TechLaw

Business Models That Require Restrictive Consumer Contracts for Success

The MediaFire vs. SkipScreen spat, which involves a download website's attempt to use a terms of use agreement to prevent a third-party software developer from distributing an ad-skipping plugin, highlights a weakness in business models that can succeed only if consumers are coerced by contract into doing something they really don't want to do. The business is only as good as the contract.

The download site, MediaFire, has an acceptable use policy that forbids users from (1) using automated tools to accomplish the download, (2) "interfer[ing] with the normal use" of the MediaFire website, (3) and "reformat[ting] or refram[ing] any portion of any web page," thereby bypassing the advertisements. Consumers don't want to watch display advertisements while waiting for a download to begin. Enter SkipScreen, a Firefox browser plugin that solves this annoyance on behalf of the user. SkipScreen "auto-clicks" toward the true download link, bypassing the wait time in which MediaFire displays advertising to the user.

So, MediaFire has a contract with its users that the users really don't want to follow. And it has no contract at all with SkipScreen's developers. (Though it might be able to assert a "robot contract" claim, Register.com v. Verio, 126 F. Supp. 2d 238 (S.D.N.Y. 2000), or a trespass claim, eBay Inc. v. Bidder's Edge, 100 F. Supp. 2d 1058, 1073 (N.D. Cal. 2000), or a Computer Fraud and Abuse Act claim, EF Cultural v. Explorica, 274 F.3d 577 (1st Cir. 2001). Or even a tortious interference with contract claim. Or a trademark claim. Unfortunately, the possibilities are limitless.) SkipScreen is fighting back with the Electronic Frontier Foundation's help, so now MediaFire will have to go to court to enforce its alleged right to require users to view its advertising, which they apparently don't want to do.

A similar case that produced a recent decision is MetroPCS Inc. v. Virgin Mobile USA LP, No. 08-cv-1658 (N.D. Tex., Sept. 25, 2009). I say that the case is similar because, like the SkipScreen dispute, it involves a business, Virgin Mobile, that is supporting its business model with a terms of use agreement that users do not really want to honor. And it involves a third-party, MetroPCS, that offers Virgin Mobile customers a ready means to avoid the agreement's restrictions.

Virgin Mobile sells cell phone handsets and network service for the handset. Virgin Mobile actually loses $50 on each handset sale, a loss that it can only recoup if the user purchases network service for the length of the service contract. A use agreement on the product packaging and in a terms of service booklet inside the packaging purports to bind the user to the Virgin Mobile network for the life of the service contract, along with other restrictions on how the handset may be used.

MetroPCS disrupts the Virgin Mobile business model by offering a service that re-programs Virgin Mobile handsets so that they can operate on the MetroPCS network. Virgin Mobile sued to stop MetroPCS from luring away its customers in this fashion, raising trademark (the re-programmed handsets still carried Virgin Mobile branding) and breach of contract claims. The court's Sept. 25 opinion, which is inconclusive regarding the trademark claims, features a fascinating discussion about whether MetroPCS is making a trademark "use" of the Virgin Mobile handset by re-programming it and whether consumers are confused about what is going on with their handset. The court cited the telecom industry's controversial practice of locking-in consumers to a particular device as evidence that a cell phone handset and cell phone service are, for trademark law purposes, an integrated product offering. Meaning that a change of networks might constitute an infringing trademark "use" of the handset. MetroPCS argued that a cell phone handset is like a television set, where the hardware and the service network (broadcast, cable, satellite) are distinct offerings that the consumer is free to choose among. Judging from the tenor of the court's discussion, it didn't look like the court was buying the television set analogy. 

The court was unimpressed with Virgin Mobile's contract claims, however, and it rejected arguments that the terms set out on the product packaging and service booklet should be extended to parties that had no direct dealings with Virgin Mobile.

Just as in the MediaFire/SkipScreen dispute, Virgin Mobile seems to have created a business that requires coercing consumers into doing something they really don't want to do; namely, sticking with Virgin Mobile when there are less expensive network alternatives and the technological means to do something about it. Even if MediaFire and Virgin Mobile are entirely correct in their legal positions (and they may very well be), they are nevertheless swimming against the current of consumer expectations and desires. That seems like a very difficult business to sustain over the long term.

