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New Media and Technology Law Blog

U.S. Dept. of Commerce Releases Multistakeholder Guidance on DMCA Notice and Takedown Best Practices

Posted in Copyright

On Tuesday, the U.S. Dept. of Commerce’s Internet Policy Task Force released a guidance containing a list of best practices (and notable “bad” practices), all designed to improve the DMCA’s notice and takedown system for both senders and recipients of notices [See “DMCA Notice-and-Takedown Processes: List of Good, Bad, and Situational Practices”]. The document was developed as part of a multistakeholder forum held between rights holders, creators, service providers and consumer protection advocates, all of whom have an interest in an effective notice and takedown system that balances the interests of both rights holders and online services.

For example, some “Good Practices” for service providers include:

  • Making DMCA takedown and counter-notice mechanisms easy to find and understand.  Web forms should have clearly labeled fields, with help buttons and instructions.
  • Implementing efficient processes for receiving notices that are commensurate with the volume of claims (e.g., allowing multiple URLs to be submitted at one time).
  • Providing confirmation of receipt of a notice or counter-notice that includes a method for referencing past notices in further communications.

The document also offers good general practices for Notice Senders:

  • Taking reasonable measures to determine the online location of the infringing material and “appropriately consider” whether use of the material identified in the notice is unauthorized.
  • When using automated tools, conducting a human review of the site where the notices will be directed, as well as performing periodic spot checks to evaluate whether the automated search parameters are returning the expected results.

Lastly, the document offers guidance on “Situational Practices,” such as Trusted Submitter Programs, which provide efficiencies for rights holders who have a track record of submitting accurate notices.

At only 7 pages, the Dept. of Commerce document is certainly worth the read for both copyright holders and service providers.  Improved notice and takedown practices can result in streamlined procedures, a better reputation in the online community, and fewer disagreements over posted content (which, will decrease the likelihood of litigation for copyright infringement or wrongful takedown notices).

FCC Adopts Net Neutrality Rules, Reclassifies Broadband Access under Title II

Posted in Internet, Regulatory

After nearly 4 million public comments, and months of vigorous public, industry, and Congressional debate, the FCC, by a 3-2 vote, approved revised net neutrality rules to “protect the Open Internet.”  As expected by the Chairman’s statements in the lead-up to the vote, the FCC’s Open Internet Order reclassifies broadband internet access as a “telecommunications service” (or common carrier service) under Title II of the Communications Act.  The new rules cover both wired and wireless broadband.

The principal aspects of the Open Internet Order are:

  • No blocking lawful content.
  • No throttling lawful content.
  • No discrimination against lawful content.
  • No paid prioritization.
  • New FCC authority to examine interconnection agreements.
  • Transparency requirements regarding rates, data caps, network management practices.
  • Reasonable network management permitted to manage the technical and engineering aspects of a provider’s broadband networks.
  • The Order cites the legal foundation for the rules as both Title II of the Communications Act and Section 706 of the Telecommunications Act of 1996.
  • Forbearance from many Title II regulations, including rate regulation, tariffs, or network unbundling.

A clearer picture of the net neutrality rules will emerge in the next few weeks when they are officially published in the Federal Register, and presumably take effect 60 days later.  However, based upon multiple reports, broadband providers are expected to challenge the Order in a federal appeals court (the prior 2010 Open Internet Order was challenged and largely overturned in the U.S. Court of Appeals for the D.C. Circuit).  Only time will tell whether broadband providers will win a stay of the regulations or successfully challenge part or all of the Order and the Title II classification, or whether the court will find that the FCC had adequate statutory authority to enact the rules.  Moreover, Congress has also expressed interest in preempting the FCC and passing its own net neutrality legislation.  Stay tuned.  In the meantime, with the growth of over-the-top streaming video programming and other changes in the video and broadband marketplace, it remains to be seen how the new net neutrality will affect emerging business models, relationships with content providers, and future investments in technology.

