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Valparaiso Univ. Law School

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Monday, March 3, 2014

Blockchain Contracting


WireMy student, Sam Henderson (who blogs here), directed my attention to this report on the Legal Informatics Blog about blockchain contracting and conveyancing systems.  Blockchain technology is apparently one of the many things that makes Bitcoin transactions foolproof, genius-proof, and completely impervious to rampant speculation, financial catastrophe and the bankruptcy of major dealers in the virtual currency.  So, like Bitcoin itself, applying blockchain technology could only democratize and decentralize commercial law, or so maintains this blog post on Thought Infection.

What a strange idea.  

Contracts are private legislation.  They are already about as democratic and decentralized as they could possibly be.  Sure, they are governed by the relevant laws of the relevant jurisdictions, but blockchain technology would not change that.  In any case, the law of contracts already permits the parties to choose the law that will govern them (within reason), so that's pretty decentralized and democratic.  

What is not democratic and decentralized about commercial law is the fact that contracts tend to be drafted by the powerful and imposed upon people as take-it-or-leave it deals through form contracting.  Given the complexity of the technologies associated with Bitcoin, it seems unlikely that adding layers of technology to commercial law would render it more democratic and less centralized.  

Unfortunately, Thought Infection's post is misinformed about contracts.  He writes

Whereas today contracts are restricted to deals with enough value to justify a lawyers time (mortgages, business deals, land transfer etc…), in the future there is no limit to what could be codified into simple contracts. You could imagine forming a self-enforcing contract around something as simple as sharing a lawnmower with your neighbor, hiring a babysitter, or forming a gourmet coffee club at work. Where this could really revolutionize things is in developing nations, where the ability to exchange small-scale microloans with self-enforcing contractual agreements that come at little or no cost would be a quantum leap forward.

Here are the problems with this as I see it:

  • Contracts are not restricted; they are ubiquitous;
  • Contracts do not require lawyers; they are formed all the time through informal dealings that are nonetheless legally binding so long as the requisite elements of contract formation are present;
  • To some extent, Thought Infection's imagined contracts already are contracts, and to the extent that they are not contracts it is because people often choose to form relationships that are not governed by law (e.g., do you really want to think about the legal implications of hiring a baby sitter -- taxes, child-labor laws, workman's comp . . . yuck!); and 
  • Microloans are already in existence, and the transactions costs associated with contracts do not seem to be a major impediment.

Look, I'm not a Luddite (I blog too), but I also don't think that technology improves our lives with each touch.  Technology usually makes our lives more efficient, but it can also make our lives suckier in a more efficient way.  Technology does not only promote democracy and decentralization; it also promotes invasions of privacy by the panopticon state and panopticon corporations or other private actors, reification of human interactions, commidication and alienation.  It has not helped address income disparity on the national or the global scale, ushered in an era of egalitarian harmony overseen by benevolent governments or pastoral anarchy.  

As to contracts specifically, however, there are lots of ways to use technology that are available now and are generally useful.  Last week, we discussed Kingsley Martin's presentation at KCON 9. Kingsley has lots of ideas about how to deploy technology to improve sophisticated contracting processes.  But for  the more mundane agreements, there is a nifty little app that a couple of people mentioned at KCON 9 called Shake.  For those of you looking for a neat way to introduce simple contracts to your students, or for those of you who want to make the sorts of deals that  Thought Infection thinks we need blockchain to achieve, Shake is highly interactive, fun and practical.

March 3, 2014 in Commentary, E-commerce, Web/Tech | Permalink | Comments (1) | TrackBack (0)

European Parliament Approves Common European Sales Law

EU FlagAs reported here on Out-Law.com, the EU Parliament approved the proposed Common European Sales Law designed to apply to transnational sales conducted by telephone or through the Internet.  Despite opposition from the German and UK governments, the new law found overwhelming support in the EU Parliament, passing by a vote of 416-159, with 65 abstentions. 

The law is now placed before the EU's Council of Ministers, which can adopt the proposal into law.  The EU's Justice Commissioner, Viviane Reding, spoke out in favor of the law, saying that he would cut down on transactions costs by creating a uniform sales law throughout Europe.  The savings would be especially helpful to medium and small business, which account for 99% of all businesses in the EU.  

We summarized the characteristics of the proposed sales law (in its then-current version) here.

You can find the version approved by the EU Parliament here (click on "texts part 3" and go to page 83 of the document that should open up).

Hat tip to Peter Fitzgerald.  

March 3, 2014 in Current Affairs, E-commerce | Permalink | Comments (0) | TrackBack (0)

Thursday, February 13, 2014

A Couple of UCC Statute of Frauds Cases

This is the third in a series of posts commenting on the cases cited in Jennifer Martin's summary of developments in Sales law published in The Businss Lawyer.

Professor Martin discusses two Statute of Frauds (SoF) cases.  The first, Atlas Corp. v. H & W Corrugated Parts, Inc. does not cover any new territory.  The second, E. Mishan & Sons, Inc., v. Homeland Housewares, LLC, raises more interesting issues and is a nice illustration of the status of e-mails as "writings" for the purposes of the SoF.  The latter does not seem to be available on the web, but here's the cite: No. 10 Civ. 4931(DAB), 2012 WL 2952901 (S.D.N.Y. July 16, 2012). 

 In the first case, Atlas Corp. (Atlas) sold corrugated sheets and packaging products to H & W Corrugated Parts, Inc. (H&W).  Atlas invoiced H&W for $133,405.24, but H&W never paid.  Eventually, Atlas sued for breach of contract.  H&W never answered the complaint, and Atlas moved for summary judgment.  Although the motion was unopposed, the court considered whether the agreement was within the SoF, as the only writings in evidence were the invoices, which were not signed by the parties against whom enforcement was sought.  Having had a reasonable opportunity to inspect the goods and not having rejected them, H&W is deemed to have received and accepted the goods, bringing the agreement within one of the exceptions to the SoF, 2-201(3)(c).  The contract is thus enforceable notwithstanding the SoF, and H&W, not having paid for the goods, is liable for breach.

Blender
Not the Magic Bullet Blender

Homeland Housewares LLC (Homeland) manufactures the Magic Bullet blender.  Homeland entered into an agreement with E. Mishan & Sons, which the Court refers to as "Emson," granting Emson the exclusive right to sell Magic Bullet blenders (not pictured at left) in the U.S. and Canada.  Between March 2004 and March 2009, Emson ordered well over 1 million blenders from Household.  Although the price fluctuated, it was generally about $21/blender, and Emson paid a 25% up-front deposit.  After 2006, the parties operated without a written agreement.

In 2008-2009, the parties agreed to change their arrangement.  Household sold directly to Bed, Bath & Beyond, Costco and Amazon, but Emson sought to remain as exclusive distributor to all other retailers.  Emson alleges that the parties reached an oral agreement for a three year deal, the details of which were included in an e-mail confirmation that Emson sent on April 2, 2009.  Homeland's principal responded the same day in an e-mail stating that Homeland "will need to add some provisions to this. We will [g]et back to you .” Although further discussions ensued, the parties dispute whether the disputed terms were material.  

In any case, the parties continued to perform.  Emson sought a per unit price reduction as called for in the e-mail confirmation.  Homeland refused, citing increased costs.  Emson did not push the point.  That fact might suggest awareness that there was no binding agreement, or it might just suggest a modification of the existing agreement, which is permissible without consideration under UCC 2-209 so long as the parties agree to it.  In March 2010, Emson learned that Homeland was soliciting direct sales to retailers.  The parties tried to hammer out a new deal but the negotiations failed.  By June 2010, Homeland had taken over all sales of the Magic Bullet in the U.S. and Canada.