Ninth Circuit Declines to Read Common Law Loyalty Obligations Into CFAA

No language in the CFAA supports LVRC's argument that authorization to use a computer ceases when an employee resolves to use the computer contrary to the employer's interest.

And with that remark the Ninth Circuit today parted company with International Airport Centers LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), a Seventh Circuit decision holding that an employee's computer use becomes unauthorized under the Computer Fraud and Abuse Act, 18 U.S.C. 1030, when the employee uses the computer in a manner contrary to the employee's common law duty of loyalty to the employer.

The case involved an ex-employee who e-mailed allegedly confidential information from his work computer to his personal computer shortly before he left the company. A typical scenario. In today's opinion, LVRC Holdings LLC v. Brekka, No. 07-17116 (9th Cir., Sept. 15, 2009), the court firmly rejected Citrin, holding instead that computer access becomes unauthorized when an employee contravenes employer-placed limits on use of a computer. Computer use does not become unauthorized, the court said, at the point when an employee's mental state switches from "loyal employee" to "disloyal competitor."

There is work for lawyers to do in the wake of this opinion. The court specifically noted that the employer did not have an employment agreement with the employee nor did the employer have in place guidelines that prohibited employees from e-mailing company information to their personal computers. So the employer here missed two opportunities to define the scope of authorized computer use by its employees, either of which might have turned the case its way.

Clearly Disclosed Terms Save Marketer From Deceptive Contracting Claims

For me, the moment of maximum vigilance in an online purchase occurs when the seller asks for my credit card number. I suspect it is the same for everyone. The act of supplying this very important number is the digital equivalent of a handshake. We like the goods, we like the terms, so we supply our credit card number and click "OK" or "Charge this amount" or something similar. We do it all the time.

Another thing we do all the time is abandon offers for services that are "Free" for a limited time if the seller requests a credit card number, presumably to secure payment after the promotional period expires. Free? Great. You want my credit card? Forget it.

But we are promiscuous with our e-mail addresses. Most people I know have several, at least one dedicated to catching promotional or non-essential material, and they have a lot of faith in their spam filters. The provision of an e-mail address is frequently the price paid for receiving an e-book or some other free information good. We give our e-mail address out all the time. We don't attach much significance to it.

These are the thinking-without-thinking processes that Malcolm Gladwell wrote about in Blink: the extent to which decision-making is guided by subconscious, non-rational mechanisms. Supplying a credit card number means "Charge my account and send me the goods." Supplying an e-mail address means "Send me some e-mail," a significantly more casual transaction.

What if supplying an e-mail address could mean "Charge my account"? From a marketing perspective, that would be genius, right? But would it be lawful?

The answer, according to In re VistaPrint Corp. Marketing and Sales Practices Litigation, No. 4:08-md-1994 (S.D. Tex., Aug. 31, 2009), is yes. The court's decision demonstrates how a business can exploit human psychology and play tough with the consumer in an entirely fair and lawful manner.

VistaPrint sold business cards from its website. VistaPrint collected the buyer's credit card information at the point of sale. Following the sale, VistaPrint displayed additional web pages inviting the purchaser to "save" $10 on the just-completed transaction by enrolling in an affiliate marketing program that was free for the first 30 days. After 30 days, the purchaser's credit card would be charged $14.95 each month, unless the purchaser had cancelled the program.

Interested purchasers were asked to accept the invitation not by supplying their credit card information again but by entering their e-mail address and clicking on a "Yes" button indicating that they had read through and agreed to the terms of the offer. VistaPrint's web page indicated that the purchaser's e-mail address would "constitute [an] electronic signature."

The plaintiffs in this case -- a group of purchasers who supplied their e-mail addresses, clicked "Yes" on the acceptance screen, and subsequently neglected to cancel the program after 30 days had expired, thus incurring the monthly $14.95 charge -- first argued that the signup process was unlawfully deceptive. But the court rejected this argument, finding that VistaPrint had clearly and conspicuously explained the terms of the offer to the plaintiffs before inviting them to click "Yes."

