ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, January 4, 2016

Apple, Publishers, E-book Price Fixing -- and Effective Assignments of Claims

Apple Headquarters Sign ByDay

The antitrust ruling finding Apple engaged in anticompetitive behavior with regard to the e-book industry has resulted in a number of follow-up suits by parties allegedly harmed by Apple and its co-conspirator publishers' price-fixing scheme. Now, one of the first cases to be filed has reached the end of its line, derailed by the lack of an assignment clause with sufficiently explicit wording.  

In the Southern District of New York, DNAML Pty, Ltd. v. Apple Inc., 13cv6516 (DLC) (behind a paywall), the plaintiff's claims were rooted in antitrust, but it was ultimately contract law that decided the case. The problem arose because the DNAML who sued Apple and the publishers here is actually "new" DNAML. "New" DNAML is not the same entity that was damaged by the anticompetitive conduct here; that was "old" DNAML.  

In 2010, "old" DNAML entered into the agency agreement with the publisher Hachette that gave rise to the cause of action here. That agency agreement, according to the allegations, was disastrous for "old" DNAML, as the anticompetitive measures adopted by Apple and the publishers did their job and eliminated "old" DNAML's ability to effectively compete by requiring that Hachette strictly control all e-book pricing. Consequently deprived of distinguishing itself from all of the other sellers of e-books in any way, "old" DNAML got out of the e-book business a few months after signing the agreement, in September 2010. 

Over a year later, on December 23, 2011, "old" DNAML executed a contract under which it transferred all of its assets to "new" DNAML. Under the agreement, "new" DNAML purchased the "Business and Assets" of "old" DNAML. "Business" was defined as "the business carried on" by "old" DNAML, "being the business of owning and operating eBook technologies, including the sale of eBooks." "Assets" was defined as "all of the assets" owned by "old" DNAML and "used in connection" with its business, "including its cash, the Book Debts, the DNAML UK Shares, the Business Agreements, Leasehold Property interest, Equipment, Intellectual Property, and the Goodwill." After the execution of the agreement, "old" DNAML allegedly still existed but had no active business. 

In July 2013, Apple was found liable for antitrust violations in the e-book market. In September 2013, DNAML filed this lawsuit. Apple and the publishers argued that summary judgment should be entered in their favor because "new" DNAML lacked the standing to pursue the antitrust claims, which were inflicted upon "old" DNAML. The court agreed. 

"New" DNAML agreed that it could not sue Apple and the publishers absent an assignment of the antitrust claims from "old" DNAML. The court found that the antitrust claims could have been assigned, but that the agreement here failed to do so: 

To effect a transfer of the right to bring an antitrust claim, the transferee must expressly assign the right to bring that cause of action, either by making specific reference to the antitrust claim or by making an unambiguous assignment of causes of action in a manner that would clearly encompass the antitrust claim.

No such express assignment existed here, either of antitrust claims or of claims in general. The definitions of "Business" and "Assets" did not include claims. A transfer merely of assets is not sufficient to act as an assignment of antitrust claims.

"New" DNAML tried to argue that the purchase of "old" DNAML's "Business" "unambiguous[ly]" included an assignment of the antitrust claims because of the reference to "old" DNAML's sale of e-books. "New" DNAML argued that should be read to include any claims arising out of that business. But the court stated that was not the express assignment of claims that the law requires. 

"New" DNAML also tried to introduce extrinsic evidence to support its argument that the agreement was intended to include antitrust claims, but the court, having found the agreement unambiguous on its face, refused to use extrinsic evidence to alter its interpretation.

As a result, "new" DNAML never acquired "old" DNAML's standing to bring the suit, and the court dismissed DNAML's claims with prejudice.  

The moral of the story: Mention "claims" explicitly in your asset purchase agreements.  

January 4, 2016 in Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Sunday, January 3, 2016

Legal Rights to Give up Your Travel Tickets

Exactly one year ago, I blogged here about United Airlines and Orbitz suing a 22-year old creator of a website that lets travelers find the cheapest airfare possible between two desired cities. Travelers would buy tickets to a cheaper end destination, but get off at stopover point to which a ticket would have been more expensive. For example, if you want to travel from New York to Chicago, it may be cheaper to buy one-way airfare all the way to San Francisco, not check any luggage, and simply get off in Chicago.

The problem with that, according to the airline industry: that is “unfair competition” and “deceptive behavior.” (Yes, the _airline industry_ truly alleged that.) Additionally, the plaintiffs claimed that the website promoted “strictly prohibited” travel; a breach of contracts cause of action under the airlines’ contract of carriage.

It seems that the United Airlines attorneys may not have remembered their 1L Contracts course well enough, for a contracts cause of action must, of course, be between the parties themselves or intended third party beneficiaries. The website in question was simply a third party with only incidental effects and benefits under the circumstances. Without more, such a party cannot be sued under contract law. (This may also be a free speech issue.)

Orbitz has since settled the suit.  Recently, a federal lawsuit was dismissed for lack of personal jurisdiction over the now 23-year old website inventor. United Airlines has not indicated whether it plans further legal action.  

Along these lines, cruise ship passengers are similarly not allowed to get off a cruise ship in a domestic port if embarking in another domestic port unless the cruise ship is built in the United States and owned by U.S. citizens. This is because the Passenger Vessel Services Act of 1866 – enacted to support American shipping – requires passengers sailing exclusively between U.S. ports to travel in ships built in this country and owned by American owners. Thus, cruise ships traveling from, for example, San Diego to Alaska and back will often stop in Canada in order not to break the law. But if the vessel also stops in, for example, San Francisco and you want to get off, you will be subject to a $300 fine which, under cruise ship contracts of carriages, will be passed on to the passenger. See 19 CFR 4.80A and a government handbook here.