Magic Bullet
Actual (alleged) magic bullet

Emson sued, and Homeland moved for summary judgment, claiming that the parties had no contract because the SoF bars enforcement of any alleged oral agreement for the sale of goods in excess of $500. 

As I have remarked before, I find it curious that courts automatically apply the UCC to distributorship agreements.  In this case, if I understand how the transaction worked, Emson may have operated as a bailee for goods that it passed on to retailers.  Since it was dealing with large merchants, it likely would only order blenders that it already intended to pass on to merchants.  It was basically just a broker.  The court might well find that, because of assumption of risk and perhaps other matters, this agreement was in fact one in which goods were sold from Homeland to Emson and then again from Emson to retailers.  But it is also possible that the goods passed through Emson and went straight to the retailers, in which case, I'm not sure the UCC should apply.  But the parties agreed that the UCC applies to distributorship agreements and the court went along with that.  Whatever.

Relying on the merchant exception to the SOF in UCC 2-201(2), Emson characterizes its April 2, 2009 e-mail as a written confirmation sent to a merchant, recieved and not objected to within 10 days.  If that exception applies, the parties had a binding agreement.  But Homeland argues that its response, referencing additional provisions, was a sufficient objection to take it outside of the ambit of the exception.  The court did not resolve that issue but found that material questions of fact remained.  The court denied Homeland's motion for summary judgment.

 

February 13, 2014 in Commentary, E-commerce, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Monday, January 13, 2014

GLOBAL K: Bitcoins – Actually a Virtual Problem

Over the past year, there has been an explosion of interest – and a frenzied up-swing in trading – in bitcoins. Writing in The New York Times in late December 2013, in an article called Into the Bitcoin Mines, Nathaniel Popper noted that “The scarcity — along with a speculative mania that has grown up around digital money — has made each new Bitcoin worth as much as $1,100 in recent weeks.” From a socio-economic perspective, this offers an unusual opportunity to observe the emergence and development of an entirely new, and so far unregulated, kind of market. Scholars like Wallace C. Turbeville interested in the law and policy of financial services regulation are now presented with an important opportunity to test assumptions we often blithely make about the ways in which regulation interacts with business and commercial activity.

Policymakers may confront a moment of truth – to regulate or not to regulate, and when, and how. Earlier this month, National Taxpayer Advocate Nina Olson argued that the IRS should give taxpayers clear rules on how it will handle transactions involving bitcoin and other digital currencies accepted as payment by vendors. The Senate Homeland Security and Governmental Affairs Committee held hearings on bitcoins and other “cryptocurrencies” several weeks ago, and may have a report on the situation early next year after further consideration, but Committee Chair Sen. Thomas Carper (D-Del.) seems to be taking a “wait and see” attitude. Meanwhile, the People’s Republic of China has already banned banks from using bitcoins as a currency, while U.S. regulators have not addressed the use of virtual currencies, even as an increasing number of vendors – including Overstock.com – have announced that they will accept them in payment for transactions.

One basic problem is the difficulty in determining what is involved in bitcoin creation and trading. Unfortunately, we are as yet at the mercy of metaphors. For example, within the first six paragraphs of his NYT piece, Popper refers to bitcoins as “virtual currency,” “invisible money,” “a speculative investment,” “online currency,” and “a largely speculative commodity.” In point of fact, bitcoins are book-entry tokens awarded for successfully solving highly complex algorithms generated by an open-source program, The program is disseminated by a mysterious, anonymous sponsor or group known only as Satoshi Nakamoto – the digital world’s version of Keyser Söze.

Determination of the proper legal characterization of bitcoins is essential if we are to choose appropriate transactional and regulatory approaches. For example, if bitcoins really are a “virtual currency” – a meaningless phrase, a glib metaphor – then fiscal supervision by the Federal Reserve might be the most appropriate approach to regulating bitcoin activity. Further, if they are in any significant sense “currency,” then treatment under the U.S. securities regulation framework would be problematic, since “currency” is excluded from the statutory definition of “security” in section 3(a)(10) of the Securities Exchange Act. Similarly, if bitcoins are viewed as some sort of currency, they would then likely be an “excluded commodity” under section 1a(19)(i) of the Commodity Exchange Act. On the other hand, if bitcoins are viewed as derivatives of currency or futures contracts in currency, then they may be subject to securities regulation, or possibly commodities regulation, depending upon the basic characteristics and rights of the financial product itself. The exact delimitation between treatment as a security and treatment as a commodity is currently the subject of study and proposed rulemakings by the SEC and the CFTC.

Recent news reports have noted that bitcoins are beginning to be accepted by more and more vendors as a form of payment. If in fact it becomes a commonplace that bitcoins operate as a payment mechanism, then we must deal with the possibility that they should be subject to transactional rules of the UCC and the procedures of payment clearance centers. It is at this point that the contractual aspects of bitcoins become critical features of our analysis.

Conceivably, we might go further and argue that bitcoins are functionally a type of note – relatively short-term promises to pay the holder – in which case, they would be subject to UCC article 3, exempt or excluded from securities registration requirements, but possibly still subject to securities antifraud rules. This is an attractive alternative, since it would give us some definite transactional rules to work with, plus antifraud protection against market manipulation – if we could figure out what “manipulation” should mean in the strange new world of cryptocurrencies.

 

Michael P. Malloy

 

January 13, 2014 in Commentary, Current Affairs, E-commerce | Permalink | TrackBack (0)

Monday, December 2, 2013

Privacy Invasion? Facebook Has an App for That

Over at the Huffington Post, Sam Fiorella takes note of the egregious terms in Facebook Messenger's Mobile App Terms of Service.  These terms include allowing the app to record audio, take pictures and video and make phone calls without your confirmation or intervention.  It also allows the app to read your phone call log and your personal profile information.  Of course, an app that can do all that is also vulnerable to malicious viruses which can share that information without your knowledge.  But, of course, this is allowed only with your "consent."

 

[Nancy Kim]

December 2, 2013 in Current Affairs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Sunday, November 24, 2013

Wrap Contracts Symposium: Response to Rustad, Zacks and Amato and Closing Thoughts

Wrap contracts

 I want to thank all the experts who participated in last week's  symposium on WRAP CONTRACTS:  FOUNDATIONS AND RAMIFICATIONS .  They raised a variety of issues and their insights were thoughtful, varied and very much appreciated.  I also want to thank Jeremy Telman for organizing the symposium and inviting the participants.

Today, I’d like to respond to the posts by Michael Rustad, Eric Zacks and Theresa Amato.  Eric Zacks emphasizes the effect that form has on users, namely that the form discourages users from reviewing terms.  Zack notes that contract form may be used to appeal to the adjudicator rather than simply to elicit desired conduct from the user and that forms that elicit express assent - such as “click” agreements - help the drafter by aiding “counterfactual analysis surrounding the ‘explicit assent’” issue.  In other words, drafters may use contract forms to manipulate adjudicator’s decisionmaking and not necessarily to get users to act a certain way.  (This is a topic with which Zachs is familiar, having just written a terrific article on the different ways that drafters use form and wording to manipulate adjudicators’ cognitive biases). 

Both Michael Rustad and Theresa Amato focus, not on form, but on the substance of wrap contracts – the rights deleting terms that contract form hides so well.  Amato comes up with an alternative term to wrap contracts – online asbestos – to highlight the not-immediately-visible damage caused by these terms.  As a consumer advocate and an expert on how to get messages to the general public, Amato understands the need to overcome the inertia of the masses by communicating the harms in a way that can drown out the siren call of the corporate marketing masters.  So yes, a stronger term may be required to jolt consumers out of their complacency although the real challenge will be getting heard and beating the marketing masters at their own game. 

