August 01, 2012
10 Questions for @theContractsGuy
When did you realize you had a passion for contract law?
I fell in love with contracts while working in the legal department of a Fortune 500 company during a 15-month period early in my legal career (on loan from my law firm through a secondment). I’ve long been fascinated by business, and contracts are where the rubber meets the road and business deals are hammered out. Nothing is more satisfying than looking at a deal through lawyer goggles and identifying important business issues that your client hasn’t thought of.
Who is your typical client?
I do M&A and general corporate work in addition to commercial transactions, and the typical client profile varies depending on the type of work. Contracts clients tend to be larger companies in industries where a business’s relationship with its suppliers or customers is complex. The best clients are those who’ve found contract religion as the result of being involved in litigation over a contract and having an unfavorable result. Those clients tend to appreciate the danger of time bombs sitting in their file cabinets in the form of bad contracts.
What is something interesting you worked on recently?
One of the most interesting projects I’ve done involved a franchisor that wanted its franchisees in the US and Canada to refresh the look of their stores. I represented the contractor that won the bid to perform the work. The project involved drafting and negotiating an agreement between the contractor and the franchisor that balanced the interests of the franchisor and contractor, while properly inducing the franchisees to participate. It was interesting work for a wonderful client with exceptional opposing counsel.
What is the single most valuable lesson you learned in the first year (or so) of practice?
Always produce quality work product. In the rough and tumble of practice you often have to juggle deadlines and multiple projects and sometimes something has to give. Shoddy work product is always the wrong answer. Also, for those who plan to practice in large firms, the proper method of genuflection varies from partner to partner. Keep a list.
What do you wish someone told you when you were in law school?
What are your 3 favorite legal blogs or websites?
Who should ContractsProf readers be following on Twitter?
Has legal scholarship ever been valuable to you in your practice?
I often go to the journals when I’m doing in-depth research. One of the most useful articles I’ve read is “After the Battle of the Forms” by Francis J. Mootz III in I/S: A Journal of Law and Policy. The article has informed my thinking about the battle of the forms in today’s contracting world. Plus, it introduced me to the term “sign-wrap,” which I think is a good way to think of on-line contract terms that are incorporated into paper contracts by reference.
Best efforts or reasonable efforts?
Reasonable efforts. If anything beyond reasonable is expected, it should be spelled out in the contract.
What is your favorite restaurant in St. Louis?
[Meredith R. Miller]
July 16, 2012
NO LIMIT: Contract Modification By Instant Message
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]
June 11, 2012
'Wrap Cases Yet to Hit NZ
Since much of my research tends to at least recognize that we live in a multicultural, global, interconnected world, I was a bit embarrassed to discover how U.S. -centric I am with some of my assumptions about contract law. During one class, I told my bright and engaging students at VUW how contract law theory might help them address some novel contracting issues that will likely arise in their practice. My "war story" was working at a software company in the early nineties and trying to figure out whether shrinkwrap and clickwrap licenses were enforceable (although we didn't call them that then). My students were too kind to tell me that there are no cases on this topic either in New Zealand or Australia. No New Zealand equivalent of ProCD v. Zeidenberg? No subversion of the rules of offer and acceptance? No replacing consent with reasonable notice? It may be that other laws (consumer protective legislation and the unique tort system) make such issues less relevant. In any event, it's possible that in the southern hemisphere at least there's still time to establish logical and doctrinally coherent precedent with respect to digital contracts. One can always hope...
June 07, 2012
Spacenews.com reports that satellite fleet operator MEASAT Satellite Systems of Malaysia (MEASAT) is suing fleet operator Intelsat Corporation (Intelsat) for at least $29 million in a U.S. District Court, alleging breach of contract and collusion in Intelsat’s handling of the launch of a Measat satellite in 2009.