According to the court: "This language is clear and easily understandable by anyone capable of making an online purchase of business cards."

The plaintiffs also contended that the monthly charges were "unauthorized" under the Electronic Funds Transfer Act, 15 U.S.C. 1693 et seq.  Not so, the court said. The EFTA excludes "any electronic fund transfer ... initiated by a person other than the consumer who was furnished with the card, code, or other means of access to such consumer's account by such consumer, unless the consumer has notified the financial institution involved that transfers by such person are no longer authorized." Here, the plaintiffs furnished VistaPrint with their credit card numbers when they purchased the business cards. And they later authorized VistaPrint to charge their account according to the terms of an offer that was clearly spelled out on the web page. "Plaintiffs typed their e-mail addresses into the spaces provided on Defendants' webpages, thereby authorizing Defendants to 'charge/debit [their] account according to the Offer Details,'" the court wrote.

It is hard to fault the court's legal reasoning on either the contracting or the EFTA points. Unlike other cases in which the purchaser was required to click a hyperlink to read important contract terms, a practice very recently found to be non-deceptive, VistaPrint conspicuously displayed the terms of its offer on the same page where it asked for the purchaser's e-mail address and assenting click. And nothing in the EFTA requires the purchaser's act of furnishing account information to be contemporaneous with his or her authorization to charge/debit the account.

Still, I wonder why VistaPrint asked for the purchaser's e-mail address as a means of assenting to its offer. After all, they already had this information and it does not appear that the e-mail address was used to authenticate the purchaser. Strictly as a matter of contract law, all VistaPrint needed was a mouseclick to seal the deal. Is it possible that asking for an e-mail address somehow minimizes in the purchaser's mind the significance of the click? Or distracts the purchaser from the rest of the language on the page? I honestly don't know the answer to these questions. This is sort of a flight of fancy, I admit, but there must be some reason for asking for the e-mail address. I wish I knew what it was.

p.s Yes, I know about Amazon.com 1-Click. Same general sort of deal though 1-Click is a convenience. VistaPrint is offering to pay $10 on the chance that the consumer will forget about that first $14.95 payment 30 days later.

Ten Interesting Things I Read This Week

This post is a collection of links to materials I've been reading this week, really just trying to catch up on old news and re-engage myself in subjects that I spent most of my summer trying to forget while on vacation. I made supplications to the Muse all morning in the hope she would favor me with a catchy title, something that might yield one of those tragically sardonic acronyms like CAN-SPAM or SPY Act, but no, nothing, and now it's time to get back to work and all I have is Ten Interesting Things I Read This Week (TITIRTW):

1. Cleveland Plain Dealer: Idea for protecting newspapers draws national spotlight, bloggers' ire

2. Media & Communications Policy: More on Newspapers and Aggregators

At this point management at most of the leading newspapers have let go of the notion that "parasitic aggregators" are a significant source of their business problems. Yet here is a respected attorney (and counsel to the Cleveland Plain Dealer) making an argument that parasitic aggregators who are free-riding on newspaper content should be stopped. Stopped by reviving the common law doctrine of "hot news" misappropriation. He believes that the Copyright Act should be amended so that it no longer preempts state-law misappropriation claims. The attorney writes: "If the legal principles that we advocate in this analysis were the law, the newspaper publisher would have a legal right to enjoin temporarily or otherwise impede the business of an aggregator that commercially exploits the publisher's news reports in direct competition with the publisher." I don't want to "Go Pundit" here, but this is a solution to a problem that just does not exist.

3. Citizen Media Law Blog: Southeastern Conference Sacks Social Media, Then Recovers

A nice account of the Southeastern Conference's attempt to protect the interests of its television broadcast partners by prohibiting fans from blogging, twittering et cetera during football games that reminded me we are still very much at the beginning of the user-generated media era. The article summarizes the state of the law on the "hot news" doctrine, making a nice counterpoint to the "save the newspapers" discussions above. 