Michael Rustad notes that my doctrinal solutions fall short of resolving the problem of predispute mandatory arbitration and anti-class action waivers.  He’s right, of course, although I think reconceptualizing unconscionability in the way I propose (by presuming unconscionability with certain terms unless alternative terms exist or the legislature expressly permits the term) would reduce the prevalence of undesirable terms including mandatory arbitration and class-action waivers.  Rustad, who has considerable expertise on this subject, mentions that many European countries are further along than we are in dealing with unfair terms.  Many of those jurisdictions, however, also have legislation which limits class actions, tort suits or damages awards.  In addition, they don’t have the same culture of litigation that we do in this country.  Wrap contracts have their legitimate uses, such as deterring opportunistic consumer behavior and enabling companies to assess and limit business risks. In order to succeed, any proposal barring contract terms or the enforceability of wrap contracts must also consider those legitimate uses. 

Wrap ContractsI believe there is a place for wrap contracts and boilerplate generally but their legitimate uses are currently outweighed by illegitimate abuses of powers.  Wrap contract doctrine has moved too far away from the primary objective of contract law – to enforce the reasonable expectations of the parties--  and my solutions were an attempt to move the train back on track.  My focus was on doctrinal solutions but the problems raised by wrap contracts are complex and my solutions do not foreclose or reject legislative ones. I’m a contracts prof, so my focus naturally will be on contract law solutions (if you have a hammer, everything looks like a nail, I guess).  Doctrinal responses have the advantage of flexibility and may be better adapted to dynamic environments than legislation which can be quickly outdated when it comes to technology or business practices borne in a global marketplace. 

Admittedly, when it comes to wrap contracts, doctrinal flexibility hasn’t really worked in favor of consumers, but that only makes it more important to keep trying to sway judicial opinion.  I know there are those who question whether judges read legal scholarship, but I know that there are many judges (and clerks) who do. The case law in this area has spiraled out of control so that it makes no sense to the average “reasonable person” and has opened the door to the use of wrap contracts that exploit consumer vulnerabilities.

My book was not intended as a clarion call to rid the world of all wrap contracts; rather, it was intended to point out how much damage wrap contracts have done, how much more they can do, and to provide suggestions on how to rein them in and use them in a socially beneficial manner. 

I’m grateful to have had the opportunity to hear the insightful comments of last week’s highly respected line-up of experts and to share my thoughts with blog readers. 

[Nancy Kim]

November 24, 2013 in Commentary, Contract Profs, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, November 21, 2013

Wrap Contracts Symposium: Response to Moringiello and Hartzog

 

Wrap Contracts

        It’s my pleasure to respond to Tuesday’s posts from Juliet Moringiello and Woodrow Hartzog.   Juliet Moringiello asks whether wrap contracts are different enough to warrant different terminology.  Moringiello’s knowledge in this area of law is both wide and deep  and her article (Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307) greatly informed my thinking on the signaling effects of wrap contracts.  The early electronic contracting cases involved old- school clickwraps where the terms were presented alongside the check box and their signaling effects were much stronger than browsewraps.  Nowadays, the more common form of ‘wrap is the “multi-wrap,” such as that employed by Facebook and Google with a check or click required to manifest consent but the terms visible only by clicking on a hyperlink.  Because they are everywhere, and have become seamlessly integrated onto websites, consumers don’t even see them.  Moringiello writes that today’s 25-year old is more accustomed to clicking agree than signing a contract.  I think that’s true and it’s that ubiquity which diminishes their signaling effects.  Because we are all clicking constantly, we fail to realize the significance of doing so.  It’s not the act alone that should matter, but the awareness of what the act means.   I’m willing to bet that even among the savvy readers of this blog, none has read or even noticed every wrap agreement  agreed to in the past week alone.  I wouldn’t have made such a bold statement eight years ago.    

             Woodrow Hartzog provides a different angle on the wrap contract mess by looking at how they control and regulate online speech.  With a few exceptions, most online speech happens on private websites that are governed by “codes of conduct.”  In my book, I note that the power that drafting companies have over the way they present their contracts should create a responsibility to exercise that power reasonably.  Hartzog expands upon this idea and provides terrific examples of how companies might indicate “specific assent” which underscore just how much more companies could be doing to heighten user awareness.  For example, he explains how a website’s privacy settings (e.g. “only friends” or authorized “followers”) could be used to enable a user to specifically assent to certain uses.  (His example is a much more creative way to elicit specific assent than the example of multiple clicking which I use in my book which is not surprising given his previous work in this area).

                Hartzog also explains how wrap contracts that incorporate community guidelines may also benefit users by encouraging civil behavior and providing the company with a way to regulate conduct and curb hate speech and revenge porn.  I made a similar point in this article.  I am, however, skeptical that community guidelines will be used in this way without some legal carrot or stick, such as tort or contract liability.  (Generally, these types of policies are viewed in a one-sided manner, enforceable as contracts against the user but not binding against the company).   On the contrary, the law – in the form of the Communications Decency Act, section 230- provides website with immunity from liability for content posted by third parties.  Some companies, such as Facebook, Twitter or Google, have a public image to maintain and will use their discretionary power under these policies to protect that image.  But the sites where bad stuff really happens– the revenge porn and trash talking sites – have no reason to curb bad behavior since their livelihood depends upon it.  And in some cases, the company uses the discretionary power that a wrap contract allocates to it to stifle speech or conduct that the website doesn’t like.  A recent example involves Yelp, the online consumer review company that is suing a user for posting positive reviews about itself.  Yelp claims that the positive reviews are fake and is suing the user because posting fake reviews violates its wrap contract.  What’s troubling about the lawsuit, however, is that  (i) Yelp almost never sues its users, even those who post fake bad reviews, and (ii)  the user it is suing is a law firm that earlier, had sued Yelp in small claims court for coercing it into buying advertising.  To make matters worse, the law firm’s initial victory against Yelp (where the court compared Yelp’s sales tactics to extortion by the Mafia) for $2,700 was overturned on appeal. The reason?  Under the terms of Yelp’s wrap contract, the law firm was required to arbitrate all claims.  The law firm claims that arbitration would cost it from $4,000-$5,000.

                I agree with Hartzog that wrap contracts have the potential to shape behavior in ways that benefit users, but most companies will need some sort of legal incentive or prod to actually employ them in that way. 

 

 [Nancy Kim]

November 21, 2013 in Commentary, Contract Profs, E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, October 7, 2013

Click to Assign Copyright

I’ve been meaning to blog about a Fourth Circuit opinion that went under noticed, although it should have raised alarm bells.  That opinion, rendered in Metropolitan Regional Information Systems, Inc.  v. American Home Realty Network, Inc.,722 F.3d 591 (July 17, 2013) held that copyright could be transferred via a clickwrap. 

MRIS operates a website that offers a “multiple listing service” for a fee to real estate brokers and agents.  Subscribers to the site can upload their real estate listings, including photographs.  In order to submit their photographs they must click to indicate assent to the terms of use.  The court doesn’t specify exactly how this is done (and states in a footote that the “record is not clear as to the precise manner in which the TOU appears to subscribers). 

The TOU states:

“All images submitted to the MRIS Service become the exclusive property of (MRIS).  By submitting an image, you hereby irrevocably assign (and agree to assign) to MRIS, free and clear of any restrictions or encumbrances, all of your rights, title and interest in and to the image submitted.  This assignment includes, without limitation all worldwide copyrights in and to the image, and the right to sue for past and future infringements.”

