It is worth noting that two forms of notice of the arbitration provision were actually alleged to have been provided to the consumer: the post-transaction e-mail, and a clickable link to the “Terms and Conditions” of the agreement that was presented at the time of enrollment in the disputed program. The efficacy of the second form of notice was not before the court, however, because that issue was deemed to have been waived at the lower court level. Thus, whether the presentation of the clickable link to the terms was sufficient notice of the arbitration provision was addressed with the comment that it “might have created a substantial question” as to whether the arbitration provision was enforceable.

(Trilegiant proffered screen shots purporting to depict a transaction confirmation page similar to that displayed to the plaintiffs, which the court made available on its Web site here, along with screen shots of the enrollment offer page purporting to be similar to the display of the clickable link to the plaintiffs, here and here.)

Data Pass Marketing

This case involves a “data pass” marketing program. These programs, also referred to as “Web loyalty” programs, typically are presented by third-party marketers to consumers at the conclusion of a transaction with an online retailer, in the form of a discount or cash back offer. If the consumer responds to the offer, whether by an affirmative “click” or by the provision of personal information, their payment data is provided directly to the third-party marketer by the online retailer who collected it in connection with the underlying transaction. The consumer is then enrolled in a program in which their payment card is charged a monthly fee.

As of 2010, the direct passing of payment data in this manner is prohibited by the Restore Online Confidence Act unless, among other things, the consumer’s “express informed consent” is obtained. The Act also imposes other requirements aimed at clearly differentiating these third-party programs from the underlying retail transaction in which they are typically presented. The transactions involved in this case took place in 2007 and 2009, before the Act was passed, and this case raises some of the same issues that are addressed in that legislation. (The Act is discussed further in this prior blog post.)

Agreement Now, Arbitration Provision Later

The plaintiffs in this case brought suit in the U.S. District Court for the District of Connecticut alleging that at the time they responded to the offer at issue, they did not realize they were enrolling in a fee-based program. In response to the consumers’ lawsuit, Trilegiant and its parent company responded with a motion to compel arbitration. They cited the arbitration provision included in the Terms and Conditions to which, they argued, the consumers had assented at the time they enrolled in the program. The arbitration provision was included in the post-transaction e-mail sent to the plaintiffs.

The district court held that the arbitration provision was unenforceable  and the Second Circuit upheld, holding that under either California or Connecticut law, the e-mail did not provide sufficient notice to the consumers to support the conclusion that they had assented to the provision.

The Law is Unsettled

Although courts have increasingly embraced “assent now, terms later” contracting, Judge Sack stated, judicial acceptance of this principle has resulted in the “conventional chronology of contract-making” becoming “unsettled.” Two analytical approaches are possible on the facts presented, the court said. The first possibility is that the agreement between the parties, including the terms and conditions including the arbitration provision, became effective only after the receipt of the e-mail by the plaintiffs and their failure to cancel their memberships. The second approach is that an agreement to pay a fee in return for program benefits was formed at the time of the consumers’ initial enrollment, with the additional provisions of the terms and conditions, including the arbitration provision, constituting proposals for amendment to the existing contract.

But the analytical approach did not ultimately matter, the court concluded, because under either analysis, the e-mailed terms, including the arbitration clause, were never accepted by the consumers.

Assent to Post-Transaction Terms May Be Based on Conduct, but Conduct Must Be Coupled with Knowledge

The court did not dispute that assent to contract terms may be manifested by conduct, including the acceptance of a benefit, citing Register.com v. Verio (2d Cir. 2004). But that act of assent the court stressed, must be coupled with actual or constructive knowledge of the terms to which assent is being given. While that knowledge may be actual or constructive, the court said, there was no actual knowledge in this case.

To the argument that the failure to cancel constituted assent, the court concluded that, where “the purported assent is largely passive,” the issue of contract formation turns on whether a “reasonably prudent offeree” would be on notice of the provision. In the absence of actual knowledge, the question becomes whether the consumers were on inquiry notice of the provision. Only then, the court reasoned, would their failure to cancel constitute “an objective manifestation of their assent” to arbitration.

Post-Transaction, E-Mailed Terms Are Not Expected by Consumers

On the issue of inquiry notice, the court commented: “We do not think that an unsolicited e-mail from an online consumer business puts recipients on inquiry notice of the terms enclosed in that email and those terms’ relationship to a service in which the recipients had already enrolled, and that a failure affirmatively to cancel the membership will, alone, constitute assent.”

