July 30, 2007 Contracts

New provisions in online terms of service of no effect without notice to customer

Questions remain, however, as to whether right to notice may be waived

Douglas v. U.S. Dist. Court for the Central Dist. of Ca, — F.3d —-, No. 06-75424, 2007 WL 2069542 (9th Cir. July 18, 2007)

Plaintiff Douglas signed up for long distance service with AOL. Some time later, Talk America acquired AOL’s rights under the contract, and changed the terms, which were posted online. Talk America added provisions relating to additional charges, a waiver of the right to class action suits, an arbitration clause, and a forum selection clause providing for suits to be brought in New York. Douglas claimed he was not provided with notice of the changed provisions when they purportedly became effective.

Douglas did not find out about the new charges until four years later, and when he finally did, he filed a federal class action suit against Talk America. Citing to the later-modified agreement, Talk America moved to compel arbitration. The district court granted the motion. Because the Federal Arbitration Act at 9 U.S.C. 16 does not authorize interlocutory appeals of a district court order compelling arbitration, Douglas sought a writ of mandamus from the Ninth Circuit. The court granted the writ, vacating the district court’s order compelling arbitration.

The Ninth Circuit applies a five-factor test, from Baughman v. U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977), to determine whether a writ of mandamus should be issued. The most important factor in this test is whether the district court’s order was “clearly erroneous as a matter of law.”

The appellate court held that the district court erred in holding that Douglas was bound by the terms of the revised contract, through a “fundamental misapplication[] of contract law,” going “to the heart of [Douglas’s] claim.” The court cited to cases holding that a party cannot unilaterally change the terms of a contract, but must obtain the other party’s consent before doing so, as a revised contract is merely an offer and does not bind the parties until it is accepted. Further, citing to Williston on Contracts, the court held that “an offeree cannot actually assent to an offer unless he knows of its existence.” In this case, “[e]ven if Douglas’s continued use of Talk America’s service could be considered assent, such assent [could] only be inferred after he received proper notice of the proposed changes.”

The case is silent on what might constitute proper notice. It is also not clear from the opinion (and the district court pleadings are not available on PACER), whether the original AOL terms of service included a provision stating that continued use of the service after changes had been posted would constitute acceptance of those changes. So although the case establishes that an e-commerce customer has the right to receive notice of changes to online terms of service, the question of whether that right can be waived is not answered in the opinion.

July 19, 2007 Privacy

Data privacy and third party Facebook applications

Over in the UK, Facebook has been getting some scrutinty from a privacy standpoint, especially after officials at Oxford University used the service recently to identify celebrating students who may have been up to some naughtiness. [More on that here]

But there are some even more subtle privacy issues with Facebook, arising from the proliferation of the use of third party applications within the Facebook platform. Alex Newson at Freeth Cartwright’s Impact blog has written up a pair of posts [here and here] which take a serious look at these Facebook privacy concerns. Naturally the posts are written from a UK perspective, but are useful to U.S. readers inasmuch as they prompt one to consider that which has largely hitherto been unconsidered, namely, what legal issues should a Facebook app developer be thinking about.

The U.S. approach to data privacy is frequently characterized as “scattershot.” So there aren’t any bright lines to draw when it comes to how one should manage the sharing of information within the Facebook platform. What is most appropriate at this time is to recognize it as an issue of which developers (and users) should be aware.

July 17, 2007 Litigation

Public policy concerns invalidate AOL forum selection clause

Dix v. ICT Group, Inc., — P.3d —-, 2007 WL 2003407 (Wash. July 12, 2007)

Dix v. ICT Group was one of the first decisions discussed here at Internet Cases back in early 2005. I wrote about the Washington appellate court’s decision in the case, which reversed a lower court’s dismissal of a class action suit against AOL under Washington’s Consumer Protection Act. The Washington Supreme Court has now affirmed the appellate court’s decision. The court held that the forum selection clause in AOL’s terms of service, which called for all consumer disputes to be heard in Virginia, should not be enforced, because to do so would be against public policy of the state of Washington.

The plaintiff AOL users claim that AOL violated the Washington state Consumer Protection Act by tricking them into signing up for additional AOL accounts. The trial court dismissed the action, on grounds that the suit should have been brought in a court in Virginia, according to AOL’s terms of service. But there is a substantial problem with the situation the dismissal created — Virginia does not recognize class action suits of the type being brought by the plaintiffs. The Washington plaintiffs were thereby denied the sort of remedy they could have obtained in Washington.