Convoluted, right? Indeed. Necessary? In this day and age: not in my opinion. As I wrote in my initial blogs on the issue, if one has a contract for a given product or service, pays it in full, and does not do anything that will harm the seller’s business situation, there should be no contractual or regulatory prohibitions against simply deciding not to actually consume the product or use the service one has bought. Again: if you buy a loaf of bread, there is also nothing that says that you actually have to eat it. You don’t have to sit and watch all sorts of TV channels simply because you bought the channel line-up. In my opinion, United Airlines and Orbitz were trying to hinder healthy competition and understandable consumer conduct. What is still rather incomprehensible to me in this context is why in the world airlines would have anything against passengers getting off at a midway point. It’s less work for them to perform and it gives them a chance to, if they allowed the conduct openly, resell the same seat twice. A win-win-win situation, it seems, for the original passenger, the airline, and the passenger that might want to buy the second leg at a potentially later point in time at whatever price then would be applicable. The same goes for the typically unaffordable “change fees” applied by most airlines: if they charged less (a change can very easily be done by travelers on a website with no airline interaction) and the consumer was willing to pay the then-applicable rate for the new date (prices typically go up, not down, as the departure dates approach), the airlines might actually benefit from being able to sell the given-up seat. Of course, they don’t see it that way… yet.

In many ways, traveling in this country seems to be going full circle in that it is becoming an expensive luxury. Thankfully, new low-cost airlines also appear on the market to provide much needed competition in this close-knit industry that, in the United States, seems to be able to carefully skirt around anti-trust rules without too many legal allegations of wrongdoing. (See here for allegations against United, American, Delta and Southwest Airlines for controlling capacity in order to keep airline prices up).

Happy New Year and safe travels!

January 3, 2016 in Commentary, Current Affairs, E-commerce, Famous Cases, In the News, Legislation, Recent Cases, Travel, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, December 21, 2015

Pearls Before Swine

I'd never heard of the comic strip, Pearls Before Swine, before yesterday but my colleague Glenn Smith alerted me to their especially blog-appropriate offering in yesterday's paper.

December 21, 2015 in Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, December 16, 2015

Phone Companies Still Trying to Take Advantage of Callers

How does paying 18 cents a minute for a local phone call in 2015 sound to you – fair enough or a scam?  How about 23 cents a minute for a non-local call?  If you think that no one can possibly charge that much today or that no one in their right minds would pay it, think again (ok, at least the former).

In Orange County, California, jails, the average phone call costs just that.  In return for providing phone service in a county’s jail system, a telecommunications company typically guarantees the county a multi-million dollar “commission” as well as a percentage of the revenue.  For example, Alabama company Global Tel-Link guarantees a payment of $15 million or two-thirds of phone revenue, whichever is greater, to Los Angeles County.  To be able to pay such a high price, the phone companies of course pass the cost on to the end clients; the inmates in at least Southern California counties. Lacountyprisonphones

The inmates and their families have had enough.  They filed suit recently against Los Angeles and nearby counties alleging that the fee for inmate telephone calls are “grossly unfair and excessive” and amount to an illegal moneymaking scheme for local governments.

Before you ask yourself who is calling the kettle black, as I must admit I did when I first learned of this story, think of this: criminal recidivism is greatly reduced by family communication.  The Federal Communications Commission last month capped local call rates and trimmed the cap on interstate long-distance calls for this and other reasons.  Mothers with husbands in jail have paid several thousand dollars to telecommunications companies so that their children can talk to their fathers, undoubtedly a benefit to not only the families, but also society in the long run.

Of course, the inmates have few alternatives as cell phones are very typically not allowed in jail.

It continually amazes me how much Americans are willing or have to pay for phone service, Internet service, and cable TV service.  In the case of inmates, of course, they have little choice.  To avoid paying large monthly fees for cell phone service, I have kept my “dumb phone,” but instead find myself annoyed at still, in 2015, not being able to get more selective cable TV for only those stations I truly watch (the news, if you can call it that these days).  Monopolies or not: communications companies still typically have the upper hand in contractual bargaining situations.

December 16, 2015 in Commentary, Current Affairs, Government Contracting, Web/Tech | Permalink | Comments (1)

So You Want to Write a Best-Selling Video Game, Huh?

If so, it's always better to be precise in your negotiations. 

Of course, the flip side of this is that you frequently don't feel like you have the power to demand precision. 

In Bubble Pony v. Facepunch Studios, Civil No. 15-601(DSD/FLN) (sorry, I can only find versions behind paywalls for now), out of the District of Minnesota, Patrick Glynn was a computer programmer in need of a job. He e-mailed Facepunch looking for one, highlighting his abilities (as one does when job-hunting). Facepunch's majority owner, Garry Newman, responded to Glynn's e-mail positively, describing what he was looking for in a new employee and adding:

I want to eventually be in a position where you'd be making games for Facepunch Studios, which we'd sell on Steam, or the apple appstore, or whatever, but once that game makes what we've paid you so far back, you'd get something like a 60% cut of all the profits (probably more, that's kind of TBD). So we'd kind of be investing in your, kind of.

Does that sounds [sic] like the kind of situation you'd like to be in?