The “touchstone” on this issue, the court said, is “whether reasonable people in the position of the parties would have known about the terms and the conduct that would be required to assent to them.” Those circumstances involve conspicuousness of the term, the course of dealing between the parties, and industry practices. On these last two factors, it is not surprising that the court found e-mailed notice to be lacking in this consumer transaction.

The court noted, that, unlike the parties in Register.com, there was no prior relationship between the parties, and there was no other means by which a reasonable person would understand that disputes would have to be resolved by arbitration.

Shrinkwrap Cases Are No Help Here

The court particularly rejected the argument that a finding of assent to the e-mailed terms, at least in a consumer transaction, was supported by the rulings in Hill v. Gateway 2000, Inc. (7th Cir. 1997) and ProCD, Inc. v. Zeidenberg (7th Cir. 1996). In those shrinkwrap cases, the court reasoned, notice of the terms was provided when the customer opened the packaging for the goods, as the terms were “necessarily included with the product,” and the consumer would understand that unless the goods are returned, the consumer takes the product subject to those terms.

In contrast, Judge Sack said, e-mail notice was “temporally and spatially decoupled from the plaintiffs’ enrollment in and use of [the service].” Thus, e-mail notice “lacks a critical element of shrinkwrap contracting – the connection of the terms to the goods (in this case the services) to which they apply.” Further, because of the ease with which the consumer was able to enroll in the program, the receipt of the e-mail was unlikely to “raise a red flag” to alert the consumer to the proffer of legally significant terms.

What the program provider did in this case, the court found, was to effectively obscure the terms and conditions and the passive manner in which they would be accepted, and “made it appear – falsely – that being a member imposed virtually no burdens on the consumer besides payment.”

Judge Sack gave a nod to the policy reasons supporting the endorsement of the agreement now – terms later model endorsed by the Seventh Circuit in the shrinkwrap cases, but concluded that no policy rationale supported the manner in which the provider presented the terms in this case. Requiring express acknowledgement of receipt of the terms was just one of the “plethora of other ways” in which the provider could have met the minimum requirements of notice. Such an express manifestation of assent could not be found in the auto-debiting of the consumer’s payment card, either, as the court deemed those payments “too passive” to manifest assent to be bound.

Browsewrap and Clickwrap Cases Are No Help Either

While the issue of notice based on the presentation of the hyperlink was deemed to have been waived, the court did address it in a lengthy footnote, finally concluding that it “fell outside the browsewrap and clickwrap categories.” The court distinguished the presentation of the hyperlink as follows:

The presentation of terms on the screens in the case before us falls outside both the clickwrap and browsewrap categories. Unlike the paradigmatic browsewrap agreement,  in this case there is some indication near the button that a user must “click” in order to subscribe to the service, that the service includes additional terms and that the user assents to these terms by clicking the button. In contrast to the typical clickwrap agreement, however, the button itself does not make explicit reference to these terms in asking the end-user whether he or she assents to them. It only suggests that a user can sign up for the benefits of the membership by clicking “Yes.”

Where Does This Leave Service Providers?

Perhaps the most telling aspect of the opinion is the court’s expressed view that the program provider in this case sought to “obscure” the terms and conditions and make it “falsely” appear that there were no burdens imposed upon the consumer aside from monthly payments. Given that perspective on the facts, it is perhaps not surprising that the court concluded that there was no assent.

And, the opinion may reflect a general judicial hesitation to enforce certain kinds of ancillary provisions in consumer contracts, and in particular, a hesitation to enforce arbitration provisions. There are plenty of examples of such opinions, several of which we have blogged in the past: Defontes v. Dell (R.I. 2009) and Hines v. Overstock.com, Inc. (E.D. N.Y. 2009).

More broadly applicable principles that may be gleaned from the ruling include a strong judicial skepticism on the efficacy of assent now – terms later contracting involving consumers where the transaction does not fall in the shrinkwrap category. The opinion suggests that in transactions where the delivery of the good or service is not closely tied to the presentation of the terms, unmistakable notice of them should be provided, whether by e-mail or otherwise. And consideration should be given to requiring a specific act of assent following the notice.

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.

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.

***

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.

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.

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.

The case involves a dispute between Dell and consumers who claim they were wrongfully assessed a state tax on their purchase of service contracts in conjunction with a computer purchase. The purchasers filed a class action, and Dell sought to enforce an arbitration provision contained in the "Terms and Conditions Agreement" that accompanied the delivery of the computers. Dell argued that the plaintiffs had three separate opportunities to review the Terms and Conditions that included the arbitration provision. In addition to the inclusion of the Terms and Conditions with the delivery of the computer, the document was accessible via a hyperlink on the Dell Web site, and was included in an order acknowledgment document that preceded the delivery of the computers.