The lawsuit, filed on April 27, 2012, in the United States District Court, Central District of California, is really two lawsuits in one. MEASAT is after Intelsat for breach of contract in connection with two different planned launches of the same MEASAT sattelite. MEASAT contends that the parties entered in to an agreement on March 9, 2006, in which MEASAT agreed to pay over $40 million, and Intelsat agreed to launch MEASAT's satellite between November 1, 2007 and Janury 29, 2008. For reasons that are unclear from the complaint, the parties agreed to delay the launch until August 2008.
The scheduled launch on August 21, 2008, was allegedly delayed due to Intelsat's repeated mishandling of the satellite -- first by hitting it with a crane and then by dropping it while it was being loaded onto a cargo plane. In order to secure a second launch date, MEASAT alleges that it had to pay additional fees and also agree to waive any claims associated with the aforementioned breaches and/or negligence on Intelsat's part. MEASAT alleges that the delays caused by Intelsat's mishandling of its satellite it "was fast losing millions of dollars and valuable good will" and was "teetering on financial disaster."
The parties agreed to a June 2009 launch date, but Intelsat contniued to seek additional compensation, now reducing its demand to $7.5 million. Intelsat also allegedly demanded that MEASAT sign a release, abandoning all claims associated with the earlier launch date and also threatened to use the launch to send up one of its own satellites instead of MEASAT's satellite, if its demands were not met. At that point, it would have cost MEASAT between $80 and $90 million to negotiate an alternative launch. As MEASAT would not have survived had it chosen to do so, it capitulated to Intelsat's demands. The MEASAT Satellite was launched on June 21, 2009, over ten months from the previously scheduled launch date and eighteen to twenty months from the first promised launch period.
MEASAT now alleges that Intelsat conspired with other entities to "facilitate the coercive and wrongful conduct" alleged in the complaint. MEASAT is claiming that Intelsat breached its contract w/ MEASAT by demanding payments for launch in addition to the agreed-upon $40 million fee and through failures to exercise care that resulted in dealys in the launch.
In addition, MEASAT has alleged claims for economic duress, unjust enrichment, breach of the convent of good faith and fair dealing, and a violation of California Business and Professions Code §17200. MEASAT seeks damages in the amount of $29,000,000 as well as punitive damages and attorneys fees.
[Christina Phillips and JT]
April 17, 2012
Welcome to the Blogosphere (again): Frank Snyder's Lawyer Apocalypse
This blog reflects the thoughts of Frank Snyder, a law professor and former Big Law partner, on the massive changes that law schools and the legal profession are facing in the decades ahead, and on the larger role of lawyers in society. Plus some other things, from time to time.
And here's what Frank has to say about Frank and his views:
I'm a law professor who has taught at law schools in each quartile of the USNews rankings, been a partner at an AmLaw 20 firm, and owned a couple of independent mionor league baseball teams.
You can find my current school on a Google search, but I'm not putting it here because I want to emphasize that this blog reflects my personal observations on legal education, the profession of law, and the vast changes (the "Apocalypse") that are looming on the horizon for each. I claim no special expertise in these topics, except for having practiced law for nearly 15 years and taught in law schools nearly as long.
Unlike some other critics, I believe that the law is the greatest of the secular professions It has played a critical role in American life. Law school is not a scam. Law has offered, and continues to offer, incredibly rewarding careers to thousands of new lawyers. My view of the American law school is like that of reforming 15th-century Catholics to abuses in the Church -- a deep love for an institution but a strong concern that it has fallen under some very bad influences.
Unless attributed and linked to specific others, all of the thoughts here are mine, unless I unconsciously stole them, in which case I apologize. None of them should be taken as the opinions of my employer, my publishers, my students, or any other person or institution
As always, we wish Frank all the best in this new venture.
April 05, 2012
Court to HuffPo Writers: A Deal's a Deal
A group of unpaid bloggers brought a class action against AOL, the Huffington Post (HuffPo) and its founders, including the eponymous Arianna Huffington (pictured) in the Southern District of New York on the ground that HuffPo unjustly and deceptively denied the bloggers compensation for their submissions and promotion of that website’s content. Last week, Judge Koeltl granted the defendants’ motion to dismiss the action, styled Tasini v. AOL, Inc.
