TechLaw

A proposed class action lawsuit against Yahoo!/Overture Services Inc. picked up momentum April 21, when a federal trial court in California turned back a handful of grounds for summary dismissal of claims that Yahoo! misrepresented the quality of the online venues on which it would display the plaintiffs' advertisements. The plaintiffs alleged that Yahoo! promised to display advertisements on Web sites targeted to likely customers; instead, the lawsuit claimed, Yahoo! placed the plaintiffs' advertisements in low-quality locations: inside spyware programs, on typosquatting Web sites, and on domain parking and bulk registration sites.

Among Yahoo!'s arguments for dismissal was its contention that California's unconscionability doctrine does not apply to commercial contracts. There is some support for this argument. Nearly all cases describe the state's unconscionability doctrine using the term "consumer," and many characterize the unconscionability doctrine's rationale as one of rectifying the imbalance of bargaining power between consumers and businesses. For example, a leading case, Discover Bank v. Super. Ct., 36 Cal.4th 148 (2005), summarized the fact pattern there as one in which the defendants "carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money." Language like this limits the unconscionability doctrine to consumer cases, Yahoo! argued.

Here, the court rejected the view that commercial contracts are categorically outside the protection of the unconscionability doctrine:

[A]lthough Discover Bank's holding addresses only consumer contracts, nothing in that decision forecloses the possibility that a class action waiver in a commercial contract may be deemed unconscionable under certain circumstances. Defendants point to no authority to support the contention that class action waivers in commercial contracts should be treated differently than such waivers in consumer contracts, and the Court has identified ems.bna.com. Accordingly, there appears to be no basis for concluding that class action waivers in the commercial context cannot be found to be unconscionable and unenforceable.

The court permitted the case to go forward, allowing the plaintiffs to build a factual foundation for their unconscionability claim. Did Yahoo! have superior bargaining power over the plaintiffs? Could the plaintiffs have feasibly chosen other advertising services? Would it be practical for the plaintiffs to pursue individual remedies instead of a class suit?

Taking up another issue, the court ruled that the plaintiffs would be permitted to conduct discovery for extrinsic evidence indicating that -- notwithstanding the parties' written contract -- the defendants promised in their marketing materials that the plaintiffs would receive "highly targeted" advertising services.

The case is In re Yahoo! Litigation, No. CV 06-2737 (C.D. Cal., April 21, 2008).

The court's final order in Orion Bancorp Inc. v. Orion Residential Finance LLC, No. 07-cv-1753 (M.D. Fla., March 25, 2008), is a good example of the sweeping relief possible when the defendant defaults in an online trademark infringement case. Here, the plaintiff, which owns registered marks for ORION, ORION BANK, and ORION BANCORP, was able to nudge the defendant, a competitor in the residential mortgage business, off the orionresidentialfinance.com domain name. But not only that: in addition to preventing the defendant from capitalizing in any manner on the plaintiff's ORION mark, the court's order does a very thorough job of preventing the defendant from engaging in competitive advertising (i.e, Check us out, we're cheaper and faster than Orion Bank.) against the plaintiff. Not only was the defendant enjoined from purchasing Google AdWords containing the plaintiff's marks, it was ordered to purchase a "negative adword" option that prevents ads for the defendant's services from ever appearing when an Internet user searches with a query containing the plaintiff's marks.

The defendant was permanently enjoined

from purchasing or using any form of advertising including keywords or "adwords" in internet advertising containing any mark incorporating Plaintiff's Mark, or any confusingly similar mark, and shall, when purchasing internet advertising using keywords, adwords or the like, require the activation of the term "ORION" as negative keywords or negative adwords in any internet advertising purchased or used. (For purposes of this court order, a "negative keyword" or "negative adword" shall mean a special kind of advertiser keyword matching option that allows an advertiser to prevent its advertisement from appearing when the specific terms are a part of a given user's internet search or search string. It does not infer that the Defendant may use the specified negative keywords or adwords for any other purpose.)

