ContractsProf Blog

We Don't Need No Stinkin' Lawyers!

Who says we don't?  Business 2.0 Magazine, that's who!  In it's August 2007 issue, Business 2.0  features the "29 Best Business Ideas in the World," and the very best idea of all -- that's right, #1 -- is "let's get rid of the lawyers." 

Ah, you say, but that idea is at least as old as Shakespeare,
True enough, says Spanish startup, Negotiation, but it nonetheless has launched "Tractis," a web platform that, according to Business 2.0 "lets users create, manage, and execute contracts online -- no lawyers required." 

The article in Business 2.0 goes on to quote Negotiation CEO David Blanco as follows: "The biggest problem with online contracts now is enforcement.  If you reach an agreement with another person and something goes wrong, how do you enforce the contract and in which jurisdiction?  How do you know the true identity of someone calling himself snake69@hotmail.com?  Tractis' proposed solution is "a comprehensive range of trust and verification systems." 

Hmmm.  I wonder if Mr. Blanco has identified the biggest problem or only the initial problem.  What happens once you identify snake69 and you want to sue him?  Don't you need a stinkin' lawyer for that?  And what if snake69 has a stinkin' lawyer and a contract that he knows will favor him because his stinkin' lawyer told him which one to choose on the Tractis database?

Hat tip: James Saqui

[Jeremy Telman]

Changing One's Mind

An interesting story via Australia, that (yes) involves eBay:

An Australian court ordered a man to hand over a vintage plane worth about $215,000 after he tried to back out of an eBay auction, a newspaper reported Friday.

The New South Wales state Supreme Court ordered Vin Thomas to complete the deal after he changed his mind about selling the 1946 World War II Wirraway plane he had placed on the Internet auction site last year, the Sydney Morning Herald reported.

Peter Smythe, a Australian warplane enthusiast, was the only person to bid on the item, matching the $128,640 reserve price just moments before the auction ended in August last year.

But Thomas had already agreed to sell the plane to someone else for $85,800 more than Smythe's offer, and backed out of the sale, the newspaper said.

Smythe took Thomas to court, hoping a judge would force him to follow through with the deal.

Judge Nigel Rein agreed, saying the eBay auction formed "a binding contract between the plaintiff and the defendant and ... should be specifically enforced."

[Miriam Cherry / Hat tip: Beth Winston (Catholic)]

Google's Adwords Contract Upheld--Feldman v. Google

[cross posted to Technology & Marketing Law Blog]

Feldman v. Google, Inc., 2007 WL 966011 (E.D. Pa. March 29, 2007)

A law firm advertised via Google AdWords and allegedly was click frauded.  The lawyer then sued (on behalf of his law firm) Google for click fraud in Pennsylvania.  Google defended based on its AdWords contract, which has a mandatory venue provision specifying that all lawsuits shall be brought in California.  We saw virtually identical facts in the initial Person v. Google case, which also involved the AdWords contract (though that lawsuit was brought in NY).  The result was the same in both cases--each time, the court upheld the AdWords contract's mandatory venue clause and transferred the case to California.

Mechanically, Google's contract formation process is bullet-proof.  As the court describes:

To open an AdWords account, an advertiser had to have gone through a series of steps in an online sign-up process. (Hsu Decl. ¶ 3.) To activate the AdWords account, the advertiser had to have visited his account page, where he was shown the AdWords contract. (Hsu Decl. ¶ 4.)

Toward the top of the page displaying the AdWords contract, a notice in bold print appeared and stated, “Carefully read the following terms and conditions. If you agree with these terms, indicate your assent below.” (Hsu Decl. ¶ 4.) The terms and conditions were offered in a window, with a scroll bar that allowed the advertiser to scroll down and read the entire contract. The contract itself included the pre-amble and seven paragraphs, in twelve-point font. The contract's pre-amble, the first paragraph, and part of the second paragraph were clearly visible before scrolling down to read the rest of the contract. The preamble, visible at first impression, stated that consent to the terms listed in the Agreement constituted a binding agreement with Google. A link to a printer-friendly version of the contract was offered at the top of the contract window for the advertiser who would rather read the contract printed on paper or view it on a full-screen instead of scrolling down the window. (Hsu Decl. ¶ 5.)

At the bottom of the webpage, viewable without scrolling down, was a box and the words, “Yes, I agree to the above terms and conditions.” (Hsu Decl. ¶ 4.) The advertiser had to have clicked on this box in order to proceed to the next step. (Hsu Decl. ¶ 6.) If the advertiser did not click on “Yes, I agree ...” and instead tried to click the “Continue” button at the bottom of the webpage, the advertiser would have been returned to the same page and could not advance to the next step. If the advertiser did not agree to the AdWords contract, he could not activate his account, place any ads, or incur any charges. Plaintiff had an account activated. He placed ads and charges were incurred.

I always tell my students that the very best online contracts are "mandatory non-leaky clickthrough" agreements.  Like this one.

To get around this, the lawyer claims he was ignorant of the mandatory venue clause because he didn't read the contract.  Not a very persuasive argument.  Every lawyer learns very, very early in their first year Contracts course that a party is bound to contract terms they assent to, even if they chose not to read the terms. 

The court also rejects the plaintiff's other attacks on the contract:
* the contract didn't contain a definite price.  However, the contract contained the exact formula for computing the price.
* procedural unconscionability.  The court rejects this because the "Plaintiff was a sophisticated purchaser, was not in any way pressured to agree to the AdWords Agreement, was capable of understanding the Agreement's terms, consented to them, and could have rejected the Agreement with impunity."
* substantive unconscionability.  The court finds many of the contract terms reasonable.

This case is a nice win for Google for two reasons.  First, by upholding the mandatory venue clause, it should inhibit AdWords advertisers from suing Google all over the country.  Therefore, all lawsuits will have to be in Google's home court, which raises the costs of lawsuits for most plaintiffs and gives Google some other home-court advantages.  Second, by holding that this plaintiff is bound by the AdWords contract and those terms aren't substantively unconscionable, Google can now invoke its risk management clauses (like the warranty disclaimers, limits of liability, etc.) to cut the economic heart out of the click fraud claim.

