New Media and Technology Law Blog : Technology Lawyers & Attorneys : Proskauer Rose Law Firm : Trademarks, Patents & Copyright

In this era of multiple online communication channels, and in an environment of increased employee mobility, employers need to focus on the legal and practical ways of securing their ownership of online company accounts that are registered or otherwise created by employees or contractors. In the three cases discussed below, organizations learned that lesson the hard way.

Whose Tweet Is It Anyway?

PhoneDog LLC v. Kravitz, No. 113474 (N.D. Cal. Nov. 8, 2011), involves a Twitter account that was used by an employee to publish product reviews and other messages on behalf of his employer. The handle on the account, “@PhoneDog_Noah,” incorporated both the employer’s name and the employee’s name. According to the employer’s complaint, the employee was quite successful in his marketing efforts using the account, generating approximately 17,000 Twitter followers.

When the employee quit, he retained the account and began using it on behalf of a competitor of the employer, having changed the handle on the account to his own name, “@noahkravitz.” The employer brought an action in federal court alleging claims of trade secret misappropriation, intentional and negligent interference with prospective advantage and conversion, and asserting damages in excess of the jurisdictional amount of $75,000. Specifically, the employer alleged that the value of each individual Twitter follower, according to “industry standards,” is $2.50 per month; multiplied by 17,000 followers, multiplied by eight months (the period of time over which the employee refused to turn over the account) yields damages of $340,000. In the context of determining whether the federal jurisdictional minimum was met, the court concluded that the employer’s calculation of the value of the account was sufficient, but only as a preliminary matter.

The court refused to dismiss the employer’s trade secret claims, finding that the complaint had sufficiently alleged that both the password and the names of the followers were protected trade secrets. The court also refused to dismiss the employer’s conversion claim finding that it had sufficiently alleged that it owns or has the right to possess the account, and that the employee knowingly or intentionally refused to relinquish the account.

But the court dismissed the employer’s intentional and negligent interference with prospective economic advantage claims, finding that actual disruption of the employer’s relationship with the Twitter followers and economic harm had not been sufficiently alleged.

Although the employer has been at least partially successful on some preliminary motions in this dispute, as a practical matter, nothing has changed and the employee still maintains control of the Twitter account. What could the employer have done differently to avoid this problem?

Whose Blog Is It Anyway?

Ardis Health, LLC  v. Nankivell, 2011 U.S. Dist. LEXIS 120738 (S.D.N.Y. Oct. 19, 2011), involves a situation similar to that in PhoneDog v. Kravitz, and is instructive on legal measures that an employer can take to improve its position with respect to a dispute over an online account. In Ardis, the employee had control over a number of social network and Web site accounts that the employer used to advertise its business, and was able to obtain a preliminary order requiring the turnover of the accounts.

The court concluded that the employer’s reliance on its online presence to advertise its business supported a finding of irreparable harm and the issuance of the preliminary injunction requiring the turnover of usernames and passwords enabling access to the Web sites and online service accounts controlled by the former employee. The court noted that the employer required access to the sites to continuously update profile information and pages and react to online trends, and that its inability to do so would have an unquestionably negative effect on its reputation and ability to remain competitive.

The court also suggested that the unauthorized retention of the account access information could form the basis for a claim of conversion, citing Thyroff v. Nationwide Mutual Insurance Co. (2d Cir. 2006). Unlike the situation in PhoneDog, where the employee claimed the right to control the Twitter account, the court in Ardis found that there was no dispute that the employer owned the rights to the accounts in question. The court noted that the employee had executed a Work Product Agreement that required, among other things, the return of the employer’s confidential information upon request, and providing that any breach of the agreement would cause the employer irreparable damage and injury.

Whose Tea Party Is It Anyway?

The Tea Party Patriots, a nonprofit organization that grew from a small group of like-minded activists to a force in U.S. politics, learned that disputes over ownership and control of online accounts can impair the ability of an nonprofit organization to pursue its business and require costly litigation to resolve.

One of the founders of the organization, Amy Kremer, registered domain names and set up a Web site and social network accounts on behalf of the organization in 2009. But Kremer was ousted from the group’s board of directors following a dispute over the group’s policies. Kremer retained control over some of the accounts, as well as an online e-mail list, allegedly after having changed the account password.

The group’s remaining board members filed suit against Kremer in Georgia state court. The board ultimately prevailed, but only after a week-long jury trial over the ownership of the accounts. No reported opinion was issued in this case.

