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August 6, 2007 Contracts

Court upholds limitation of liability clause in Internet services agreement

Asch Webhosting, Inc. v. Adelphia Business Solutions Inv., LLC, No. 04-2593, 2007 WL 2122044 (D.N.J. July 23, 2007).

Plaintiff Asch Webhosting entered into a three year contract with Adelphia Business Solutions for “internet services.” About two months after the agreement was finalized, Adelphia sent Asch a letter informing it that the services would be terminated because of alleged violations by Asch of the service’s acceptable use policy. The parties worked out an agreement whereby Asch had thirty days to find another provider. After those thirty days were over, Adelphia pulled the plug.

Asch filed suit alleging breach of contract, claiming $1.4 million in consequential damages due to the loss of business stemming from the termination of the agreement. Adelphia moved for summary judgment, citing to an “exculpatory clause” in the agreement which limited the amount of recovery for consequential damages to the amount paid by Asch for the services.

The court granted Adelphia’s motion for summary judgment. It held that the exculpatory clause was reasonable and that Asch demonstrated no conduct by Adelphia sufficient to overcome the expressed limitations on liability. The transaction at issue was made at arms length and was between two private commercial entities. Moreover, there were no public policy concerns implicated by the agreement. Given this scenario, the court refused to “engage in judicial revision of the parties’ [a]greement.”

Adelphia’s conduct in terminating the agreement, according to the court, did not render the exculpatory clause void. Adelphia had received complaints that Asch was using the service to spam other customers. Regardless of the “ultimate accuracy or veracity” of those complaints, the court found that Adelphia was entitled to rely on them so long as it did so in good faith.

August 3, 2007 Copyright, DMCA

Internet Archive malfunction leads to interesting DMCA and infringement case

Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey, — F.Supp.2d —-, 2007 WL 2085358 (E.D. Pa., July 20, 2007). [Download the opinion]

(This case has been pretty well covered already in the legal blogosphere, including here and here, but this is my $0.02 anyway.)

Plaintiff Healthcare Advocates sued defendant law firm Harding, Earley Follmer & Frailey, as well as a number of attorneys and staff at the firm for copyright infringement and violation of the anticircumvention provisions of the Digital Millennium Copyright Act (“DMCA”). The defendants moved for summary judgment, asserting that the alleged infringement was excused under the doctrine of fair use, and that the alleged conduct under the DMCA did not constitute a “circumvention” as contemplated under the statute. The court granted the defendants’ motion for summary judgment.

The dispute between the parties arose from a novel factual scenario. The defendants used the Internet Archive’s Wayback Machine to access cached versions of the plaintiff’s website. A few days earlier, the plaintiffs had configured a robots.txt file to be used in connection with their site, which should have – in the normal course of operations – prevented the web pages from showing up in the Internet Archive. [More on robots.txt files] But as it turns out, the Internet Archive’s servers were malfunctioning when the defendants conducted their searches, so the pages that should have been excluded under the instructions in the robots.txt file showed up anyway.

The plaintiff claimed that by viewing the archived pages on their office computers without authorization (such lack of permission stemming from the exclusion instructions in the robots.txt file), the defendants violated the plaintiff’s exclusive right under 17 U.S.C. §106 to publicly display their copyrighted works, thereby committing infringement. And by accessing the cached versions in spite of the robots.txt file, the plaintiff argued, the defendants circumvented a technological measure used to prevent access to a copyrighted work, in violation of 17 U.S.C. §1201.

The court agreed that the plaintiffs established the two necessary elements of copyright infringement, namely, (1) ownership of valid copyrights in the web pages, and (2) that the defendants, by viewing the web pages on their office computers, violated the exclusive display right under §106. But the court went on to determine that there was no infringement, because the use made by the defendants was a protected fair use.

On the fair use question, the most significant factor in the court’s analysis was the “purpose and character” of the subsequent use that the defendants had made. The defendants had viewed the archived web pages in connection with their work in defending their client against allegations of infringement in another case brought by Healthcare Advocates. In holding that this investigation of the plaintiff’s online materials was a permissible fair use, the court stated that “[i]t would be an absurd result if an attorney defending a client against charges of trademark and copyright infringement was not allowed to view and copy publicly available material, especially mater that his client was alleged to have infringed.”