Plaintiffs are “professional or quasi professional” writers who contributed to HuffPo’s success. It was/is a spectacularly successful enterprise, attracting 26 million unique visitors per month (even the ContractsProf Blog cannot rival those numbers). HuffPo made clear from the start that, rather than monetary compensation, the writers/bloggers would get exposure—namely visibility, promotion, and distribution, for themselves and their work. All went along swimmingly until 2011, when AOL bought HuffPo for $315 million. The bloggers then sued, claiming a violation of New Yorks General Business Law § 349 (deceptive business practices) and that HuffPo was unjustly enriched, and sought at least $105 million in compensatory damages.
Judge Koeltl began by setting out New York’s law on unjust enrichment: Under New York law, a plaintiff must establish: “(1) that the defendant benefitted; (2) at the plaintiff's expense; and (3) that equity and good conscience require restitution.” Noting that the bloggers “entered into their transactions with the defendants with full knowledge of the facts and no expectation of compensation other than exposure,” Judge Koeltl concluded that “equity and good conscience counsel against retroactively altering the parties’ clear agreements.” He then dismissed both the unjust enrichment claim and the § 349 claim with prejudice.
Some see an injustice in that the plaintiffs were committed to a certain sort of institution -- they may have seen HuffPo as a not-for-profit enterprise with a clear political mission -- and that institution was then swallowed by a soulless corporation associated with the noise an old-fashioned dial-up modem makes. Plaintiffs did not make that argument, perhaps because they did not want to seem like starry-eyed idealists who never noticed that HuffPo is a full-service content aggregator that, according to Wikipedia "covers politics, business, entertainment, technology, popular media, life & style, culture, comedy, healthy living, women's interest, and local news." Rather, as there was no question that HuffPo benefitted from the bloggers' contributions, the legal issue at the heart of the case is whether New York law ever supports a claim for restitution when there is no initial expectation of payment.
Plaintiffs presented the court with a number of cases in which plaintiffs successfully brought restitution claims even without a clear initial expectation of payment. The heart of the court's reasoning on this matter runs as follows:
At best, these cases stand for the proposition that plaintiffs who are unsure of whether they will be compensated if their services are not used may still sue if the services they render do ultimately benefit a defendant who then denies compensation. . . . Stated in other terms, the plaintiffs in these cases expected compensation but the exact terms of the compensation were unclear. These cases therefore fail to support the plaintiffs’ argument that unjust enrichment does not require an expectation of compensation. Indeed, in this case, the plaintiffs expected only exposure rather than monetary compensation if their submissions were used, and those terms were clear from the outset.
In the court's view, this was a case in which the parties initial expectations were clear and the plaintiffs sought a "do over" when they learned that the price that AOL was willing to pay HuffPo for the privilege of access to the services that HuffPo writers were giving away.
[JT and Christina Phillips]
April 02, 2012
CBS Squashes Production of Original Series Star Trek Episode: "He Walked Among Us"
As reported in The New York Times, the discovery of a lost episode of Star Trek has sparked a, so far, non-litigious debate over CBS’s decision to enforce its right in the material and to prohibit the online airing of an amateur production based on the episode’s script.
Norman Spinrad wrote the episode, He Walked Among Us,” in 1967 after the show’s producers approached him with a four-day deadline and a box of no-doze. The producers thought the episode might provide an opportunity for comedian Milton Berle to work a dramatic role. Tragically, the episode never aired, and Spinrad’s script ended up getting donated to the archives at Cal State Fullerton, where it sat unnoticed for decades.