The defendant, AHR, operates a website, NeighborCity.com which displays real estate listings using a variety of sources, including photographs taken from the MRIS website.

MRIS sued AHR for copyright infringement.  Photographs are protected under the Copyright Act.  Section 204 of the Copyright Act requires that transfers of copyright ownership require a writing that is signed by the owner.  AHR argued that  MRIS did not own the copyright to the photographs because its TOU failed to transfer those rights.   The issue then was whether a subscriber who clicks agreement to a TOU has “signed” a “written transfer” of the copyright in a way that meets the requirement of Section 204.  The Fourth Circuit found that “(t)o invalidate copyright transfer agreements solely because they were made electronically would thwart the clear congressional intent embodied in the E-Sign Act.  We therefore hold that an electronic agreement may effect a valid transfer of copyright interests under Section 204 of the Copyright Act.”

Given the reality that few read wrap contracts, holding that an author/creator can give up copyright with a click is alarming.  The opinion is a prime example of a court doing what is arguably the right thing for reasons of business competition but creating an alarming precedent in the process.  Shades of ProCD!  Online businesses will certainly benefit from this decision, but creators - not so much.  They may realize too late that when they clicked to upload content, they also assigned their rights to their work.  This is especially problematic since the primary reason creators use some of these sites is to get publicity for their work. The bargain, in other words, may be quite different from what the creator might have intended.

So - all you creators out there - BEWARE and check out those terms before you click.  They may not be as harmless as you think.

H/T to  my former student, Leslie Burns and her blog.

 

[Nancy Kim]

October 7, 2013 in E-commerce, Miscellaneous, Recent Cases, Web/Tech | Permalink | Comments (2) | TrackBack (0)

Monday, September 30, 2013

Internet Contracting Mayhem

Modelmayhem.com (“Modelmayhem”) is a nationwide modeling industry website.  Shana Edme (“Edme”) joined the site to further her modeling career.  After several photographs of Edme modeling lingerie were disseminated and viewed without her permission, Edme commenced an action in the Federal District Court for the Eastern District of New York (“EDNY”) against Modelmayhem (among others).  Edme claimed that the site violated her right to privacy under New York State statutes.

Modelmayhem moved to dismiss, arguing that Edme agreed to resolve any and all disputes in California. Specifically, Modelmayhem claimed that the "Terms of Use" found on its website contains a forum selection clause.  The EDNY (Judge Hurley) denied Modelmayhem’s motion because it failed to explain how Edme bound herself to the Terms of Use, including how users of its website were advised of the terms.

The court began with a discussion of contracting and the Internets:

The conclusory statement by Modelmayhem that "New York law specifically recognizes 'Terms and Conditions' posted on a website as a binding contract" (Modelmayhem's Mem. at 6) completely ignores the developing discussion within this Circuit (and courts nationwide) regarding what actions by an internet user manifests one's asset to contractual terms found on a website. "While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract." Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). "Mutual manifestation of assent, whether by written or spoken word or by conduct" is one such principle. Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 29 (2d Cir. 2002). As Judge Johnson of this District previously explained:

On the internet, the primary means of forming a contract are the so-called "clickwrap" (or "click-through") agreements, in which website users typically click an "I agree" box after being presented with a list of terms and conditions of use, and the "browsewrap" agreements, where website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen.  Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362, 366 (E.D.N.Y. 2009). A browsewrap agreement "usually involves a disclaimer that by visiting the website — something that the user has already done — the user agrees to the Terms of Use not listed on the site itself but available only be clicking a hyperlink." Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 837 (S.D.N.Y. 2012). Thus, in deciding the validity of browsewrap agreements, "courts consider primarily whether a website user has actual or constructive knowledge of a site's terms and conditions prior to using the site." Hines, 668 F. Supp. 2d at 367 (internal quotation marks and citation omitted).

The Court then discussed Modelmayhem’s failure to explain how Edme became bound to the terms on the website.  Modelmayhem could have presented Edme with the terms in a number of ways:

For example, (1) a user could have agreed to the Terms of Use by clicking an "I agree" box before creating an account and gaining access to the website's services; (2) the Terms of Use could have
appeared on the website's homepage; (3) the Terms of Use could have been accessible from a hyperlink located on the homepage; (4) the Terms of Use could have been buried somewhere else on the website; or (5) some other combination or scenario not otherwise contemplated by the Court.

Modelmayhem did not, however, provide any evidence of how the Terms of Use were made available to users of the site:

The only evidence presented on this issue is a screenshot of the Terms of Use. The Court, however, cannot glean solely from this screenshot how the Terms of Use were presented to users of the Modelmayhem website.

The circumstances surrounding how Modelmayhem's Terms of Use were exhibited to its users is determinative on the issue of whether Edme had actual or constructive notice of the terms and condition, including whether the forum selection clause was reasonably communicated to her. Compare Specht, 306 F.3d at 32 (concluding that a provision that a website user would not encounter until he scrolled down multiple screens was not enforceable because "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") and Hines, 668 F. Supp. 2d at 368 (holding that forum selection clause was not reasonably communicated where "Defendant failed to explain how Plaintiff and its other customers were 'advised' of the Terms and Conditions, or to cite a single case that suggests that merely posting such terms on a different part of a website constitutes reasonable communication of a forum selection clause") with Zaltz v. JDate, --- F. Supp. 2d ----, 2013 WL 3369073, at *7-8 (E.D.N.Y. 2013) (finding that "plaintiff assented to Jdate.com's Terms and Conditions of Service, meaning that the forum selection clause contained therein was, in fact, reasonably communicated to her since plaintiff "did not need to scroll or change screens in order to be advised of the Terms and Conditions; the existence of, and need to accept and consent to, the Terms and Conditions of Service was readily visible") and Fteja, 841 F. Supp. 2d at 840-41 (concluding that because plaintiff was "informed of the consequences of his assenting click and he was shown, immediately below, where to click to understand those consequences," defendant's Terms of Use were "reasonably communicated"). Without such information and evidence, the Court is unable to conclude that the Terms of Use were binding on plaintiff and that the forum selection clause — contained within the Terms of Use — were reasonably communicated to plaintiff. Accordingly, the Court denies Modelmayhem's motion to dismiss on the basis that the forum selection clause contained in its Terms of Use is enforceable.

Internet companies, it is not enough to go into court and point to a forum selection clause in your terms of use.  To enforce that clause, you also have to establish where that clause is on your site and how you pointed users to that clause… and better yet, how you obtained the user's assent to the terms.

Edme v. Internet Brands, 12 CV 3306 (E.D.N.Y. Sept. 23, 2013)(Hurley, J.).

[Meredith R. Miller]

September 30, 2013 in E-commerce, Recent Cases, Web/Tech | Permalink | TrackBack (0)

Friday, July 19, 2013

Where do MFN clauses stand after Apple Price-Fixing Decision?

101px-Apple_logo_black.svg
A “most-favored-nation” (MFN) clause requires the seller to provide the buyer the lowest price offered to any rival purchaser.  (The clause takes its name from the arena of international trade).  

Apple had a MFN clause in its contracts with five major book publishers.  Last week, Judge Denise Cote (SDNY) held that this clause was part of a conspiracy to fix e-book prices. The contracts required the publishers to give Apple’s iTunes store the best deal in the marketplace on e-books. 

What does this decision mean for MFN clauses, which are used in a number of industry contracts?  The WSJ took up this topic in a recent article:

Defendants in antitrust cases have liked to have the sound bite that no court has found an MFN to be anticompetitive," said Mark Botti, a former Justice Department antitrust lawyer now in private practice. "They can no longer say that."