Practical Lessons

One important difference between these three cases is that the Work Product agreement in Ardis v. Nankivell appeared to foreclose any argument over ownership rights in the accounts. In the employment context, employers should consider explicitly nailing down that issue even further in their proprietary rights agreements with employees, as well as their Internet use and similar policies that cover the use of company online accounts on behalf of the employer, with an express provision covering the ownership of such accounts.

Employers should also consider a practical protocol covering online accounts that requires registration in the name of the employer where possible, or inclusion of the employer's identifying information in the account registration. Duplicate recordation of account registration and access information in a place within the company’s control should also be required. Quick action by the employer to change account access information when an employee leaves may avoid the cost and delay involved in litigation to recover account control.

It is also important to note that this issue arises not only in the case of employees, but also in the context of agents and contractors as well. For example, often an advertising agency will register a Twitter account for a client, or a developer or designer will register a domain name, create a blog or other online presence. It is essential that the agreements with such agents expressly address ownership of the credentials to such accounts, and that the agent is expressly required to provide those credentials to its principal.

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The dispute between The SCO Group and Novell, Inc. over the ownership of copyrights in the code to certain versions of the UNIX operating system, which started eight years ago, appears to have been handed its retirement papers by the Tenth Circuit. Yesterday, on the case’s second visit to the circuit, the court upheld the jury verdict in Novell’s favor on the issue of copyright ownership. The SCO Group v. Novell, Inc., No. 10-4122 (10th Cir. Aug. 30, 2011).

The case is important because the issue of UNIX copyright ownership underlies the copyright litigation campaign that SCO commented in 2003, targeting the LINUX open source operating system. When SCO filed multiple lawsuits claiming that the LINUX OS infringed its UNIX copyrights, it raised concerns that users of LINUX could be held liable for infringement, and subject to the payment of royalties to SCO. The ruling that SCO does not own the copyrights that it asserted in those litigations puts an end to that threat.

Despite the concerns raised in 2003 that the threat of copyright litigation and royalty payments would stall not only the adoption of the LINUX OS but also other open source software, users appeared to factor in the threat of future liability. Both LINUX and other open source software projects marched on as the SCO litigations ground on.

Last week, the LINUX OS turned 20. As this CNN article observes, LINUX is now invisible and ubiquitous. While its share of the desktop operating system remains miniscule, LINUX code is present in 30% and 43% of tablets and smartphones, respectively, as part of the Android operating system.  And LINUX code is present in the firmware of countless other devices, and is pervasive in enterprise data systems.

As for open source generally, as long as we’re keeping score, it’s a good time to note that the Apple operating system is based on open source code as well. In fact, it has the same roots as the code at issue in SCO v. Novell – the earliest versions of the UNIX operating system.

Notwithstanding that SCO may seek en banc review and even file a petition for certiorari to the U.S. Supreme Court (it’s done that before), the SCO v. Novell case appears to be, finally, over. Ultimately, the related SCO litigations, including its copyright infringement case against IBM, will fold up as well.

There are a few lessons for technology lawyers in the SCO v. Novell litigation, which you can read about in our prior blog post.

The SCO v. Novell endgame doesn’t seem to have gotten a lot of press, at least so far. Perhaps this is because attention has already turned to the next big “open source” battle – the complex web of litigations involving Google’s Android operating system. This time, the battle isn’t for the desktop, it’s for mobile market share.

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The gusts of hurricane Irene were still blowing outside as the winds of  “force majeure” gathered force in the minds of lawyers around the country.  Long before the storm subsided, storm-related interruptions in contract-procured services caused clients and their lawyers to wonder, “what does the force majeure clause say?” 

The service interruptions caused by the hurricane are sure to lead to claims and disputes centered on that often-overlooked clause found in many service contracts.  While not typically one of the most heavily negotiated clauses of a typical contract, when a hurricane like Irene causes a significant disruption in service, force majeure clauses take center stage in determining each party’s rights, responsibilities and remedies.

Is the question as simple as whether or not a hurricane is a “force majeure” event? No, in fact, this may the simplest of the questions to answer. There are, however, many other issues involved.

First, and most basic, is the question of whether a party’s performance is actually excused. Often, specific obligations are carved out of force majeure clauses. For example, the payment of money is often an exception to the clause.