The appellate court and the state supreme court observed the significance of the various plaintiffs’ interests at stake. None of the plaintiffs alleged more than $250 or so in damages. So it would not be practicable for each individual plaintiff to seek recovery against AOL. The class action mechanism would be the best way to obtain recovery for small amounts among a large number of persons. The importance of this public policy outweighed the benefits of enforcement of the forum selection clause which, under U.S. Supreme Court authority, was presumptively valid. See, e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).

June 26, 2007 DMCA

More evidence needed for YouTube’s DMCA defense

Viacom’s lawsuit against YouTube has gotten quite a bit of attention, but it wasn’t the first case of its kind filed. Almost a year ago, helicopter pilot and journalist Robert Tur sued YouTube for infringement of some well-known video he shot during the Rodney King Riots.

Both parties filed motions for summary judgment, and last week the court denied both motions. The rulings shed some light on how the safe harbor provisions of the Digital Millennium Copyright Act (“DMCA”) may play out in future lawsuits over user-generated content.

YouTube argued in its motion that it qualified for safe harbor protection “based on what it purport[ed] to be its definitive ability to satisfy all of the requirements of the statutory scheme.” The court neatly parsed seven requirements from 17 U.S.C. §512 that a service provider must meet to sail into the safe harbor:

(1) adoption and reasonable implementation of a termination policy for subscribers and account holders who are repeat infringers;

(2) accommodation and non-interference with “standard technical measures” that copyright owners use to protect their works;

(3) infringement is “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider”;

(4) lack of actual knowledge of the infringing material or no awareness of facts or circumstances from which infringing activity is apparent on the system or network, and expeditious action to remove or disable access to material upon obtaining such knowledge or awareness;

(5) no “financial benefit” directly attributable to the infringing activity,” if it had “the right and ability to control such activity”;

(6) expeditious response to remove or disable access to infringing material upon notification from the copyright owner; and

(7) proper designation of an agent to receive such notification.

The difficulty arose for YouTube under the fifth point, namely, in connection with its argument that it gained no “financial benefit” directly attributable to the infringing activity,” and did not have “the right and ability to control such activity.”

Citing to the recent 9th Circuit case of Perfect 10 v. CCBill, the court observed that this point is actually two requirements in one: a provider’s receipt of a financial benefit is only implicated where it also has the right and ability to control the infringing activity. So if YouTube did not have the right and ability to control the alleged infringing activity, there was no reason to engage in the “financial benefit” analysis.

The court held that there was insufficient evidence to allow it to determine whether YouTube had the right and ability to control the infringing activity. The court’s comments on this point are intriguing, and foreshadow what might be some interesting issues in discovery. “There is clearly a significant amount of maintenance and management that YouTube exerts over its website, but the nature and extent of that management is unclear.” The court went on to note the lack of evidence as to “the process undertaken by YouTube from the time a user submits a video clip to the point of display on the YouTube website.”

Tur v. YouTube, Inc., No. 06-4436, (C.D.Cal. June 20, 2007)

June 25, 2007 First Amendment

Massachusetts can’t prosecute posting of illegal web video

The recent case of Jean v. Massachusetts State Police addressed the question of whether the First Amendment prevents law enforcement officials from interfering with an individual’s Internet posting of an audio and video recording of an arrest and warrantless search of a private residence, when the individual who posted the recording had reason to know at the time she accepted the recording that it was illegally recorded.

Mary T. Jean operated a website critical of her community’s former district attorney. One of the visitors to her site contacted her, and sent a videotape of eight Massachusetts state police officers conducting a warrantless search of the visitor’s home. The video was made by a “nanny cam” in the home.

After Jean was threatened with criminal prosecution under the state’s wiretap law, she sought a temporary restraining order against the police and the attorney general, to prevent her from being arrested. The lower court granted the motion, relying on the Supreme Court case of Bartnicki v. Vopper, 532 U.S. 514, 121 S.Ct. 1753, 149 L.Ed.2d 787 (2001).

It held that Jean had demonstrated a likelihood of success on the merits of her First Amendment claim, that irreparable harm would result from the absence of an injunction, and that the balance of burdens and public interests weighed in her favor. The court noted that although the tape may have been recorded in violation of the state law, Jean played no part in the recording of the video, she had “obtained the tape lawfully,” and the videotape related to a “matter of public concern.”

