Attorney Evan Brown

November 27, 2006 Contracts

Terms of e-commerce agreement not part of previous franchise agreement

Arbitration provision in later agreement not applicable to previous agreement, where contracts independent, collateral, and not inconsistent with one another.

Defendant AMF, the well-known manufacturer of bowling and billiards equipment, entered into an oral franchise agreement with plaintiff Suburban Leisure Center, whereby Suburban would sell AMF’s products in the St. Louis area. Later, the parties entered into a written “e-commerce” agreement, whereby Suburban agreed to service products in its geographic area that were sold through AMF’s website.

After AMF sought to terminate the oral franchise agreement, Suburban filed suit, claiming, among other things, that AMF had not provided the proper notice of termination under Missouri law. AMF moved to dismiss Suburban’s claim, arguing that under the terms of the e-commerce agreement, the exclusive method of dispute resolution between the parties was through arbitration. The district court denied the motion to dismiss, and AMF sought review. On appeal, the Eighth Circuit affirmed.

AMF had argued that the e-commerce agreement (which contained the arbitration provision) fully set forth the terms of the contract. AMF pointed to a “merger clause” (also known as an “integration clause” or “entire agreement” clause) in the agreement. Because of this clause, AMF contended, the parol evidence rule prohibited considering the terms of the oral franchise agreement, which contained no mention of arbitration.

The court disagreed, however. Applying Virginia law as required by the choice of law provision in the e-commerce agreement, the court examined the “collateral contract doctrine.” It noted that the oral franchise agreement addressed a contractual relationship between the parties that was not covered in any manner by the e-commerce agreement. As a result, the oral franchise agreement was “independent of, collateral to, and not inconsistent with” the e-commerce agreement. Examination of parol evidence, namely, the terms of the oral agreement, was therefore proper.

Because the agreements were independent of each other, the e-commerce agreement’s arbitration language could not be attributed to the oral franchise agreement. After all, the dispute was over the termination of the franchise, not the agreement to service products that had been sold through AMF’s website. The oral franchise agreement did not provide for arbitration. Because a “party cannot be required to submit to arbitration any dispute which he has not agreed so to submit,” the matter was properly before the court, and the lower court’s denial of the motion to dismiss was proper.

Suburban Leisure Center, Inc. v. AMF Bowling Products, Inc., — F.3d —-, No. 06-1865, 2006 WL 3332965 (8th Cir., November 17, 2006).

November 22, 2006 Spam

Fourth Circuit issues important CAN-SPAM decision

In the recent case of Omega World Travel, Inc. v. Mummagraphics, Inc., No. 05-2080, the U.S. Court of Appeals for the Fourth Circuit has ruled in favor of accused spammers, in a decision which, as Professor Goldman states, is likely to “take some wind out of the sails of anti-spam plaintiffs.”

Venkat Balasubramani has a very thorough analysis of the opinion. In a nutshell, the opinion held that Oklahoma’s anti-spam statute was preempted by CAN-SPAM, that certain errors in message headers were “immaterial” and thus not actionable as misleading spam, and that allegations of nominal damages could not support a claim of trespass to chattel.

November 20, 2006 Defamation

One week’s time, two takes on Section 230 immunity

In the past week, two important courts, the U.S. District Court for the Northern District of Illinois, and the Supreme Court of California, have issued opinions examining the contours of the immunity provided under the Communications Decency Act at 47 U.S.C. 230. That section provides, among other things, that “[n]o provider or user of any interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Although both cases were defense victories, the two courts gave different treatment to Section 230 in their reading of the statute and in their interpretation of the leading case on point.

CLC v. Craigslist

On November 14, 2006, the Northern District of Illinois issued its decision in the case of CLC v. Craigslist [No. 06-657]. In that case, a Chicago-based nonprofit organization had filed suit against Craigslist, asserting that the popular site should be held liable under the Fair Housing Act for the publication of certain discriminatory online advertisements for apartment rentals.