Second, what are the conditions to the invocation of the force majeure clause?  A service provider’s ability to be relieved for a force majeure event is often conditioned on their taking certain steps immediately upon the occurrence of the event – even if, like Hurricane Irene, it occurs on a weekend.  For example, often a service provider agrees to have a disaster recovery or similar plan in place to avoid disruption in service in the event of a disaster.  Sometimes, relief is only available under a force majeure clause if the service provider activates that plan in a timely manner.  In addition, failure to spring the plan into action could be a breach in its own right, which may not be subject to relief under the force majeure clause.   Other time-sensitive requirements and conditions could include providing notice to the recipient of the services, taking certain steps to transfer data files or processing, or taking other steps to mitigate the effect of the event.

Third, exactly what performances are to be excused by the clause? Is the clause written specifically to say that only the obligations directly impeded by the force majeure event are excused, or does the clause give the party a broader waiver?  For example, if the storm interferes with the service provider’s ability to provide customer support, does the force majeure clause relieve the service provider from data security requirements?

Fourth, what level of diligence and effort does a party have to exercise to minimize the effect of the force majeure event on its ability to perform? Once a party invokes the force majeure clause, what do they have to do to overcome the problem?

Fifth, if one party’s obligations are excused because of a force majeure event, what about the obligations of the other party? Are they excused as well or must they continue to perform?

Finally, other than excusing non-performance, what are the other implications of a force majeure clause?  Sometimes, force majeure provisions have termination rights associated with them, whereby the party not affected by the event can terminate the contract if the inability to perform extends beyond a certain amount of time.  To the extent Hurricane Irene leaves service providers out of commission for any extended period of time, this may become relevant.  Also, an inability to perform due to a force majeure event sometimes allows the client to procure the services from an alternate supplier – and sometimes converts an exclusive relationship to a non-exclusive one.

Companies affected by Irene – either themselves or through the impact of the storm on business partners – should be thinking about their force majeure clauses.   Service providers should consider whether the force majeure clauses in their contracts offer any relief to hurricane-related problems.  Customers should be asking what are their service provider’s rights and responsibilities regarding hurricane-related problems.

In any case, attorneys are well-advised to keep Irene in mind the next time they are tempted to skim over the force majeure provision in a difficult contract negotiation.
 

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In what may represent a new wave in an interesting challenge to the viral nature of social media marketing, a recently filed putative class action asserts a right of publicity claim against Facebook in connection with the service’s “Like” and “Friend Finder” features.

J.N. v. Facebook, Inc.,  No. 11-cv-2128 (E.D.N.Y.) (complaint) is an action brought by the parent of a minor user of the Facebook social networking site, alleging that the minor’s name and likeness was appropriated for commercial advantage without the consent of his parents, as required by New York Civil Rights Law § 50. Section 50 provides that a living person’s name, portrait or picture may not be used for advertising purposes without the person’s written consent, “or if a minor of his parent or guardian.”

Although many Web sites and online service require users to affirm that they are over the age of 12 (the age below which the requirements of the Children’s Online Privacy Protection Act kick in), relatively few restrict users between the ages of 13 and 18 from their sites and services. The question arises, do users in this age group have the capacity to contract, for example, to assent to online terms of use that may contain an express or implied waiver of publicity rights? The issue of a minor’s capacity to assent to such terms has been litigated rarely and not definitively addressed in the online context.

The complaint targets the functionality of Facebook’s “like” button, which offers users the ability to indicate their endorsement or approval of a Facebook page or event. The complaint alleges that when a minor user “likes” a Facebook brand page or RSVPs to an event, the service dislays the minor’s name and likeness both on the “liked” page and in an advertisement displayed on the home page of the minor’s friends. This, the complaint asserts, violates Section 50, and entitles the plaintiff (or plaintiffs, if a class is certified) to relief under New York Civil Rights Law § 51, including gross revenue and profit attributable to violations of § 50.

The complaint also targets the Facebook “Friend Finder” functionality on similar grounds, contending that the names and likenesses of minor users of Facebook have been displayed to other users in order to encourage them to user the functionality to solicit their friends and contacts to join the service, all to the benefit of Facebook and its advertising revenue.

The complaint asserts that although the Facebook terms of use purport to allow the service to utilize a user’s name or likeness for advertising purposes when the “like” function is utilized, assent to those terms is not sufficient consent to such use. Further, the complaint asserts that even if assent to the terms of use on the part of an adult does amount to consent to commercial use of the adult’s name and image, it does not constitute consent on the part of the parents of minor users as required by Civil Rights Law § 50.