[Eric Goldman]

Will the Virtual World Yield Real Law Suits?

The BBC recently reported on a case in which a Chinese online gamer killed a friend by stabbing him in the chest with a real knife after learning that the friend had sold for real money a virtual sword that the accused had won in an online game and then loaned to the victim. 

In Virtual Worlds, Real Damages, Jason Archinaco speculates on the value of a virtual horse, Amercian Hero, "deactivated" by Virtual Sports, Inc. after setting a virtual world record for the distance of 1 1/4 miles.  Apparently, Virtual Sports thought it wasn't fair to the other virtual horses to have one really, really good one.  Virtual Sports also noted that "the owner is being compensated."

This suggests that the virtual world is already governed by real law and that disputes arising in the virtual world will be a source of employment for real lawyers, including contracts lawyers.  Woohoo!  Indeed, the Chinese stabbing could have been prevented if Chinese law recognized rights in virtual property. 

Props to my good friend, Rebecca Spang (Indiana University, Department of History).  Rebecca passed Jason Archinaco's article on to me after discovering it while working on the syllabus for her new course on the history of money. 

[Jeremy Telman]

Cool Gadgets: Don't Bother Shopping Around

In this time of frenzied holiday shopping, this Slate.com article by Sean Cooper explains why there is no price variation among retailers selling Ipods. First, Cooper explains that price variation is the norm of online retailers, and an intentional marketing strategy:

Hal Varian, an economist at U.C. Berkeley and co-author of Information Rules: A Strategic Guide to the Network Economy, argues that sellers offer the same products at vastly different prices as an intentional marketing strategy. (This phenomenon is what economists call price dispersion.) Imagine that everybody sold 42-inch Philips plasma-screen TVs for the same price. There would be no reason to comparison shop, consumers would always buy from the same places, and e-tailers' profits would stagnate. According to Varian, retailers who vary their prices over time—increasing them one week, then discounting the next—create the kind of price instability that encourages consumers to shop around. The end result is that shoppers visit several sites before making a purchase, which is exactly what retailers want us to do.

Research supports Varian's view. In 2003, a group of economists led by Michael Baye of Indiana University compared prices for 36 consumer electronics products purchased online. Another study by the same team analyzed millions of price points for hundreds of products over an eight-month period. Both studies found significant price variation, regardless of how many retailers sold the product in question. What's more, they found that the site offering the lowest price for any given product was in constant flux, meaning that e-tailers were raising and lowering their prices at will. As a result, Baye's team came to the conclusion that price dispersion on the Internet is an "equilibrium phenomenon"—the natural state of a competitive market.

Then, why is it that, wherever you look, the 8 gig Ipod has the same price tag? It is all about MAP, Cooper explains:

No, the answer isn't that Apple illegally manages prices. In reality, Steve Jobs and Co. use an accepted, if controversial, tactic, a retail strategy called minimum advertised price, to discourage resellers from discounting. The minimum advertised price, or MAP, is the absolute lowest price retailers are allowed to advertise a product for. (If you've ever shopped at a site that won't reveal a product's price until you add it to your shopping cart, MAP is the reason.) MAP is usually enforced through marketing subsidies offered by a manufacturer to its resellers. If a retailer keeps prices at or above the minimum advertised price, then a manufacturer like Apple will give them money to help advertise. If a store's price dips too low, on the other hand, the manufacturer can withdraw these advertising subsidies.

MAP helps smaller retailers compete, since it aids in reducing the kind of cutthroat price competition from big-box stores that can put them out of business. But what's in it for a company like Apple? Stable prices are important to the company, because it's a manufacturer and a retailer (both online and through its chain of Apple Stores). If Apple resellers dropped prices on iPods and iMacs—selling at or below cost to get customers in the door, or as a way to cross-sell stuff like software or iPod skins—they could squeeze the Apple Stores out of their own markets.

There is a downside to all that stability, however. By limiting how low sellers can go, MAP keeps prices artificially high (or at least higher than they might otherwise be with unfettered price competition). In 2000, the Federal Trade Commission forced the five major record labels to suspend MAP policies that it deemed excessively restrictive. MAP benefits manufacturers and, to a lesser extent, retailers, but not necessarily consumers.

Use of MAP in some form is fairly common in the gadget world, though few companies seem to pursue it with the rigor of Apple or Sony (both of whom operate retail stores). Shawn DuBravac of the Consumer Electronics Association believes most gadget manufacturers prefer to let the market determine price, and the dispersion described by Varian and Baye suggests he's probably right. (None of the companies I contacted for this story would discuss their pricing strategies with me.) That means good deals for shoppers willing to search them out.

[Meredith R. Miller]

Hell.com: hot address?

This past Friday, the domain name Hell.com went up for sale.  Before the auction, the W$J reported (subscription required):

Hell.com is scheduled to be offered in a live auction organizers predict will draw bids of more than $1 million. The hot market for domain names, the addresses people often type in for Web sites, is being fueled by the surge in Internet advertising and the ease with which domain owners can make money from ads brokered by the likes of Google Inc. and Yahoo Inc.

Sex.com sold for about $12 million earlier this year and Diamond.com changed hands for $7.5 million. The big-money domain-name sales echo an earlier boom, when Business.com fetched $7.5 million in 1999. Today's live auction of 300 names, by Seevast Corp.'s Moniker unit, includes more than a handful it predicts will generate bids of more than $1 million, including Iran.com, Auction.com and Elections.com.

The company that owns Hell.com marketed the sale as "the opportunity to redefine what hell means, at least on the Internet."  The company's founder set the reserve price at $2.3 million; but a domain-name appraiser put Hell.com's value at $625,000 -- based (of course?) on comparison to the revenue from advertisements on Heaven.com.

Yesterday, the W$J reported: "Hell.com failed to sell during a live auction of Internet domain names on Friday, as no bidders met the $2.3 million reserve price set by its seller."