Years later, Spinrad was approached at a convention by a Trekkie (depicted in the image above) who asked Spinrad to sign a copy of “He Walked Among Us.” Spinrad later teamed up with James Cawley to discuss the possibility of finally producing “He Walked Among Us.” Cawley is senior executive producer for “Phase II,” a web-based production studio that uses unpaid amateur actors to act out Trekkies’ favorite episodes. In these productions, Cawley plays Captain Kirk, which is a bit like putting together a Shakespeare company so that you can play Hamlet. But still . . . .
CBS sent Cawley an email, asking him to cease production of the episode. CBS has been consistently buying merchandising, television and online rights to Star Trek. Cawley and Spinrad apparently have good relations with CBS and want to keep things that way. As Spinrad puts it on his website,
I and CBS have agreed to resolve our disputes concerning the ownership of the Work; as part of the settlement between the Parties, the Parties have agree that there will be no further comment; and CBS is considering opportunities to offer licensed copies of the Work.
Because of the above, I can no longer comment on the He Walked Among Us screenplay myself.
It is uncertain exactly why CBS has allowed Phase II to produce other unaired Trek projects but has decided to stonewall this project. Here are the leading theories:
- The subject matter of “He Walked Among Us” has been mined so thoroughly in other Star Trek episodes, CBS is concerned that further probing in this area could open up a rift in the time/space continuum;
- Due to a holodeck malfunction, the person calling himself Norman Spinrad is really Kirk’s arch-nemesis, Khan, returned to destroy the good name of the Star Trek franchise;
- After consulting with its resident half-Betazoid advisor, CBS concluded that there was something not quite right about the episode – some sort of deception may be involved, or not;
- William Shatner was insisting on playing the Milton Berle part and that the part include a fist-fight;
- CBS producers thought the episode's lower decks discussion of why Star Fleet could mandate health care coverage but not require that all replicators be programmed to synthesize broccoli when receiving requests for "junk food" was too dated; and
- A crucial element in the plot is the possibility of traveling at speeds in excess of light speed, and now that the faster-than-light neutrinos theory has been debunked, CBS thinks viewers will be unable to suspend disbelief
[JT and Justin Berggren]
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.
March 27, 2012
Mike Daisey Claims to Have Breached a Contract with His Audience
1. A monloguist named Mike Daisey performed a very successful show, "The Agony and Ecstasy of Steve Jobs" which purports to be, in part, an account of his trip to China to investigate conditions at the factories at which Apple products are manufactured.
2. Ira Glass, host and creator of my favorite radio program, "This American Life" was impressed by Daisey's show and decided to devote an entire episode of "This American Life" to the part of Daisey's monologue that seems to be a piece of investigative reporting.
3. After being alerted to factual errors in Mr. Daisey's monologue, This American Life devoted another entire episode to a retraction of its report on conditions in Apple's factories to the extent that the earlier reporting relied on information provided by Mr. Daisey that turned out to be untrue or unreliable. Mr. Daisey agreed to be interviewed in connection with that retraction and the results were pretty ugly. Mr. Daisey admitted to some outright falsehoods, but he defended the larger truths of his work. His mistake, he claimed, was in agreeing to put his monologue on "This American Life," since it works as theater but not as journalism.
Ira Glass, who as the picture at right indicates, is adorkable but hardly physically imposing, entered a phonebooth, emerged as a truth-seeking action hero, and tore Mike Daisey a new one. There's an exchange, which you can read on page 19 of the transcript of the retraction, in which Glass asks Mike Daisey if he is going to stop representing his monologue as having happened to him. Daisey tried to claim that in the theatrical context "we have different languages for what truth means." Glass, who saw Daisey's show, responds that Daisey is "kidding himself" (i.e., delusional) if he thinks that the people in his audience are not deceived when he relates a first-person monologue as if it happened to him. Daisey claims that they just have different "worldviews," and Glass insists that his own worldview is the normal one.