This is not the first lawsuit to raise the issue of consent of minor users to Facebook’s use of their names and likenesses for advertising purposes, although previously filed lawsuits have asserted violations of California law. David Cohen v. Facebook, Inc., No. BC 444482 (Cal. Super Ct., Los Angeles Cty), alleges claims under California Civil Code § 3344 (requiring parental consent for the use of a minor’s persona in advertising), the California Constitution, Art. 1, section 1 (right of privacy), and California Business and Professions Code §§ 17203 and 17204 (unfair competition law). See also Meth v. Facebook, Inc., No. BC45479 (Cal. Super. Ct. Los Angeles Cty) (raising similar claims as to a minor user of Facebook).  [Motion papers seeking to consolidate the David Cohen and Meth cases, available here, contain the complaints in both cases.]

Note also, that a separate federal lawsuit filed in California alleges similar claims as to adult users, see Robyn Cohen v. Facebook, Inc., No. 10-cv-05282 (N.D. Cal.). Facebook’s motion to dismiss that action on the ground, among others, that the users consented to the use of their names and likenesses, was filed in January and a ruling is currently pending.




 

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Since the Seventh Circuit opinion in ProCD v. Zeidenberg (7th Cir. 1996), judicial analysis of standard form contracts has proceeded along lines that have, in general, been more favorable to the efforts of sellers and licensors seeking to enforce the provisions of "agreement now, terms later" contracts. The ProCD v. Zeidenberg analysis of the relevant UCC provisions endorsed the enforceability of additional terms included in shrinkwrap and mail order "in the box" contracts on the theory that a purchaser or licensee who disagreed with the later-presented terms could reject the terms and avoid contract formation by returning the goods.

Over time, the ProCD v. Zeidenberg approach to later-presented terms has become the majority view. But just because a court adopts the ProCD v. Zeidenberg analysis, it will not necessarily find that a "terms later" contract is enforceable. That was the case in Defontes v. Dell, decided on December 10 by the Rhode Island Supreme Court.

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Can the submission of user-generated content pursuant to an invitation posted on a Web site give rise to  implied  contractual obligations on behalf of the Web site owner?  Although the recent case  of  Thome v. The Alexander & Louisa Calder Foundation, 2009 NY Slip. Op., 2009 N.Y. App. Civ. LEXIS 8707 (N.Y. App. Div. 1st Dept. Dec. 1, 2009)  does not specifically address user-generated content and rather involves  the submission of an art work for authentication by an artist's foundation , the opinion in close enough to be of interest to parties that accept  user-generated  submissions via a Web site.

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When Cynthia Hines returned a vacuum cleaner to online retailer Overstock.com, she was reimbursed for the full amount of her purchase, but Overstock deducted a $30 restocking fee, citing a provision in its Web site Terms and Conditions. Hines filed a purported class action in federal court in the Eastern District of New York asserting that she had been advised that she could return the vacuum without incurring any charge, and that she was not aware that a restocking fee would be charged.

When Overstock moved to dismiss or stay the action, citing the arbitration provision in the same Terms and Conditions, Hines similarly argued that she was not aware of the arbitration provision. According to Hines, she was not on either actual or constructive notice of the Terms and Conditions because they were referenced only in a hyperlink in small type at the bottom of the page of the Overstock Web site, between the link to the privacy policy and the Overstock.com registered trademark. She argued: "I did not scroll down to the end of the page(s) because it was not necessary to do so, as I was directed each step of the way to click on to a bar to take me to the next step to complete the purchase."

In Hines v. Overstock.com, Inc., 2009 U.S. Dist. LEXIS 81204 (E.D. N.Y. Sept. 4, 2009), Judge Sterling Johnson, Jr., agreed with Hines, finding that under the law of New York (where Hines resides), or under the law of Utah (where Overstock.com is located), Overstock.com had not carried its burden of providing the existence of a valid arbitration agreement. There was no meeting of the minds sufficient to form a contract, Judge Johnson ruled, because Hines had neither actual nor constructive notice of the Terms and Conditions, as required by the Second Circuit ruling in Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002):

Notably, unlike in other cases where courts have upheld browsewrap agreements, the notice that "Entering this Site will constitute your acceptance of these Terms and Conditions," … was only available within the Terms and Conditions. Hines therefore lacked notice of the Terms and Conditions because the website did not prompt her to review the Terms and Conditions and because the link to the Terms and Conditions was not prominently displayed so as to provide reasonable notice of the Terms and conditions. Very little is required to form a contract nowadays – but this alone does not suffice."