Glynn replied that yes, he was interested, and that his "only concerns" were "making rent, paying bills, and buying groceries." Eventually, the parties agreed on compensation of $1,900 per month, to be increased by $100 per month until they reached $3,000. At the time, Glynn's responsibilities were going to be things like fixing bugs and otherwise optimizing Facepunch's existing code. The parties did not further negotiate what would happen if/when Glynn started creating games for Facepunch. They did, however, agree that Glynn was an independent contractor and not an employee. 

Eventually, Glynn began creating games for Facepunch, producing more than 75% of the source code for a game called RUST. RUST was a huge success that "has generated at least $46 million in sales." Facepunch paid Glynn bonuses totaling around $700,000. Facepunch also asked Glynn, after RUST's major success had been established, to draft a document explaining how the RUST programming worked. Once it received the document, Facepunch terminated its relationship with Glynn, pulled RUST off the market, and announced a new "experimental game" based on RUST. 

As you might imagine, Glynn has sued for a number of causes of action, and there are other issues in this case, including an issue of personal jurisdiction, because Facepunch and Newman are both British (the court found personal jurisdiction to exist). However, to focus on the contract issue, the court found that the parties' e-mails on the subject of 60% of the profits if Glynn started developing games never rose to the level of an agreement. The court said that the terms about the compensation were "vague and indefinite," pointing to the words "eventually" and "something like 60%" and "TBD." Therefore, Glynn's breach of contract claims here were dismissed. The court also dismissed his promissory estoppel claims, finding that Newman's e-mail statements were too "vague and indefinite" to constitute promises. 

Glynn should have been sure to clarify his compensation before embarking on developing games for Facepunch. Of course, from Glynn's perspective, he was probably happy just to get a job, and, by the time he started developing games, he might have developed enough of a relationship with Facepunch that he didn't feel it necessary to rock the boat, so to speak. 

Glynn isn't completely out of luck, however. Although the court dismissed most of his claims, the lack of definite terms actually works in his favor in the copyright context. Because the parties were allegedly clear that Glynn was an independent contractor and not an employee, and because there was allegedly no agreement anywhere otherwise (so far, at this early stage), Glynn's claim for joint copyright ownership of RUST (and its associated causes of action) survived the motion to dismiss. So to be continued on the copyright question...

December 16, 2015 in Games, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (0)

Thursday, December 10, 2015

Five Flavors of Legal Services

Will the legal hiring and general business situation never change for the better? Maybe, but commentators still think that future change on the legal market will come from structural and innovative, rather than cyclical, change. For example, in addition to relatively simple steps such as hiring outside staffing agencies and sharing office centers, some firms are launching their own subsidiaries providing legally related services such as contract, data and cyber security management along with ediscovery.

Until recently, law firms offered these and other services. As outside service providers have proved to be able to provide certain key services more efficiently and cost effectively than traditional law firms, the latter have lost business that they are now desperately trying to recoup.

Imitation is still the most sincere form of flattery. It is not only on the market for legal services that copycats abound; this has also proved to be the case with, for example, many shared economy service websites such as Uber, Lyft, Airbnb, VRBO and others. As soon as one company idea and website turns out to be successful, others just like it seem to shoot up within weeks or months.  However, instead of simply trying to do what others are already doing and doing well, it would be nice if companies – law firms among them – would try to think about how they could do things better instead of just trying to, as often seems the case, (re)gain business by taking market shares from others. Exactly how law firms should do so is, of course, the million-dollar question, but it seems clear that innovation is prized both within and beyond the legal field. That will benefit our students if jobs are created by actual law firms rather than by service providers not hiring people with JDs.

December 10, 2015 in Commentary, Current Affairs, E-commerce, Labor Contracts, Miscellaneous, Web/Tech | Permalink | Comments (0)

Saturday, December 5, 2015

What's in YOUR Wallet? (Maybe not an EMV-chip card...)

CapOne Viking TV

While checks have long been governed by the Uniform Commercial Code, credit and debit cards are primarily creatures of private contract. Some of the most important contracts controlling card-based payment systems are ones to which you, as a mere end user, are not a party. Both consumers who use cards and merchants who accept them generally do so through their banks. These banks, in turn, are contracting members of credit card networks, like MasterCard and Visa. Most of us will never actually see these bank-to-network contracts, but they are hugely important for allocating liability among the parties handing a payment card transaction.

On October 1, 2015, these network agreements underwent a major change known as the "EMV Liability Shift." In general terms, this meant the liability for unauthorized was allocated to incentivize the adoption of EMV-chip cards that would ultimately replace the outdated magnetic-stripe cards long popular in the United States.  "EMV," if you are wondering, stands for "EuroPay, MasterCard, Visa," who were the three original adopters of the standard, but all major cards are onboard with EMV today.

I knew that the October 1 shift was coming and that it was a big deal to players in the payment-card industry. This is why I was greatly surprised that, as of October 1, I had received precisely ONE card containing an EMV chip, and that was for the travel credit-card issued to me by my university employer. I to this day have heard nary a peep from my personal card-issuer banks, when I thought they would be tripping over themselves to give me a chip-enabled replacement card. Many point-of-sale card terminals now have a slot in which to insert an EMV card, albeit still retaining the traditional mag-stripe swipe capability. But my cards are still chipless.  How can this be, when the EMV Liability Shift was clearly going to be a big deal?