Mike Daisey, who really seems to be unable to abandon the spotlight, continues to give interviews about his monologue and about the revelations of inaccuracies in the monologue. Eerily enough, one of Mr. Daisey's earlier monologues was about James Frey, whose fake memoir, A Million Little Pieces, famously unraveled (the monologue is called "Truth"). Glass asks Mr. Daisey about that monologue on pages 15 and 16 of the transcript. In that monologue, Daisey had admitted to having fabricated some experiences in order to connect with an audience. Daisey denies that the inaccurancies about his time in China were a result of such a desire to connect. He says, "No, no, because I didn’t, um, no I made a choice to put that, you know, I made a choice to put that detail in that scene, in that way."
Now, reminded of earlier self-important statements about the importance of truth and praising his own scrpulousness in letting his audiences know when he is reporting true events and when he is making stuff up, Daisey has acknowledged that he did not live up to his own standards. As Daisey puts it on his blog,
When I said onstage that I had personally experienced things I in fact did not, I failed to honor the contract I’d established with my audiences over many years and many shows. In doing so, I not only violated their trust, I also made worse art.
Even in this mode, Daisey is unable to refrain from self-aggrandizement. He did violate a trust and make worse art than his shows could have been if he were capable of honesty. But he did not fail to honor a contract because he never entered into a contract with his audience.
After a series of apologies to the various consituencies who may or may not have been harmed or offended by his transgressions, Daisey concludes by invoking one of his acting teachers and pledging:
I will be humble before the work.
That's all well and good, but the acting teacher was probably talking about acting in someone else's play or performing someone else's script or at least showing humility when working with other performers. When one is in the business of first-person monologues and "the work" at issue is a report on one's own experiences, before what exactly is one being humble?
Joshua Mehigan describes his poetry as a means of rendering his narcissism palatable. Perhaps that's what first-person monologues strive for as well. But once the performer becomes thoroughly unpalatable, one is left with a performance of narcissism itself.
March 20, 2012
Old Enough to Facebook, Old Enough to Choose a Forum*
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]
February 22, 2012
What's More Exciting than FarmVille?
Well, anything really. . . .
(sorry about the commercial)
But the answer we were looking for is a lawsuit about FarmVille:
According to a decision issued on February 6, 2012, by Oakland, California Judge Yvonne Gonzales Rogers, popular game developer Zynga, Inc., (“Zynga”), may owe some of its success to rival game creator, SocialApps, LLC, (“SA”). As stated in SA’s First Amended Complaint, the company invested substantial time, resources and money to develop “myFarm,” the first social networking game to allow players to create their own virtual farms, which it released on Facebook in or about November 2008. In or about May of 2009, Zynga approached SA about a possible purchase or license agreement regarding intellectual property rights, confidential information and source code for myFarm. The parties subsequently entered into a letter agreement wherein SA agreed to provide information to Zynga for “due diligence” purposes. Under both the express and implied terms of the agreement the parties had a mutual expectation that if Zynga used SA’s myFarm concept and distinct features, Zynga would compensate SA for such use. However, once SA provided Zynga with its source code for myFarm, Zynga stopped communicating and never compensated or credited SA.
After Zynga’s June 19, 2009 release of its own game, FarmVille, SA filed suit, believing Zynga had used its confidential source code without permission or compensation to develop the game. Zynga subsequently filed a Motion to Dismiss SA’s claims of misappropriation of trade secrets and various breach of contract claims. Judge Rogers allowed the various breach of contract claims to move forward, but dismissed the claim in regards to theft of trade secrets related to images and various features of myFarm, on the grounds that these images were available to the public before the May 2009 letter agreement or June 2009 release of FarmVille.
While Zynga obtained a partial win, Judge Rogers let stand the three claims for breach of implied contract, confidence, and implied covenant related to the myFarm source code. According to the Judge, “the allegations here are sufficient to allege conduct beyond a mere breach of the terms of the agreement which would support a claim for tort damages." As reported by Law.com, Zynga has yet to seek dismissal of SA’s claims for copyright infringement and breach of written contract.