Compare the result in Hines v. Overstock.com with the result in another recent ruling, PDC Laboratories, Inc. v. Hach Co., 2009 U.S. Dist. LEXIS 75378 (C.D. Ill. Aug. 25, 2009), a case involving a transaction between commercial parties. The court ruled that the incorporation of a limitation of damages clause in terms and conditions of sale available via a hyperlink displayed during an online ordering process was not procedurally unconscionable. Relying on Hubbert v. Dell Corp., 359 Ill. App. 3D 976, 835 N.E. 2D 113 (5th Dist. 2005), an opinion involving a consumer transaction, the court concluded that the terms and conditions were conspicuous within the meaning of the Uniform Commercial Code where the hyperlink leading to them was in underlined, blue, contrasting text and was displayed three times during the ordering process. The court further noted that attention was specifically brought to the terms and conditions by a reference in the directions for the "final order step" of the ordering process.

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In 2007, Ticketmaster brought a multi-count complaint against RMG Technologies, a software company that supplied ticket brokers with software that enabled them to automatically and rapidly access Ticketmaster’s Web site, to the detriment of ordinary users seeking tickets to popular events. The Ticketmaster v. RMG complaint was notable for stating a series of claims that leveraged the allegation that RMG’s access to the Web site for the purpose of creating its software, as well as the subsequent use of the software, violated the Ticketmaster Terms of Use and was thus unauthorized. Ticketmaster’s claims included breach of contract, copyright infringement, violation of the anticircumvention provisions of the Digital Millennium Copyright Act, and violation of the Computer Fraud and Abuse Act. Based on these claims, Ticketmaster succeeded in obtaining a preliminary injunction against the distribution of the software and a $18.2 million default judgment against RMG.

In December 2008, Facebook filed a similarly framed complaint against Power Ventures, the operator of Power.com, an online service that allows social networking users to access all of their accounts through one interface. In Facebook, Inc. v. Power Ventures, Inc. (N.D. Cal. May 11, 2009), Judge Jeremy Fogel denied Power Ventures's motion to dismiss Facebook’s claims of copyright infringement, violation of the anticircumvention provisions of the DMCA, and violation of federal and state trademark infringement laws for failure to state a claim. Judge Fogel acknowledged the similarity of Facebook’s copyright claims against Power Ventures to the claims in Ticketmaster’s litigation against RMG. Slip op. at 5.

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A primary purpose of a Web site's "Terms of Use" ("ToU") is to reserve to Web site owners the ability to regulate undesirable conduct. But should that ability be extended to third parties? Can users of a site assert that they are third-party beneficiaries of that Web site's ToU, and invoke the provisions of the ToU against another user of that site? In Jackson v. American Plaza Corp., 2009 U.S. Dist. LEXIS 35847 (S.D.N.Y. Apr. 28, 2009), the district court said that at least in the case of Craigslist, a user could not claim third-party beneficiary status under the Craigslist ToU.

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In A.V. v. iParadigms, LLC, 2009 U.S. App. LEXIS 7892 (4^th Cir. Apr. 16, 2009), the Fourth Circuit concluded that the archiving of high school student term papers by a plagiarism detection service is protected by the fair use doctrine. Having so ruled, the appeals court did not address the district court's analysis of the enforceability of the clickwrap agreements executed by the minor students when they submitted their papers to the service.  The district court ruling on the issue of enforceability is, therefore, left intact.

The district court opinion offers some other general points of interest with respect to clickwrap agreements.

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Case law has developed over the years with respect to enforceability of Web site terms and conditions, and the general parameters are now pretty well understood. Courts will, in general, enforce online terms and conditions against consumer users, provided they are given adequate notice and an opportunity for review.

There are numerous exceptions to the general rule, however. Courts often refuse to enforce specific terms in Web site terms and conditions against consumers, particularly where those terms involve class action waivers, arbitration requirements, inconvenient forum choices, and like provisions.

The case of Burcham v. Expedia, involving a pro se attorney's challenge to the enforceability of the Expedia travel site terms and conditions, is not one of those exceptions.

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In Doe v. SexSearch.com, Inc., the Sixth Circuit considered the appeal of a user of the SexSearch online dating service from dismissal of his breach of contract, fraud and other state law claims (based on Ohio law) against the service for its failure to screen out underage minors. Doe was arrested and charged with unlawful sexual conduct with a minor for his encounter with a fourteen year old who represented herself on the service as eighteen. As the opinion notes, the charges were later dismissed and the record sealed for reasons undisclosed, but Doe subsequently brought suit claiming that the service was at fault for his relationship with the minor and for the resulting harm caused by his arrest.

In a relatively brief opinion, the court upheld the district court's dismissal of each of Doe's 14 causes of action for failure to state a claim, based in large part upon the disclaimers contained in the Terms and Conditions in the contract.

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