...

from publishing, assembling, marketing, distributing, or otherwise utilizing for commercial or beneficial gain, any literature, business forms, advertisements, signs, or other representations regardless of the medium, which contains the term ORION, or any other confusingly similar term.

Cases like this one (and this one) demonstrate that trademark owners can obtain much more punishing relief against competitors with the Lanham Act in federal court than with the Uniform Domain Name Dispute Resolution Policy in an arbitration case.

Mark Radcliffe, a member of the Electronic Commerce & Law Report's advisory board and blogger at Law & Life: Silicon Valley, has put together a strong panel of open source legal experts for the
Open Source Software Workshop, to be held June 9 in San Francisco. Radcliffe is a partner at DLA Piper in Palo Alto, Calif.

By Thomas O'Toole

Several cases relevant to online contracting have been decided recently, and I think we've done a pretty good job covering them as they came in. Here are a handful worth mentioning again, all in one place.

Adware Vendor's EULA Holds Up in Court

In People v. Direct Revenue LLC, No. 401325/06 (N.Y. Sup.Ct., N.Y. Cty., March 12, 2008), a New York trial court dismissed the entirety of the state attorney general's deceptive and illegal business practices case against Direct Revenue, a distributor of software (a downloadable "adware" client) that displays pop-up advertising on Web browsers. The attorney general sought billions of dollars in penalties against Direct Revenue, seeking to assert the rights of millions of unidentified consumers across the country who installed the Direct Revenue adware client.

The state's undoing was Direct Revenue's end-user license agreement, a click contract, and Direct Revenue's agreement with its distributors, which called for fair and lawful distribution of the Direct Revenue adware client.

Twenty-nine transactions with Direct Revenue or its distributors were alleged. As for those transactions where the attorney general's investigator dealt directly with Direct Revenue, the installation of the adware client was preceded by a license agreement that explained how the adware client operated and how to uninstall it; the agreement also explained the limitations on Direct Revenue's liability. In each case, the investigator clicked "Yes" on a button, indicating assent to the agreement.

As for those installations that were initiated by Direct Revenue's third-party distributors, there were problems with some (for example, the license agreement and uninstall instructions were not always displayed prior to installation). However, the court held that Direct Revenue was protected by its Standard Distribution Agreement, a document that directed the third-party distributors to obtain legally valid affirmative consent and make all legally necessary disclosures prior to installation of the adware client.

Having turned back claims based on the 29 transactions engaged in by state investigators, the court said there was no basis to entertain the attorney general's claims on behalf of all other individuals who allegedly downloaded the Direct Revenue adware client. Finally, it held, disgorgement of profits would not be an appropriate remedy in this case, since Direct Revenue distributed its adware client for free and it took nothing of value from the consumers who downloaded it.

Human Intervention Complicates E-Contracting

Three cases demonstrate how the online contracting process can be undermined by the failure to have key contract terms available online for review at the time the consumer is asked to indicate assent. In all of these cases, the company offering the contract terms decided that it would be helpful to involve human beings in the contracting process. This was a poor decision in every instance.

Key Terms Not Available at Purchase Time

Trujillo v. Apple Computer Inc., and AT&T Mobility LLC, No. 07 C 4946 (N.D. Ill., April 18, 2008), involved a proposed class action lawsuit against Apple and AT&T Mobility over the lawfulness of Apple's battery replacement costs. AT&T Mobility filed a motion to compel arbitration of the plaintiff's claim against it individually, based on a clause forbidding class arbitration contained in the AT&T Mobility service agreement that the plaintiff. The plaintiff argued that the arbitration clause was, among other things, procedurally unconscionable.

Most people are familiar with the process of purchasing an iPhone. The phone is first purchased from Apple; in this case, the plaintiff purchased his iPhone at an Apple store in Illinois. At the time of purchase an iPhone is useless as a telephone until the purchaser obtains telephone service from Apple's exclusive provider, AT&T Mobility. The arbitration clause at issue here appears at the end of AT&T Mobility's service agreement.

The court declared: "The Court believes, based on its review of Illinois case law, that the availability of the AT&T Mobility service agreement to [the plaintiff] prior to his purchase of the iPhone may be a critical factor in determining the issue of procedural unconscionability."