4. U.S. Department of Homeland Security: Secretary Napolitano Announces New Directives on Border Searches of Electronic Media

Modest privacy-enhancing protections announced here, though DHS is not giving back an ounce of their authority to search anyone, anything, any time, at the border. Which still includes laptops: "In the course of a border search, with or without individualized suspicion, an Officer may examine electronic devices and may review and analyze the information encountered at the border."

The American Civil Liberties Union filed a lawsuit this week seeking records relating to searches of electronic devices at the border.

5. The Volokh Conspiracy: How the Ninth Circuit Tried To End Plain View for Computer Searches Without Ending Plain View for Computer Searches

Prof. Orin Kerr ruefully labels the en banc Ninth Circuit's decision in United States v. Comprehensive Drug Testing Inc. as Miranda for computer searches. He writes: "I think the best way to understand today's remarkable Ninth Circuit Fourth Amendment decision in United States v. Comprehensive Drug Testing is that the Ninth Circuit did its best to end the plain view exception for computer searches without formally ending plain view for computer searches. Chief Judge Kozinski's opinion created an elaborate statute-like new regime to make sure the government acts like there is no plain view exception. The decision is a workaround that effectively ends plain view for computer searches by making sure the government will never collect electronic evidence in plain view in the first place."

Sounds a little bitter to me. Judge Kozinski's opinion is a sensational read. And if it really is like Miranda, read it, because it's going to be around for a long time.

6 & 7. Gregg Easterbrook (ESPN): Tuesday Morning Quarterback's AFC preview and TMQ travels back in time to August 2009

A personal favorite, a guilty pleasure, one of the best writers on the Web, reminds me of Tom Wolfe way back when. More than football in here too: smart ruminations on Twitter, the British Humanist Association, and deadly objects from space.

8. Consumer Law & Policy Blog: Official Word from US Courts -- Feel Free to Use RECAP With Our Blessing

The implication here is that the AO's office would naturally have disapproved of RECAP, a Firefox addon that uploads PACER documents to a free repository. But surprise surprise it appears they don't mind at all. Am I the only one who believes the judiciary is the most -- not the least -- open branch of the federal government?

9. Spam Notes: Electronic Communications, Privacy, Data Protection, and More: Gordon v. Virtumundo: 9th Cir Smacks Down Anti-Spammers in Trifecta Defense Win

Ah, August 6, 10 a.m. PST. I was fly-fishing a gentlemanly stretch of the Gallatin River in Yellowstone National Park. Wretched souls like Venkat were slogging through Gordon v. Virtumundo's discussion of CAN-SPAM preemption. He writes: "As far as opinions go, this is as good as it gets." I couldn't agree more. About the fishing, of course.

10. Techdirt: Interview With William Patry: Understanding How The Copyright Debate Got Twisted

Prof. William Patry is coming out with a new book, Moral Panics and the Copyright Wars. Here, a very interesting discussion with Techdirt's Mike Masnick draws out Patry's views on fair use, the file-sharing wars, and copyright politics.

Turning the Page on "Hyperwrap" Contracts

Hyperwrap contracts. That was a new phrase for me, until I read it this morning in PDC Laboratories Inc. v. Hach Co., No. 09-1110 (C.D. Ill., Aug. 25, 2009), a case in which the court held that a limitation of remedies clause that was available for viewing behind a hyperlink was an enforceable term in the parties' contract for the sale of goods.

The court said it was following Hubbert v. Dell Corp., 359 Ill. App.3d (Ill. Ct. App. 2005), a case in which an Illinois appellate court similarly held that contract terms available behind a blue hyperlink on a white page -- a Web browser's default color display -- were adequately brought to the purchaser's attention. Hubbert, the court said here, "is the leading authority in 'hyperwrap' cases, such as the case now before the Court."

My mind is not nimble enough to detect any difference between hyperwrap and browsewrap, at least in the rhetorical sense. Hyperwrap doesn't add anything to my understanding of what is going on from a legal perspective, and neither term feels like firm footing to me.