Virginia Court Dismisses Webcaster’s Suit Concerning Geofencing Workaround to Copyright Royalty Obligations

Posted in Copyright, Licensing, Technology

We previously wrote about a Virginia federal magistrate judge’s report recommending dismissal of a declaratory judgment action brought by several radio stations asking the court to rule that webcasts limited in scope via geofencing technology to 150 miles from the site of the transmitter should be exempt from liability for copyright royalties under section 114 of the Copyright Act. This past month, the district court agreed with the magistrate’s report and dismissed the action for lack of a justiciable case or controversy between the radio stations and SoundExchange, an organization designated by the Copyright Royalty Board to collect royalties from broadcasters on behalf of copyright owners.

On February 13, 2015, the district court adopted the Magistrate’s report and dismissed the plaintiff’s complaint due to lack of standing to sue.  (WTGD 105.1 FM v. Sound Exchange, Inc., No. 14-00015 (W.D. Va. Feb. 13, 2015)).  Tracking the reasoning of the Magistrate’s decision, the court ruled that the radio station’s allegations against SoundExchange were “too speculative, indefinite and hypothetical” and would seek an impermissible advisory opinion about whether the proposed geofenced broadcasts would result in copyright infringement or not.  The court pointed out that the radio stations have not demonstrated that using geofencing technology to limit the range of a webcast was “anything more than a pipe dream” and pointed out that the stations had only consulted with experts and had not done anything to “implement the technology or demonstrate that geofenced retransmissions will meet the § 114 exemption.”  The court also noted that the real injury at issue in the dispute is the radio station’s fear of liability for copyright infringement – an injury not traceable to SoundExchange, a collector and distributor of royalties due under statutory licenses.  In fact, SoundExchange’s lawyers confirmed in open court that SoundExchange (as opposed to the copyright holders themselves) would have no role in asserting copyright claims should the plaintiff implement geofenced broadcasts in the future.

QVC Sues Shopping App for Web Scraping That Allegedly Triggered Site Outage

Posted in Contracts, Internet, Online Commerce

Operators of public-facing websites are typically concerned about the unauthorized, technology-based extraction of large volumes of information from their sites, often by competitors or others in related businesses.  The practice, usually referred to as screen scraping, web harvesting, crawling or spidering, has been the subject of many questions and a fair amount of litigation over the last decade.

However, despite the litigation in this area, the state of the law on this issue remains somewhat unsettled: neither scrapers looking to access data on public-facing websites nor website operators seeking remedies against scrapers that violate their posted terms of use have very concrete answers as to what is permissible and what is not.

In the latest scraping dispute, the e-commerce site QVC objected to the Pinterest-like shopping aggregator Resultly’s scraping of QVC’s site for real-time pricing data.  In its complaint, QVC claimed that Resultly “excessively crawled” QVC’s retail site (purpotedly sending search requests to QVC’s website at rates ranging from 200-300 requests per minute to up to 36,000 requests per minute) causing a crash that wasn’t resolved for two days, resulting in lost sales.  (See QVC Inc. v. Resultly LLC, No. 14-06714 (E.D. Pa. filed Nov. 24, 2014)). The complaint alleges that the defendant disguised its web crawler to mask its source IP address and thus prevented QVC technicians from identifying the source of the requests and quickly repairing the problem.  QVC brought some of the causes of action often alleged in this type of case, including violations of the Computer Fraud and Abuse Act (CFAA), breach of contract (QVC’s website terms of use), unjust enrichment, tortious interference with prospective economic advantage, conversion and negligence and breach of contract.  Of these and other causes of action typically alleged in these situations, the breach of contract claim is often the clearest source of a remedy.