In endorsing the ProCD v. Zeidenberg analysis of later-presented terms, the Rhode Island Supreme Court commented:

After reviewing the case law pertaining to so-called "shrinkwrap" agreements, we are satisfied that the ProCD line of cases is better reasoned and more consistent with contemporary consumer transactions. It is simply unreasonable to expect a seller to apprise a consumer of every term and condition at the moment he or she makes a purchase. A modern consumer neither expects nor desires to wade through such minutia, particularly when making a purchase over the phone, where full disclosure of the terms would border on the sadistic. Nor do we believe that, after placing a telephone order for a computer, a reasonable consumer would believe that he or she has entered into a fully consummated agreement.

Contract formation occurs, the court concluded, "when the consumer accepts the full terms after receiving a reasonable opportunity to refuse them."

However, the court emphasized, the consumer must be "aware of the power to reject by returning the goods." And this is where the Dell agreement failed in the transactions before the court. Although the Terms and Conditions document contained an "express disclaimer" informing the purchasers of their right to return the goods, the disclaimer was located in a separate provision removed from the introductory contractual language in the agreement and it "confusingly informed" the purchasers of their rights, and the construction of the agreement required the purchasers to construe contractual language in order to infer from it the right to return the goods. Thus, the court concluded, the express disclaimer language "not only fails to establish a clear relationship between the consumer’s acceptance of the terms by retaining the goods and his or her right to reject the terms by returning the product, but it further obscures the matter by forcing the consumer to refer to a separate document if he or she wants to discover the full terms and conditions of the ‘Total Satisfaction Return Policy.’"

In sum, the court concluded that it was not "reasonably apparent" to the purchasers that they had the right to reject the additional terms by returning the computers:

We believe that too many inferential steps were required of the plaintiffs and too many of the relevant provisions were left ambiguous. We are not persuaded that a reasonably prudent offeree would understand that by keeping the Dell computer he or she was agreeing to be bound by the terms and conditions agreement and retained, for a specified time, the power to reject the terms by returning the product.

Because the court disposed of the appeal on this ground, it declined to reach two issues that the lower court had reached. "For the sake of completeness," the lower court ruled on the purchasers’ argument that the agreement was unconscionable because it prevented parties from asserting their rights as a class (rejected under Texas law, which the court found applicable), and that the contract was illusory. On this issue, the lower court agreed that the contract was illusory because it included the language "[t]hese terms and conditions are subject to change without prior  written notice, at any  time, in Dell’s sole discretion.” The lower court opinion is available here.

The ruling in Defontes v. Dell is a good example of the difficulties faced by sellers and licensors seeking to draft terms and conditions applicable to consumer transactions that can be relied upon to be enforceable, particularly with respect to arbitration provisions. Dell in particular has experienced mixed results in seeking to enforce the arbitration provision in its terms and conditions. In addition to the instant ruling, compare Stenzel v. Dell (Me. 2005) and Hubbert v. Dell (Ill. App. 2005) (finding the Dell arbitration provision enforceable) with Rogers v. Dell (Okla. 2005) (finding the notice of the right to return insufficiently clear, and the contract to be illusory).

The plaintiff, Joel Thome, is the owner of stage sets for a musical production that are recreations of original sets designed by renowned artist Alexander Calder in 1936. The stage sets were destroyed after the original production, but in the 1970′s they were re-created from the original plans at Thome’s expense, in connection with a revival of the musical production for which they were originally created. Thome asserted that Calder reviewed and approved the plans for re-creation of the sets, and that Calder agreed to view and be photographed with them, but he died prior to doing so. When Thome later sought to sell the sets he was unable to effectuate a sale without having them authenticated as Calder’s work.

Thorne sought to have the sets authenticated by The Alexander & Louisa Calder Foundation, a non-profit entity that was created for the purpose of cataloging all of the work produced by Calder. The Foundation received materials from Thome and communicated with him regarding his request for authentication, but, without explanation, the Foundation did not include the sets in its definitive catalog of Calder’s works (the catalogue raisonne). Inclusion in such a catalogue is considered to be a necessity for acceptance of an item as authentic work of an artist.

Thome asserted several claims against the Foundation, including a claim for breach of contract. In his brief on that point, Thome relied in part on the statement of purpose on the Foundation’s Web site, which included the following language:  "Owners of works attributed to Alexander Calder are encouraged to submit applications for the catalogue raisonné and to update the Foundation on changes to their collections."**

Thome did not argue that this language gave rise to an obligation on the part of the Foundation to authenticate the sets (although he raised other claims in the litigation that would have had that effect). Rather, he argued that the Foundation had an obligation to respond to his submission of materials within a reasonable period of time.