On appeal, the U.S. Court of Appeals for the First Circuit affirmed the entry of the temporary restraining order. It found the case “materially indistinguishable” from Bartnicki, concluding that publication of the video was entitled to First Amendment protection.

Jean v. Massachusetts State Police, — F.3d —-, 2007 WL 1793126 (1st Cir. June 22,2007)

June 21, 2007 Copyright

The $64,000 question: should you ignore Ron Coleman’s client?

No.

Defendant Nyarko turned a deaf ear on Plaintiff Burch’s demands that Nyarko pay Burch a licensing fee for the use on Nyarko’s website of four photos Burch took in Ghana. In fact, Burch claimed that Nyarko got pretty angry when Burch asked him for payment. So Burch sued for copyright infringement, and won.

Nyarko ignored the suit as well, so the court entered a default judgment. Then it came time to prove up the damages. This was all done on paper. Burch submitted some documents showing that he’d lost some revenue through the unauthorized use, and his attorneys submitted a declaration talking about how much Burch had spent on fees and court costs.

The court could have awarded up to $600,000 in statutory damages, because the copyrights in the photos were registered in time. So in a certain sense, you might consider Nyarko lucky when the court slapped him with a judgment of about $64,000, reflecting an award of $60,000 in statutory damages, plus attorney’s fees and costs.

The court looked at a number of factors to arrive at the amount of the award. Part of the basis was the fact Nyarko hadn’t been cooperative in the dispute. Another reason was because of the lost revenue Burch suffered. And the fact that the court found it necessary to deter others from ripping off other people’s works probably played some part in it as well. If there’s one thing to learn from the case, it’s to not be too flippant when an able attorney’s client tells you to pay up.

Burch v. Nyarko, No. 06-7022, 2007 WL 1732401 (S.D.N.Y. June 15, 2007).

June 13, 2007 Copyright

Colorado federal court allows discovery of anonymous P2P defendants

Warner Bros. Records Inc. v. Does 1-20, Slip Op., 2007 WL 1655365 (D.Colo. June 5, 2007)

Good cause for discovery before Rule 26(f) conference existed in light of looming threat of deletion of server data

A number of record companies, including Warner Brothers, UMG and Electra, filed yet another copyright infringement lawsuit against some individual P2P users on May 30 of this year. They didn’t know the names or the locations of the defendants, but only knew that the IP addresses from which the alleged infringement occurred belonged to Qwest Communications. So the plaintiffs asked the court for permission to obtain immediate discovery from Qwest to find out each John Doe defendant’s true name, address, telephone number, e-mail address, and Media Access Control address.

Unless a party seeking immediate discovery can show good cause as to why it should be otherwise, under Fed. R. Civ. P. 26(d), “a party may not seek discovery from any source before the parties have conferred as required by Rule 26(f).”

In this case, the record companies argued that because ISPs such as Qwest typically keep server logs for only brief periods of time, the plaintiffs might never identify the defendants without getting access to the data right away. The court held that “good cause exists where the evidence sought ‘may be consumed or destroyed with the passage of time, thereby disadvantaging one or more parties to the litigation.'” It granted the plaintiffs’ motion and allowed the service of the subpoena.

June 12, 2007 Copyright

“Counterfeit orders” alleged to give rise to copyright infringement

Hackers accused of unlawful distribution of copyrighted works

DeVry/Becker Educational Development Corp. produces materials used by persons studying for the CPA exam. It maintains a database which it uses to track and process orders of the copyrighted study materials. DeVry has filed a lawsuit in the U.S. District Court for the Northern District of Illinois [No. 07-3280 — download the complaint here], alleging that a number of John Doe defendants accessed the database and caused unauthorized orders to be shipped to residences in New York and Pennsylvania.

Not surprisingly, the complaint alleges common law fraud and violations of the Computer Fraud and Abuse Act [18 U.S.C. 1030], which prohibits unauthorized access to certain computer systems. The more creative claims, however, are for copyright infringement.

DeVry’s theory is that by causing the delivery of the study materials, the John Doe defendants engaged in an unauthorized distribution of the copyrighted works. It’s an interesting theory, and it raises some conceptual issues as to what “distribution” means. The complaint (e.g. at paragraph 52) says that DeVry is the one who (relying on the “counterfeit orders”), sent the course materials. It will be interesting to see whether one who is doing the sending can be different than the one doing the distributing.

DeVry Becker Ed. Dev. Corp. v. Does 1-10, No. 07-3280 (N.D. Ill., filed June 11, 2007).

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