This case is a particularly interesting scraping case because QVC is seeking damages for the unavailability of their website, which QVC alleges to have been caused by Resultly.  This is an unusual theory of recovery in these types of cases.   For example,  this past summer, LinkedIn settled a scraping dispute with Robocog, the operator of HiringSolved, a “people aggregator” employee recruiting service, over claims that the service employed bots to register false accounts in order to scrape LinkedIn member profile data and thereafter post it to  its service without authorization from Linkedin or its members.  LinkedIn brought various claims under the DMCA and the CFAA, as well as state law claims of trespass and breach of contract, but did not allege that their service was unavailable due to the defendant’s activities.  The parties settled the matter, with Robocog agreeing to pay $40,000, cease crawling LinkedIn’s site and destroy all LinkedIn member data it had collected.  (LinkedIn Corp. v. Robocog Inc., No. 14-00068 (N.D. Cal.  Proposed Final Judgment filed July 11, 2014).

However, in one of the early, yet still leading cases on scraping, eBay, Inc. v. Bidder’s Edge, Inc., 100 F. Supp. 2d 1058 (N.D. Cal. 2000), the district court touched on the foreseeable harm that could result from screen scraping activities, at least when taken in the aggregate.  In the case, the defendant Bidder’s Edge operated an auction aggregation site and accessed eBay’s site about 100,000 times per day, accounting for between 1 and 2 percent of the information requests received by eBay and a slightly smaller percentage of the data transferred by eBay. The court rejected eBay’s claim that it was entitled to injunctive relief because of the defendant’s unauthorized presence alone, or because of the incremental cost the defendant had imposed on operation of the eBay site, but found sufficient proof of threatened harm in the potential for others to imitate the defendant’s activity.

It remains to be seen if the parties will reach a resolution or whether the court will have a chance to interpret QVC’s claims, and whether QVC can provide sufficient evidence of the causation between Resultly’s activities and the website outage.

Companies concerned about scraping should make sure that their website terms of use are clear about what is and isn’t permitted, and that the terms are positioned on the site to support their enforceability. In addition, website owners should ensure they are using “robots.txt,” crawl delays and other technical means to communicate their intentions regarding scraping.  Companies that are interested in scraping should evaluate the terms at issue and other circumstances to understand the limitations in this area.

Music Publishers Bring Contributory Copyright Claims Against ISP for Infringing Activities of Subscribers

Posted in Copyright

In a novel lawsuit that tests the bounds of service provider liability, two music publishers brought suit against an ISP for contributory copyright infringement for allegedly facilitating infringement by failing to terminate the accounts of broadband subscribers who were purportedly repeat infringers that had unlawfully downloaded copyrighted music from BitTorrent sites. (BMG Rights Management (US) LLC v. Cox Enterprises, Inc., No. 14-01611 (E.D. Va. filed Nov. 26, 2014)).

The lawsuit raises many issues:

  • What are the obligations of a broadband provider that receives a notice from a copyright holder about a suspected repeat infringer?
  • How reliable are the infringement notices sent to the ISP?  How can an ISP decide when a subscriber is a repeat infringer?
  • Does this dispute implicate the voluntary “six strikes” Copyright Alert System implemented by certain ISPs?
  • Can the ISP claim immunity under the DMCA §512 safe harbor?  How would a court interpret DMCA §512(i), regarding implementing a “repeat infringer” termination policy, with respect to an ISP?
  • What are the bounds of vicarious liability with respect to an ISP having paid subscribers who allegedly commit infringement?

While many of these issues have not been directly addressed recently by U.S. courts, the lawsuit brings to mind the pre-DMCA decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F.Supp. 1361 (N.D. Cal. 1995).  There, the court held that an ISP serving as a passive conduit for copyrighted material was not liable as a direct infringer, but allowed contributory copyright infringement claims to go forward based upon disputed issues of fact as to whether the operator had sufficient knowledge of infringing activity.  Obviously, with the enactment and interpretation of the DMCA and the evolution of new business models, the world has changed and it will be interesting to see how a court views these issues 20 years later.