AT&T Mobility responded with two arguments. First, the service agreement was available at the Apple store where the plaintiff purchased the iPhone. This contention was supported by an affidavit from an AT&T Mobility attorney. Second, the service agreement was available on the Internet, so again the plaintiff had access to it prior to purchasing the iPhone.

Neither argument persuaded the court. An AT&T Mobility attorney could not possibly have personal knowledge about the habit and practice of Apple stores regarding the display of the service agreement, the court said. Further, it wrote, AT&T Mobility failed to cite any Illinois cases "supporting the proposition that if an agreement is available prior to the customer's purchase of a product only if the customer goes and looks for it elsewhere (including on-line), that is sufficent under Razor v. Hyundai Motor Am., 854 N.E.2d 607 (Ill. 2006)."

The court decided to give AT&T Mobility another opportunity to present additional evidence indicating that the service agreement was available to the plaintiff prior to purchasing the iPhone. (An additional, albeit smaller, problem for AT&T Mobility here was the lack of evidence indicating whether the purchaser was informed about the consequences of rejecting the service agreement after having purchased the iPhone. This too is relevant to the procedural unconscionability question, it said.)

Note: Along the way, this court said that Hill v. Gateway 2000 Inc, 105 F.3d 1147 (7th Cir. 1997), an important contracting decision that interpreted Illinois law to permit the seller to add contract terms in shipping materials after the sale, had been cast into doubt by the Illinois Supreme Court's subsequent decision in Razor.

Plaintiff Rushed Through Contracting Process

In Reynolds v. Credit Solutions Inc., No. 07-AR-1516 (N.D. Ala., Feb. 26, 2008), the court -- although it ultimately decided the case on other grounds -- declared that "there should be something wrong with binding a person with her click to a lengthy electronically-displayed proposal after barely enough time to scroll to the clicking point, much less the time without which the read and comprehend it."

The plaintiff claimed that her clicked "signature" on an online contract was procured through fraud because the Credit Solutions agent, who was speaking to her on the telephone while she reviewed the contract on her computer screen, should have told her that the document was a contract. The Credit Solutions agent recorded the telephone call, which was introduced into evidence. The recording indicated that just 30 seconds elapsed between the time the 8-page PDF-formatted agreement was displayed on the plaintiff's computer screen and the time she clicked her assent to it. The agreement warned of the necessity to "read through this document carefully," but that message seemed to be undermined by the Credit Solutions agent's exhortation to scroll to the bottom and click where indicated. According to the court:

As far as the court can tell, [the plaintiff] was not limited to a set amount of time within which to read the contract. However, the court notes, as an aside, that someone who reads with the speed of a Jesse Owens in the 100 yard dash could not read the contract displayed on [the plaintiff's] computer screen in 30 seconds, particularly with [defendant's agent] salivating on the other send of the line.

The court's concerns about the contracting process here were not dispositive, however; it ultimately ruled that an arbitrator rather than the court must decide whether this contract was void due to fraud.

Key Terms Not Available, Human Contradicts Contract Terms

Feldman v. United Parcel Service Inc., No. 06 Civ. 2490 (S.D.N.Y., March 24, 2008), involved a challenge to the part of the UPS shipping contract that forbids the shipment of items exceeding $50,000 in value. If a person ships an item valued at more than $50,000, then UPS is not responsible for loss or damage during shipment. UPS clearly sets out this limitation in the "Articles of Unusual Value" provision, Item 460 on page 8 of the UPS Tariff Agreement. The plaintiff in Feldman shipped a diamond ring valued at $57,000, which was lost during shipment.

The Seventh Circuit, in Treiber & Straub Inc. v. United Parcel Service Inc., No. 05-3743 (7th Cir., Jan. 9, 2007), enforced the UPS ban on shipping articles of unusual value. In Treiber, however, the UPS terms and conditions and the "Articles of Unusual Value" provision it referenced were available online for review by the plaintiff. Also, the plaintiff clicked twice to indicate assent to the terms.