Apple, meanwhile, has strongly denied that it conspired to fix prices, and has said it will appeal the decision.

Judge Cote avoided a broad denunciation of MFN clauses, but her decision could haunt contract negotiations in industries as diverse as entertainment and health care, legal experts said. In recent years, the Justice Department has sued a few companies over the use of MFN clauses and is investigating others.

"While most favored-nation clauses can be competitively benign, when they are used as a tool to engage in anticompetitive conduct that harms consumers, the Antitrust Division will take enforcement action," said Assistant Attorney General Bill Baer, who oversees the division at the Justice Department.

MFN clauses guarantee the recipient the lowest prices or rates charged to any buyer. While in theory that could encourage competition and lower prices for consumers, in practice such agreements sometimes end up establishing a minimum price, according to antitrust lawyers and government officials.

 ***

Apple said the provisions guaranteed its customers would get the lowest price for new and popular e-books. But Judge Cote offered a less-flattering interpretation.

"[The MFN] eliminated any risk that Apple would ever have to compete on price when selling e-books, while as a practical matter forcing the publishers to adopt the agency model across the board," she wrote in her 160-page ruling.

The article reports that the Justice Department is expected to request that the court “impose a variety of conditions on Apple's business, including barring the company from using MFN clauses,” sending the viability of MFN clauses into doubt.

More of the article here on the WSJ site (subscription required).

[Meredith R. Miller]

July 19, 2013 in E-commerce, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, May 2, 2013

Ticketmaster and Those Pesky Bots

Last week, I mentioned a California bill addressing the issue of ticket resales and secondary marketplaces.  I think that the primary problem for consumers is not that these secondary marketplaces exist -- being able to resell tickets is generally a good thing for consumers--but that scalpers use bots (automated software programs) to buy up large quantities of tickets which they then resell at jacked up prices.  Fans get angry because shows are quickly "sold out" and they are forced to pay heart stopping prices in the secondary marketplace if they want to see their favorite performer (or get decent seats).  Well, Ticketmaster has had enough and is suing 21 people involved in circumventing its online security system by buying up vast quantities of tickets.  Ticketmaster's weapon of choice here?  The universally reviled yet oh-too-familiar Terms of Use.  Ticketmaster's TOU prohibits the use of bots.  (It's also suing for copyright infringement, among other things).  In fact, back in the early days of the Internet, bots were one of the reasons companies started to use TOU.  The more things change....

[Nancy Kim]

May 2, 2013 in Current Affairs, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Wednesday, April 24, 2013

Paperless Tickets and Licenses

 

The Sacramento Bee reports that a California legislative committee (if you really want to know,  it’s called the Assembly Arts, Entertainment, Sports, Tourism and Internet Media committee) “gutted” a bill that would have illegalized “paperless” tickets.  Paperless tickets are more (or is it less?) than what they sound like – they are a way for companies like Ticketmaster to sell seats without permitting purchasers to resell those seats.  Purchasers must show their ID and a credit card to attend the show.  The bill pitted two companies, Live Nation (owner of Ticketmaster) and StubHub, against each other. 

This bill and the related issues should be of interest to contracts profs because it highlights the same license v. sale issues that have cropped up in other market sectors where digital technologies have transformed the business landscape.  Like software vendors and book publishers, Ticketmaster is concerned about the effect of technology and the secondary marketplace on its business.  Vendors, using automated software (“bots”), can quickly purchase large numbers of tickets and then turn around and sell these tickets in the secondary marketplace (i.e. at StubHub) at much higher prices.  Both companies argue that the other is hurting consumers.  Ticketmaster argues that scalpers hurt fans, who are unable to buy tickets at the original price and must buy them at inflated prices.  Stub Hub, on the other hand, argues that paperless tickets hurt consumers because they are unable to resell or transfer their tickets. 

The underlying question seems to be whether a ticket is a license to enter a venue or is it more akin to a property right that can be transferred.  Or rather, should a ticket be permitted to be only a license or only a property right that can be transferred?  The proposed pre-gutted legislation would have taken that decision out of the hands of the parties (the seller and the purchaser) and mandated that it be a property right that could be transferred.  In other words, it would have made a ticket something that could not be a contract.  Of course, given the adhesive nature of these types of sales, a ticket as contract would end up being like any other mass consumer contract – meaning the terms would be unilaterally imposed by the seller. In this case, that would mean the ticket would be a license and not a sale of a property right. 

It’s not just the media giants who are feeling the disruptive effect of technology  - we contracts profs feel it, too. 

[NB:  My original post confused StubHub with the vendors who use the site.  StubHub is the secondary marketplace where tickets can be resold.  Thanks to Eric Goldman for pointing that out].

[Nancy Kim]

April 24, 2013 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, March 4, 2013

For Those Who Have 76 Days to Spare

( H/T to Ben Davis -and his student - for posting about the article to the Contracts Prof list serv).

This article indicates that the average Internet user would need 76 work days in order to read all the privacy policies that she encounters in a year.  (Unfortunately, the link to the study conducted by the Carnegie Mellon researchers and cited in the article doesn’t seem to be working).  But you don’t need a study to tell you that privacy policies are long-winded and hard to find.  That’s one of the reasons you don’t read them.  Another is that they can be updated, often without prior notice, so what’s the point in reading terms that are constantly changing? Finally, what can you do about it anyway?  Don’t like your bank’s privacy policies – good luck finding another bank with a better one.

But we contracts profs are familiar with the disadvantages of standard form contracts. We’re also familiar with the efficiency argument in favor of them. The same issues arise with privacy policies – only there’s one important difference between a privacy policy and a contract, even an adhesive one. A privacy policy isn’t really a contract, at least not in most cases. That’s one of the arguments I make in my forthcoming book, WRAP CONTRACTS:  FOUNDATIONS AND RAMIFICATIONS.  A privacy policy is typically a notice, not a contract.  Courts – especially in cases involving digital contracts – have tended to confuse or conflate the two.  If you look at the wrap contracts (shrinkwrap,browsewrap, clickwrap) cases under traditional contract law, they make no sense.  If you analyze them as notice cases, they have some consistency. Unfortunately, courts are treating wrap contracts as contracts, not notices. 

So, what’s the difference between a contract and a notice?  The big difference is that the enforceability of a notice depends upon the notice giver’s existing entitlements, i.e. property or proprietorship rights whereas a contract requires consent.

If I put a sign on my yard that says, Keep off the grass, I can enforce that sign under property and tort law.  As long as the sign has to do with something that is entirely within my property rights to unilaterally establish, it’s enforceable.  If the sign said, however, ‘Keep off the grass or you have to pay me $50” – well that’s a different matter entirely.  That would require a contract because now it involves your property rights.

Privacy policies are more like notices – and should be treated as such even if they are in the form of a contract (such as a little clickbox that accompanies a hyperlink that says TERMS).   If a company wants to elevate a notice to a contract, it should require a lot more than that simple click.  Because the fact is, contract law currently does require the user to do more than click – it requires the user to read pages and pages of terms spread across multiple pages – at a cost of 76 days a year.  The standard form contract starts to look a lot less efficient when viewed from the user’s perspective.

[Nancy Kim]

 

March 4, 2013 in Commentary, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, January 24, 2013

When is a Contract Not a Contract?

I recently finished a book manuscript on the subject of “wrap contracts” – shrinkwraps, clickwraps, browsewraps, tapwraps, etc.  These non-traditional contracts are interstitial, occupying space in and between contracts and internet law, but not neatly fitting into one alone.  I'll be blogging a lot more about them in the future.