The current dispute also is reminiscent of the Australian decision in Roadshow Films v iiNet Limited [2012] HCA 16, where the High Court of Australia ruled that an ISP did not “authorise” the infringement of copyrighted films by its customers, despite its inactivity after receiving notices from a copyright association about suspected ongoing infringement by the ISP’s customers.

We will be watching this dispute and await any judicial rulings that might unpack some of the above copyright issues.

California Supreme Court Denies Review of Ruling Allowing Restaurant Owner’s False Advertising Claims to Proceed Against Yelp

Posted in Online Commerce, Online Content

On November 12, 2014, the California Supreme Court denied review of the California Court of Appeals decision in Demetriades v. Yelp, Inc., 2014 WL 3661491 (Cal. App. July 24, 2014), which allowed a restaurant owner to proceed with false advertising and other claims against the consumer review site Yelp based upon Yelp’s marketing claims regarding the accuracy and efficacy of its automated “filter” that removes unreliable  or biased consumer reviews.

Companies, frustrated with their portrayal on online review sites, have mostly struck out when seeking to hold website operators liable for managing and displaying user-generated reviews.  However, the Demetriades case is one example where a court refused to dismiss claims against a consumer review site related to marketing representations. For a fuller treatment of the decision and a larger discussion of the interplay between marketing statements and immunity under CDA Section 230, see our prior post — Website Marketing Statements: The Achilles’Heel to CDA Protection?  

FinCEN Releases Two Rulings Classifying a Bitcoin Payment System and Virtual Currency Trading Platform as MSBs

Posted in Digital Currency, Regulatory, Technology

In its opening salvo bringing bitcoin under the watchful eye of the federal government, the Financial Crimes Enforcement Network (FinCEN) issued a Guidance (FIN-2013-G001) in March 2013 clarifying that anti-money laundering regulations concerning record keeping and recording apply to digital currency exchanges.  Under this initial guidance, a bitcoin exchange that allows users to buy bitcoin with real currency and sell bitcoin for real currency must file as a money services business (MSB) as defined under the Bank Secrecy Act (BSA) with FinCEN (but a user who simply obtains virtual currency and uses it to purchase real or virtual goods or services would not be subject to FinCEN regulations).

Yesterday, FinCEN issued two additional rulings that answer questions submitted by two companies seeking guidance on whether they must register as MSBs and be subject to the accompanying reporting, recordkeeping and monitoring requirements.  These rulings are important in further clarifying the scope of its initial March 2013 guidance.

In FIN-2014-R011, “Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Trading Platform,” one company asked whether its plans to set up a virtual currency trading and booking platform would make it subject to FinCEN regulations.  Specifically, the company’s plan involved a trading system to match offers to buy and sell convertible virtual currency for real currency anonymously among the platform’s customers (inter-account transfers or payments from customer accounts to third-parties would be prohibited).  In response, the agency ruled that such a trading platform would be considered an MSB:

A person that accepts currency, funds, or any value that substitutes for currency, with the intent and/or effect of transmitting currency, funds, or any value that substitutes for currency to another person or location if a certain predetermined condition established by the transmitter is met, is a money transmitter under FinCEN’s regulations.” […] The Company is facilitating the transfer of value, both real and virtual, between third parties.

The method of funding the transactions is not relevant to the definition of money transmitter. An exchanger will be subject to the same obligations under FinCEN regulations regardless of whether the exchanger acts as a broker (attempting to match two (mostly) simultaneous and offsetting transactions involving the acceptance of one type of currency and the transmission of another) or as a dealer (transacting from its own reserve in either convertible virtual currency or real currency). Therefore, FinCEN finds that the Company is acting as an exchanger of convertible virtual currency, as that term was described in the Guidance.