I may have found the answer to this mystery in this short piece by practicing attorney Christopher H. Roede, who described the liability shift with an important detail (underlined) that I had somehow missed until now:

Under these new credit card network rules, the liability for certain types of unauthorized or fraudulent credit card transactions shifted from the issuing bank and the credit card networks to the party that adopted the lowest level of EMV compliant technology. If, for example, a bank issued a cardholder an EMV compliant card, the merchant had not installed EMV compliant card readers, and an unauthorized transaction occurred at the merchant's location by use of a counterfeit card, the merchant (and not the issuing bank) is liable for the fraud.

To me, that explains a great deal about the card-issuing banks' non-urgency to move customers over to EMV-chip cards. They just aren't worried enough about the cost of having non-compliant technology to issue new cards in an expedited manner.  While EMV will improve the card-issuer's position as against non-adopting merchants, failure to adopt is not putting them in any worse position than they were in before October 1.  Under the Truth-in-Lending Act and Regulation Z [12 C.F.R. §1026(b)(1)], the issuer banks were already liable for most unauthorized use of consumer credit cards. My employer-issued card is not subject to TILA as it isn't a consumer credit card, so my university had significant incentive to make sure that its bank upgraded all employee credit cards were replaced before October 1.  And that is exactly what happened.

Consumers, I suppose, will get chip-based credit cards when the issuer banks feel like getting around to it. It's apparently not THAT urgent for them.

December 5, 2015 in Current Affairs, E-commerce, Web/Tech | Permalink | Comments (5)

Thursday, December 3, 2015

Restatement (Third) of Presumptively Unread Contracts

This post from yesterday linked to a funny video where several people unwittingly agreed to some onerous "terms and conditions" in exchange for a chance to win a free iPad and, befitting a "pranked" setup, the people looked a bit foolish in the process.

But they really weren't foolish. While the surface joke is "ha, ha, look what you get for not reading the contract," the signing parties were behaving perfectly rationally. When faced with an adhesion contract in a sidewalk-passer-by setting, no one has an opportunity to read much of anything, and the terms aren't negotiable, anyway. Some 99% of us (or more) scrolled through the last End User License Agreement we saw and hurriedly checked the box labeled, "I have read and understood the foregoing terms," when we had in fact done nothing of the sort.

The moral of the story--now that we have killed the joke by dissecting it--is that Margaret Jane Radin, our co-blogger Nancy S. Kim, and others have gotten something fundamentally correct: clickwrap and other adhesion contracts really are different, and evaluating them under one-size-fits-all contract doctrine makes little sense.  Perhaps the time has come for a Restatement (Third) of Presumptively Unread Contracts.

December 3, 2015 in Commentary, E-commerce, Web/Tech | Permalink | Comments (7)

Thursday, October 22, 2015

DNA Test Kits, Law Enforcement and TOS

23andme just issued a report that indicates that it has received 4 requests for  customer information from law enforcement agencies and the FBI.  The company was able to fend off those requests.  Given that the company has over a million customers, that's not a large number, but the implications are chilling.  As Jeremy Telman and I argue in a forthcoming article, the personal data collected by private companies may be used by the government in ways that may surprise us (and, in some cases, deprive of us basic constitutional rights....)  23andme extracts its customers consent by including the following in its TOS:

"Further, you acknowledge and agree that 23andMe is free to preserve and disclose any and all Personal Information to law enforcement agencies or others if required to do so by law or in the good faith belief that such preservation or disclosure is reasonably necessary to: (a) comply with legal process (such as a judicial proceeding, court order, or government inquiry) or obligations that 23andMe may owe pursuant to ethical and other professional rules, laws, and regulations; (b) enforce the 23andMe TOS; (c) respond to claims that any content violates the rights of third parties; or (d) protect the rights, property, or personal safety of 23andMe, its employees, its users, its clients, and the public. In such event we will notify you through the contact information you have provided to us in advance, unless doing so would violate the law or a court order."

Nevermind that this provision is not one that most customers would have bothered to read, hidden as it is behind a hyperlink and buried in the text.  You can read more about the potential use of DNA test kits by law enforcement agencies here and here

But wait - there's more!  As I was scrolling through 23andme's terms, I found another provision that potentially affects even more customers:

"Genetic Information you share with others could be used against your interests. You should be careful about sharing your Genetic Information with others. Currently, very few businesses or insurance companies request genetic information, but this could change in the future. While the Genetic Information Nondiscrimination Act was signed into law in the United States in 2008, its protection against discrimination by employers and health insurance companies for employment and coverage issues has not been clearly established. In addition, GINA does not cover life or disability insurance providers. Some, but not all, states and other jurisdictions have laws that protect individuals with regard to their Genetic Information. You may want to consult a lawyer to understand the extent of legal protection of your Genetic Information before you share it with anybody.

Furthermore, Genetic Information that you choose to share with your physician or other health care provider may become part of your medical record and through that route be accessible to other health care providers and/or insurance companies in the future. Genetic Information that you share with family, friends or employers may be used against your interests. Even if you share Genetic Information that has no or limited meaning today, that information could have greater meaning in the future as new discoveries are made. If you are asked by an insurance company whether you have learned Genetic Information about health conditions and you do not disclose this to them, this may be considered to be fraud."

This is information that might be very useful to a potential customer.  So why is this buried way down in the TOS?  Maybe because it might make potential customers think twice about purchasing the kit?  (Ya think?)  Back in the good old days, companies posted potential dangers relating to the use of their products and services where you could see them.  We used to call them notices and they had to be conspicuous.  Now they bury them in the fine print and call them "contracts." 

 

October 22, 2015 in Commentary, Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0)

Wednesday, October 21, 2015

Online Reviews – Are You Hot or Not?