On the subject of wrap contracts, not long ago I bought a new laptop with Windows 8 pre-installed. 
But that didn’t mean I didn’t have to agree to this:

Windows License Terms 

What's interesting is that my old laptop, which I ordered online, came in a package like this:

  Torn Agreement

Like the typical shrinkwrap, ripping the plastic bag (which was necessary to get to the laptop inside it) was deemed acceptance. 

Both were examples of rolling contracts, but they came in different forms -- and neither gave me notice of any terms to come at the time of the transaction.  Yet consider the hassle I would have to go through if I decided, after having received the goods and a "reasonable opportunity to read" the terms, that I didn't want to accept the terms.  I would  have to ship back the computer or take it back to the store, and try to explain that I was rejecting it because I disagreed with the contract terms. 

Honestly, now - don't you think the retailer would just think I was nuts?  Or that I had found a better deal elsewhere?  (Or that I had done something sneaky, like somehow copied the software or infected the computer with a virus?)  How many think I would actually get my money back if there was nothing (else) wrong with the laptop(s)?

 

[Nancy Kim]

January 24, 2013 in E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, October 22, 2012

Larry Cunningham Responds, Part I: Politics in Contracts

Lawrence A. Cunningham is the Henry St. George Tucker III Research Professor of Law at the George Washington University Law School.  He is also the author of Contracts in the Real World.

The following post is cross-posted from an online symposium that previously appeared on Concurring Opnions.  The original post can be found here.

Cunningham_2009Before wrapping up the symposium about Contracts in the Real World, I wanted to offer two posts on main themes of the contributions–which were wonderful.

The first concerns the role of politics in contract law adjudication. It emerged as a theme from several posts, explicitly by Dave and Miriam, implicitly byJake’s discussion of Baby M and by Nancy’s of ProCD, and more obliquely in Tom’s (and Miriam’s) reference to my notion of the “sensible center” in contract law.

Perhaps the safer way to put the point would be to say that the common law of contracts is among the least political of subjects in law. The book does recognize the potential for political factors, of course, including variation among states. And while it celebrates the impressive power of the common law of contracts to deal neutrally with change, it also notes limits.

This is most explicit in the case of Baby M and its contrast with California’s Baby Calvert. I agree with Jake, and his agreement with Dave, that these two cases illustrate the driving role that judicial worldviews, and perhaps local state outlooks, can play in the approach to a case and the outcome.

The pairing of the two cases helps to show such features, in a context where opposition seems particularly acute. This is the context of “public policy,” an area where the common law of contracts is often inferior to administrative or legislative solutions precisely because at stake are exquisitely political decisions. That’s why p. 56 notes that judges on both (or all) sides of the debate about surrogacy contracts “usually concede that better solutions are likely to come from legislation. As magisterial as the common law of contracts is, many of society’s vexing puzzles should be resolved by the legislative branch of government.”

The differences between California and New Jersey on surrogacy contracts reminds me of the differences, to which Dave adverts, between California and New York on the parol evidence rule. In California, Chief Justice Roger Traynor helped to forge a weak parol evidence rule, stressing context and reflecting skepticism of the unity of language, compared to New York, where judges since Andrews and Cardozo (noted at pp 7-8) have shown greater interest in finality and the security of exchange transactions.

Those differences, in the doctrine and underlying attitudes, are real. But as this example shows and Dave notes, this is not so easy to classify in political or ideological terms.  It may be due more to New York’s history as a commercial center and may reflect something about how California is just a more relaxed place in general.

I think the example of ProCD, about which Miriam, Nancy and Jake commented, is an instance of the potential but vague role of politics or judicial worldview in contract adjudication. In the book, I summarize the case as a possible precedent for the main case, which concerned consumers “assenting” to inconspicuous terms in an on-line license—the Netscape spyware case. The ProCD precedent, I note, pointed in opposite directions for the Netscape case, forcing the judge to choose whether to follow in its path or not. The judge chose not to. The related facts seem to support that outcome.  So far so good.

But given the charged setting of electronic commerce, I suspected that readers would have a sneaking suspicion that something else is going on. So I identify the judges—something done rarely in the book, as follows: at page 28 “[ProCD was written by] Frank Easterbrook, the federal judge in Chicago appointed by President Ronald Reagan” . . . and at page 27 “Netscape was written by Judge Sonia Sotomayor for a federal appellate court in New York, several years before her promotion by President [Barack] Obama to the U.S. Supreme Court.”

The real problem with ProCD may be more akin to the real problem with Baby M: even the common law of contracts nods. The issues are so novel and vexing that legislatures should act.  Even the UCC—part of a long tradition in sales law recognizikng the limits of the common law—may not be readily adaptable to the world of electronic commerce, as Miriam’s post about ProCD hints.

But to return to the broader thrust of the sensible center and the generally apolitical quality of contract law, consider two points Jennifer made in her post. The first concerns the political fury that erupted amid the AIG bonus contracts. While politicians were calling for scalps and the company’s PR team intoned about the sanctity of contracts, Jennifer notes the op-ed I wrote summarizing the comparatively cool tools and results recognized by the common law of contracts.

Jennifer also calls attention to the list of conclusions at the end of Contracts in the Real World. Look at those statements of earthy contract law (some listed here) and it will be difficult to deny the truth or to detect a political or ideological edge within the spectrum of American political discourse. Let contract law do its knitting, and my own answer to Dave’s excellent question is that contract law really is pragmatic.

[Posted by JT]

October 22, 2012 in Books, Commentary, E-commerce, Famous Cases, Recent Scholarship, Teaching, Weblogs | Permalink | Comments (0) | TrackBack (0)

Friday, August 3, 2012

Statute of Frauds? There's an app for that!

From Mashable, a write up on HelloSign:

HelloFax, the company that lets you send and receive digital faxes, has spun off its digital signature service into a new stand-alone product: HelloSign.

“Everyone has to sign documents, and it’s done in a really poor way right now, which is what we’re trying to fix,” Joseph Walla, CEO of HelloSign (and HelloFax) told Mashable.

Documents can be signed and securely returned to their sender from both the web and the company’s new iPhone application. Unlike some similar services and apps that are already out there, digital signatures using the service are free and unlimited so you can send and receive just a few documents — or all the contracts for your business — with the service at no cost.

On the iPhone application, you sign a document with your finger on the screen. Once you’re done signing, the signature is brought back into your document, then you can place it where you want it to go. The same experience can be done on your home computer using a mouse.

When you send documents to be signed with HelloSign you can also track those documents with read receipts and audit trails, so you know exactly what’s going on with the document every step of the way.

Walla says that, while digital signatures have been legal in the U.S. for any document that can be signed with a pen for the past 12 years, many companies are still using pen and paper to get the job done. He sees the service as being invaluable to companies and businesses that are faced with delays waiting on paperwork to be signed.

“What we found out is that the only reason people fax things is that the vast majority of these documents are being signed,” Walla said when we spoke to him about HelloFax earlier this year. “What we’ve found is a lot of people joined us for faxing, and now they’ve converted to electronic signatures. We have a lot users who were fax users and now they don’t fax at all.”

With HelloSign, contracts and the like can be handled almost instantly, saving everyone involved in the process valuable time. The only type of document the service can’t handle is one that requires a notary.

HelloSign and its iPhone app are available now. For a limited time, those who sign up for HelloSign will also receive 25GB of free storage from Box.

[Meredith R. Miller]

August 3, 2012 in E-commerce, In the News, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Monday, July 16, 2012

NO LIMIT: Contract Modification By Instant Message

Safesmokes
Via @thecontractsguy (aka Brian Rogers, if you don’t already, you should follow him on Twitter) retweeting @yanger_law, I learned of a recent federal district court case from Florida that held that an instant messaging (“IM”) conversation constituted a contract modification.

