Attorney Evan Brown

May 7, 2014 Contracts

Limitation of liability clause in software license agreement did not excuse customer from paying fees

Customer did not like how software it had bought performed, so it stopped paying. Vendor sued for breach of contract, and customer argued that the agreement capped its liability at $5,000. Both parties moved for summary judgment on what the following language from the agreement meant:

NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE TOTAL DOLLAR LIABILITY OF EITHER PARTY UNDER THIS AGREEMENT OR OTHERWISE SHALL BE LIMITED TO U.S. $5,000.

Customer argued that the sentence meant what it said, namely, that customer would not be liable for anything over $5,000. But the court read otherwise, holding that construe the language as excusing customer’s payment of fees would render those provisions calling for fees (which were much more that $5,000) meaningless.

The court observed that when parties use the clause “notwithstanding anything to the contrary contained herein” in a paragraph of their contract, they contemplate the possibility that other parts of their contract may conflict with that paragraph, and they agree that the paragraph must be given effect regardless of any contrary provisions of the contract.

In this situation, the $5,000 limitation language was the last sentence of a much longer provision dealing with limitations of liability in the event the software failed to function properly. The court held that the rule about “notwithstanding anything to the contrary” applies if there is an irreconcilable difference between the paragraph in which that statement is contained and the rest of the agreement.

There was no such irreconcilable difference here. On the contrary, reading in such difference would have rendered the other extensive provisions dealing with payment of goods and services meaningless, which would have violated a key canon of construction.

IHR Sec., LLC v. Innovative Business Software, Inc., — S.W.3d —, 2014 WL 1057306 (Tex.App. El Paso March 19, 2014)

Evan Brown is an attorney in Chicago, advising clients on matters dealing with software licensing, technology, the internet and new media.

April 30, 2014 Contracts, Litigation

In software dispute, court enforces forum selection clause and transfers case from California to Michigan

Though parties often think of forum selection clauses as throwaway “boilerplate” language, a recent case demonstrates the influence such a clause can have on where litigation takes place.

Plaintiff sued defendant in California for fraud and other claims relating to the alleged defective performance of electronic medical records software. Defendant moved to transfer the matter to federal court in Michigan, based on a forum selection clause in the agreement that provided, in relevant part, that “[a]ny and all litigation arising from or relating to this Agreement will be filed and prosecuted before any court of competent subject matter jurisdiction in the State of Michigan.” Plaintiff objected to the motion, arguing that enforcement would violate California public policy in a number of ways. The court rejected plaintiff’s arguments and granted the motion to transfer.

Plaintiff argued that transfer would go against California’s public policy against unfair business practices, and would also be against the policy of incentivizing medical providers to adopt electronic medical records systems. The court rejected these arguments because plaintiff’s motion dealt with venue, i.e., where the lawsuit would occur, not which substantive law would apply. Given that the potential existed for the federal court in Michigan to consider whether California law should apply, transferring the case would not cut against public policy.

The court further rejected plaintiff’s argument that the forum selection clause was unconscionable, given that plaintiff did not dispute that she read the clause, and was a sophisticated party. Moreover, citing to language of the Supreme Court on the issue, the court refused to consider arguments about the parties’ private interests. “When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation.”

East Bay Women’s Health, Inc. v. gloStream, Inc., 2014 WL 1618382 (N.D.Cal. April 21, 2014)

Evan Brown is an attorney in Chicago, advising clients on matters dealing with technology, the internet and new media. Follow him on Twitter @internetcases

[This is a cross post from the InfoLawGroup blog.]

March 5, 2014 Privacy, Trademarks

Company facing liability for accessing employee’s Twitter and Facebook accounts

While plaintiff was away from the office for a serious brain injury she suffered in a work-related auto accident, some of her co-workers accessed and posted, allegedly without authorization, from her Twitter and Facebook accounts. (There was some dispute as to whether those accounts were personal to plaintiff or whether they were intended to promote the company.) Plaintiff sued, alleging several theories, including violations of the Lanham Act and the Stored Communications Act. Defendants moved for summary judgment. The court dismissed the Lanham Act claim but did not dismiss the Stored Communications Act claim.

Plaintiff had asserted a Lanham Act “false endorsement” claim, which occurs when a person’s identity is connected with a product or service in such a way that consumers are likely to be misled about that person’s sponsorship or approval of the product or service. The court found that although plaintiff had a protectable interest in her “personal brand,” she had not properly put evidence before the court that she suffered the economic harm necessary for a Lanham Act violation. The record showed that plaintiff’s alleged damages related to her mental suffering, something not recoverable under the Lanham Act.

