct the consumer to such terms;
access to the terms and conditions on the Subway website required plaintiff to type in the URL text provided on the hard-copy print advertisement into an internet browser on her cell phone or some other device with internet browsing capabilities; and
once linked to the Subway website, the heading stated that it contained “terms of use for this website,” thus potentially suggesting to a reasonable person (searching for conditions of the promotional offer) that the website did not contain any terms or conditions beyond those relevant to the use of the website.

This combination of barriers led the court to conclude that the terms and conditions were not reasonably conspicuous under the totality of the circumstances and, thus, a reasonable person would not realize she was being bound to such terms and conditions by texting Subway in order to begin receiving promotional offers.

Soliman v. Subway Franchisee Advertising Fund Trust, Ltd., — F.3d —, 2021 WL 2324549 (2nd Cir. June 8, 2021)

May 18, 2021 Contracts

Murdered Uber passenger’s mom can keep her case in court and out of arbitration

An Uber driver murdered plaintiff’s son. So plaintiff – the Uber user’s mom – sued Uber for wrongful death. The lower court threw out the case, saying that the Uber terms and conditions required the matter to go to arbitration. Plaintiff sought review with the Georgia Court of Appeals. On review, the court reversed and sent the case back to the lower court.

The appellate court found that it was improper to dismiss the case because it was not clear that plaintiff’s son – the one killed by the Uber driver – actually agreed to the Uber terms and conditions that contained the provision requiring arbitration.

First, there was a dispute as to whether he even saw the link to the terms and conditions when he signed up for Uber in 2016. That’s because he was using an Android phone, and plaintiff alleged the on-screen keyboard within the app may have covered up the link to the terms and conditions.

Second, the court noted that even though Uber submitted evidence it emailed updated terms and conditions to plaintiff’s son, and that he continued using Uber thereafter (thereby binding him to the terms), it was unclear that the email was ever sent to plaintiff’s son. If the customer never saw those terms, they would not apply, and therefore arbitration would not be proper.

Thornton v. Uber Technologies, Inc., 2021 WL 1960199 (Ct. App. Ga. May 17, 2021)

February 11, 2021 Contracts

What’s going on legally with Jeep pulling the Bruce Springsteen ad?

Morals clauses in talent agreements can fuel cancel culture.

Jeep featured Bruce Springsteen in an ad that aired during Sunday’s Super Bowl. Since then, news broke that Springsteen had been arrested almost three months prior for drunk driving. So Jeep pulled further use of the ad.

This scenario shines light on a key provision in the contract that celebrities and brands typically sign. An agreement of this sort will contain a “morals clause”. Here is the language of a typical clause like this (this is just an example of such a clause – not the one in the Jeep/Springsteen agreement):

Company will have the right to terminate this Agreement for cause, which includes, without limitation, . . . commission of any act (in the past or present) which degrades Talent, Company or the Products or brings Talent, or Company or the Products into public disrepute, contempt, scandal or ridicule. Upon termination for cause, Company shall have no further obligation to Talent (including, but not limited to, any payment obligations).

Companies want these provisions for obvious reasons – if the face of the company comes under public scrutiny for any bad reason, the company needs a method to part ways. Talent with more negotiating power may be able to narrow the scope of the circumstances in which the company can terminate the agreement. For example, it could require actual conviction of a serious crime.

One problem, however, particularly for talent, is how broadly morals clauses can be written. The example clause above is broad and vague. And note how the language in this example pulls in past conduct as well (old tweets, anyone?). Given the polarized character of modern public discourse, just about everything done in public is subject to contempt, scandal or ridicule by at someone. These clauses provide the means for the commercial side of cancel culture to flourish.

Evan Brown is an intellectual property and technology attorney in Chicago.