Amazon is suing approximately 1,000 individuals who are allegedly in breach of contract with the Seattle online retailer for violating its terms of service.  Amazon is also alleging breach of Washington consumer protection laws.  

In April, Amazon sued middlemen websites offering to produce positive reviews, but this time, Amazon is targeting the actual freelance writers of the reviews, who often merely offer to post various product sellers’ own “reviews” for as little as $5.  (You now ask yourself “$5? Really? That’s nothing!”  That’s right… to most people, but remember that some people don’t make that much money, so every little bit helps, and numerous of the freelancers are thought to be located outside the United States.)  The product sellers and freelancers are alleged to have found each other on www.fiverr.com, a marketplace for odd jobs and “gigs” of various types.

There are powerful incentives to plant fraudulent reviews online. About 45 percent of consumers consider product reviews when weighing an online purchase.  Two-thirds of shoppers trust consumer opinions online.  For small businesses, it can be more economical to pay for positive reviews than to buy advertising. For example, a half-star increase in a restaurant's online rating can increase the likelihood of securing, say, a 7 p.m. booking by 15 to 20 percent. “A restaurateur might be tempted to pay $250 for 50 positive reviews online in the hopes of raising that rating.”

As law professors, we are not beyond online reviews and thus potential abuses ourselves. See, for example, www.ratemyprofessor.com.  There, anyone can claim that they have taken your course and rank you on your “Helpfulness,” “Clarity,” and “Easiness,” give you an overall grade as well as an indication of whether you are hot or not (clearly a crucial aspect of being a law professor…) To stay anonymous, people simply have to create a random anonymous sounding email address. Not even a user screen name appears to be required. Hopefully, that website does not have nearly as much credibility as, for example, Yelp or TripAdvisor, but the potential for abuse of online reviews is clear both within as well as beyond our own circles.

As shown, though, some companies are taking action.  TripAdvisor claims that it has a team of 300 people using fraud detection techniques to weed out fake reviews.  But fraudulent reviews aren't thought to be going away anytime soon. One source estimates that as many as 10-15% of online reviews are fake (to me, that seems a low estimate, but I may just be a bit too cynical when it comes to online reviews).

So, next time you are reading reviews of a restaurant online, I suppose the learning is that you should take the reviews with a grain of salt.

October 21, 2015 in Current Affairs, E-commerce, Food and Drink, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Monday, October 12, 2015

Sears Makes a Mistake

Some shoppers on Sears.com thought it was their lucky day when they saw expensive play sets and fancy toys available for the low price of $11.95.  Consumerist has the story here.  If you saw a storybook cottage that typically costs hundreds of dollars listed for sale at the low, low price of $11.95, what would you think?  That's right.  Unless it was advertised as a huge blowout sale, you would probably guess it was a mistake.  Apparently, Sears lists items sold by third parties and gets a cut - and this time, a third party had made a pricing error on its items.  Of course, some Sears sellers were upset - even though Sears refunded their money and gave them a $5 gift card.  So, for all those upset sellers, let's run through the mistake scenario to see whether the law would be on your side:

Was this a mistake of a basic assumption?  - Yes, it was a pricing error and pricing errors are generally considered basic assumption mistakes.

Was the mistake made by one or both parties (was it a mutual or unilateral mistake?) - Here, Sears mistakenly believed that the prices listed on its website were accurate (not all $11.95) while the customers saw what the prices were - $11.95 -  so it was a unilateral mistake made by Sears. 

Did it have a material effect?  Yes, there's a big difference between $11.95 and hundreds of dollars so Sears would make less money on the transaction.

Did the non-mistaken party (the Sears customers) know or should they have known of the mistake?  - Yes, because they should know that expensive playsets are typically not sold for such a low price unless it is part of a promotion or clearance sale.

Did the mistaken party bear the risk of the mistake?  You might think Sears would, since it is their website.  But based upon existing case law (i.e. Donovan v. RRL Corp), since there's no lack of good faith here and Sears presumably acted reasonably in managing its website - it does not constitute "neglect of a legal duty" and Sears likely doesn't bear the risk of the mistake.

So - there you have it.  Sorry kids - guess you'll just have to go outside and build your own play castles with branches and old bed sheets...

 

October 12, 2015 in Commentary, E-commerce, In the News, Web/Tech | Permalink | Comments (4)

Tuesday, October 6, 2015

Contractual Promise to Assist with Hobnobbing

In California (where else?), a state court judge has, for now, refused to dismiss a fraud claim against Mark Zuckerberg of Facebook fame.  A breach of contract claim is also still under consideration.

What is the latter all about?  As we wrote here earlier, one of Zuckerberg's former neighbors alleges that he promised to sell property adjoining Zuckerberg's at a discount in return for Zuckerberg's promise to provide the neighbor with "personal referrals and business promotion activities."  The property changed hands, but Zuckerberg allegedly failed to make good on his promises.

Is he contractually bound to do so?  I don't see why not.  The promise is not illusory, and although it is not directly monetary in nature, it does seem to constitute true consideration (Zuckerberg would give up time and effort to get the discount and run the risk of inconveniencing his connections).  

Of course, promises such as these are probably very hard to enforce via court action.  What would a court realistically do? Force Zuckerberg to help the former neighbor hobnob now that the parties undoubtedly dislike each other intensely?  Require him to host a certain number of cocktail parties and invite the ex-neigbor?  Such relief is unrealistic, just as it would likely be next to impossible to monetize the alleged loss here. 