As for the Stored Communications Act claim, the court found that the question of whether defendants were authorized to access and post using plaintiff’s social media accounts should be left up to the jury (and not determined on summary judgment). Defendants had also argued that plaintiff’s Stored Communications Act claim should be thrown out because she had not shown any actual damages. But the court held plaintiff could be entitled to the $1,000 minimum statutory damages under the act even without a showing of actual harm.

Maremont v. Susan Fredman Design Group, Ltd., 2014 WL 812401 (N.D.Ill. March 3, 2014)

March 1, 2014 Contracts, Evidence

Daughter’s Facebook post costs dad $80,000

A recent case illustrates why (1) it is important for parties to abide by the confidentiality provisions of settlement agreements, and (2) people who learn confidential information should keep their social media mouths shut.

Plaintiff sued his former employer (a private school) for age discrimination and retaliation. The parties later settled the case and entered an agreement containing the following provision:

13. Confidentiality … [T]he plaintiff shall not either directly or indirectly, disclose, discuss or communicate to any entity or person, except his attorneys or other professional advisors or spouse any information whatsoever regarding the existence or terms of this Agreement … A breach … will result in disgorgement of the Plaintiffs portion of the settlement Payments.

After the parties signed the settlement agreement, plaintiff’s college-age daughter posted this on Facebook:

Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.

Defendant school district refused to pay a portion of the settlement payments ($80,000), claiming plaintiff’s disclosure of the settlement to his daughter violated the confidentiality provision. Plaintiff asked the trial court to enforce the settlement agreement, which it did. Defendant sought review with the Court of Appeal of Florida. On appeal, the court agreed with the school and reversed.

The court found that “before the ink was dry on the [settlement] agreement, and notwithstanding the clear language of section 13 mandating confidentiality, [plaintiff] violated the agreement by doing exactly what he had promised not to do.” And his daughter “then did precisely what the confidentiality agreement was designed to prevent, advertising . . . that plaintiff had been successful in his age discrimination and retaliation case against the school.”

Gulliver Schools, Inc. v. Snay, — So.3d —, 2014 WL 769030 (Fla.App. 3 Dist. Feb 26, 2014)

Photo credit Flickr user haikus under this Creative Common license.

February 22, 2014 Podcasts

Enjoy This Week in Law Episode 247

In addition to blogging here at internetcases I am a co-host of the TWiT Network’s weekly show This Week in Law. This past week my co-host Denise Howell was out, so I held the reins, talking with panelists Spencer Waller, Ryan Radia and Lisa Borodkin in This Week in Law Episode 247. We really got into some of the nuances of the Comcast/Time Warner deal, and also talked about privacy (including the recent decision from the Massachusetts Supreme Court about cell site location information), trademark law, terms of service, and mobile devices on aircraft. This Week in Law Episode 247 is embedded below. I hope you’ll tune in each week to hear us discuss the most recent developments in law and technology.

I hosted This Week in Law Episode 150 back in February of 2012. Be sure to check that out.

February 20, 2014 Trademarks

Fair use is a trademark concept as well

Ninth Circuit finds trademark fair use of name of online music site.

Webceleb is a “social marketplace for independent music.” It sued several defendants over the use of the term “web celeb” in connection with a television show award category and a section of an entertainment website. Defendants moved for summary judgment and the trial court granted the motion. Plaintiff sought review with the Ninth Circuit. On appeal, the court affirmed the award of summary judgment.

The court held that defendants’ use of the term “web celeb” was a classic fair use because:

the use of the mark was not a trademark use;
the use was fair and in good faith; and
the use was only descriptive

There was no trademark use because the term “web celeb” (at least according to the court) is “common parlance” for internet celebrities, which was what the award category was intended to recognize. And the use of “web celeb” in connection with the electronic magazine was merely descriptive of the online magazine’s content. The use was in good faith, as the evidence showed defendants were unaware of plaintiff’s mark when they created the “straightforward, descriptive title.”

The court came close to blaming the plaintiff for its own trademark woes:

Any minimal confusion here is the “risk the plaintiff accepted when it decided to identify its product with a mark that uses a well known descriptive phrase.” (Citing KP Permanent Make–Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 121–22 (2004))

That should serve as an instruction to all trademark adopters: While descriptive marks may do a good job of conveying information about a product, for the same reason the trademark owner may not enjoy as much protected exclusivity in the mark.