[Meredith R. Miller]

Online Clickthrough Agreements Upheld

In my Cyberlaw course, I argue to my students that the best way to form a valid online agreement is through a "mandatory non-leaky clickthrough" agreement.  By this, I mean that, to reach their destination, every user must go through a mandatory process that requires the user to affirmatively click that they are agreeing to the contract terms.  These contracts generally have fared well when considered by courts--at least, from a formation standpoint.  (See my list of online contract formation cases here).

For a textbook example of how the courts evaluate mandatory non-leaky clickthrough agreements, consider ESL Worldwide.com, Inc. v. Interland, Inc., 06-CV-2503 (S.D.N.Y. June 21, 2006).  In that case, a disgruntled customer sued a web host because the hosted website was allegedly offline for 7 months.  The web host moved to dismiss based on the forum selection clause in its contract.  The court says:

First, Shin may not remember click the icon, but Defendants' records reveal that he did, in fact, so click...Furthermore, because of the manner in which the website is organized, without having clicked "Accept," Shin would not have been allowed to access certain other sections of the site, and it is uncontested that Shin did enter those sections...Finally, the text above the "Accept" icon clearly states that by clicking "Accept," a user is bound to the new Terms of Services, and such terms, which include the forum selection clause, are easily accessed by clicking on the accompanying link.

As you can see, an airtight formation process makes it easy for the court.  Case dismissed.

Google recently won a similar outcome in Person v. Google, where Google successfully moved to change venues based on the venue selection clause in its mandatory clickthrough AdWords contract.  Person v. Google Inc., 2006 WL 2884444 (S.D.N.Y. Oct. 11, 2006).

[Eric Goldman]

E-mail and the Statute of Frauds

Those who teach Bazak Int'l v. Mast Indus., on the UCC's merchant exception to the Statute of Frauds, might be interested in a more recent case also involving Bazak and the Statute of Frauds, Bazak Int'l v. Tarrant Apparel Group.* 

In Bazak v. Tarrant, the S.D.N.Y. held that an e-mail sent between merchants could serve as a confirmation of an earlier agreement pursuant to the UCC's "merchant exception to the Statute of Frauds (Section 2-201(2)). 

The case is significant in two respects.  First, Bazak is two-for-two on this issue.  Second, it addresses the tricky question of whether e-mails can serve as confirmations.  The difficulties with the UCC's "merchant exception" are manifest in the New York Court of Appeals' 4-3 decision in Bazak v. Mast Indus.  Those difficulties are compounded in Bazak v. Tarrant, because the recipient of the allegedly confirmatory e-mail claims never to have opened the e-mail or its attachment. The District Court nonetheless denied Tarrant's motion to dismiss based on the Statute of Frauds, as material issues of fact regarding the existence of an agreement remained for resolution.

*Thanks to my student who, in violation of my policy on laptop use, found this case for me using Google during class earlier this week

[Jeremy Telman]

eBay User Agreement Enforced (Twice!)

The eBay user agreement has to be one of the most widely read/entered-into contracts of all time.  eBay claims nearly 200 million registered users, all of whom putatively entered into the agreement.  Yet, despite this ubiquity, surprisingly few court cases have addressed its validity.  Until very recently, I knew of only three: Bergraft (an unpublished NJ state trial court opinion), Ploharski (an unpublished ruling from ND Ga), and Grace (a CA appellate court case that was subsequently depublished by the CA Supreme Court).

Then, in the last 10 days, two cases addressing eBay's user agreement showed up in Westlaw, including what I think is the first binding appellate court precedent (now that the Grace case is depublished).  Both cases efficiently, and without much fuss, upheld the formation and terms of the eBay user agreement.

In Nazaruk v. eBay, 2006 WL 2666429 (D. Utah Sept. 14, 2006), the plaintiff sued over feedback left in eBay's feedback forum.  eBay moved to dismiss based on (among other things) improper venue due to the mandatory venue clause in the user agreement.  The court agreed.  This must be particularly satisfying for eBay because a previous case, Comb v. PayPal, had deemed its mandatory arbitration clause unconscionable (the case interpreted PayPal's agreement, not eBay's, but they were virtually identical at the time).

In Durick v. eBay, 2006 WL 2672795 (Oho Ct. App. Sept. 11, 2006), the plaintiff tried to sell some items that were putatively prohibited by eBay's user agreement.  eBay suspended the plaintiff, who then sued eBay claiming that it was in breach of contract for suspending him.  The court found that eBay's user agreement was binding on the plaintiff, it clearly prohibited the items, and thus eBay didn't breach the agreement by suspending him. 

Among other interesting aspects, the actual terms restricting the items in question were located in two policies that were incorporated by reference into eBay's general prohibited items policy, which in turn was incorporated by reference into eBay's user agreement.  Thus, like the user interaction process in the Specht case, the restrictions were two links away from the page where the user clicked "I agree."  The court didn't seem fazed at all by this multiple-level incorporation by reference; it was not even acknowledged expressly.

[Eric Goldman]

EULAs in English

Virtually every human being who has ever used a computer has a contract with Microsoft Corp.  The contract is the End User License Agreement that comes with Windows software.  The EULA is a formidable piece of legal drafting, but (rather like the software it covers) it's not the most user-friendly thing around.

The folks at LINUX Advocate -- whose goal in life seems to be turning MS Windows into a 21st century Betamax -- have come up with an English translation of the EULA.  Interestingly, the language in the license agreement for LINUX is somewhat more understandable than Microsoft's, but you wind up getting much the same remedies:

. . . THERE IS NO WARRANTY FOR THE PROGRAM, TO THE EXTENT PERMITTED BY APPLICABLE LAW. EXCEPT WHEN OTHERWISE STATED IN WRITING THE COPYRIGHT HOLDERS AND/OR OTHER PARTIES PROVIDE THE PROGRAM "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PROGRAM IS WITH YOU. SHOULD THE PROGRAM PROVE DEFECTIVE, YOU ASSUME THE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION.