[JT & Christina Phillips]
January 17, 2012
A Puzzler from Ken Adams
In this post I refer to “bills of sale, instruments of assignment, releases, deeds, powers of attorney, stock powers, and the like, in other words short documents, usually signed by one party, that consist largely or entirely of language of performance, with the signatory giving something to someone.”
But in the same post I quote from two documents that served analogous functions but were structured as unilateral contracts, with both sides signing. (Black’s Law Dictionary defines a unilateral contract as “A contract in which only one party makes a promise or undertakes a performance; a contract in which no promisor receives a promise as consideration from the promise given.”)
Anyone care to propose when you should use a one-signatory document and when you should use a unilateral contract?
December 29, 2011
Apple’s Marketing Statements are Non-Actionable Puffery
Plaintiff Alan Vitt’s laptop "crapped out" (term of art) just after the 1-year warranty expired. The crux of his complaint on behalf of all purchasers of the iBook G4: the laptop did not last “at least a couple of years,” which he allaged is the reasonable consumer expectation of a laptop. He alleged that “this is because one of the solder joints on the logic board of the iBook G4 degrades slightly each time the computer is turned on and off, eventually causing the joint to break and the computer to stop working shortly after Apple’s one year express warranty has expired.” Plaintiff further alleged that Apple “affirmatively misrepresented the durability, portability, and quality of the iBook G4 and did not disclose the alleged defect.”
In affirming the dismissal of his complaint, the 9th Circuit held that the marketing statements are non-actionable puffery:
Vitt challenges Apple’s advertising because it stated that the iBook G4 is “mobile,” “durable,” “portable,” “rugged,” “built to withstand reasonable shock,” “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.” The district court held that these statements are generalized, non-actionable puffery because they are “inherently vague and generalized terms” and “not factual representations that a given standard has been met.” We agree. Even when viewed in the advertising context as Vitt urges, these statements do not claim or imply that the iBook G4’s useful life will extend for “at least a couple of years.” For example, to the extent that “durable” is a statement of fact it may imply in context that the iBook G4 is resistant to problems occurring because of its being dropped, but not that it will last for a duration beyond its expressed warranty.
Vitt v. Apple Computer, Inc. (9th Cir. Dec. 21, 2011).
[Meredith R. Miller]
December 12, 2011
Ticket Pricing Errors and Unilateral Mistakes
A recent letter to the NYT's consumer advocate, the "Haggler," (aka David Segal, who some of us law profs may not love so much anymore since his recent swipe at legal scholarship...) raised some interesting contracts issues. A reader complained that in early September he bought two round trip tickets from San Francisco to Palau for $510 on Korean Air for a trip in February. In the interim, he booked hotels, bought an underwater camera and made plans. Sixty-four days later, he received an email from Korean Air stating that the posted fare was "erroneous" and that his tickets were cancelled. They offered a refund for "travel-related" expenses, including the tickets, and a $200 Korean Air voucher. The reader stated that with the voucher, his new fare would be $360/ticket higher than the fare he had originally booked.
So, what's the price of an average airline ticket to Palau from S.F. in early February? I checked and it's anywhere from $1600 to $2500 for coach. But before you say unilateral mistake -- for didn't the reader check other airlines and know that the quoted rate was so much lower? - I say, Hold on. I realize this is not the first time an airline, or any company, has posted an erroneous fare. The Haggler discussed another incident involving British Airways that arose in 2009 where the company posted fares from U.S. to India for $40. In that case, British Airways covered travel-related costs and gave out $300 vouchers. (One of the issues in an exam I wrote several years ago was inspired by this situation).
But the British Airways case was different from the Korean Air case in several ways. The British Airways fare was so low that I think the purchasers "knew or should have known" about the mistake. The Korean Air price was also low, but given the deals to be found on the Internet and that the tickets were booked so far in advance, it is not evident that the purchaser "should have known" that the fare was a mistake. It's a great deal, but not clearly a mistake. Furthermore, the wrong price was listed for only a few minutes on the British Airways site, whereas the erroneous fare was posted on the Korean Air website for several days ("at least four"). Would it be "unconscionable" to force Korean Air to honor the fare? Maybe. Under Donovan v. RRL Corp., the standard of"unconscionability" for unilateral mistake purposes is lower than required when it's a standalone defense.