The Appellate Division upheld the lower court’s rejection of Thome’s argument that the above language gave rise to such a contractual obligation. The formation of either a bilateral or a unilateral contract, the appellate court stated, requires a definite manifestation of mutual assent based upon language that is sufficiently plain and clear to establish the terms of the contract. The language relied upon by Thome did not meet that test, the court concluded, because it was too vague and neither that language nor the form acknowledgment of the submission sent by the Foundation to Thome manifested any intent that the Foundation would be bound by the receipt of a submission. And finally, the court noted, Thome failed to allege that he submitted the materials to the Foundation in response to the invitation on the Web site, and failed even to establish that the Web site existed at the time of his submission.

While the opinion is helpful to parties wishing to disclaim an implied obligation in similar circumstances, parties accepting the submission of user-generated content via a Web site should not rely upon the absence of contractual language  or a court’s interpretation of the language that does exist . Rather, a better practice is an affirmative  disclaimer of any obligations that could be implied  from the submission of such content, including even expressly disclaiming any obligation to acknowledge receipt of such submissions.  In addition, to the extent the Web site owner does issue an acknowledgment, that acknowledgment should be carefully worded to avoid any language that would give rise to any further obligations.

**The language on the Foundation’s Web site pertaining to submissions for inclusion in the catalog upon which Thome relied is quoted in the Appellant’s Brief at p. 7.
 

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.

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.

The essence of the dispute is that Power Ventures, instead of developing its interface through the Facebook Connect developer program, created a Facebook user account and accessed Facebook content through that account. Facebook alleged that the creation and use of that account was in violation of the Facebook Terms of Use. Facebook Complaint ¶ 24, 41. The complaint also alleges that Power Ventures used the interface that it created to induce Facebook users to share their usernames and passwords, and then utilized that information to access Facebook servers via its interface in a manner that violated the Facebook ToU.

The complaint alleges that the ToU prohibits a variety of activities, including, among other things, solicitation of passwords or personally identifying information for commercial or unlawful purposes; using or attempting to use the account of another user or creating a false identity; using automated scripts; impersonating another person or entity; sending “junk mail” or “spam”; harvesting e-mail addresses; registering for more than one account; and “using Facebook’s website for commercial use without the express permission of Facebook.” The ToU also provides that the limited license granted to access and use the site terminates when the site is used “other than as specifically authorized herein.”

The copyright claim alleges that in violation of the ToU, Power Ventures used its account to access and copy the Facebook Web site, including the Facebook home page for which Facebook has obtained a copyright registration. Complaint ¶ 31, 70. Judge Fogel concluded that the allegations of the complaint made out a sufficient claim of copyright infringement because Power Ventures “need only access and copy one page to commit copyright infringement.” The court also found that the ToU prohibited downloading, scraping or distributing content from the Facebook Web site content except that belonging to the user, and that in any event, using automated methods, i.e., “data mining, robots, scraping, or similar data gathering or extraction methods” to access any content were also prohibited by the ToU. Thus, the court found that the allegation that Power Ventures accessed Facebook via automated means constituted made out a claim of direct copyright infringement, while the allegation that Facebook users utilized the Power.com interface to access their own profile pages made out claim of secondary copyright infringement.

Judge Fogel also declined to dismiss Facebook’s claim that the use of automated scripts to access Facebook copyrighted content bypassed specific technical measures designed to block such access and thus violated the DMCA. The trademark infringement claims were sustained based upon the inclusion in the complaint of a screenshot illustrating the use of the Facebook mark on an e-mail sent by Power Ventures to Facebook users. The court did order Facebook to file a short statement clarifying the basis for its California unfair competition claim.

The complaint also alleges a federal CAN-SPAM claim stemming from the transmission of e-mails to other Facebook users encouraging them to use the Power.com interface. According to the opinion, Power Ventures abandoned its challenge to the sufficiency of the CAN-SPAM claim, as well as its challenge to the sufficiency of the complaint under the CFAA. The CFAA claim also is grounded on the allegation that Power Ventures’s access to Facebook’s computers was unauthorized because it was in violation of the Facebook ToU.

The court’s refusal to dismiss Facebook’s claims demonstrates that careful drafting of a Web site terms of use is essential to obtaining legal redress for unauthorized access, particularly unauthorized access by competitors and others for commercial purposes. Access that violates the clear proscriptions of a ToU can form the basis for a multiplicity of legal claims, thereby maximizing the chances of a successful challenge to unwanted access.