Feldman was different. In Feldman, the plaintiff used a UPS I-Ship kiosk within a UPS physical facility. A message on the kiosk screen advised the plaintiff: "Review everything carefully and then click Print to print your shipping request." Below the Print button was a "Terms of Service" hyperlink. When clicked upon, the hyperlink displayed a pop-up window indicating that shipments are subject to the UPS Tariff Agreement. The pop-up window also indicated that the tariff agreement was available at www.ups.com or from a UPS associate on the premises. There was no hyperlink to the tariff agreement -- just a mention of the UPS Web site.

The court found enough problems with this contracting process to preclude summary judgment in favor of UPS. Among them:

• No evidence in the record that the kiosk was connected to the Internet, so the tariff may not have been available to the plaintiff.
• Clicking on a button that says "Print" does not necessarily connote agreement or assent to a contract.
• No evidence in the record that the UPS counter associate actually had the tariff agreement available.

Finally, the human factor. The plaintiff testified that he sought the assistance of the UPS counter associate and that he told her the item he was shipping was worth $57,000. According to the plaintiff, the counter associate attempted to insure the package for $57,000 but was blocked by the UPS computer. "According to plaintiff, [the counter associate] then agreed to ship the diamond ring at his request," the court wrote. "These facts, if proved, implicate a substantial face-to-face communication, suggesting that the surrounding circumstances might have prevented the plaintiff from having adequate notice of the terms of the Tariff."

Lessons Learned

Contract Terms Should Be Available for Review. In Trujillo, and Feldman, the defendants made an insufficient effort to ensure that key contract terms were available to the consumer.

In Trujillo, AT&T Mobility's terms could have been in the box containing the iPhone. The sales slip could have contained a place for the consumer to sign, indicating receipt of and assent to the terms.

In Feldman, the I-Ship kiosk could have been connected to the Internet and the UPS Tariff Agreement available via a hyperlink displayed on the kiosk screen.

Clickable Buttons/Links Should Clearly Signal Assent. At this point there is a large body of case law upholding online contracts created with the click of an "I Agree" button. Counsel ought to have a darn good reason why anything other than "I Agree" is displayed on that button.

In Feldman, for example, the decision by UPS to display "Print" on the button -- which was its only means of proving assent to a lengthy, one-sided, non-negotiated deal -- needlessly gave the plaintiff an opportunity to challenge the validity of the contract. UPS appears to know better too: the assent button in the Web contract challenged in Treiber displayed "I Agree" and that contract was upheld.]

In Reynolds, the plaintiff claimed she did not know that the online document was a contract and that her click signaled assent to it. From what I could tell from the court's opinion, the plaintiff clicked on a checkbox next to the statement, "Click here to sign." Here again, indicia of assent could have been firmed up by the defendant, taking at least some of the steam out of her claim that she did not know that her click signaled assent to a contract.

Humans Are Not Helpful. All of the cases discussed above introduced human beings into the online contracting process. Big mistake.

In Trujillo, AT&T Mobility decided it was good enough to have its service agreement available in the Apple store. This decision created a huge can of worms. Where was the service agreement? Were there any in the store that day? What sort of training does Apple do to ensure that the availability of the AT&T Mobility service agreement is made known to each and every iPhone purchaser? Even if Apple/AT&T Mobility has all this nailed down, they are still left with a triable issue.

In Reynolds, few courts would have invalidated the agreement clicked by the plaintiff were it not for the presence of the Credit Solutions agent on the telephone with the plaintiff. The decision contract in this fashion created a record indicating just how long the plaintiff spent looking at the agreement, and it opened the door to the claim that the plaintiff was rushed through the contracting process or otherwise misled about the significance of her actions.

Finally, in Feldman, UPS's decision to involve a counter associate in the contracting process created extrinsic evidence about the contract process where ems.bna.com needed to exist. UPS may have believed that directing the shipper to a counter associate for a copy of the tariff agreement would have strengthened its case, but in fact it create a host of triable fact questions and, as happened here, gave the counter associate an opportunity to undermine the position UPS took in the contract. If UPS prohibits the shipping of items valued greater than $50,000 why did the counter associate take my package?