Webceleb, Inc. v. Procter & Gamble Co., 2014 WL 448648 (9th Cir. February 5, 2014)

February 19, 2014 Privacy

Massachusetts supreme court says cops should have gotten warrant before obtaining cell phone location data

Court takes a “different approach” with respect to one’s expectation of privacy

After defendant’s girlfriend was murdered in 2004, the police got a “D order” (an order authorized under 18 U.S.C. 2703(d)) from a state court to compel Sprint to turn over historical cell site location information (“CSLI”) showing where defendant placed telephone calls around the time of the girlfriend’s murder. Importantly, the government did not get a warrant for this information. After the government indicted defendant seven years later, he moved to suppress the CSLI evidence arguing a violation of his Fourth Amendment rights. The trial court granted the motion to suppress, and the government sought review with the Massachusetts supreme court. That court agreed, holding that a search warrant based on probable cause was required.

The government invoked the third party doctrine, arguing that no search in the constitutional sense occurred because CSLI was a business record of the defendant’s cellular service provider, a private third party. According to the government, the defendant could thus have no expectation of privacy in location information — i.e., information about the his location when using the cell phone — that he voluntarily revealed.

The court concluded that although the CSLI at issue was a business record of the defendant’s cellular service provider, he had a reasonable expectation of privacy in it, and in the circumstances of this case — where the CSLI obtained covered a two-week period — the warrant requirement of the Massachusetts constitution applied. The court made a qualitative distinction in cell phone location records to reach its conclusion:

No cellular telephone user . . . voluntarily conveys CSLI to his or her cellular service provider in the sense that he or she first identifies a discrete item of information or data point like a telephone number (or a check or deposit slip…) … In sum, even though CSLI is business information belonging to and existing in the records of a private cellular service provider, it is substantively different from the types of information and records contemplated by [the Supreme Court’s seminal third-party doctrine cases]. These differences lead us to conclude that for purposes of considering the application of [the Massachusetts constitution] in this case, it would be inappropriate to apply the third-party doctrine to CSLI.

To get to this conclusion, the court avoided the question of whether obtaining the records constituted a “search” under the Fourth Amendment, but focused instead on the third party doctrine (and the expectation of privacy one has in information stored on a third party system) in relation to the Massachusetts constitution.

In a sense, though, the court gave the government another bite at the apple. It remanded the case to the trial court where the government could seek to establish that the affidavit submitted in support of its application for an order under 18 U.S.C. § 2703(d) demonstrated probable cause for the CSLI records at issue.

Commonwealth v. Augustine, — N.E.3d —, Mass. , 2014 WL 563258 (Mass. February 18, 2014)

February 14, 2014 Contracts, Copyright

Court sides with software developer in open source dispute

Case provides rare opportunity to get court’s analysis of GPL.

Plaintiff wrote an XML parser and made it available as open source software under the GPLv2. Defendant acquired from another vendor software that included the code, and allegedly distributed that software to parties outside the organization. According to plaintiff, defendant did not comply with the conditions of the GPL, so plaintiff sued for copyright infringement.

Defendants moved to dismiss for failure to state a claim. The court denied the motion.

Plaintiff claimed that defendant directly infringed its copyright by distributing the software without any attribution to plaintiff, without plaintiff’s copyright notice, without reference to plaintiff’s source code, and without any offer to convey the source code.

Defendant argued that it did not violate the terms of the GPL because its “distribution” of the software was merely internal, mainly to its own financial advisors. Accordingly, defendant argued, the requirements under the GPL to, among other things, attribute plaintiff and provide the source code were not triggered.

The court rejected defendant’s argument, looking to the allegations in the complaint that defendant distributed the software to it vendors in India, as well as providing it to “thousands of non-employee financial advisors.”

Despite the popularity of open source software, not a lot of courts have interpreted and applied the provisions of open source licenses. This case — if it does not settle — provides a rare opportunity to see serious legal treatment of the oft-used GPL.

XimpleWare Corp. v. Versata Software, Inc., 2014 WL 490940 (N.D.Cal. February 4, 2014)

Evan Brown is a Chicago technology and intellectual property attorney helping software vendors and customers alike navigate the many issues pertaining to technology development and licensing.