February 8, 2021 Contracts

Court finds clickwrap independent contractor agreement enforceable

Plaintiffs were companies that sued some of their former independent contractors who worked for the companies in a “direct sales community”. The court needed to determine whether defendants had entered into a valid contract with plaintiffs. Applying Texas law, the court observed that other courts have recognized the validity of electronic contracts. It found that the agreements at issue were valid clickwrap agreements and that plaintiffs had – through screenshots they submitted – at minimum, made the requisite showing that contracts existed between plaintiffs and each defendant.

Elepreneurs Holdings, LLC et al. v. Benson et at., 2021 WL 410001 (E.D. Tex., February 5, 2021)

This post originally appeared on evan.law.

October 26, 2020 Contracts

Intellectual property issues in a speaker’s agreement

Let’s say you’re going to host a conference — these days that would be an online conference — and you want to invite people to give presentations. You will want to enter into a contract with those presenters to cover some of the obvious logistical items: the presenter is obligated to show up, the presentation will be on a certain topic, it will last for a certain amount of time, and there may be payment. And there are some important intellectual property issues that the speaker’s agreement should also address.

Marketing and promotion of the event

One important intellectual property issue in a speaker’s agreement has to do with the marketing and promotion of the event. This involves primarily the right of publicity. You are likely going to want to generate materials, such as social media posts, that have the name and the image of the presenter. You will want to seek to get a release from the presenter that authorizes you to use his or her name and image in connection with the marketing and promotion of the event.

Handout materials

A second issue that you will need to deal with has to do with handout materials or other accompanying documentation for the presentation. You will want to make sure that you have the appropriate copyright license from the presenter allowing you to copy and distribute those materials. You should also consider getting assurances from the presenter that those materials will not infringe any third party intellectual property rights. And you may want to have the agreement say that the presenter will indemnify you and pay the cost of the defense if you get sued by a third party because the handout materials infringe.

Video or audio of the presentation

A third intellectual property issue that you will want to think about in connection with a speaker’s agreement has to do with any content that you generate at the event. Say, for example, you film the presentation and you want to make the video available to the world so it can see what the event was like. On this point we are back to the discussion of the right of publicity. Obviously the presenter’s name and image is going to be in that content. So you want to make sure that you have a release for that.

As the host of the event, you will likely want to own the copyright in the video. The presenter may ask for a carveout — that is, clarification that though you own the copyright in the video, the presenter retains ownership of the underlying content presented.

Need help with intellectual property issues in a speaker’s agreement?

Please feel free to give me a call or send an email. Dial (630) 362-7237, or email [email protected].

September 23, 2020 Contracts, Trade Secrets

Why parties should enter into nondisclosure agreements

Nondisclosure agreements (or NDAs) are important contracts. There are a number of reasons why parties may want to enter into them.

The first reason is probably the most obvious reason. Parties have proprietary or sensitive information that they don’t want to become publicly known, or known to a competitor. So they enter into nondisclosure agreements to put restrictions on how the parties use or disclose confidential information The agreement contains provisions that give remedies such as injunctive relief if there is a breach or a threatened breach of the nondisclosure agreement. This is an important tool.

A second reason for entering into a nondisclosure agreement is related to the first one. Having a nondisclosure agreement gives the parties the confidence to meaningfully collaborate. If there is a nondisclosure agreement in place, the parties can freely exchange information, and that makes the potential innovation from their collaboration much more robust.

And a third third reason for entering into a nondisclosure agreement relates to the law of trade secrets. The parties may trust one another completely, and may not even think for a moment that the other side would misuse its confidential information or disclose it in a way that is harmful. But it is important to enter into nondisclosure agreements to protect the trade secret status of information. The law of trade secrets only protects information that has been the subject of efforts to keep secret. So the nondisclosure agreement can be important evidence that the party has taken the right steps to protect its trade secrets.

Let’s talk

Nondisclosure agreements can be complex. There are a number of issues to consider and appropriate strategies to take. If you have questions about a nondisclosure agreement, give me a call at (630) 362-7237, or send me an email at [email protected].

About the author:

Evan Brown, nondisclosure agreements Evan Brown is a technology and intellectual property attorney in Chicago. This content originally appeared on evan.law.

Category: Contracts