In FIN-2014-R012, “Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Payment System,” another company asked whether a proposed convertible virtual currency payment system for the hotel industry that accepted customers’ credit card payments and transferred the payments to the merchants in the form of bitcoin (presumably to avoid substantial foreign exchange risks in Latin America) would make the company a MSB.  Under such a payment system, the merchants would be paid using the company’s own large reserve of bitcoins.  FinCEN responded that if the company sets up such a payment system, the company would be a money transmitter and subject to regulations because “it engages as a business in accepting and converting the customer’s real currency into virtual currency for transmission to the merchant.”

The agency further stated:

The fact that the Company uses its cache of Bitcoin to pay the merchant is not relevant to whether it fits within the definition of money transmitter. An exchanger will be subject to the same obligations under FinCEN regulations regardless of whether the exchanger acts as a broker (attempting to match two (mostly) simultaneous and offsetting transactions involving the acceptance of one type of currency and the transmission of another) or as a dealer (transacting from its own reserve in either convertible virtual currency or real currency).

As the bitcoin ecosystem matures and new business models develop, the reach of federal anti-money laundering regulations may be unclear in certain circumstances.  We will keep you posted as we learn more and work through these issues with our clients.

Landmark Oracle-Google Android Copyright Dispute May End Up In Supreme Court

Posted in Copyright, Mobile, Software

While many smartphone users were gazing upon their new iPhone 6 Plus’s 5.5-inch screen with wonder, there was another notable development in the mobile/tech world – the ongoing software copyright dispute between Oracle and Google over the development of the Android mobile platform just heated up again.

This past week, Google filed a petition for a writ of certiorari asking the Supreme Court to overturn the Federal Circuit’s ruling that the declaring code and the structure, sequence, and organization of 37 Java API packages are entitled to copyright protection (the Federal Circuit had also directed the lower court to reinstate the jury’s prior infringement finding as to the Java packages, subject to Google’s fair use defense). See Oracle America, Inc. v. Google Inc., 750 F.3d 1339 (Fed. Cir. 2014).

In its petition, Google framed the issue on appeal as:

Whether copyright protection extends to all elements of an original work of computer software, including a system or method of operation, that an author could have written in more than one way.

Essentially, Google argued that, contrary to the Federal Circuit’s interpretation, the Copyright Act excludes systems and methods of operations from copyright protection and that the appeals court “erased a fundamental boundary between patent and copyright law.” Google repeatedly stressed the “certworthiness” of this dispute and the “exceptional importance” of the outcome to future innovation and software development – sometimes with expansive statements such as:

If the Federal Circuit’s holding had been the law at the inception of the Internet age, early computer companies could have blocked vast amounts of technological development by claiming… copyright monopolies over the basic building blocks of computer design and programming.

A more complete picture of the potential issues and arguments will arrive when Oracle files its response.

We await the Court’s decision on whether it will accept the petition and perhaps bring added clarity to the sometimes murky contours of copyright protection of software.

Emerging Technology and Existing Law: Can Geofencing Provide Radio Webcasters a Workaround of Digital Performance Royalties?

Posted in Copyright, Licensing

New technology continues to generate business models that test the limits of intellectual property laws enacted before such technologies were ever contemplated.  The latest example is the use of “geofencing” in an attempt to avoid certain obligations to pay certain digital performance royalties.

In February 2014, VerStandig Broadcasting, the owner of several radio stations in Virginia, sent a letter to SoundExchange, the entity responsible for administering statutory licenses and collecting digital performance royalties for sound recordings.  The letter stated that VerStandig intended to use geofencing (explained below) to stream radio broadcasts to a limited area within 150 miles of each station’s transmitter using geofencing technology.  This method, VerStandig Broadcasting said, would fall into an exemption under Section 114(d)(1)(B)(i) of the Copyright Act (17 U.S.C. §114(d)(1)(B)(i)), that would excuse it from paying digital performance royalties to recording artists.