Just Asking for Trouble. Based on the evidence of the cases discussed above, a good argument could be made that an online contract should never depend on terms being available at a physical location or depend on assistance from a human being. Crossing the dividing line between the online world and the physical world just seems to be asking for trouble. Moreover, since courts rarely object to online contracts because they are too long or too densely written, and consumers are used to taking products and services subject to lengthy terms (which they never read anyhow), why don't businesses put all important contract terms in one place, online, available in advance of the sale? They wouldn't be losing sales, and they'd certainly be saving on attorneys' fees.

By Thomas O'Toole

This morning I learned about tiny software company in Florida that brought a trademark infringement suit against a software company in Canada, obtaining a million-dollar judgment based on the estimated cost of purchasing seven years' worth of Google AdWords keywords containing the plaintiff's mark and a couple variations of it.

Whether the theory that led to this result will endure is anyone's guess, but the prospect of using Google AdWords to measure trademark infringement damages should certainly be tantalizing to trademark owner plaintiffs. The winning formula here was "Infringement" + "Corrective Advertising" + "Search Engine Optimization" = $1 Million. No need to prove lost sales.

punchclock.com vs. punch-clock.com

The case is Punch Clock Inc. v. Smart Software Development, No. 07-61684 (S.D. Fla., April 7, 2008). The plaintiff owned a federal trademark registration for PUNCH CLOCK, which he used to sell time clock and computer payroll software. According to the complaint, the plaintiff sold its software "primarily" online at http://www.punchclock.com.

The defendant, based in Canada, sold a similar software program called "PunchClock" at http://www.punch-clock.com. From what I could tell by visiting the defendant's Web site, the defendant has quite a few customers (over 9,800), including many prominent businesses, according to this page.

The plaintiff communicated its concerns to the defendant beginning in 2001, they had an unsatisfying exchange of correspondence over a span of several years, and then in 2007 the plaintiff sued. The defendant defaulted, and the court entered a default judgment finding that the defendant had infringed the plaintiff's PUNCH CLOCK mark, in violation of 15 U.S.C. 1114(1)(a), by using the mark in commerce, and had violated the Anti-Cybersquatting Consumer Protection Act, 15 U.S.C. 1125(d), by registering and using the punchclock.com domain name in bad faith.

Corrective Advertising Demanded

The interesting part of the case is the court's discussion of the damages remedy. The plaintiff did not ask to be compensated for lost sales or any other type of actual damages allegedly arising from the defendant's use of the PUNCH CLOCK mark; nor did the plaintiff ask the court to consider the extent to which the defendant profited from its use of the PUNCH CLOCK mark.

Instead, the plaintiff fixed its sights exclusively on the fact that the defendant's Web site ranked higher on Google's search results display and on the Alexa traffic rankings. The plaintiff claimed that it was entitled to "corrective advertising damages" in an amount sufficient to vault its Web site to the top Google's sponsored search results. According to the plaintiff:

[Plaintiff] believes a corrective advertising campaign is necessary to repairing the seven (7) years of damage done by [defendant] on the Internet by [defendant's] high profile placement of the infringing mark on its web site "punch-clock.com." As a result, corrective advertising damages based upon priority search engine placement on Google's sponsored results is the most effective and cost efficient way to repair the damage done by [defendant] while infringing the PUNCH CLOCK mark ... Corrective adverting damages include recognition of [plaintiff's] placement on Google's sponsored search results. Specifically, the use of the top five phrases or words being "bid upon" on the Google search engine are "punch clock," "punch clock software," "punchclock," punch clocks," and "punch time clock." ... To correct the marketplace perception of [Plaintiff's] genuine time keeping software, [Plaintiff] must use these search terms in a corrective advertising campaign to overcome [Defendant's] aggressive (7) year Internet ad campaign. ... [Defendant] started its web site distribution of the infringing goods in 2001 and seven years of corrective advertising damages are required.