The temptation to contract in part in return for return benefits from the rich and famous is continually present now as it has been for decades, if not centuries.  But numerous cases show how such deals are next to impossible to enforce, contracts law principles or not.  A higher sales price would undoubtedly have been smarter here.   

Making the case even weirder, the neighbor's attorney has petitioned the court to withdraw from the case for ethical reasons.  

October 6, 2015 in Celebrity Contracts, In the News, Web/Tech | Permalink | Comments (0)

Saturday, October 3, 2015

Gag Clauses in Consumer Contracts

They’re still doing it: companies not wanting negative online reviews of their products or services attempt to contractually prohibit unsatisfied customers from posting such feedback. Not only that, but some companies also seek to take legal and other retaliatory action against their customers if they defy such attempted clauses.

For example, the FTC recently instigated suit against weight-loss company Roca Labs for threatening legal action against customers writing negative comments about the company’s allegedly ineffective weight loss powder.  (H/t to my colleagues on the AALS Contracts listserv for mentioning this story).  When one of Roca Lab’s customers posted a comment on the Better Business Bureau website, the company cited to their contract with the client that stated, “You will not disparage RL and/or any of its employees, products or services... If you breach this agreement... we retain all legal rights and remedies against the breaching customer..."  The company also asked the customer for information about her contacts on Twitter and Facebook (she luckily declined…).

There is no federal law prohibiting companies from trying to suppress negative reviews, but the FTC alleged unfair practices, among other things because the clause in question was buried in fine print.  The issue may also be a First Amendment problem, according to an attorney for www.pissedconsumer.com, a third-party website that, as the name indicates, allows negative reviews of companies. http://www.cbsnews.com/news/ftc-lawsuit-roca-labs-weight-loss-powder-gag-clause-customers-sued/

I could not agree more that the voice of customers who have been disappointed for good reason should be heard. It is, frankly, ridiculous what some companies can get away with in this country in this day and age, in my opinion.  (In the EU, for example, much more consumer-friendly regulations exist. In the USA, the legislative balancing of consumers v. companies often, in my opinion, is more of a slant favoring businesses, but that’s a thought for another day).  But here’s the thing: what about the true risk of disgruntled customers posting reviews that don’t quite reflect what really happened, that exaggerate the situation, or that simply make things seem worse than what they really were?  Even with emoticons, things can seem very harsh once written down even if they were not necessarily meant to be. 

Take, for example, popular hosting website Airbnb.  My husband and I own a historically registered house that requires a lot of upkeep and fixing after 90 years of neglect, so we signed up as hosts to try it out and, of course, to make a little extra money.  We love it!  We meet the most interesting people that truly enjoy our house. But as one’s success on that and other websites is, in reality, often tied closely to having a large amount of very good reviews, we also live with the constant worry that one day, somebody could post a negative review about something that most people would probably consider seemingly minor (our house is almost 100 years old, and there are necessarily small kinks with a house like that).  See also Nancy Kim’s recent blog on our apparently increasing need to judge each other negatively. At least Airbnb allows its users to post comments to reviews, but not all websites follow such practice.

My point is simply this: it is, of course, to go overboard to require one’s paying customers to not post negative reviews via contractual clauses or other methods. But how do we balance the need for true and honest, productive reviews with the risk of disgruntled and perhaps even dishonest customers?  Comment below!

October 3, 2015 in Current Affairs, In the News, Legislation, True Contracts, Web/Tech | Permalink | Comments (2)

Thursday, October 1, 2015

Want to Judge Your Fellow Humans? There's an App for That

Because we're all not insecure enough, there's a new app out there that let's people rate other people on a scale of 1-5.  There's no need to take their class,(Rate Your Professor) or eat at their restaurant (Yelp) or ride in their car (Uber)- now you can rate someone just for breathing, and if you don't like the way they breathe, you can tell the whole world about it on the Peeple App. 

They may be truly naive or they may be disingenuous (we've seen greed and self-serving rhetoric masquerading as idealism from other companies), but the two founders claim that the purpose of the app is about uplifting people --to borrow from The Princess Bride, I don't think that word means what they think it means.   As with all things digital, there are terms and conditions that the founders say will allow them to prevent bullying on the site.  But I'm not so sure - Twitter and Facebook have no-bullying policies (or their equivalent) and that hasn't really stopped the bullying.... 

It's unclear whether the app will survive regulators' scrutiny as it requires the poster to submit the subject's phone number in order to create the subject's profile.

October 1, 2015 in Commentary, Current Affairs, Web/Tech | Permalink | Comments (1)

Tuesday, September 22, 2015

Lyft's TOS Can't Save It From the TCPA (or Why Contract Law's Version of Consent Needs to Get With the Program)

The FCC recently issued a Citation and Order to Lyft  which alleges that its terms of service violate the Telephone Consumer Protection Act (TCPA).  Under the TCPA, a company that wants to inflict autodialed phone messages or text messages for marketing purposes must first obtain the express prior written consent of the recipient. Furthermore, FCC regulations forbid requiring such consent as a condition of purchasing any goods, services or property. Significant penalties result from failure to comply with the TCPA and the accompanying rules.  Lyft has already updated its TOS in response to the FCC's action.