A month later SoundExchange responded that the referenced exemption did not apply to simulcasts over the internet and urged VerStandig to seek a statutory license for such online streaming, regardless of whether such signal was “geofenced” to a limited 150-mile area.  Six weeks later, VerStandig filed a declaratory judgment action against SoundExchange, seeking a judicial interpretation of whether its radio stations could avoid paying digital performance royalties by using geofencing to restrict online streaming (WTGD 105.1 FM v. SoundExchange, Inc., No. 14-00015 (W.D. Va. filed Apr. 30, 2014)).

Geofencing is a location-based technology that creates a virtual perimeter around an area or location ranging in size from a single building to an entire state and then allows an entity to determine if a user’s mobile phone, device or computer is within this perimeter based upon the user’s IP address, WiFi and GSM access points, and GPS coordinates.  The technology has many applications.  For example, a company might use it for fleet management to determine when a vehicle has left a certain zone, a business might use it for BYOD security by limiting network access to employees’ devices within a certain geographical area, or a retailer might use it to interact with registered mobile customers who have entered a store. The state of New Jersey, which passed a law allowing Atlantic City casinos to offer intrastate online gaming, uses geofencing technology to make sure that only users located within the state’s borders are able to gamble online.  Recently, the anonymous messaging app Yik Yak used geofencing to build virtual “fences” around middle and high schools to block teenagers from accessing the app from school property in the hope of limiting instances of cyberbullying.

Under existing law, AM/FM radio stations are exempt from paying performance royalties to performers and record labels, but pay royalties to songwriters or their publishers.  Congress struck this balance many decades ago based on the assumption that radio stations could play music and earn advertising revenue and the recording industry could capitalize from the airplay with increased song and album sales (though, in recent years, recording artists groups have advocated for reform).  Enter the digital age, and the online simulcast of AM/FM broadcasts (or “webcasting”).   In the mid-1990s, Congress amended the Copyright Act and granted copyright holders in sound recordings the right to perform their works publicly “by means of a digital audio transmission,” 17 U.S.C. § 106(6), along with an accompanying statutory licensing scheme to calculate and collect these digital performance royalties.

In general, radio webcasters are subject to statutory licenses, which require the transmitter to make royalty payments to SoundExchange, the collective responsible for obtaining and distributing digital royalties to the copyright holders.  However, §114 of the Copyright Act outlines several exemptions to this digital performance right, such as when a radio station’s AM/FM broadcast is being transmitted no more than 150 miles from the station’s transmitter (note, this is a simplification of the statutory exemption, as the text references a number of terms defined under the statute, such as “retransmission,” and “subscription” and “nonsubscription” transmissions, and should generally be read in context of the entirety of §114).

The plaintiffs contend that their geofenced webcasts would essentially be exempt retransmissions of a nonsubscription broadcast transmission under 17 U.S.C. §114(d)(1)(B).  Of course, when this provision was drafted, geofencing technology did not exist and content streamed over the internet could not be restricted geographically, requiring station owners that streamed their broadcasts online to pay digital performance royalties.

In its Memorandum supporting its motion to dismiss, SoundExchange argued that the court lacks jurisdiction to hear this action because the plaintiffs have not presented an “actual controversy” or “real and substantial” dispute that touches parties with adverse legal interests.  On a more substantive level, SoundExchange also countered that geofenced streams of radio content are not exempt from the statutory license provisions, pointing out that the Copyright Office previously ruled that the 150-mile exemption does not apply to radio retransmissions made over the internet, even if such transmissions were restricted geographically.  In a 2002 ruling setting royalty rates for internet streaming, the Copyright Office ruled that, based on the interplay between sections 112 and 114 of the statute, “the better interpretation of the law is that the exemption does not apply to radio retransmissions made over the Internet.” Moreover, SoundExchange argued that the 150-mile exemption was intended to apply to “cable radio” and similar satellite transmission systems and that Congress did not contemplate that such an exemption would be available to retransmissions via the internet.  In its opposition, the plaintiffs stated that the statutory exemption is unambiguous and should be interpreted without resorting to legislative history, and that the Copyright Office’s interpretation is nonbinding on the court, unpersuasive and drafted during an earlier technological era.