Plaintiff's Damages: Poor Google Ranking

The court agreed (to my surprise). If I summarize the court's discussion, readers will think I have left something out, to serve some rhetorical purpose. So I'll set out the court's reasoning in its entirety:

At a cost of approximately $136 per day, Plaintiff can purchase top placement of its Web site on Google search listings for the top five keywords associated with the "Punch Clock" mark: "punch clock," "punch clock software," "punchclock," "punch clocks," and "punch time clock." This corrective advertising will allow Plaintiff's Web site to receive top billing on any Google searches using those terms, above the listing for [Defendant's] Web site, which will help correct the confusion in the marketplace. The Court also finds that seven years of corrective advertising is the appropriate measure of damages, due to the fact that Defendant's willful and blatant infringement of Plaintiff's mark and promotion of its own business with that mark has been ongoing for at least that long. Accordingly, the total corrective advertising compensatory damages that will be awarded to Plaintiff is $347,480.00. Based on the willful nature of the infringement, these damages must be trebled, resulting in a total figure of $1,042.440.00.

All of this struck me as remarkable. I think the court was making some assumptions that might not be true. Is the owner of a small software company in Florida is entitled to have its Web site so closely associated by Google with terms that could apply to many other businesses? For example, punch clock makers? What about other software companies in the same business? "Punch Clock" is awfully generic. Why must the Plaintiff's Web site be displayed at the very top of the Google search results? A lot of trademark owners seem to believe that Google is like a magic lantern: If you rub it and chant "Coca Cola," then a thousand links to cocacola.com should emerge. The court apparently bought into that assumption here.

Also, isn't there more data in Google's page rank calculations than the name of the domain and the words displayed on the page? Surely there must be myriad other reasons -- aside from trademark infringement -- why the Defendant's Web site is higher on Google than the plaintiff's Web site. Links to the site, for example? There must be many search engine optimization techniques that could account for the relative prominence of the defendant's Web site. From what I could tell, the defendant's Web site was more interactive than the plaintiff's, including login functionality for customers; further, it contained listings of the names of the defendant's 9,800 customers. There was no evidence in the plaintiff's submissions or in the court opinion suggesting that the defendant was purchasing Google AdWords.

Why would using the plaintiff's mark cause the defendant's Web site to rank higher than the plaintiff's Web site? There must be other factors at work, right? If not, wouldn't both sites rank the same?

Any why is it that seven years of AdWords purchases are necessary? If the plaintiff's entire complaint is that the defendant's Web site is busier and easier to find than the plaintiff's Web site, then an injunction plus a one-time Google AdWords purchase would compensate the plaintiff entirely. Assuming that trademark infringement was in fact the source of the Plaintiff's market struggles. The court's use of the seven-year also seems problematic because it rewards the plaintiff for sitting on its rights during this period. Finally, I can't how seven years of past infringement plausibly relates to the need to compensate the defendant for seven years into the future. The argument has a sort of barroom appeal, but it doesn't hold up scrutiny.

Zazu Designs: Small Company, Large Corrective Award

In Zazu Designs v. L'Oreal S.A., 979 F.2d 494 (7th Cir. 1992), Judge Easterbrook tossed aside for lack of foundation a $1 million corrective advertising award, in a case involving a tiny hair salon's trademark infringement claim against a global beauty products company, L'Oreal. Several points made by Judge Easterbrook seemed relevant to the Punch Clock case.

First, the $1 million award belongs to the plaintiff to use as it pleases.

Second, corrective advertising is intended to repair damage to the plaintiff's business. An award should not be so high that it exceeds the value of the business itself.

Third, Judge Easterbook wrote, "To justify damages to pay for corrective advertising a plaintiff must show that the confusion caused by the defendant's mark injured the plaintiff and that 'repair' of the old trademark, rather than adoption of a new one, is the least expensive way to proceed."

All of these considerations appear to be present in the Punch Clock case, good reasons for knocking the court's $1 million corrective advertising award down to a reasonable amount. Unfortunately for the defendant, he wasn't in court to raise them.