As far as the facts are concerned, there were some small but apparently inconsequential differences between Hubbert and PDC Laboratories. In Hubbert, the link to the additional terms was displayed five times during the contracting process, whereas in PDC Laboratories the link was visible just three times. Hubbert involved an arbitration clause; in PDC Laboratories the hyperlinked additional term was a limitation remedies clause. Cutting the other way, PDC Laboratories involved a business-to-business contract, while Hubbert dealt with a consumer transaction.

From Hubbert:

The blue hyperlinks on the defendant's Web pages, constituting the five-step process for ordering the computers, should be treated the same as a multipage written paper contract. The blue hyperlink simply takes a person to another page of the contract, similar to turning the page of a written paper contract. Although there is no conspicuousness requirement, the hyperlink's contrasting blue type makes it conspicuous.

From PDC Laboratories:

It is undisputed that the Terms were hyperlinked on three separate pages of the online Plate order process in underlined, blue, contrasting text. This contrasting text is sufficient to be considered conspicuous under Hubbert, even though the Terms are only linked three times instead of five times, because it is not the repetition of the display of a term that is determinative but the contrast of a term.

So now we have two court rulings (at least) for the proposition that hyperlinks are sufficiently conspicuous to be used to supply additional terms for an online contract.

These cases demonstrate the power of an apt metaphor when applying old law to new technology. Before encountering these decisions, I had always considered placing additional contract terms behind a hyperlink as somehow "hiding" them from the other party -- an unfair way of dealing. Behind a hyperlink. Sounds like under the rug. But if you embrace the metaphor that hyperlinks are the customary way of "turning a page" online, then it doesn't seem unfair at all to expect parties to "turn" each "page" of their online contracts. Kudos to the lawyer who came up with that metaphor.

ALI Software Contracts Principles Drafters on Non-Excludable "No Material Hidden Defects" Implied Warranty

Over the the Concurring Opinions blog, the two reporters of the American Law Institute's recently approved Principles of the Law of Software Contracts explain their work and defend the ALI's decision to create (at Section 3.05(b)) a non-excludable implied warranty that the software “contains no material hidden defects of which the transferor was aware at the time of the transfer.” According to the reporters, Robert A. Hillman, a professor at the Cornell Law School, and Maureen A. O'Rourke, Associate Dean at the Boston University School of Law, some software providers had complained about Section 3.05(b), arguing that it was new law, would promote litigation and, being a tort law concept, it had no place in a summary of contract law.

Profs. Hillman and O'Rourke recently published a draft paper at SSRN, Rethinking Consideration in the Electronic Age, discussing the application of contract law to free and open source licenses.

Justice Sotomayor's Potential Cyberlaw Influence? Not Much

It was pleasant to note the other day that Judge Sonia Sotomayor, President Obama's choice for Associate Supreme Court Justice, has written a few opinions relating to Internet law during her time as judge in the lower federal courts. A first, apparently, and a sign of the centrality of the Internet in our business and personal affairs. From now on, the high court nominee who doesn't have a few cyberlaw decisions on his or her resume will be the remarkable case.

But does a Justice Sotomayor mean anything for the future direction of the laws that regulate online activity? No, not really. Not in the near future.

Consider this:

The Supreme Court has never reviewed a case involving the Computer Fraud and Abuse Act.

The Supreme Court has never reviewed a case involving the Electronic Communications Privacy Act.

The Supreme Court has never reviewed a case involving Section 230 of the Communications Decency Act (which gives interactive computer services immunity from most claims arising from the publication of third-party content), though it did consider, and strike down, the prohibitions against indecent online speech contained in another part of the CDA in Reno v. American Civil Liberties Union, 521 U.S. 844 (1997).

The Supreme Court has never reviewed a case involving the CAN-SPAM Act or the Digital Millennium Copyright Act.

The Supreme Court has never reviewed a case involving electronic contracting, jurisdiction arising from online activities, cybersquatting or any other domain name-related dispute.

Aside from Doe v. Chao, a case involving standing to sue the federal government under the Privacy Act, the Supreme Court has never taken a case involving online privacy or security (GLB, COPPA, FTC Act, you name it). If you want to count Bartnicki v. Vopper, go ahead, though I don't think that obscure decision in any way undermines the point I am trying to make here.