IN NO EVENT UNLESS REQUIRED BY APPLICABLE LAW OR AGREED TO IN WRITING WILL ANY COPYRIGHT HOLDER, OR ANY OTHER PARTY WHO MAY MODIFY AND/OR REDISTRIBUTE THE PROGRAM AS PERMITTED ABOVE, BE LIABLE TO YOU FOR DAMAGES, INCLUDING ANY GENERAL, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE PROGRAM (INCLUDING BUT NOT LIMITED TO LOSS OF DATA OR DATA BEING RENDERED INACCURATE OR LOSSES SUSTAINED BY YOU OR THIRD PARTIES OR A FAILURE OF THE PROGRAM TO OPERATE WITH ANY OTHER PROGRAMS), EVEN IF SUCH HOLDER OR OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

[Frank Snyder -- hat tip to InfoWorld]

Contract: Saved from Death by Consumer Fraud Statute?

The Seventh Circuit (Easterbrook, Rovner, Evans) recently held that a hotel guest's allegation that the hotel's website misrepresented the room rate was not actionable as consumer fraud but, rather, sounded in breach of contract.

Using the hyatt.com website, Britt Shaw made a reservation for a 3-night hotel stay at the Ararat Park Hyatt in Moscow, Russia. The website established a nightly room rate of $502.  However, the website cautioned that the conversion represented an approximate price based on the recent exchange rates, and that "the price paid at the time of hotel checkout will be of the currency initially quoted and displayed."

Shaw stayed at the hotel for three nights and, upon checkout, his bill was provided in Russian rubles. Shaw paid the bill using his American Express card, which charged him a roughly 3182 rubles for the room, taxes, and other amenities. Shaw’s hotel bill reflected a hotel exchange rate of 32 Russian rubles per United States dollar, whereas the official exchange rate set by the Central Bank of Russia on the date of check-out was 28.01 Russian rubles per dollar. The result: Shaw paid approximately 14% more for his room in U.S. dollars than the rate promised by the website.

Shaw pursued a class action against Hyatt, alleging unjust enrichment and violation of the Illinois Consumer Fraud Act.*  Shaw did not allege breach of contract, maintaining throughout the proceedings that there was no contract between him and Hyatt.  The trial court granted Hyatt's motion to dismiss both claims, and the Seventh Circuit affirmed.

The Seventh Circuit held that there was an express contract between Shaw and Hyatt, and that ultimately resolved both of his claims.  The court held that a breach of a contractual promise, without more, is not actionable under the Consumer Fraud Act.The court wrote:

What plaintiff calls "consumer fraud" or "deception" is simply defendants' failure to fulfill their contractual obligations. Were our courts to accept plaintiff's assertion that promises that go unfulfilled are actionable under the Consumer Fraud Act, consumer plaintiffs could convert any suit for breach of contract into a consumer fraud action. However, it is settled that the Consumer Fraud Act was not intended to apply to every contract dispute or to supplement every breach of contract claim with a redundant remedy. [citation omitted] We believe that a "deceptive act or practice" involves more than the mere fact that a defendant promised something and then failed to do it. That type of "misrepresentation" occurs every time a defendant breaches a contract.

Here's a link to the oral argument, with an enlightening set of questioning concerning why Plaintiff did not allege that Hyatt.com breached an express contract to provide the room at the rate promised on the website.

[*Apparently, the website specified that any disputes would be governed by Illinois law.  Shaw booked the Moscow hotel room while on the internet in London; the parties disputed whether Shaw had established the requisite nexus of contact with Illinois to form a basis for the application of the Consumer Fraud Act to the transaction.]

Shaw v. Hyatt Int'l Corp, __ F.3d __, 2006 WL 2473417 (7th Cir. Aug. 30, 2006). 

[Meredith R. Miller]

Does Contract or Tort Law Protect an Agent/Lessee's Electronic Data?

Under New York law, is a claim of conversion cognizable for electronic data? Yesterday, the Second Circuit Court of Appeals held that it isn’t clear under New York law, and certified the question to New York's highest court. The Second Circuit also held that no rational trier of fact could conclude that an insurance company owed a contractual obligation to a former agent not to seize policyholder information a computer that the agent leased from the company.

Plaintiff Louis Thyroff was associated with Nationwide Mutual Insurance Company (“Nationwide”) as an insurance agent for 21 years.  When the relationship began in 1988, Thyroff and Nationwide entered into an Agent’s Agreement, which provided a non-compete clause that allowed competition only if certain enumerated requirements were met. Thryoff was also required to lease an agency-automation system, which consisted of hardware and software from Nationwide. Thyroff relied on this system to keep track of customer data.

In September of 2000, Nationwide sent Thyroff a letter canceling the Agent’s Agreement. The following day, without notice, Nationwide denied Thryoff access to the agency-automation system, and all his client files contained therein.

Thryoff sued Nationwide for (1) conversion of the personal and business data contained on the computer and (2) breach of contract for depriving him of access to business information necessary to compete once the Agency’s Agreement expired. In an unpublished opinion, the District Court dismissed the conversion claim and granted Nationwide summary judgment on the breach of contract claim. Thyroff appealed to the Second Circuit. 

In what is perhaps the most interesting aspect of the case (and has much less to do with contract law), the Second Circuit has certified the following question to the New York Court of Appeals: Is a claim of conversion cognizable for electronic data?

In addition, the Second Circuit affirmed the grant of summary judgment to Nationwide on Thyroff’s breach of contract claim. Thryoff asserted that Nationwide owed a contractual obligation not to seize policyholder information from the leased computer without first providing Thyroff with an opportunity to duplicate it. Thryoff attempted to cobble together this duty by pointing to (1) a section of his Agent’s Agreement that allowed him to compete if certain requirements were met and (2) the implied covenant of good faith and fair dealing. The Second Circuit interpreted the non-compete provision to allow Thryoff to compete in certain situations, but did not interpret it as requiring Nationwide to provide Thryoff with a means to compete. The court determined that “despite Thyroff’s evidence that Nationwide may have acted in bad faith in the manner in which it removed the policyholder information from Thryoff’s possession, no rational trier of fact could conclude that in so doing Nationwide violated any provision of the contract." The court held that the Agent’s Agreement, coupled with the implied covenant of good faith, could not be read to impose any affirmative obligation on Nationwide. 