As for the DMCA anticircumvention claims, the court held that because the malfunctioning of the Internet Archive servers made it such that the exclusion instructions in the robots.txt file were not present, there was no protective measure in place to be circumvented. Plaintiffs had argued that even though the protective measure was not in place, defendants should have known that they did not have permission to view the cached pages, as some of the requests were met with messages that the page was blocked by the website owner. The court rejected this argument, and, nodding to the case of I.M.S. Inquiry Mgmt. Sys., Ltd. v. Bershire Info. Sys., Inc., 307 F.Supp.2d 521 (S.D.N.Y. 2004), held that a lack of permission is not circumvention under the DMCA.

August 2, 2007 Personal Jurisdiction

Postings to newsgroup support exercise of personal jurisdiction

Goldhaber v. Kohlenberg, — A.2d —-, 2007 WL 2198181 (N.J.Super.A.D. Aug. 2, 2007).

A pair of New Jersey plaintiffs sued a California defendant over “vile” messages that the defendant allegedly posted about the plaintiffs on a newsgroup devoted to cruises and cruise ships. The defendant didn’t answer the complaint, and the trial court entered a default judgment against him in excess of $1 million. That got the defendant’s attention, so he hired local counsel to move to set aside the default judgment, claiming the court lacked personal jurisdiction over him. The trial court denied the motion, and the defendant sought review with the appellate court. On appeal, the court affirmed the denial, holding that the exercise of personal jurisdiction was proper.

The case is particularly interesting in the Internet law context, because the allegations of personal jurisdiction stem exclusively from the defendant’s alleged web-based activity. Looking to an earlier Internet jurisdiction case decided by the New Jersey Supreme Court, Blakey v. Continental Airlines, 164 N.J. 38 (2000), the court observed the implicit application therein of the well-known Calder v. Jones “effects test” [465 U.S. 783, 104 S.Ct. 1482, 79 L. Ed.2d 804 (1984)].

In Calder, the defendants “edited an article that they knew would have a potentially devastating impact upon [the plaintiff],” knowing that “the brunt of that injury would be felt by [the plaintiff] in the State in which she live[d] and work[ed].” The New Jersey court found similarities in this case, even though, in reciting the facts, it stated that the defendant had “no contacts of any type with New Jersey.”

The court concluded that the author of the message board postings did, indeed, target them to New Jersey, not only knowing that plaintiffs resided there, but also knowing the municipality in which they resided. He made specific disparaging references to that municipality in many of his postings, some of which were made in response to plaintiffs’ replies to offending comments. This intentional and directed conduct, and its connection to New Jersey, according to the court, was such that the defendant should reasonably have anticipated being haled into court there.

July 30, 2007 Contracts

New provisions in online terms of service of no effect without notice to customer

Questions remain, however, as to whether right to notice may be waived

Douglas v. U.S. Dist. Court for the Central Dist. of Ca, — F.3d —-, No. 06-75424, 2007 WL 2069542 (9th Cir. July 18, 2007)

Plaintiff Douglas signed up for long distance service with AOL. Some time later, Talk America acquired AOL’s rights under the contract, and changed the terms, which were posted online. Talk America added provisions relating to additional charges, a waiver of the right to class action suits, an arbitration clause, and a forum selection clause providing for suits to be brought in New York. Douglas claimed he was not provided with notice of the changed provisions when they purportedly became effective.

Douglas did not find out about the new charges until four years later, and when he finally did, he filed a federal class action suit against Talk America. Citing to the later-modified agreement, Talk America moved to compel arbitration. The district court granted the motion. Because the Federal Arbitration Act at 9 U.S.C. 16 does not authorize interlocutory appeals of a district court order compelling arbitration, Douglas sought a writ of mandamus from the Ninth Circuit. The court granted the writ, vacating the district court’s order compelling arbitration.

The Ninth Circuit applies a five-factor test, from Baughman v. U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977), to determine whether a writ of mandamus should be issued. The most important factor in this test is whether the district court’s order was “clearly erroneous as a matter of law.”

The appellate court held that the district court erred in holding that Douglas was bound by the terms of the revised contract, through a “fundamental misapplication[] of contract law,” going “to the heart of [Douglas’s] claim.” The court cited to cases holding that a party cannot unilaterally change the terms of a contract, but must obtain the other party’s consent before doing so, as a revised contract is merely an offer and does not bind the parties until it is accepted. Further, citing to Williston on Contracts, the court held that “an offeree cannot actually assent to an offer unless he knows of its existence.” In this case, “[e]ven if Douglas’s continued use of Talk America’s service could be considered assent, such assent [could] only be inferred after he received proper notice of the proposed changes.”