Smoking Everywhere, Inc., is a seller of e-cigarettes (hey, can I bum an e-smoke?) Smoking Everywhere contracted with CX Digital Media, Inc., to help with online marketing of a free e-cigarette promotion. CX Digital would place the ad with its affiliates to generate web traffic. I am oversimplifying the technology and metrics here, but basically the deal was that Smoking Everywhere would pay CX Digital around $45 for every completed sale that came via a customer clicking on and ad placed with one of CX Digital’s affiliates. The contract limited the deal to 200 sales per day.

After re-coding some pages for Smoking Everywhere, CX Digital believed it could drive more traffic and increase the sales it was sending CX Digital. The following exchange, part of a longer IM chat, occurred between “pedramcx” (Soltani) from CX Digital and “nicktouris” (Touris) from Smoking Everywhere:

pedramcx (2:49:45 PM): A few of our big guys are really excited about the new page and they’re ready to run it

pedramcx (2:50:08 PM): We can do 2000 orders/day by Friday if I have your blessing

pedramcx (2:50:39 PM): You also have to find some way to get the Sub IDs working

pedramcx (2:52:13 PM): those 2000 leads are going to be generated by our best affiliate and he’s legit

nicktouris is available (3:42:42 PM): I am away from my computer right now.

pedramcx (4:07:57 PM): And I want the AOR when we make your offer #1 on the network

nicktouris (4:43:09 PM): NO LIMIT

pedramcx (4:43:21 PM): awesome!

And, awesome!, indeed. CX Digital went from sending around 60-something sales a day to an average of over 1200 sales per day (with a peak of over 2800 sales in one day). Accordingly, CX Digital sent Smoking Everywhere an invoice for two months in 2009 that totaled over $1.3 million. And Smoking Everywhere refused to pay.

Among other issues, the question arose whether the IM conversation modified the existing contract. The district court held that it did:

The Court agrees a contract was formed but clarifies that Touris’s response acted as a rejection and counter-offer that Soltani accepted by then replying “awesome!” “In order to constitute an ‘acceptance,’ a response to an offer must be on identical terms as the offer and must be unconditional.” “A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.” “The words and conduct of the response are to be interpreted in light of all the circumstances.”

Here, Touris’s response of “NO LIMIT” varies from the two specific terms Soltani offered and so acts as a counter-offer. Soltani proposed CX Digital provide 2,000 Sales per day and that CX Digital be the AOR or agent of record, a term of art meaning the exclusive provider of affiliate advertising on the advertising campaign. Touris makes a simple counter-offer that there be no limit on the number of Sales per day that CX Digital’s affiliates may generate and makes no mention of the AOR term. Soltani enthusiastically accepts the counter-offer by writing, “awesome!” and by beginning to perform immediately by increasing the volume of Sales.

Touris testified he could have been responding to something other than Soltani’s offer of 2,000 Sales per day when he said “NO LIMIT.” Touris acknowledged that he had engaged in contract negotiations about “changing the number of leads, changing URLs, deposits, that type of thing,” although he added, “we mainly spoke on the phone. A little bit of email but I had trouble receiving his emails so I mean we used Instant Messaging but you know there was a lot more than what was presented here, last court appearance.” The implication of this testimony was that Touris could have been responding to something else he and Soltani had discussed by phone. But when pressed on just what else he could have been referring to when he said “NO LIMIT,” Touris’s memory failed him. In particular, he denied that “NO LIMIT” was some kind of personal motto.

Indeed, neither Touris nor Taieb ever suggested any plausible alternative interpretation for why Touris wrote “NO LIMIT” to Soltani, nor did they explain the content of the alleged additional negotiations that took place outside of the September 2, 2009 instant messages or what effect those would have had on the apparent agreement the parties reached on September 2nd. Considering Touris’s admission that he was engaged in instant-message negotiations with Soltani about changing the number of leads along with the September 2nd instant-message transcript, directs the conclusion that those negotiations, wherever and however they occurred, culminated with a modification of the [original contract] when Touris and Soltani agreed to “NO LIMIT.”

Smoking Everywhere also observes that a significant amount of time — almost two hours— passed between Soltani’s offer of 2,000 Sales per day and Touris’s counter-offer of “NO LIMIT,” which it suggests adds uncertainty to the meaning of the conversation. However, more than an hour passes before Soltani added that he would like CX Digital to be the AOR; yet this is clearly part of Soltani’s offer. It is then only thirty-four minutes later that Touris responds “NO LIMIT.” Given that Touris testified he would not have approved such an increase without first discussing it with Taieb, one explanation for the time delay, if one is needed, is that Touris was doing just that — asking Taieb for approval.

(citations omitted).  There was some ambiguity here and IM is pretty informal, but given the context, it seems like the court made the right call.

I don’t IM because I don’t understand it.  Given the expectation of instantaneous communication, rather than IM, I prefer the telephone.  [Notable exception: when you are in a space where you can't gossip aloud about colleagues].  But this case suggests, if you do IM, be careful what you type! It could lead to Smoking Guns Everywhere.... 

CX Digital Media, Inc. v. Smoking Everywhere, Inc. (S.D. Fl. Mar. 23, 2011) (Altonaga, J.).

[Meredith R. Miller]

July 16, 2012 in E-commerce, Recent Cases, Teaching, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 25, 2012

Clickwrap Isn’t Just for Consumers… Employee's Pattern-or-Practice Claim Does Not Trump Class Action Waiver

Bretta Karp sued her employer, CIGNA Healthcare, in the U.S. District Court of Massachusetts, alleging systematic gender discrimination.  She purported to bring the suit as a class action.  CIGNA moved to compel arbitration and argued that a class action and class-wide arbitration was waived under the company’s Dispute Resolution Policy.

In 1997, when Karp began her job with CIGNA she signed an acknowledgment of receipt of the dispute resolution policy in the Employee Handbook.  At that time, the policy did not mention class actions or arbitrations.  In 2005, CIGNA sent a company-wide e-mail informing employees that the Handbook had been updated to reflect changes in the policy.  The e-mail contained a link to the Handbook and instructed employees to complete an electronic receipt indicating that they had received the Handbook.  The e-mail indicated that failure to fill out the receipt could impact the employee’s future employment with the company.  After two follow up emails reminding Karp to acknowledge receipt of the policy changes, she clicked “yes” on the Employee Handbook acknowledgment.  The acknowledgment mentioned mandatory arbitration but did not mention the class arbitration waiver.  In fact, the Employee Handbook referenced the dispute resolution policy and stated that full details were contained on CIGNA’s website; on the website, the dispute resolution policy specifically waived class-wide arbitration.

The parties did not dispute that Karp knowingly agreed to arbitrate her claims of gender discrimination.  They disagreed, however, about whether Karp was entitled to bring a class-based pattern-or-practice claim.  Karp argued that she did not agree to the class arbitration waiver.  In an interesting contortion, the court held that CIGNA did not agree to permit class arbitration and could not be compelled to proceed on a class-wide basis.  Here’s the reasoning (some citations omitted; emphasis in original):

The Court can only compel class arbitration if there is a “contractual basis for concluding that [the parties] agreed to do so.” Stolt-Nielsen, 130 S. Ct. at 1775 (emphasis in original)… The Supreme Court has recently emphasized that “the ‘changes brought about by the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental,’” and thus non- consensual, “manufactured” class arbitration “is inconsistent with the FAA.” AT&T Mobility, 131 S. Ct. at 1750 (quoting Stolt-Nielsen, 130 S. Ct. at 1776).