There's another issue that was raised in the Haggler column as a potential problem for the purchasers, the "contract of carriage." I checked on the Korean Air website and found the document - all 44 pages of it. It's accessible as a link on the bottom of the Korean Air website, of course. I took a brief glance at the document (necessarily brief b/c of the length). There were some references to Korean Air's ability to cancel for broad and vaguely defined reasons, but I would not have interpreted these as permitting cancellation for posting an erroneous fee - these seemed more appropriately interpreted as allowing cancellation for equipment failure or scheduling or weather complications.
I may have missed it, but I didn't see a provision allowing Korean Air to cancel for posting an erroneous fare after it has confirmed the reservation. To interpret the existing cancellation clauses to mean Korean Air can cancel at will would create mutuality issues. Korean Air would not want to make this argument for while such an interpretation would disadvantage the purchasers in this particular case, it could also mean that the contracts it enters with its other customers are void (and customers could cancel at the last minute).
Another provision I didn't see and just might have missed (although I doubt it) was a choice of law provision with respect to contract claims.
December 11, 2011
"Zip-it" contracts in a brave new world
Last week was a big week for contracts to "keep-your-mouth-shut". The L.A. times had this article about the recent exchange between "The Girl with the Dragon Tattoo" producer, Scott Rudin, and New Yorker film critic, David Denby. It seems that Denby broke his promise not to publish a review of an early screening of the movie. While these "agreements" are common in the film and publishing industry, they are much harder to enforce because of the Internet and the ability to post instantaneously.
On the flip side, more businesses that would otherwise not have considered such agreements are doing so. Paul Levy discusses one type of agreement that has been receiving some attention in the blogosphere, "medical confidentiality" agreements. Dave Hoffman blogged about it as well here. While I can understand, on a personal level, the desire to contain what one considers to be unfair negative reviews on an easily googleable website (not that it's ever happened to me, ahem...), these contracts raise a lot of troubling issues. And while it may seem like bad business for a doctor or dentist to have a patient sign a "zip-it" contract, if these practices are widely adopted, they become standard practice, leaving consumers with no real choice (kind of like the intrusive tracking policies adopted by so many websites which we can't really seem to prevent....).
December 08, 2011
Microsoft Adds Class Action Waiver to Xbox Live Terms of Service
[Meredith R. Miller]
November 21, 2011
More (Illegal) Fun with TOS
November 14, 2011
TOS, Wikileaks and Twitter
But does the language in the 2007 (as opposed to the 2010) policy create a reasonable expectation that the IP address information would not be released to law enforcement authorities. I don't think it does as a matter of interpretation, especially because the 2007 version specifically states that Twitter "may disclose any information to respond "to claims, legal process (including subpoenas)….to prevent or stop any illegal, unethical, or legally actionable activity, or to comply with the law."
November 09, 2011
Relational contracts and new business models
A few posts back, I referred to Apple's business model as incorporating relational contracting on a mass consumer scale which made me wonder whether relational contract theory is due for a revival (not that it ever went away). I didn’t attend the conference at Wisconsin honoring Stewart Macaulay although I wish I had. Relational contracting should be the subject of renewed interest given the new business models that incorporate goods, services, and information. On the radio yesterday morning, I heard someone talk about Google's business as being more than a series of searches - it was about services and relationships with its customers. (Okay, maybe those weren't the exact words, but they're close enough). A few weeks ago, a NYT article discussed new technology companies that are assisting musicians in managing their relationships with their fans. In order to survive, many businesses (especially those in the creative industries) will have to reboot for the evolving marketplace. Not all businesses (and by “businesses," I mean musicians, writers and artists who want to get paid and are not backed by large corporate conglomerates) are equipped to do this. Well, make way for companies like Topspin, Bandcamp, FanBridge and ReverbNation, to assist them. These companies help musicians run a band's online business which means they sell music, manage fan clubs and calculate royalty payments. They have found a way to bundle physical and digital goods. How much you want to bet that those digital goods are protected by contracts?