The case is silent on what might constitute proper notice. It is also not clear from the opinion (and the district court pleadings are not available on PACER), whether the original AOL terms of service included a provision stating that continued use of the service after changes had been posted would constitute acceptance of those changes. So although the case establishes that an e-commerce customer has the right to receive notice of changes to online terms of service, the question of whether that right can be waived is not answered in the opinion.

July 19, 2007 Privacy

Data privacy and third party Facebook applications

Over in the UK, Facebook has been getting some scrutinty from a privacy standpoint, especially after officials at Oxford University used the service recently to identify celebrating students who may have been up to some naughtiness. [More on that here]

But there are some even more subtle privacy issues with Facebook, arising from the proliferation of the use of third party applications within the Facebook platform. Alex Newson at Freeth Cartwright’s Impact blog has written up a pair of posts [here and here] which take a serious look at these Facebook privacy concerns. Naturally the posts are written from a UK perspective, but are useful to U.S. readers inasmuch as they prompt one to consider that which has largely hitherto been unconsidered, namely, what legal issues should a Facebook app developer be thinking about.

The U.S. approach to data privacy is frequently characterized as “scattershot.” So there aren’t any bright lines to draw when it comes to how one should manage the sharing of information within the Facebook platform. What is most appropriate at this time is to recognize it as an issue of which developers (and users) should be aware.

July 17, 2007 Litigation

Public policy concerns invalidate AOL forum selection clause

Dix v. ICT Group, Inc., — P.3d —-, 2007 WL 2003407 (Wash. July 12, 2007)

Dix v. ICT Group was one of the first decisions discussed here at Internet Cases back in early 2005. I wrote about the Washington appellate court’s decision in the case, which reversed a lower court’s dismissal of a class action suit against AOL under Washington’s Consumer Protection Act. The Washington Supreme Court has now affirmed the appellate court’s decision. The court held that the forum selection clause in AOL’s terms of service, which called for all consumer disputes to be heard in Virginia, should not be enforced, because to do so would be against public policy of the state of Washington.

The plaintiff AOL users claim that AOL violated the Washington state Consumer Protection Act by tricking them into signing up for additional AOL accounts. The trial court dismissed the action, on grounds that the suit should have been brought in a court in Virginia, according to AOL’s terms of service. But there is a substantial problem with the situation the dismissal created — Virginia does not recognize class action suits of the type being brought by the plaintiffs. The Washington plaintiffs were thereby denied the sort of remedy they could have obtained in Washington.

The appellate court and the state supreme court observed the significance of the various plaintiffs’ interests at stake. None of the plaintiffs alleged more than $250 or so in damages. So it would not be practicable for each individual plaintiff to seek recovery against AOL. The class action mechanism would be the best way to obtain recovery for small amounts among a large number of persons. The importance of this public policy outweighed the benefits of enforcement of the forum selection clause which, under U.S. Supreme Court authority, was presumptively valid. See, e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).

June 26, 2007 DMCA

More evidence needed for YouTube’s DMCA defense

Viacom’s lawsuit against YouTube has gotten quite a bit of attention, but it wasn’t the first case of its kind filed. Almost a year ago, helicopter pilot and journalist Robert Tur sued YouTube for infringement of some well-known video he shot during the Rodney King Riots.

Both parties filed motions for summary judgment, and last week the court denied both motions. The rulings shed some light on how the safe harbor provisions of the Digital Millennium Copyright Act (“DMCA”) may play out in future lawsuits over user-generated content.

YouTube argued in its motion that it qualified for safe harbor protection “based on what it purport[ed] to be its definitive ability to satisfy all of the requirements of the statutory scheme.” The court neatly parsed seven requirements from 17 U.S.C. §512 that a service provider must meet to sail into the safe harbor:

(1) adoption and reasonable implementation of a termination policy for subscribers and account holders who are repeat infringers;

(2) accommodation and non-interference with “standard technical measures” that copyright owners use to protect their works;

(3) infringement is “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider”;

(4) lack of actual knowledge of the infringing material or no awareness of facts or circumstances from which infringing activity is apparent on the system or network, and expeditious action to remove or disable access to material upon obtaining such knowledge or awareness;

(5) no “financial benefit” directly attributable to the infringing activity,” if it had “the right and ability to control such activity”;

(6) expeditious response to remove or disable access to infringing material upon notification from the copyright owner; and

(7) proper designation of an agent to receive such notification.