Thryoff v. Nationwide Mutual Ins. Co., __ F.3d __ (2d Cir. Aug. 21, 2006).

[Meredith R. Miller]

Advertiser Lawsuits Against Search Engines

In the past year, advertisers have brought at least four high-stakes class action lawsuits against search engines.  These lawsuits pose some interesting but basic questions about contract interpretation.

Two of the lawsuits involve "click fraud."  Click fraud is a term with multiple meanings, but let's assume it refers to an illegitimate click on an online advertisement.  Many (most?) search engine advertising contracts say that advertisers will pay a certain amount for each click delivered by the search engines.  Thus, advertisers are concerned that they are paying for illegitimate clicks.

Ultimately, this could be a straightforward contract interpretation issue.  Google's contract says that advertisers owe money for "actual clicks."  So what's an "actual click"?  Is it every click, regardless of legitimacy, or a click motivated only by proper intent?

We may not find out the answer to this question any time soon.  Google has entered into a preliminary settlement with one of the plaintiffs, and if approved, that settlement likely will have preclusive effect on the other lawsuit.  Some have complained that Google has settled the case too cheaply, so it's possible that the judge will scuttle the settlement or that enough advertisers will opt-out of it.  Otherwise, the settlement may calm the waters for the time being.

A third lawsuit has been filed against Google for failing to honor advertisers' instructions about advertising limits.  Google allows advertisers to establish daily limits on the quantity of advertising they want, and allegedly Google failed to honor these limits.  This lawsuit is ongoing.

A fourth lawsuit was filed last week against Yahoo.  This lawsuit alleges that Yahoo engaged in "syndication fraud" by placing the advertisements in inappropriate places (specifically, on pop-up and pop-under windows served by adware and on "typosquatted" pages).  This lawsuit raises some basic questions about the interplay of marketing material (where Yahoo made various statements that the advertisers want to treat as promises) and a fully integrated online contract, as well as how words like "highly targeted," "popular"/"high-quality" and "and more" will be interpreted.  I've deconstructed this complaint at my other blog (warning: I have strong views about the validity of this complaint).

These lawsuits reflect the huge growth in online advertising issues--as more gets directed to online advertising, disputes inevitably will follow.  But they also are a good reminder of the critical importance of precise and thoughtful drafting of online advertising agreements.

[Eric Goldman]

Winn on Adware Contracts

The Berkeley Technology Law Journal has published Jane K. Winn, Contracting Spyware by Contract, 20 Berkeley Tech. L.J. 1345 (2005), a follow-up to her presentation at the Boalt Spyware Conference in April 2005. 

Jane details the phenomenon that I’ve described as the “crisis of contract” online.  People may manifest assent to adware from a legal formalities perspective, but we don’t really believe that they manifested assent.  She thinks it would be a mistake to develop a one-off “solution” to the crisis of adware contracts (she analogizes such responses to the “dismal failure” of ad hoc solutions in the privacy context).  Instead, she favors an across-the-board change in American contract law to incorporate the principles of the EU’s Unfair Contract Terms Directive.

Unlike many other adware commentators, Jane carefully distinguishes between existing law (adware contracts usually enforceable) and her preferred policy result (adware contracts should usually be invalid as “unfair marketing”).  Thus, although she doesn’t like the existing contracting practices, she acknowledges that “in the absence of a conflict between contract terms and fundamental public policy of the forum, or evidence of misconduct so egregious that it might rise to the level of unconscionable, courts are likely to find that adware EULAs are enforceable contracts.” 

The abstract:

The question of what constitutes "spyware" is controversial because many programs that are adware in the eyes of their distributors may be perceived as spyware in the eyes of the end user. Many of these programs are loaded on the computers of end users after the end user has agreed to the terms of a license presented in a click-through interface. This paper analyzes whether it might be possible to reduce the volume of unwanted software loaded on end users' computers by applying contract law doctrine more strictly. Unwanted programs are often bundled with programs that the end user wants, but the disclosure that additional programs will be downloaded is usually buried deeply within dense form contracts. Even though this makes it difficult for end users to recognize that they are agreeing to have multiple programs installed at once and that some of those programs may be objectionable, US courts are unlikely to invalidate those disclosures. This is because in business to consumer online contracting cases in the US, courts have tended to be very deferential to the intentions of the merchants in designing the contract interfaces. In the EU, by contrast, such conduct by software distributors would not be binding on consumers. Under unfair contract terms laws in place in EU member states, consumer objections to bundled software could not be overridden by terms hidden in standard form contracts.

[Eric Goldman]

Does an E-Mail Ending in a Company's Domain Name Cloak the Sender with Apparent Authority?

Is it reasonable to believe that a person who sends an e-mail from an address ending in a company’s domain name has authority to act on behalf of that company? The District Court of Massachusetts recently held that, as a matter of law, it was not reasonable for the recipient of an e-mail sent from a company’s domain name to believe that the sender had authority to act on behalf of the company.

Albert Arillotta, representing to be both from Interstate Demolition and Recovery Express (“IDEC” and “Recovery”) sent an e-mail to Len Whitehead of CSX, a business that sells out-of-service railcars and parts. The e-mail (typos and all) proposed the following:

From: Albert Arillotta [albert@recoveryexpress.com]
Sent: Friday, August 22, 2003 4:57 PM
To: Whitehead, Len Jr.
Subject: purchase of out service railcars

lynn

this is albert arillotta from interstate demolition and recovery express we are interested in buying rail cars for scrap paying you a percentage of what the amm maket indicator is there are several locations i suggest to work at the exsisting location of the rail cars. we will send you a brocheure and financials per your request our addressis the following:
interstate demolition/recoveryexpress
180 canal street 5th floor boston mass 02114
phone number617-523-7740
fax number 617-367-3627
email address albert @recoveryexpress .com
thank you for your time

After some telephone conversations, Arillotta and Whitehead apparently proceeded with this proposed deal, and the railcars were delivered by CSX to a location specified by Arillotta. After delivery, CSX sent invoices to IDEC for the scrap railcars totaling $115,757.36. When IDEC and Recovery apparently refused to pay, CSX brought an action alleging, among other things, breach of contract and unjust enrichment.