Lyft's terms of service required its customers to consent to autodialed calls and texts.  Prospective customers are required to check a box stating "I agree with the Terms of Service."  The sign-up page includes a link to the Lyft TOS.  Section 6 of the Lyft TOS stated:

"By becoming a User, you expressly consent and agree to accept and receive communications from us, including via e-mail, text message, calls, and push notifications to the cellular telephone number you provided to us. By consenting to being contacted by Lyft, you understand and agree that you may receive communications generated by automatic telephone dialing systems and/or which will deliver prerecorded messages sent by or on behalf of Lyft, its affiliated companies and/or Drivers, including but not limited to: operational communications concerning your User account or use of the Lyft Platform or Services, updates concerning new and existing features on the Lyft Platform, communications concerning promotions run by us or our third party partners, and news concerning Lyft and industry developments. IF YOU WISH TO OPT-OUT OF PROMOTIONAL EMAILS, TEXT MESSAGES, OR OTHER COMMUNICATIONS, YOU MAY OPT-OUT BY FOLLOWING THE UNSUBSCRIBE OPTIONS PROVIDED TO YOU.Standard text messaging charges applied by your cell phone carrier will apply to text messages we send. You acknowledge that you are not required to consent to receive promotional messages as a condition of using the Lyft Platform or the Services. However, you acknowledge that opting out of receiving text messages or other communications may impact your use of the Lyft Platform or the Services."

 The terms stated that consumers may opt out by using "unsubscribe options," but the FCC investigation discovered that such an option didn't really exist.  There was no easy way to find the unsubscribe option and consumers had to navigate Lyft's website to find the opt-out page.  Even  if they did manage to find it, if they opted out, they couldn't use the service. 

This is another instance where contract law's easy assent rules don't actually help businesses and cause too much confusion.  While a consumer may have "consented" to the autodialing and the texts under contract law, the FCC rules require something that is more like what most people consider to be consent - express written consent and a real choice not to agree.  A default opt-in unless you opt-out (and even that's illusory), well - that just doesn't cut it under the TCPA and the FCC rules.  Sadly, in contract law, too often it does.

Contract law should get with the program and follow the commonsense version of consent adopted by the FCC. 

 

September 22, 2015 in Current Affairs, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (1)

Friday, September 18, 2015

Emailed Links to Forum Selection Clauses Constitute Sufficient Notice

Nancy Kim is, as you probably know, one of the nation’s, if not the world’s, leading experts on internet contracting.   She is a contributor to this blog as well.  Among other issues, Professor Kim rightfully questions whether consumers are put on sufficient notice of various contractual terms and conditions when they purchase goods or services via the Internet.

The Second Circuit has just held that emails sufficiently direct a purchaser’s attention to a service provider’s terms and conditions including a forum selection clause when a hyperlink is provided along with language “advising” the purchaser to click on the hyperlink.  (The case is Starkey v. G Adventures, Inc., 796 F.3d 193 (Second Cir. 2015).  Said the court, “This method serves the same function as the method of cross-referencing language in a printed copy promotional brochure and sufficed to direct [the purchaser’s] attention to the Booking Terms and Conditions. Both methods may be used to reasonably communicate a forum selection clause.”

The background is this:  A customer purchased a ticket for a vacation tour of the Galápagos Islands operated by a tour operator. Shortly thereafter, the tour operator sent the customer three emails: a booking information email, a confirmation invoice, and a service voucher.  The booking information email contained the statement, “TERMS AND CONDITIONS: ... All Gap Adventures passengers must read, understand and agree to the following terms and conditions.”  This statement was followed by a hyperlink with an underlined URL.  The confirmation invoice and service voucher each also contained hyperlinks, which were preceded immediately by the following text: “Confirmation of your reservation means that you have already read, agreed to and understood the terms and conditions, however, you can access them through the below link if you need to refer to them for any reason.”  The hyperlinks in all three emails linked to a document entitled “…. Booking Terms and Conditions.” The second paragraph of that document stated that “[b]y booking a trip, you agree to be bound by these Terms and Conditions.... These Terms and Conditions affect your rights and designate the ... forum for the resolution of any and all disputes.” The customer did not dispute that she received the relevant emails.  Instead, she alleged, as often happens, that she never read the Booking Terms and Conditions because she never clicked on the hyperlinks.

The customer alleged that she was sexually assaulted on the tour by one of the tour operator’s employees.  Instead of being able to pursue her negligence claim in a New York court, she must now pursue her claim in Ontario, Canada.  The court also held that it was not unreasonable and unjust to enforce the forum selection clause, stating that such clauses will only be set aside if (1) its incorporation was the result of fraud or overreaching; (2) the law to be applied in the selected forum is fundamentally unfair; (3) enforcement contravenes a strong public policy of the forum in which suit is brought; or (4) trial in the selected forum will be so difficult and inconvenient that the plaintiff effectively will be deprived of his day in court.  The plaintiff failed to meet any of those requirements.

This case shows how some courts still ignore the fact that, as Professor Kim has pointed out and as the case obviously shows, even though the attention of purchasers (online or otherwise) is directed towards certain crucial contractual clauses, they in fact do not read these.  Such is reality in a society such as ours with numerous and often lengthy and complicated legal notices and disclaimers.  Are purchasers then truly given sufficient notice in such modern cases?  But from  a contrary viewpoint, what else can sellers and service providers possibly do to make purchasers aware of key terms?  For more on this, read Professor Kim’s scholarship or book.

September 18, 2015 in E-commerce, Recent Cases, Web/Tech | Permalink | Comments (0)

Monday, September 14, 2015

Why an Absurd Prank Call about Comcast Worked

PrankCatching up on my podcast listening, I just heard last week's episode of Reply All, a show about the Internet.  The focus of this episode is a prank telephone call that seemed to come from Comcast.  The prankster represented herself as a Comcast representative and threatened the Comcast customer that Comcast would fine him or disconnect his service if he did not remove some hostile tweets he had posted expressing dissatisfaction with that service.   The prank worked; he removed a hostile tweet, but when the prankster upped the ante and tried to get him to remove more tweets, he hung up.