The difficulty arose for YouTube under the fifth point, namely, in connection with its argument that it gained no “financial benefit” directly attributable to the infringing activity,” and did not have “the right and ability to control such activity.”

Citing to the recent 9th Circuit case of Perfect 10 v. CCBill, the court observed that this point is actually two requirements in one: a provider’s receipt of a financial benefit is only implicated where it also has the right and ability to control the infringing activity. So if YouTube did not have the right and ability to control the alleged infringing activity, there was no reason to engage in the “financial benefit” analysis.

The court held that there was insufficient evidence to allow it to determine whether YouTube had the right and ability to control the infringing activity. The court’s comments on this point are intriguing, and foreshadow what might be some interesting issues in discovery. “There is clearly a significant amount of maintenance and management that YouTube exerts over its website, but the nature and extent of that management is unclear.” The court went on to note the lack of evidence as to “the process undertaken by YouTube from the time a user submits a video clip to the point of display on the YouTube website.”

Tur v. YouTube, Inc., No. 06-4436, (C.D.Cal. June 20, 2007)

June 25, 2007 First Amendment

Massachusetts can’t prosecute posting of illegal web video

The recent case of Jean v. Massachusetts State Police addressed the question of whether the First Amendment prevents law enforcement officials from interfering with an individual’s Internet posting of an audio and video recording of an arrest and warrantless search of a private residence, when the individual who posted the recording had reason to know at the time she accepted the recording that it was illegally recorded.

Mary T. Jean operated a website critical of her community’s former district attorney. One of the visitors to her site contacted her, and sent a videotape of eight Massachusetts state police officers conducting a warrantless search of the visitor’s home. The video was made by a “nanny cam” in the home.

After Jean was threatened with criminal prosecution under the state’s wiretap law, she sought a temporary restraining order against the police and the attorney general, to prevent her from being arrested. The lower court granted the motion, relying on the Supreme Court case of Bartnicki v. Vopper, 532 U.S. 514, 121 S.Ct. 1753, 149 L.Ed.2d 787 (2001).

It held that Jean had demonstrated a likelihood of success on the merits of her First Amendment claim, that irreparable harm would result from the absence of an injunction, and that the balance of burdens and public interests weighed in her favor. The court noted that although the tape may have been recorded in violation of the state law, Jean played no part in the recording of the video, she had “obtained the tape lawfully,” and the videotape related to a “matter of public concern.”

On appeal, the U.S. Court of Appeals for the First Circuit affirmed the entry of the temporary restraining order. It found the case “materially indistinguishable” from Bartnicki, concluding that publication of the video was entitled to First Amendment protection.

Jean v. Massachusetts State Police, — F.3d —-, 2007 WL 1793126 (1st Cir. June 22,2007)

June 21, 2007 Copyright

The $64,000 question: should you ignore Ron Coleman’s client?

No.

Defendant Nyarko turned a deaf ear on Plaintiff Burch’s demands that Nyarko pay Burch a licensing fee for the use on Nyarko’s website of four photos Burch took in Ghana. In fact, Burch claimed that Nyarko got pretty angry when Burch asked him for payment. So Burch sued for copyright infringement, and won.

Nyarko ignored the suit as well, so the court entered a default judgment. Then it came time to prove up the damages. This was all done on paper. Burch submitted some documents showing that he’d lost some revenue through the unauthorized use, and his attorneys submitted a declaration talking about how much Burch had spent on fees and court costs.

The court could have awarded up to $600,000 in statutory damages, because the copyrights in the photos were registered in time. So in a certain sense, you might consider Nyarko lucky when the court slapped him with a judgment of about $64,000, reflecting an award of $60,000 in statutory damages, plus attorney’s fees and costs.

The court looked at a number of factors to arrive at the amount of the award. Part of the basis was the fact Nyarko hadn’t been cooperative in the dispute. Another reason was because of the lost revenue Burch suffered. And the fact that the court found it necessary to deter others from ripping off other people’s works probably played some part in it as well. If there’s one thing to learn from the case, it’s to not be too flippant when an able attorney’s client tells you to pay up.

Burch v. Nyarko, No. 06-7022, 2007 WL 1732401 (S.D.N.Y. June 15, 2007).

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