So that covers that vast majority of what I consider to fall under the general heading of cyberlaw. None of it is even on the Supreme Court's radar. And I don't see that situation changing anytime soon. The Web is a welter of contracts (a state law issue), and all of the afore-mentioned statutes need many more years of intermediate appellate scrutiny before they'll make good candidates for Supreme Court review. Sure, there are plenty of prosecutorial and judicial missteps to feed our blogs. But, as the Supreme Court often reminds us (see Rule 10), the Supreme Court is not in the business of correcting erroneous applications of settled law.

What's left? Copyright, patent, and First Amendment law. The last (and only) time the high court decided a digital copyright case was Metro-Goldwyn-Mayer Studios Inc. v. Grokster, 545 U.S. 913 (2005), a case in which Justice Souter (whom Judge Sotomayor will replace) wrote for a unanimous court that Grokster, a distributor of peer-to-peer file-sharing software, was a secondary infringer of the movie studios' copyrights. Not only did Grokster lose the case, but it inspired the high court to create a new theory of secondary liability -- "inducing" copyright infringement -- along the way. Given the apparently entrenched views already on the court, Judge Sotomayor's ascent to the Supreme Court offers little hope of benefiting copyright fair use advocates anytime soon, if at all.

First Amendment issues have traditionally been a leading source of Supreme Court activity, and it is not too far-fetched to imagine high court review of a case involving a federal government (FCC?) attempt to impose broadcast-style regulation on Internet transmissions. Here alone, I think, we have an area where Judge Sotomayor could exert some influence on cyberlaw issues. Without question, the Internet would be a far different -- and worse -- place if Reno v. American Civil Liberties Union had come out the other way. On First Amendment issues, Judge Sotomayor appears to have a rather unremarkable though liberal-leaning view of the First Amendment. About the same as the departing Justice Souter. No gain or loss for free speech proponents.

That leaves patents. In re Bilski, No. 08-964 (certiorari petition filed Jan. 28, 2009), is an important case in which the Federal Circuit curtailed the patentability of software-implemented business methods. According to SCOTUSBlog, there is a good chance the Supreme Court will grant review of the Bilski decision. Bilski was up for discussion yesterday at the Supreme Court's private cert-consideration conference, so we could know as early as Monday if Judge Sotomayor will have that one facing her in the fall. I have no idea what Judge Sotomayor's views are on the patentability of software-implemented business method patents, and I don't think anyone else does either. The Inventive Step blog unearthed a couple district court decisions. Not much there to go on.

Feel free to e-mail me (as usual) all the cases I've missed!

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Judge Sotomayor Is First Nominee With Cyberlaw Record

President Obama's choice today for Associate Supreme Court Justice, Sonia Sotomayor, authored a handful of cyberlaw opinions while on the Second Circuit. All business disputes and a privacy case, but nothing (I hope) that could provide ammunition for the World's Greatest Deliberative Body.

About Judge Sotomayor I will venture this: If confirmed, she will be the first justice who has written cyberlaw-related opinions before joining the court. I looked just now and couldn't find where Chief Justice Roberts or Associate Justice Alito had written a cyberlaw opinion while serving as appellate judges. (Then-Judge Alito missed both ACLU v. Reno and Playboy Entertainment Group, Inc. v. United States, a pair of new media cases that were decided initially by special three-judge panels in the Third Circuit.)

I don't think any of the following means much as far was what Judge Sotomayor will do as an Associate Supreme Court Justice. I'm passing it along for conversational purposes only.

Judge Sotomayor wrote the court's 2002 opinion in Specht v. Netscape Communications Corp., an important online contracting case. In Specht, the Second Circuit declined to enforce contract terms that were available behind a hyperlink that could only be seen by scrolling down on a Web page. A “reasonably prudent” user would not have learned of the existence of the terms before responding to an invitation to download free software, Judge Sotomayor wrote.