Whitehead alleged that, at all times during his dealings with Arillotta, he believed that Arillotta was representing, and authorized to act on behalf of, Recovery and IDEC. Whitehead apparently based this belief on the e-mail's domain name (recoveryexpress.com) and the representations of Arillotta to him both in the e-mail and in subsequent telephone conversations. However, Recovery claimed that Arrillotta never worked for it, and was not authorized to represent or transact business on behalf of Recovery or IDEC.

Apparently, Arillotta obtained a Recovery e-mail address by becoming involved in the separate IDEC venture with Recovery’s president and treasurer. IDEC and Recovery shared offices and some resources, including e-mail services. Other than physical resources, there was no evidence that Recovery ever shared anything with IDEC -assets, funds, books of business, bank accounts, or insurance coverage.

The court noted that “CSX genuflects to the possibility that Arillotta was granted actual authority by Recovery,” but quickly dismissed any argument that Arillotta had actual authority to act on behalf of Recovery. Thus, the issue was whether Arillotta had apparent authority to act on behalf of Recovery. The court defined the issue narrowly as “whether a domain name, by itself, cloaks a purported agent with authority sufficient as matter of law to be called ‘apparent.’”

The court wrote:

Because apparent authority depends on that knowledge held by Whitehead and CSX of Arillotta's authority, which knowledge was derived from actions of Recovery, the only relevant conduct by Recovery is that it issued Arillotta an e-mail address with its domain name. Such associations as Recovery having the same offices, mailing address, phone number, or fax number are red herrings; these facts-if Whitehead even possessed them prior to entering the contract-emanated from Arillotta by way of his e-mail signature or telephone representations. There is no evidence of the manifestation of those facts by Recovery to Whitehead and CSX (i.e., by way of its website, as CSX asserted at oral argument) until after the contract was entered and collection efforts had begun.

The only act taken by Recovery known to Whitehead and CSX prior to entering the contract and upon which Whitehead could rely, was its issuance to Arillotta of an e-mail address sporting Recovery's domain name (@recoveryexpress.com). The Court holds that Whitehead and CSX were unreasonable, as matter of law, in their reliance solely on an e-mail domain name. Such a manifestation by Recovery cannot be sufficient to sustain a claim of apparent authority. Granting an e-mail domain name, by itself, does not cloak the recipient with carte blanche authority to act on behalf the grantee. Were this so, every subordinate employee with a company e-mail address-down to the night watchman-could bind a company to the same contracts as the president. This is not the law.

Though e-mail communication may be relatively new to staid legal institutions, the results in analogous low-tech situations confirm this conclusion. The Court could find no cases where, for example, giving someone a business card with the company name or logo, access to a company car, or company stationery, by themselves, created sufficient indicia of apparent authority … An e-mail domain name is sufficiently analogous to business cards, company vehicles, and letterhead for these cases to be persuasive. Those indicia of apparent authority all convey some degree of association between the purported principal and agent. By themselves, however, no reasonable person could conclude that apparent authority was present. The same is true with e-mail domain names.

The court chided Whitehead for his “gullibility,” and stated that

CSX and Whitehead should have been more suspicious of an unsolicited, poorly written e-mail that arrived late one Friday afternoon. There are means by which CSX could have protected itself (e.g., requiring a purchase order form from IDEC or Recovery). Before delivering goods worth over $115,000 to a stranger, one reasonably should be expected to inquire as to the authority of that person to have made such a deal. Given the anonymity of the Internet, this case illustrates the potential consequences of operating-even in today's fast-paced business world-as did CSX.

CSX Transp., Inc. v. Recovery Express, Inc. (D. Mass. Feb 1, 2006).

[Meredith R. Miller]

Court Enforces AOL's Forum Selection Clause

Elaine Abramson sued America Online in the Northern District of Texas; she claimed that the e-mail address she used for business purposes was used as the purported originator of "thousands of emails . . . with a pornographic or otherwise lascivious content."  AOL moved to dismiss, arguing that, under the forum selection clause in the Member Agreement, Virginia was the exclusive jurisdiction for such disputes.  In response, Abramson argued that the Member Agreement was not enforceable because she did not agree to be bound by it -- her son set up her AOL account for her.  Further, Abramson argued that the forum selection clause should not be enforced because dismissal would result in some of her claims being barred by statutes of limitations, and she would suffer financial hardship if forced to reinitiate her suit in Virginia.

The court denied AOL's motion to dismiss and, instead, transferred the case to the Eastern District of Virginia.

First, the court held that the Member Agreement was enforceable even if Abramson's son set up the account for her.  Abramson's son appeared to be acting as her agent and, even if not, Abramson had ratified the Member Agreement by accepting the benefits of the account.

Next, the court addressed the forum selection clause, and noted that the question was not whether the contract, itself, was the product of fraud or overreaching.  Rather, the focus was "whether the inclusion of the forum selection clause in the contract was fraudulent or coerced." Abramson failed to show fraud or coercion in connection with the forum selection clause.  She argued that the clause was "overreaching because it consist[ed] of a boilerplate provision in a contract of adhesion."  The court, however, held that this allegation was not particular to the forum selection clause:

[t]he form nature of the contract and alleged disparity of bargaining power apply to the Member Agreement as a whole. Abramson has not alleged that Defendant's insertion of the forum selection clause into the Member Agreement was, in isolation, an act of overreaching.

Abramson v. Am. Online, Inc., 2005 U.S. Dist. LEXIS 10095 (May 25, 2005).

[Meredith R. Miller]

Mass Transit Licensing Departments: Take Down Your Maps

IpodSubwayMaps.com provides free downloadable maps of the mass transit systems of over 20 cities around the world. The maps are formatted so that they can be viewed on an Ipod. However, wired.com reports that transit authorities in New York and San Francisco have “launched a copyright crackdown” on the website. The little maps may not be available for long. 