Which brings me to relational contract law. The purpose of these companies is to enable the musician to survive (and even thrive) without being backed by a record company. Now, the musician can directly manage the relationship with the fan. In the past, a fan joined a fan club, bought a ticket to a concert from one vendor, a record from a retailer, a tee shirt from another retailer - you get the picture. With the exception of the rules on the back of the concert ticket and the fan club membership rules, the other transactions were not governed by contract. The fan can now buy everything she or he wants that's band-related from that band's website, subject to the terms and conditions of the website and the licenses that accompany the digital products. Shouldn't the terms of those contracts be considered in light of the existing relationship between the musician and the fan? Wouldn't a relational contracts approach be helpful in analyzing the terms and how they should be interpreted and enforced?
Apple is relevant in this discussion for another reason. If it weren't for iTunes, it's likely that
none of these businesses would exist. (Fun note - the NYT article mentions that the chief executive of Topskin has a tattoo of the logo for NeXT Computer, which was Steve Job's old company).
October 25, 2011
Default Settings, Notice and Contract Design
There have been several interesting articles about company policies in the news in the past couple of weeks. First there was this article which discusses how, as annoyed as customers might be by fees, they stay with their banks. They stay, not out of loyalty, but inertia. This article explains how certain magazine subscriptions are set to automatically renew upon notice. The problem is that the notice is not very noticeable. The next article explains how Google has captured the market for search because it is the default search engine for many users – and because resetting to another default is too complicated. Finally, there’s news here and here that wireless companies have agreed to notify customers when their data usage approaches or exceeds their monthly allotment – and they start to incur excess usage costs.
What all these articles illustrate is the importance of effective notice and default settings -- and how their design is the result of conscious business decisions. Companies get consumers to agree to bank fees, data overage fees and choice of search engine by setting the default to an option that favors the company. Ostensibly customers have a choice. They don’t have to agree to the default. They can affirmatively opt out, but they don’t. The contract (because there is bound to be one) is itself a default setting. The company substitutes notice for an affirmative indication of assent. It has made a choice not to require the customer’s actual assent. Bank fees are slightly different, but even there, the default enables the customer to use the card and assumes they agree to the fees; if they don’t agree, they have to “opt out” by changing their existing habit of using the card.
The design of a contract, including notices, and the choice of default settings really matters. Woody Hartzog has discussed contract design in the context of privacy policies . . Hartzog argues that a company’s privacy settings should constitute part of the agreement with the user. Ryan Calo has done interesting work about “visceral notice” that shows how notice can be rendered in a more effective manner. I’ve argued here and here that we should change the default setting on contractual assent in the online context to presume non-consent, thereby making actual assent a “cost” and making the contracting process part of the product or service offered by the company. [Of course, Arthur Leff made that argument way before I did in a famous essay, Contract as Thing, 19 AM. U. L. REV. 131 (1970).]
Calo’s work on visceral notice will be especially relevant in light of the wireless industry’s agreement to provide customers with text messages to alert them when they approach data usage limitations. Will these companies bombard consumers with so many marketing text messages (for example, to upgrade to another plan) that the usage warnings go ignored? Will users receive more SPAM by marketers, who take advantage of the attention that users will be paying to their texts – with the consequence that users no longer pay attention to their texts?
A broader question -- When there is so much that companies can do to affect the contracting process, especially online, shouldn’t we require them to do it? If a company can provide visceral or visual notice (rather than simply textual notice), why shouldn’t they be required to? If a company can easily enable the customer to indicate assent (by forcing a click, for example) to particular terms, why should we permit “blanket assent” online?