Judge Sotomayor's opinion in Specht made the point that clicking a button may not be construed as an assent to a contract if the site did not make clear that the act of clicking would signify assent to the terms of a contract. Although a party may not normally argue that his failure to read the terms of a contract made it unenforceable, the court said that there is an exception to this rule “when the writing does not appear to be a contract and the terms are not called to the attention of the recipient.”

“We are not persuaded that a reasonably prudent offeree in these circumstances would have known of the existence of license terms,” Judge Sotomayor wrote. “Plaintiffs were responding to an offer that did not carry an immediately visible notice of the existence of license terms or require unambiguous manifestation of assent to those terms. ... [I]n circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.”

Judge Sotomayor also wrote opinions in a pair of domain name cases, Storey v. Cello Holdings LLC in 2003 and Mattel Inc. v. barbie-club.com in 2002.

In Storey v. Cello, the Second Circuit held, per Judge Sotomayor, that an adverse outcome in an administrative proceeding under the Uniform Domain Name Dispute Resolution Policy did not have preclusive effect on a later-initiated federal suit brought under the Anticybersquatting Consumer Protection Act (ACPA).

In Mattel Inc. v. barbie-club.com, Judge Sotomayor authored an opinion holding that a federal court may obtain in rem jurisdiction over a domain name under the ACPA only in a district in which the domain name registrar or other domain-name authority is located. The ruling was based on a straightforward reading of the ACPA. However, at the time, some attorneys held the view that federal court jurisdiction could be created in any federal district merely by "depositing" written evidence of the domain registration with the trial court. Judge Sotomayor rejected that argument.

In Leventhal v. Knapek, No. 00-9306 (2d Cir. Sept. 26, 2000), a privacy case, Judge Sotomayor wrote for the Second Circuit that New York state agency officials and investigators did not violate a state employee's Fourth Amendment rights when they searched the contents of his office computer for evidence of unauthorized use of state equipment.

Finally, while on the federal district court bench, Judge Sotomayor took the first crack at Tasini v. New York Times, 972 F. Supp. 804 (S.D.N.Y. 1997), writing an opinion in a case involving freelance authors' rights to news articles that the New York Times digitized and resold in an electronic database. Judge Sotomayor's judgment in favor of the Times was later reversed by the Supreme Court.

Update: Notwithstanding this record, Judge Sotomayor will be joining a court where she will have very little opportunity to rule on cyberlaw issues.

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Online, Third-Party Beneficiary Claims Are Likely Losers

This odd little case reminded me of that. In Jackson v. American Plaza Corp., No. 08-8980 (S.D.N.Y. April 28, 2009), the court held that one Craigslist advertiser could not sue another Craigslist advertiser for allegedly violating the Craigslist terms of use. The court ruled that the Craigslist terms of use -- which it noted was a valid click contract between Craigslist and its users -- did not create any enforceable rights in third parties such as the plaintiff. Did not "likely" create third-party beneficiary rights, I should say. The plaintiff was seeking an injunction, which the court denied.

Attorneys faced with cases like this really ought to look hard at the Computer Fraud and Abuse Act, 18 U.S.C. 1030, a much more promising route to relief in cases of online misfeasance. The CFAA has recently gotten a lot of attention from companies who are using it against departing employees, but there is no reason it cannot be used against competitors as well. I'm not going to do all the research here (e-mail me if you want the cases), but it is possible to make a respectable legal argument that might entitle the plaintiffs to CFAA relief in this case.

It goes like this. The CFAA prohibits an individual from intentionally accessing a computer without authorization or in excess of authorized access and thereby obtaining information from a protected computer. 18 U.S.C. 1030(a)(2)(C),

A contract, such as an online terms of use document, can be used to define what kind conduct is "authorized" for CFAA purposes. I'm thinking of the Explorica and Verio cases. Let's accept the truth of the plaintiff's argument that the defendant's alleged "spamming" on Craigslist violated the terms of use.

Nor does the computer that was accessed improperly need to be the plaintiff's computer. The CFAA says "any person who suffers damage," and this language was given a plain-English interpretation by the Ninth Circuit in Theofel v. Farey-Jones ("Individuals other than the computer’s owner may be proximately harmed ....").