The site has received cease and desist letters from both the NYC Metropolitan Transit Authority ("MTA") and the San Francisco Bay Area Rapid Transit ("BART").  These organizations are demanding that IpodSubwayMaps.com remove the maps from the site because it did not obtain licenses to post the maps and to authorize others to download them.

[Meredith R. Miller]

Analysis of Google Print Library Project

Previous posts yesterday and on August 15th discussed Google’s Print Library Project.  While this discussion may begin to sound more like material for an IP blog, it is worth clarifying information in previous posts.  In an insightful piece, Jonathan Band clears up any confusion from press reports about the project.  For example, he explains that the project consists of two facets: the Print Publisher Program and the Print Library Project. 

Under the Print Publisher Program, a publisher controlling the rights in a book authorizes Google to scan the full text of the book into Google’s database.  When a user searches the database, the user sees the full page of the book containing the search term, and a few pages before and after.  A link brings the user to websites offering the book for sale.  Apparently, this aspect of the program is conducted pursuant to an agreement between Google and the copyright holder.

Under the Print Library Project, Google plans to scan materials from prominent libraries into a database.  This is the project that Google temporarily suspended in its August 11th announcement, allowing publishers to “opt out” by informing Google which books they do not want scanned into the database.  Users will be able to search this database and browse the full text of public domain materials.  For copyrighted materials, the sentence with the search term will appear in response to the search, along with a few sentences before and after. Mr. Band states that:

a full page of the book is never seen for an in-copyright book scanned as part of the Library Project unless a publisher decides to transfer their book into their Publisher Program account, in which case it would be under the agreement between Google and the copyright holder.

Because a search in the Print Library only calls up a few sentences, Mr. Band concludes that Google’s program “will not conflict with the normal exploitation of works nor unreasonably prejudice the legitimate interests of rightsholders.”

[Meredith R. Miller]

Google Expands Project to 14 Countries

A previous post discussed the "Google Print for Libraries" project and Google's announcement to temporarily suspend scanning of copyrighted material.  Google halted scanning of these materials to allow publishers to opt out of the project. 

While the project of scanning copyrighted material apparently remains suspended, Google recently rolled out stand-alone book search services in 14 countries.  It appears that Google is not retreating from its plan to scan every book in the world.

The announcement prompted the Text and Academic Authors Association (TAA) to join publishers and trade organizations in protesting Google's opt out policy.  TAA's executive director commented:

Google is putting the burden on publishers and other copyright holders to opt-out of having their works digitized and placed in the online library, an onerous requirement.

Google stated that the project will serve to "make . . . books more visible and well-promoted worldwide, so they can reach distribution wherever [readers] are."

[Meredith R. Miller]

Falwell v. Fallwell

Reversing a District Court decision, the Fourth Circuit held that a “gripe site” named “www.fallwell.com” does not infringe the Reverend Jerry Falwell’s trademark rights in his name. Christopher Lamparello registered the domain name and launched a site challenging the Reverend’s views on homosexuality. The site disclaims any connection to the Reverend and provides a link to the Reverend’s own website, “www.falwell.com”.

The court held that Lamparello’s site is not likely to cause confusion.  The court noted that, although Lamparello’s domain name is similar to the Reverend’s trademarks, the websites look very different. Moreover, Lamparello’s website is intended to criticize Falwell’s views, not to “steal customers.” The court determined that, because Lamparello’s site criticizes the Reverend, no one seeking the Reverend’s guidance would be misled to believe that the Reverend authorizes its message.  Likewise, the Reverend was unable to establish a cybersquatting claim because he could not demonstrate that Lamparello had a bad faith intent to profit from the similar domain name.

[Meredith R. Miller]

Illinois Appeals Court Enforces “Browse-Wrap Agreement”

An Illinois appeals court held that buyers who purchased computers over the Internet were bound to an arbitration clause contained in the "Terms and Conditions of Sale,” even though the buyers were not required to click on an “I agree” button specific to those terms of sale.

The computer purchasers brought an action against the computer manufacturer, Dell, claiming that it falsely advertised the Pentium 4 microprocessor was the fastest chip available. Dell moved to compel arbitration; the trial court denied the motion. Dell appealed, and the appellate court reversed.

The buyers had purchased the computers on Dell’s web site, which contained five pages of forms the buyers had to fill out to make the purchase. Each of these five pages contained a blue hyperlink to the “Terms and Conditions of Sale.” The “Terms and Conditions of Sale” included an arbitration clause. The “Terms and Conditions of Sale” were also included on the printed invoice that came with the computer.

Dell argued that the blue hyperlink to the “Terms and Conditions of Sale” was sufficient to make the purchasers aware they were agreeing to the arbitration clause. The purchasers argued, however, that Dell should have displayed on its order-confirmation web page an "I accept" box, on which the purchasers must click to manifest assent to the agreement before the purchase proceeded.

The appellate court held that the terms were conspicuous enough that the purchasers should have known what they were agreeing to:

The blue hyperlink entitled "Terms and Conditions of Sale" appeared on numerous Web pages the plaintiffs completed in the ordering process. The blue hyperlinks for the "Terms and Conditions of Sale" also appeared on the defendant's marketing Web pages, copies of which the plaintiffs attached to their complaint. 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. Common sense dictates that because the plaintiffs were purchasing computers online, they were not novices when using computers. A person using a computer quickly learns that more information is available by clicking on a blue hyperlink.

Hubbert v. Dell Corp., 2005 Ill. App. LEXIS 808 (Aug. 12, 2005).

[Meredith R. Miller]

New podcast to feature software licensing

Those whose interests run to software licensing or who just like to hear what kind of innovative things other lawyers are cooking up may be intersted in Dan Bricklin's Software Licensing Podcast.  (What's a podcast, you ask?  It's basically TV show you can download and watch on your computer.)  Bricklin's program will feature a pretty wide array of experts and look to be pretty interesting.

The prjectis being put together by Software Garden, which also sells a video that introduces novices to the software licensing business.

Thanks to InHouseBlog for the tip.