Unfortunately for those interested in the court’s interpretation of the Copyright Act, it looks like, at least in the short term, an answer will not be forthcoming.

Last month, a magistrate judge issued a Report and Recommendation to dismiss the action on jurisdictional grounds for lack of Article III standing.  The judge found that while plaintiffs’ desire to know whether geofencing their simulcasts might protect them from copyright liability was understandable, to reach the merits of that question, the court would be issuing an impermissible advisory opinion.  In finding that the plaintiffs’ declaratory action failed to raise a justiciable controversy, the judge found that the issue of copyright liability is not “traceable” to SoundExchange’s role as an organization collecting and distributing royalties because SoundExchange does not own or enforce copyrights or have the authority to bring an action to compel a broadcaster to obtain a statutory license.  As the judge stated: “Any dispute that may arise in that scenario is between the copyright owner and the broadcaster.  Thus, the copyright owners themselves, who are ‘not party to this litigation, must act’ (or not act, as the case may be) in order for this particular injury to be cured.”

It remains to be seen whether the district court will adopt the magistrate’s report and dismiss the lawsuit on procedural grounds (note: the plaintiffs have filed an objection to the magistrate’s report).  In the event the court ultimately dismisses the action, it will be interesting to see whether VerStandig would continue to pursue its plan and make a sizeable investment in geofencing technology without the safety net of a judicial ruling affirming the legality of it under the Copyright Act.

UPDATE: On February 13, 2015, the district court adopted the magistrate judge’s report and dismissed the action for lack of a justiciable case or controversy between the radio stations and SoundExchange. The opinion is discussed in a follow-up post.

Website Marketing Statements: The Achilles’Heel to CDA Protection?

Posted in Online Commerce, Online Content

It’s no secret that local directory/consumer review websites are popular among consumers looking for recommendations before dining out, hiring a contractor, or even picking a dentist or day spa. Yelp reported around 138 million monthly unique visitors in the second quarter of 2014, searching among over 61 million local reviews.  The bottom line is that solid reviews and multiple stars on local search sites can drive sales; on the other hand, and to the chagrin of business owners, low ratings and a spate of one-star rants displayed prominently at the top of a listing can drive customers away.

Review sites typically have to wrestle with the problem of unreliable or fictitious reviews, which are blurbs written by friends or employees of the listed business, paid reviews, and negative reviews written by business competitors.  Some sites use filtering software to identify and remove unreliable reviews – of course, such software is not perfect, and businesses have complained that some sites have filtered out legitimate reviews, but left in other fake reviews to the detriment of the reviewed businesses.

A number of businesses have brought suit against consumer review sites claiming that they purposely remove positive reviews (but leave up defamatory complaints), arbitrarily reorder the appearance of reviews, or otherwise wrongfully tinker with the algorithms that are supposed to weed out “fake” reviews presumably to encourage or “extort” businesses to purchase advertising or pay for additional features.

Most suits that have sought to hold sites responsible for defamatory content created by third-party users have been rejected by courts based upon CDA Section 230, which immunizes “interactive computer services” – such as a consumer review websites – where liability hinges on content independently created or developed by third-party users.

To get around the broad immunity, some businesses have urged courts to interpret an intent-based exception into Section 230, whereby the same conduct that would otherwise be immune under the statute (e.g., editorial decisions such as whether to publish or de-publish a particular review) would be actionable when motivated by an improper reason, such as to pressure businesses to advertise.  However, several courts have rejected this theory.