Unjust enrichment claim over unauthorized use of software was not preempted by the Copyright Act

The Copyright Act is a federal law, and is drafted to “preempt” state laws that purport to give individuals rights that are “equivalent” to rights granted under the Copyright Act. The purpose of this preemption is to displace the effect of any equivalent state law, so that the federal framework gets to deal exclusively with copyright.

So when a plaintiff goes to court suing for copyright infringement and also adds a state law claim against the defendant based on the same underlying facts, defendants routinely move to dismiss that state law claim as preempted by the Copyright Act.

That is what happened in a recent case involving a plaintiff software developer who filed a copyright infringement case against a company for whom he had done some work. He added an “unjust enrichment” claim based on state law, which defendants moved to dismiss. But the court denied the motion, holding that in this situation, the unjust enrichment claim was not dealing with rights that were equivalent under the Copyright Act.

Plaintiff’s unjust enrichment claim was based on the fact that he had not been paid any money for the development work he provided to defendants. In other words, he delivered the copyrighted software, which defendants used without paying him. Sounds a lot like copyright infringement, doesn’t it? Or, more precisely, it sounds like the rights he was claiming were equivalent to those provided under the Copyright Act.

But the court held otherwise, namely, that plaintiff had pled an “extra element” that rendered his unjust enrichment claim to not be equivalent to rights under the Copyright Act.

The court drew an important distinction within the doctrine of unjust enrichment, between “implied-in-law” (quasi-) contracts, and “implied in fact” contracts. An implied-in-fact contract claim passes the threshold of having an “extra element” that defeats a preemption challenge, while an implied-in-law contract does not.

An implied-in-law contract is a “fictional” contract created by a court for equitable, not contractual, purposes. It is not an actual contract, but is a legal substitute formed to impose equity between two parties. An implied-in-fact contract, on the other hand, is indeed a contract that is agreed to by non-verbal conduct, rather than explicit words.

Infringement is the unauthorized use of a work, and a court applying an implied-in-law contract would simply be stepping in to remedy an injustice of that infringement. That is why an unjust enrichment claim based on an implied-in-law contract would be preempted. But the implied-in-fact contract has more to it – actual conduct (a factual reality) that is more than just the conduct of the infringement that took place. That is why an implied-in-fact contract claim of unjust enrichment passes the no-preemption test.

(Compare this to the 2010 case of Christen v. Iparadigms that dealt with Turnitin.com.)

Mahavisno v. Compendia Bioscience, Inc., 2014 WL 340369 (E.D.Mich. January 30, 2014)

February 12, 2014 Computer Crime

Computer Fraud and Abuse Act claim dismissed where plaintiff failed to adequately plead loss or damage

Cost of investigating scope of information loss was not a “damage assessment” as contemplated by the CFAA.

Brokenlaptop Plaintiff sued defendant (a former employee) under the Computer Fraud and Abuse Act (“CFAA”) alleging that defendant intentionally and without authorization accessed plaintiff’s computers, intranet, and email system and sent plaintiff’s confidential customer information to his personal email account. Defendant allegedly used this information when he went to work for a competitor. Plaintiff also alleged that defendant attempted to conceal his actions by deleting the outgoing messages from the work email account.

Defendant moved to dismiss for failure to state a claim. The court granted the motion as to the CFAA claim.

The court found that plaintiff did not (and could not) claim defendant’s conduct caused “damage” within the meaning of the CFAA, because plaintiff did not allege any data were lost or impaired.

On the question of “loss” under the CFAA, the court found that plaintiff failed to allege any facts connecting its purported loss to an interruption of service, loss of data, or even a suspected loss of service or data. Although plaintiff attributed certain losses to “damage assessment and mitigation,” the court found it clear from the complaint that plaintiff’s “damage assessment” efforts were aimed at determining the scope of information defendant emailed to himself and disclosed to his new employer. Plaintiff did not allege it ever lost access to any of the information contained in defendant’s emails, notwithstanding defendant’s attempt to conceal his conduct by deleting the emails.

The court observed:

To be sure, assessing the extent of information illegally copied by an employee is a prudent business decision. But the cost of such an investigation is not “reasonably incurred in responding to an alleged CFAA offense,” because the disclosure of trade secrets, unlike destruction of data, is not a CFAA offense.

Accordingly, in this situation, the costs of investigating defendant’s conduct were not “losses” compensable under the CFAA.

SBS Worldwide, Inc. v. Potts, 2014 WL 499001 (N.D.Ill. February 7, 2014)