In a 28 page decision, the court held that Craigslist could not be liable for any discriminatory postings, because to impose such liability “would be to treat Craigslist as if it were the publisher of third-party content, [and] the plain language of Section 230(c) forecloses [the] cause of action.”

But in the process of arriving at that conclusion, Judge St. Eve gave a thorough rundown of Section 230 immunity, taking a close and critical look at what the court called the “fountainhead” of Section 230 immunity, the Fourth Circuit’s decision in Zeran v. America Online, 129 F.3d 327 (4th Cir. 1997).

Despite the wide acceptance that the case has enjoyed over the past decade, Judge St. Eve “respectfully declin[ed] to follow Zeran’s lead.” She identified three problems with its holding. First, Zeran overstated the plain language of the statute when it held that Section 230 creates a federal immunity to any cause of action that would make service providers liable for information originating with third party users of the service. Secondly, the court found Zeran’s holding to be internally inconsistent. Third, the court noted that application of the statute would be problematic, inasmuch as the policy of encouraging providers of online computer services to police for objectionable content is at odds with the immunity that would attach to providers that choose to do nothing to filter objectionable content.

In the end, Judge St. Eve’s observations about Zeran were merely dicta, as the court ultimately held that Craigslist was entitled to the publisher immunity provided for by Section 230. What’s more, the court aptly observed (notwithstanding the rough treatment of Zeran), that plaintiffs in cases against interactive computer services attempting to hold them liable for content provided by others will still have “a tough road [sic.] to hoe.”

More on the CLC v. Craigslist case. [Kevin Thompson]

Barret v. Rosenthal

In a much anticipated ruling, the California Supreme Court handed down its decision on November 20, 2006 in the case of Barret v. Rosenthal. In this case, the state Supreme Court overturned the Court of Appeal, and, in contrast to the court in the Craigslist case, heartily endorsed the Zeran holding. (“We conclude that the Zeran court’s construction of the term ‘publisher’ is sound.”)

At issue in the Barret case was whether the defendant Rosenthal could be liable for defamatory content contained in an article written by another party, which she posted to a message board. The court examined whether, given the circumstances, Rosenthal should be considered a “user” of an interactive computer service as provided for in Section 230(c) and thus subject to immunity. The court answered that question in the affirmative.

The heavy endorsement of Zeran came in rejecting the Court of Appeal’s distinction between distributor and publisher liability. The Court of Appeal (as had the plaintiff in Zeran), reasoned that Section 230 might not foreclose liability for one in Rosenthal’s position as a distributor of defamatory content. But the Supreme Court held that the distinction was one without a difference in the modern online publishing context, and that “distributor” is encompassed within “publisher” as the term is used in Section 230.

More on the Barret v. Rosenthal case. [Eric Goldman]

November 10, 2006 Miscellaneous

Liability for linking?

Wonkette now a defendant in Steinbuch v. Cutler.

Steinbuch v. Cutler, pending in the U.S. District Court for the District of Columbia, has gotten quite a bit of attention since it was filed last year because of its inside-the-Beltway context and the sordid nature of the facts. The case just got a bit weightier, as the court has allowed the well-known blogger Ana Marie Cox, a/k/a Wonkette, to be added as a defendant.

The case could be an example of linker beware.

In May of 2004, defendant Jessica Cutler, who at the time was a staff assistant to U.S. Senator Mike DeWine, posted entries to her personal blog detailing her escapades “with various men, including plaintiff Robert Steinbuch.” Cutler’s blog entries may not have gotten much attention had they not been picked up by Wonkette. When Wonkette linked to Cutler’s blog, it became “circulated to a wide audience.”

Apparently embarrassed by the publicity generated by the blog, Steinbuch sued Cutler, asserting various causes of action. The case has already survived two motions to dismiss.