Finally, the plaintiff would have to demonstrate both "damage" to the computer and "loss" to the plaintiff in excess of $5,000. Spamming has been held to cause CFAA damage (I am thinking of the America Online v. LGCM case.) As for "loss," the plaintiff would have to prove that it was losing business as a result of the defendant's alleged spamming. Presumably the plaintiff in Jackson can make this showing; why else would it have sued?

Finally, assuming that the plaintiff can navigate successfully all of the above issues, Section 1030(g) provides for compensatory damages and injunctive relief.

That's my argument anyhow. I've only half-convinced myself; however, I don't believe there are any cases out there that definitely knock it down.

Back in the real world of Jackson v. American Plaza Corp, the plaintiff and the defendant were both in the business of marketing rental property in New York City. The conduct that drew the plaintiff's lawsuit was spamming, which the court described as posting repetitive advertisements on Craigslist for the same property within a short period of time. The Craigslist terms of use provide that "you agree not to ... post non-local or otherwise irrelevant Content, repeatedly post the same or similar Content or otherwise impose an unreasonable or disproportionately large load on our infrastructure."

The court made pretty quick work of the plaintiff's claim that it was a third-party beneficiary of this language. There was no language elsewhere explicitly giving users rights against other users. Nor did the court find language that might create an inference that the Craigslist terms were intended to benefit anyone other than Craigslist. The contract language cited by the plaintiff, the court observed, "indicates that Craigslist's principal concern with repetitive posting was that it burdens the Craigslist infrastructure. Thus any benefit received by plaintiffs is incidental."

A final, interesting, novel, though unsuccessful, argument made by the plaintiff was that Craigslist officials had made public statements indicating their belief that Craigslist was a "public service." Even if Craigslist officials had made such a statement -- a debatable point, the court noted -- it doesn't indicate an intent on Craigslist's behalf to create legally enforceable obligations among its users.

Here are a few cases in which courts turned back claims that the plaintiffs were third-party beneficiaries of an online contract between other parties.

1. In Kremen v. Network Solutions Inc., No. 01-15899 (9th Cir. 2003), the Ninth Circuit held that Network Solutions Inc., which allegedly had wrongfully transfered the plaintiff's sex.com domain registration to someone else, was not liable under the theory that the plaintiff was a third-party beneficiary of the domain name management agreement between NSI and the National Science Foundation.

2. Similar ruling two years earlier in Dluhos v. Strasberg, No. 00-3163 (D. N.J. 2001).

3. An individual alleging defamation caused by an America Online user is not a third-party beneficiary of the membership agreement between AOL and its users. Morrison v. America Online Inc., No. 3:00CV0723AS (N.D. Ind. 2001).

4. Internet services company is not third-party beneficiary of contracts between domain name registrar and Internet Corporation for Assigned Names and Numbers. Register.com Inc. v. Verio Inc., No. 00 Civ. 5747 (S.D.N.Y. 2000).

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Arbitration Fairness Group Forms in Washington

Nine times out of 10 when there's a challenge to an online contract the object of the court's attention is the arbitration clause. Arbitration clauses are the first line of defense against class action lawsuits. A Texas court's recent ruling that Blockbuster's terms of service were an unenforceable illusory contract is just one of many examples of where the plaintiff really just wants to get out from under an arbitration clause.

Today a Public Citizen-sponsored group, the Fair Arbitration Coalition, announced the formation of a coalition that will be lobbying in support of the Arbitration Fairness Act of 2009 (H.R. 1020), a bill that would deny enforceability of most arbitration agreements entered into by individuals: bank accounts, credit card statements, employee handbooks, cell phone contracts, health insurance plans etc. H.R. 1020 provides that "No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of-- (1) an employment, consumer, or franchise dispute; or (2) a dispute arising under any statute intended to protect civil rights."

Agreements to arbitrate that are reached after a dispute is filed would still be enforeable. H.R. 1020 targets the pre-dispute arbitration clauses that consumers agree to as a pre-condition to receiving some desired good or service.

H.R. 1020 has 43 sponsors already. Similar legislation languished in prior Congresses.