  • Reit v. Yelp!, Inc., 29 Misc 3d 713 (N.Y. Sup. Ct.  2010) (Yelp’s selection of the posts it maintains on its site can be considered the selection of material for publication, an action “quintessentially related to a publisher’s role,” and therefore protected by CDA immunity)
  • Levitt v. Yelp! Inc., 2011 WL 5079526 (N.D. Cal. Oct. 26, 2011) (our prior post on the Levitt opinion) (CDA Section 230 contains no explicit exception for impermissible editorial motive, particularly since traditional editorial functions often include subjective judgments that would be “problematic” to uncover, thereby creating a chilling effect on online speech that Congress sought to avoid).  Note, on appeal, the Ninth Circuit affirmed the district court’s dismissal of the plaintiffs’ claims – though not on the basis of CDA Section 230 – alleging Yelp extorted advertising payments from them by purpotedly manipulating user reviews.
  • Kimzey v. Yelp Inc., 2014 WL 1805551 (W.D. Wash. May 7, 2014) (mere fact that an interactive computer service “classifies” user characteristics and displays a “star rating system” that aggregates consumer reviews does not transform it into a developer of the underlying user-generated information)

However, in recent disputes, businesses have sought an end run around CDA Section 230, specifically by bringing claims that do not treat the websites as publishers or speakers of the defamatory or fictitious user reviews, but instead relate to the website’s marketing representations about such content.  At least two courts have allowed such claims to go forward, bypassing CDA immunity.

In one such case, Moving and Storage, Inc. v. Panayotov, 2014 WL 949830 (D. Mass. Mar. 12, 2014), the plaintiffs alleged that a moving company review website (that itself was operated by a moving company) intentionally deleted positive reviews of the plaintiffs’ companies and deleted negative reviews that criticized its own company to gain market share, all the while representing that the site offered “the most accurate and up to date rating information.”  The court concluded that CDA Section 230 did not bar plaintiffs’ false advertising and unfair competition claims because they were not based on information provided by “another information content provider,” and did not arise from the content of the reviews.

Most recently, a California appellate court reversed a lower court’s dismissal of an action against Yelp over alleged false advertising regarding its automated review filter.  In Demetriades v. Yelp, Inc., 2014 WL 3661491 (Cal. App. July 24, 2014), the plaintiff brought state law claims for unfair competition and false advertising alleging that Yelp engaged in false advertising based upon marketing statements stating that user reviews passed through a filter that gave consumers “the most trusted reviews” and only “suppresse[d] a small portion of reviews.”

The plaintiff alleged that Yelp’s statements about its filtering practices were misleading because its filter suppressed a substantial portion of reviews that were trustworthy and favored posts of the “most entertaining” reviews, regardless of the source.  The lower court had previously granted Yelp’s motion to strike the plaintiff’s complaint under California’s anti-SLAPP provisions, which aim to curb “lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.”  Cal. Code Civ. Pro. §425.16 (a).  The appellate court reversed, holding that false advertising-like claims involving commercial speech fell outside the reach of the anti-SLAPP statute and that Yelp’s representations about its filtering software—as opposed to the content of the reviews themselves—were “commercial speech about the quality of its product.”

Regarding the application of CDA Section 230, the court rejected Yelp’s argument that plaintiff’s claims should be dismissed because courts have widely held that claims based on a website’s editorial decisions (publication, or failure to publish, certain third-party conduct) are barred by Section 230.  In a brief paragraph, the appellate court stated that the CDA was inapplicable because the plaintiff was not seeking to hold Yelp liable for the statements of third-party reviewers, but rather for its own statements regarding the accuracy of its automated review filter.

Companies, frustrated with their portrayal on online review sites, have mostly struck out when seeking to hold website operators liable for managing and displaying user-generated reviews.  However, this past year, some courts have offered companies another potential avenue at obtaining relief.  While the courts merely allowed the claims related to marketing representations to survive dismissal at the early stages of litigation, it is uncertain how either court will rule on the merits.

With this in mind, sites that collect and manage user-generated content, or otherwise use automated filtering software to manage content, should examine marketing statements on their websites for any language that goes beyond mere puffery and might be construed as misleading.