Steinbuch recently filed a motion for leave to bring in Wonkette as a defendant because of her involvement in allegedly invading Steinbuch’s privacy. With some reservations, the court granted the motion.

The court stated that it was “troubled by plaintiff’s approach to this case,” and noted some possible inconsistencies in Steinbuch’s theory. Steinbuch initially alleged in the proposed amended complaint that Cutler and Wonkette “worked together to invade his privacy,” but in the motion for leave to amend, seemed to blame Cutler alone, accusing her of trying to shift the blame to Wonkette or “someone else.”

So we’ll have to see whether Wonkette remains a defendant. But the practical question to be extracted from this case is, will the specter of being sued just for linking to another site slow down the wheels of the gossip mill?

Steinbuch v. Cutler, (Slip Op.) — F.Supp.2d —-, 2006 WL 3060084 (D.D.C., October 30, 2006).

Eric Goldman has also written on this decision.

November 10, 2006 Trademarks

Trademark infringement analysis: the web is not just one channel of trade

In any trademark infringement suit, a successful plaintiff has to show, among other things, that the use of the defendant’s mark is likely to cause confusion as to the origin of the plaintiff’s goods or services. The various federal courts across the United States apply a number of different factors to determine whether the use of a mark is likely to cause confusion with a previously-existing mark.

In just about every iteration of this analysis, one of the factors a court will consider is the channels of trade in which the goods or services bearing the plaintiff and defendant’s marks are distributed. If products are distributed in the same channels of trade, confusion is more likely.

So what about products sold over the Internet? Does the fact that the products of both parties in a trademark infringement suit are available online automatically mean that they are in the same channel of trade? The recent case of Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, from the U.S. District Court for the Eastern District of Virginia, addressed that question. And the answer appears to be no.

In the Louis Vuitton case, the fact that the plaintiff’s luxury accessories (bearing the mark LOUIS VUITTON) and the defendant’s pet products (bearing the mark CHEWY VUITON) were both available online, did not “by itself . . . imply that the same trade channels were used for the purposes of determining likely customer confusion.” Looking to the case of Therma-Scan, Inc. v. Thermoscan, Inc., 295 F.3d 623, 633 (6th Cir. 2002), the court held that some other factors were also to be considered, such as whether both parties use the Internet as a substantial marketing and advertising channel, whether the parties’ marks are utilized in conjunction with web-based products, and whether the parties’ marketing channels overlap in any other way.

Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, (Slip Op.) No. 06-321, 2006 WL 3182468 (E.D. Va., Nov. 3, 2006).

November 9, 2006 Antitrust

Open source withstands antitrust scrutiny

The U.S. Court of Appeals for the Seventh Circuit has issued an opinion in which Judge Easterbrook declares, “[t]he GPL and open-source have nothing to fear from the antitrust laws.” The case is called Wallace v. IBM., No. 06-2454. [Download a copy of the opinion.] Internet Cases covered the lower court’s decision from last December here.

Plaintiff Wallace filed an antitrust suit against IBM, Red Hat and Novell, arguing that those companies had conspired to eliminate competition in the operating system market by making Linux available at an “unbeatable” price (free) under the General Public License (“GPL”). The U.S. District Court for the Southern District of Indiana dismissed the case, finding the plaintiff had suffered no antitrust injury. The Seventh Circuit affirmed.

“Although antitrust law serves the interests of consumers rather than producers, the Supreme Court has permitted producers to initiate predatory-pricing litigation,” Judge Easterbrook wrote in the November 9 decision. “This does not assist Wallace, however, because his legal theory is faulty substantively.”

Perhaps most significantly, Wallace had not contended that software available under the GPL would lead to mononpoly prices in the future. The court observed the anomalous thinking behind any conclusion that it would, “when the GPL keeps price low forever and precludes the reduction of output that is essential to monopoly.”