ICODR competition features contract negotiation

Teams from Toledo, Hamline, Belgrade, Cal-Hastings, Cornell, Maryland, Cardozo, and British Columbia carried off the top prizes in the Fourth International Competition for Online Dispute Resolution (ICODR), which involved law schools from five continents.

The competition, which covers both negotiation and mediation, is the brainchild of Contracts prof Ben Davis of Toledo (left), and it’s one of the few that deals with dispute resolution outside the litigation setting, which makes it particularly interesting to commercial types.  One of the mediation problems involved a pre-litigation dispute over whether a great entertainer’s signature on a musical instrument bought on eBay was genuine. The other required the parties to negotiate the purchase of a domain name.

Davis, who also teaches international law and dispute resolution, led the group that started the competition in 2001.  It offers what he calls "a rare opportunity to project themselves on the international plane and compete with students from around the world." The online competition is entirely anonymous; neither the competitors nor the judges know which schools are involved in a particular negotiation.  "Students who may not have dealt with persons from other countries," says Davis, "can now try their luck and see what they can do. A student who is found to be effective may find a vocation thanks to this experience. At least we hope so."

If you're interested in exploring fielding a team for next year's event, you can contact Davis here.

Teleconference on new UNCITRAL Convention

The UNCITRAL Working Group on Electronic Commerce is holding a teleconference next Wednesday (February 2), to discuss its proposed new Convention on the Use of Electronic Communications in International Contracts. The group is looking for input. Click on the links for details and the invitation.

From Prof. Bill Luddy, RPI:

As many of you know, the UNCITRAL Working Group on Electronic Commerce has substantially completed its work on a new international instrument, which is tentatively called the Convention on the Use of Electronic Communications in International Contracts.  The Commission will bereviewing this draft at its Plenary meeting next July in Vienna.  Hal Burman will lead a teleconference scheduled for Wednesday, February 2nd at 4:00 PM EST to discuss the Working Group's draft.

At the end of this email you will find the call-in numbers and the passcode for the teleconference (U.S. and International numbers are provided.)  Everyone with an interest in this convention (and global e-Commerce generally) is welcome to join in the teleconference.

It would be important for those attending to review the Working Group's draft of the Convention as well as the separate Addendum prepared by the Secretariat that provides, "a summary of the deliberations of the Working Group as well as short notes intended to facilitate the consideration of the draft convention by Governments and the Commission." These two documents can be downloaded from the UNCITRAL website, specifically, the Commission's July annual meeting website at:

http://www.uncitral.org/english/sessions/unc/unc-38/38-index-e.htm

The documents you will want to download and review from that URL are:

* A/CN.9/577—Draft Convention on the Use of Electronic Communications in International Contracts—Note by the Secretariat

* A/CN.9/577/Add.1—Draft Convention on the Use of Electronic Communications in International Contracts—Note by the Secretariat.

* Addendum: Background Information

If anyone has trouble downloading these documents, I would be happy to forward copies.

The general plan for the teleconference is to have those participating highlight key issues in the Draft Convention that could be addressed by the Commission at its Plenary session in July. If you are unable to participate in this teleconference, please feel free to send along any comments you might have and they will be shared with those at the meeting.

Details of the Teleconference:
CALL DATE: FEB-02-2005 (Wednesday)
CALL TIME: 04:00 PM EASTERN TIME
DURATION: 3 hr
LEADER: MR HAROLD BURMAN
USA Toll Free Number: 888-655-9181
USA Toll Number: +1-517-308-9001
PASSCODE: 26281

Professor W. J. Luddy, Jr., M.S., J.D.
Lally School of Management & Technology
Rensselaer Polytechnic Institute
Hartford Campus
275 Windsor Street
Hartford, CT 06120 USA
Tel: +1-860-548-2442
Fax: +1-860-547-0866
Email

FTC hearing explores consumer file-sharing issues

The Federal Trade Commission is holding a public session today and tomorrow (December 15-16) to deal with consumer protection and competition issues surrounding peer-to-peer file sharing. The agenda for the program, which is free and held at the FTC’s Conference Center in Washington, D.C., includes:

The uses of P2P file-sharing technology;
The role of P2P file-sharing technology in the economy;
Identification and disclosure of P2P file-sharing software program risks;
Technological solutions to protect consumers from risks associated with P2P file-sharing software programs;
P2P file-sharing and music distribution; and
P2P file-sharing and its impact on copyright holders.

Those who cannot attend can file comments. Details on the hearing and the comment process are on the Commission’s web site.

Cyberspace Committee schedules winter meeting

The folks at the ABA’s Cyberspace Law Committee will be holding their Winter Working Meeting January 28-29 in Palo Alto.  The conference hotel is the Sheraton Palo Alto (left).

The Committee has a host of projects going on relating to nearly every aspect of E-commerce, and is encouraging Section Members (and others interested in these issues) to get involved.  They're a friendly and collegial group and are doing some excellent work.  Click on the link below for the invitation.

Register now to attend the Cyberspace Law Committee Winter Working Meeting, January 28-29, 2005, in Palo Alto, CA.  Hotel reservations must be made by January 3 to take advantage of the ABA group rate. Dinner reservations must be sent to the ABA no later than January 14. New this year: on-line registration. Keep reading for the link to register on-line.

The Winter Working Meeting offers a wonderful opportunity to network with Committee colleagues and industry leaders as we work towards the common goal of developing sound strategies and policies relating to Cyberspace Law. The Winter Working Meeting is a must-attend experience. We especially encourage everyone who has joined the Cyberspace Law Committee this year to attend the Winter Working Meeting.

For a current list of Committee projects and leadership, please visit the Committee web page.

You should feel free to contact project leaders in advance of the Winter Working Meeting with any questions you may have.  We will be circulating an agenda for the Winter Working Meeting shortly. If you have not already done so, I also encourage you to register for LawHub, a collaboration space for the Committee projects.

Other links:

The Chair's Welcome Letter.

Hotel Information

On-Line Registration (members only)

Registration Form (members and others)

ABA Travel

Directions to Hotel