Two takeaways:

1.  Adults make prank calls, and they are very sophisticated.  They can fool your caller i.d., and as a result they can fool you.  This is just sad and obnoxious, but the bigger concern is that the same techniques can be used to steal your identity.  Probably best at this point in our relationship with technology to never answer your phone.

2. The prank worked because, as we have reported about repeatedly, companies now do try to prevent customers from posting negative reviews on social media, and it is completely credible that a large media company like Comcast would empower itself to discipline customers in this way.  For the record, as Reply All showed, Comcast does not do so.  

But they could.  

But they don't.  

But they could, or at least they could try to do so and thus chill people into keeping mum about how much they hate Comcast or TimeWarner or AT&T or Verizon or Sprint or T-Mobile or . . . . 

September 14, 2015 in Miscellaneous, Web/Tech | Permalink | Comments (2)

Sunday, September 6, 2015

When Lust Leads to Espionage

The recent massive hack into married-but-dating website Ashley Madison’s files may not only have breached the customer’s reasonable contractual expectations, but is now also said to lead to serious counter-intelligence concerns.  

Both China and Russia are collecting personal and sensitive information about people who may be involved in American national security operations.  What better leverage to have against operatives than information about their most secret, erotic desires. The temptation to resist such information being shared with even more people may persuade some operatives to render otherwise secret information about United States national security issues.  Recall that quite a few affair seekers used their official government addresses to arrange their attempted or successful trysts.  In combination with another recent OPM hack, countries that are seen as adversaries have apparently also been able to obtain information about who has sought security clearances and can use this information for counter-intelligence purposes.

That seems to provide a good public policy argument for why courts should find against Ashley Madison if it came to a contractual lawsuit regarding the breach of “100% secrecy” and “full deletes” promised, but not delivered, by Ashley Madison.

September 6, 2015 in Celebrity Contracts, Current Affairs, In the News, Web/Tech | Permalink | Comments (0)

Friday, September 4, 2015

Uber's Employees: Employees or Independent Contractors?

Yesterday, we blogged here about important considerations regarding whether an employee will be seen as an employee or a contractor.

In O'Connor v. Uber Technologies, U.S. District Judge Edward Chen just ruled that Uber's drivers may  pursue their arguments that they were employees in the form of a class-action suit. One of the reasons was that Uber admitted that they treated a large amount of its drivers "the same."

Of course, millions of dollars may be at stake in this context.  Profit margins are much higher for companies such as Uber, Lyft, Airbnb and other so-called "on demand" or "sharing economy" companies. That is because the companies do not have to pay contractors for health insurance benefits, work-related expenses, certain taxes, and the like.  But seen from the driver/employee's point of view, getting such benefits if they are truly employees is equally important in a country such as the United States where great disparities exist between the wealthy (such as the owners of these start-up companies) and the not-so-wealthy, everyday workers.

Plaintiffs are represented by renowned employee-side attorney Shannon "Sledgehammer" Liss-Riordan who represented and won a major suit by skycaps against American Airlines some years ago, so sparks undoubtedly will fly in the substantive hearings on this issue.

September 4, 2015 in Current Affairs, E-commerce, Famous Cases, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Tuesday, September 1, 2015

Uber’s Safety Checks

Uber.  It just seems to always be in the news for one more lawsuit, doesn’t it.  In late August, the district attorneys for San Francisco and Los Angeles filed a civil complaint against the company alleging that it is making misrepresentations about its safety procedures.  The complaint, i.a., reads that Uber’s “false and misleading statements are so woven into the fabric of Uber’s safety narrative that they render Uber’s entire safety message misleading.” 

On its website, Uber promises that “from the moment you request a ride to the moment you arrive, the Uber experience has been designed from the ground up with your safety in mind” and that “Ridesharing and livery drivers in the U.S. are screened through a process that includes county, federal, and multi-state criminal background checks. Uber also reviews drivers’ motor vehicle records throughout their time driving with Uber.”

However, Uber does not use fingerprint identication technology, which means that the company cannot search state and federal databases, only commercial ones. 

The result? People with highly questionable backgrounds end up being on Uber’s payroll.  For example, one “Uber driver was convicted of second-degree murder in 1982. He spent 26 years in prison, was released in 2008 and applied to Uber. A background report turned up no records relating to his murder conviction. He gave rides to over 1,100 Uber customers.” Yikes.  Another “Another driver was convicted on felony charges for lewd acts with children. He gave over 5,600 rides to Uber customers.” 

Add this to the ongoing lawsuit about whether Uber’s drivers should be legally classified as “employees” or “contractors,” and Uber is in a mound of legal trouble.

Certainly, a misrepresentation seems to have been made if the company deliberately touts its safety and its “industry-leading background check process” yet only uses a commercial database that does not even necessarily ensure that its drivers are who they say they are.

Still, Uber remains one of the most valuable start-ups in the world.  It and similar “sharing economy” companies such as Airbnb have gained a good foothold on a market with a clear demand for new types of services.  So far, so good.  But initial success should not and does not equate with a “free-for all” situation just because these new companies are highly successful, at least initially.  It seems that they are learning that lesson.  Lyft, for example, already settled with prosecutors in regards to its safety.  Perhaps Uber will follow suit.

September 1, 2015 in Commentary, Current Affairs, E-commerce, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)