And the opinion provided a number of modern day examples to dispel any thoughts of a GPL monopoly, by observing the market domination of proprietary operating systems like Windows, OS X and Solaris even when Linux is available for free. It also obseverd, quite astutely, that Photoshop is preferred in the market to Gimp, and Lexis and Westlaw are preferred to free legal sources such as the court’s own website.

Calling the defendants “conspirators” in violation of the Sherman Act didn’t advance the plaintiff’s case either. Instead of being a restraint on trade, the court held that the GPL serves to foster creativity, by enabling the free distribution and building of new derivative works.

Wallace v. IBM, No. 06-2454 (7th Cir., November 9, 2006).

November 8, 2006 Defamation

Defamation suit against controversial church moves forward

A Lance Corporal in the United States Marine Corps was killed in the line of duty while conducting combat operations in Iraq in March of 2006. Members of the outspoken Westboro Baptist Church (“WBC”) attended the Marine’s funeral, uninvited, to express their views against homosexuality, Catholocism, and the military. On one of its websites, WBC also posted a number of extremely inflammatory statements (which will not be repeated here) about the deceased Marine’s parents.

In response to these statements, the parents filed suit agaisnt WBC and its pastor for defamation and a number of privacy-related torts. The defendants moved to dismiss, arguing, among other things, that the plaintiffs had failed to adequately plead a cause of action for defamation.

The court denied the motion to dismiss, holding that the complaint sufficiently alleged the requisite elements of defamation under Maryland law: (1) that the defendant made a defamatory communication to a third person, (2) that the statement was false, (3) that the defendant was at fault in communicating the statement, and (4) that the plaintiffs suffered harm.

One of WBC’s arguments that the court rejected was that the alleged defamatory speech was protected under the First Amendment, and within the ambit of the Supreme Court’s decision in Hustler Magazine v. Falwell, 485 U.S. 46 (1988). WBC had argued that the statements were merely opinions, and could not amount to defamation. The court found Hustler Magazine easily distinguishable, where there was nothing in the record to suggest that the plaintiffs were public figures.

Snyder v. Phelps, No. 06-1389, 2006 WL 3081106 (D.Md., October 30, 2006).

Court sides with record companies in dueling motions to dismiss

Elektra Entertainment Group, Inc. v. Perez is one of the thousands of copyright infringement lawsuits that the record companies have filed against accused individual P2P file-sharers. The suit is pending in a federal court in Oregon.

Defendant Dave Perez moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the copyright infringement claim filed agasint him, contending that the plaintiffs had failed to state a claim upon which relief could be granted. He argued that the complaint didn’t specify the sound recordings that were at issue, and that the plaintiffs hadn’t specified what activities constituted the illegal distribution of the copyrighted files.

The court rejected those arguments, however, noting that exhibits to the complaint listed the songs that were alleged to be infringed, and demonstrated that those songs were being made available through Kazaa.

Having denied the defendant’s motion to dismiss, the court next turned to a motion filed by the record companies under Fed. R. Civ. P. 41(a)(2) to voluntarily dismiss the infringement claim against Mr. Perez. It turns out that discovery in the case had revealed to the plaintiffs that maybe it wasn’t Dave Perez trading the files, but other members of his household.

Interestingly, Mr. Perez objected to the voluntary dismissal of the claim against him. That seems odd, doesn’t it, given that he had argued in his own motion that the claim should be dismissed? But a closer look reveals the likely motivation for Mr. Perez’s objection: he didn’t want his own counterclaim for attorney’s fees to get thrown out as well.

The court sided with the record companies, holding that Mr. Perez would not suffer any prejudice by having the suit dismissed. The fact that he had spent a significant amount of money defending the suit and should have been dismissed a year ago were insufficient arguments. The case against the remaining family members will apparently proceed.

Elektra Entertainment Group, Inc. v. Perez, No. 05-931, 2006 WL 3063493 (D.Or., October 25, 2006).