Class arbitration is thus permissible only if both parties agree. Put another way, a party cannot be compelled to arbitrate class claims unless something in the contract indicates, at least implicitly, that it agreed to permit class arbitration. See Stolt-Nielsen, 130 S. Ct. at 1776; Jock v. Sterling Jewelers Inc., 646 F.3d 113, 124 (2d Cir. 2011) (“Stolt-Nielsen does not foreclose the possibility that parties may reach an ‘implicit’—rather than ‘express’—agreement to authorize class-action arbitration.”).

Here, the Handbook is silent on the issue of class arbitration. However, it states: “[b]y accepting employment . . . you have agreed to arbitrate serious employment-related disagreements between you and the Company . . . using the Company’s Employment Dispute Arbitration Policy and Employment Dispute Arbitration Rules and Procedures.” The company policy and procedures unambiguously provide that “[n]o class-wide arbitrations are allowed under the CIGNA Companies’ Employment Dispute Arbitration Policy or the Rules and Procedures,” and that “[e]ach party seeking resolution of its, his or her claims pursuant to an agreement to arbitrate under these Rules and Procedures must proceed individually. There shall be no class or representative actions permitted.”

Plaintiff disputes whether, under the circumstances, she agreed to the bar on class arbitration, or agreed to waive her class arbitration rights. There is certainly some question whether defendant’s policies and procedures can be enforced against plaintiff simply because she agreed to the terms of the Handbook.  But there is no doubt that defendant did not agree to permit class arbitration. Indeed, its policies and procedures state clearly that class arbitration is not permitted. Accordingly, defendant cannot be compelled to submit to class arbitration. See AT&T Mobility, 131 S. Ct. at 1750 (stating that class arbitration must be consensual).

The court did state in a footnote that Karp may not have been provided with sufficient notice of the waiver because the Handbook incorporated the policies which were posted on the company’s website.  The court also held that, by agreeing to arbitration, Karp could not litigate her claims in court as a class action.

Karp argued that her pattern-or-practice claim could not be vindicated in a bilateral arbitration because (1) case precedent required it to be brought as a class action and (2) as a practical matter, discovery would be too limited in arbitration.  Plus, she could not obtain injunctive relief.  The court essentially said that the pattern-or-practice claim is “unusual” with a “peculiar genesis” and was only a method of proof, not a claim in itself.  The court broke from precedent requiring a pattern-or-practice to be established in a class action and held that Karp's substantive rights could still be vindicated in bilateral arbitration.

Karp v. Cigna, Case 4:11-cv-10361-FDS (D. Mass. April 18, 2012)  (Saylor, J).

[Meredith R. Miller]

April 25, 2012 in E-commerce, Labor Contracts, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 28, 2012

WSJ Online's agreement and illusory contracts

A federal district court in New York recently ruled in Lebowitz v. Dow Jones & Co. that the Wall Street Journal Online's subscriber agreement was not illusory merely because it had a provision that allowed it to change fees at any time. (H/T Eric Goldman's Technology & Marketing Law Blog which has been on a roll with 'wrap contract issues). Pursuant to their agreement, subscribers to the Wall Street Journal Online obtained access to the Wall Street Journal Online and Barron's Online. Dow Jones (parent of both companies) decided to spin off the Barron's service. Existing subscribers were then told they could continue to access one service, but could only access the other for an additional fee. Plaintiffs sued, claiming breach of contract. At issue, was the following clause of the subscription agreement:

"We may change the fees and charges then in effect, or add new fees or charges, by giving you notice in advance....This Agreements contains the final and entire agreement between us regarding your use of the Services and supersedes all previous and contemporaneous oral and written agreements regarding your use of the Services. We may discontinue or change the Services, or their availability to you, at any time."*

The court found that Dow Jones was expressly permitted to change its services and/or fees (it gets a little fuzzy which in the opinion) pursuant to this clause. Plaintiffs argued that interpreting the above clause to mean that Dow Jones can change the fees at any time (even during the term which has already been paid for), would render the argument illusory and so such an interpretation should be avoided. The question then was whether that clause rendered the agreement illusory. The court held that it did not because "Dow Jones acted reasonably, and therefore this provision of the Subscriber Agreement is not illusory." [This seems a bit backward. It should have said that courts will interpret a requirement of reasonableness into seemingly illusory contracts if it's clear the parties intended to enter into the contract - since the court concluded that Dow Jones didn't act unreasonably, there was no breach]. I'm not sure I agree with the court's decision and wish I had a copy of the entire agreement. It seems a better interpretation of the clause would be that Dow Jones could change the fees but that subscribers would be able to discontinue the subscription and get their prepaid amounts back if they did not like the increase. I don't think that was an option. The court seemed to think that there was no real harm done by changing the terms of the agreement (even before the subscription period had expired) because the majority of WSJ Online subscribers didn't access Barron's Online. (It may also have made a difference that plaintiffs were seeking class certification)

*This provision was accidentally dropped when I copied the text in the original version of this post.

** I plan to blog a little bit more about the notice aspects of this case after I've had a chance to review the pleadings in the case.

[Nancy Kim]

March 28, 2012 in E-commerce, Recent Cases, Web/Tech, Weblogs | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 20, 2012

Old Enough to Facebook, Old Enough to Choose a Forum*

Facebooklike*See Andrew Schwartzarticle on the infancy doctrine and the CARD Act  

In a putative class action, plaintiffs brought a lawsuit against Facebook alleging that the social networking site violated their right of privacy by misappropriating their names and likenesses for commercial endorsements without their consent.  Plaintiffs, minors residing in Illinois, commenced the action in the Southern District of Illinois.  Facebook moved to transfer the case to the Northern District of California pursuant to a forum selection clause in Facebook’s terms of service.

Before addressing the validity of the forum selection clause, the court had to determine whether plaintiffs (minors) could disaffirm the clause under the infancy doctrine.  The court held that, because plaintiffs have used and continue to use Facebook, they could not disaffirm the forum selection clause.   The court reasoned:

The infancy defense may not be used inequitably to retain the benefits of a contract while reneging on the obligations attached to that benefit. *  * * Thus, “[i]f an infant enters into any contract subject to conditions or stipulations, the minor cannot take the benefit of the contract without the burden of the conditions or stipulations.” 5 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 9:14 (4th ed. 1993 & Supp. 2011) (collecting cases). California law is in accord with “the equitable principle that minors, if they would disaffirm a contract, must disaffirm the entire contract, not just the irksome portions.” Holland v. Universal Underwriters Ins. Co., 75 Cal. Rptr. 669, 672 (Cal. Ct. App. 1969). “[N]o person, whether minor or adult, can be permitted to adopt that part of an entire transaction which is beneficial, and reject its burdens. This commanding principle of justice is so well established, that it has become one of the maxims of the law . . . . [Minors] must either accept or repudiate the entire contract,” and “they cannot retain [the contract’s] fruits and at the same time deny its obligations.” Peers v. McLaughlin, 26 P. 119, 120 (Cal. 1891). “A party cannot apply to his own use that part of the transaction which may bring to him a benefit, and repudiate the other, which may not be to his interest to fulfill.” Id.

The court then held that the clause was valid and ordered the transfer of the case.

The lesson: a minor cannot accept the benefits of a contract and then seek to void it in an attempt to escape the consequences of clauses that minor does not like (especially when they “like” on Facebook).

E.K.D. v. Facebook, Inc., No. 11-461-GPM (S.D. of Ill. March 8, 2012) (Murphy, J.)

[Meredith R. Miller]

March 20, 2012 in E-commerce, In the News, Miscellaneous, Recent Cases, Teaching, Web/Tech | Permalink | Comments (1) | TrackBack (0)