October 27, 2006 Electronic Discovery, Evidence, Litigation, Privacy

Parties must use neutral forensics examiner in file-sharing case

Case highlights important privacy interests in electronic discovery dispute.

From Ray Beckerman, we learn of the U.S. District Court for the Eastern District of Texas’s decision on a motion to compel discovery filed by the recording industry against an accused file-sharer. While the defendant will have to submit her hard drive for forensic examination to see whether she had any copyrighted sound recordings stored on it, she will not have to turn it over to the recording industry’s forensic expert.

Instead, seeking to “balance the legitimate interests of both sides,” the court ordered the parties to select a neutral computer forensics expert to conduct the inspection. Such an approach, the court found, would protect the disclosure of the defendant’s personal information, such as personal correspondence, household financial matters, school homework, and perhaps attorney-client privileged information.

Although in theory this sounds like a reasonable approach to protect the confidentiality of the defendant’s information, one could be troubled by a particular part of the court’s decision. The order states that “the Plaintiffs shall have the right to suggest hard drive search methodologies to the neutral expert and the expert shall make every effort to utilize those methodologies.”

But there is nothing in the order giving the defendant the right or opportunity to object to those methodologies. With an obligation to “make every effort” to comply with the suggestions of the plaintiffs, just how neutral is that forensic examiner really going to be?

Sony BMG Music Entertainment et al. v. Arellanes, No. 05-CV-328 (E.D. Tex., October 27, 2006).

October 15, 2006 Privacy

Government couldn’t track location of cell phone without probable cause

In the case of In the Matter of the Application of the United States of America for an Order Authorizing the Disclosure of Prospective Cell Site Information, the U.S. District Court for the Eastern District of Wisconsin denied the government’s application for disclosure of “cell [s]ite information” pursuant to the Stored Communications Act (SCA), 18 U.S.C. § 2703, and the pen register statute, 42 U.S.C. § 3122.

The government sought cell site information so that it could track the general whereabouts of a criminal suspect. Cell site information is a record of the cell towers a cell phone connects to while the phone is turned on. The government, with cell cite information, can determine the location of a suspect possessing the cell phone. For more information on the technical aspects of cell site information, refer to this Wikipedia article.

The court noted at the outset that the issue in the case was not whether the government could obtain cell site information (it can), but rather what standard the government must meet to obtain such information. As a preface to the analysis of that issue, the court set out the three ways the government generally may access information related to telephone usage.

First, the government can listen in on calls if it shows probable cause and obtains a “super-warrant” under 18 U.S.C. §2518(3). Second, if it seeks records pertaining to a subscriber to an electronic communications service, it must show “specific and articulable facts” showing the records are relevant and material to the investigation. (See the Stored Communications Act at 18 U.S.C. §2703.) Third, the government can proceed under 18 U.S.C. §3122(b)(2) (the “pen register statute”) to obtain the numbers dialed from a phone or the numbers from which calls are made to a target phone.

The government claimed that by seeking cell site information, which included information about the towers used by the suspect’s phone and a map of tower locations, it was not requesting precise tracking information. Because it would only be able to determine the general neighborhood of the suspect, the government argued that the proper standard for obtaining the information should be “likely to be relevant” or “specific and articulable facts,” rather than the higher standard of “probable cause.”

The court rejected the government’s argument, citing to the Communications Assistance for Law Enforcement Act (“CALEA”). CALEA expressly prohibits the government from obtaining “information that may disclose the physical location of the subscriber” except where the probable cause standard has been met. Although the text of CALEA does not indicate how granular the term “physical location” is to be interpreted, the court held that the general geographical location revealed by cell site information clearly is a “physical location.” Accordingly, the “probable cause” standard was appropriate.

The government had not met its burden, so the request was denied.

In the Matter of the Application of the United States of American for an Order Authorizing the Disclosure of Prospective Cell Site Information, 2006 WL 2871743 (E.D. Wis., October 6, 2006).