Contracts – Page 2 – Attorney Evan Brown

January 26, 2024 Contracts, Litigation

Click to Agree: Online clickwrap agreements steered bank lawsuit to arbitration

online terms and conditions

Plaintiffs sued their bank alleging various claims under state law. The bank moved to compel arbitration based on various online clickwrap agreements plaintiffs had entered into.

One of the clickwrap agreements required plaintiffs to scroll through the entire agreement and then click an “Acknowledge” button before continuing to the next step. Citing to the case of Meyer v. Uber, 868 F.3d 66 (2d Cir. 2017), the court observed that “[c]ourts routinely uphold clickwrap agreements for the principal reason that the user has affirmatively assented to the terms of agreement by clicking ‘I agree.'”

Similarly, for the other relevant agreements, plaintiffs were required to click a box acknowledging that they agreed to those agreements before they could obtain access to digital products. Again, citing to the Meyer case: “A reasonable user would know that by clicking the registration button, he was agreeing to the terms and conditions accessible via the hyperlink, whether he clicked on the hyperlink or not.” By affirmatively clicking the acknowledgement, plaintiffs manifested their assent to the terms of the these agreements.

Curtis v. JPMorgan Chase Bank, N.A., 2024 WL 283474 (S.D.N.Y., January 25, 2024)

Disclaimer in software license agreement protected vendor from liability

software license disclaimer

A recent federal court case alleging breach of contract over failure of software to perform highlights the importance of careful drafting and review of disclaimer and other language in technology contracts.

Loss of livelihood

In 2021, a federal court entered an order that permanently barred plaintiff from preparing tax returns for other people. The court’s order apparently addressed past deficiencies in plaintiff’s past tax filings. In 2017, when using TaxWise software, plaintiff did not attach certain required forms to the tax returns.

No doubt this caused extreme hardship for plaintiff, so he sought to recover by blaming the software company – the defendant in this case – for a malfunction in the software that caused the required forms to be omitted.

He sued for breach of contract. Defendant moved to dismiss. The court granted the motion.

The lawsuit was too late

It held that plaintiff’s suit was untimely because the software license agreement contained a provision saying that any such claim had to be commenced within one year from the date such claim or cause of action first arose. The court rejected plaintiff’s argument that by bringing suit in January 2023, he was within the one year period because his first payment of a fine to the IRS was due in January 2022. Instead, the court held that the one year period for bringing suit began to run when the alleged breach occurred, i.e., in 2017 when the software allegedly malfunctioned.

Disclaimers knocked out the complaint

The court also held that certain disclaimer language in the software agreement served to defeat plaintiff’s claims as to the software’s performance. The agreement stated that plaintiff “expressly disclaim[ed] any representations or warranties that [his] use of the Products will satisfy any statutory or regulatory obligations, or will assist with, guarantee or otherwise ensure compliance with any applicable laws or regulations.” Moreover, the contract stated that plaintiff bore “THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE PRODUCT(S), INCLUDING ELECTRONIC FILING” and so the court found that this eliminated plaintiff’s ability to shift that responsibility to the software provider.

Diedrich v. Wolters Kluwer, 2024 WL 291156 (S.D.N.Y., January 25, 2024)

See also:

January 12, 2024 Contracts, Copyright

IP warranty in the spotlight: Licensor’s failure to assure licensee of rights leads to litigation

intellectual property

In the recent breach of contract case in federal court in New York, we learn about what it takes for a copyright licensee to successfully assert that a warranty from the licensor as to copyright ownership has been breached. Licensee’s unsuccessful efforts to verify the truth of the facts warranted provided a key basis for the lawsuit to move forward.

Blake and Video Elephant entered into an agreement whereby Video Elephant granted a sublicense for Blake to use certain news, entertainment, sports, and other related content. Video Elephant’s business model was to procure such rights from content owners and then grant sublicenses to licensees such as Blake. The agreement contained a provision whereby Video Elephant “warrant[ed] that [the third party owner] is the sole owner of all copyright in [the content] which is granted to [Blake] under this Agreement other than such logos and trademarks and/or title name which are owned by [Blake].”

Assure or get sued

This warranty was crucial for Blake, as it helped Blake be assured that it could use and broadcast the content without the fear of copyright infringement claims from third parties. After Blake repeatedly attempted, without success, to verify whether the third party creator actually owned the intellectual property rights in the content, and after Video Elephant failed to offer adequate assurances that the third party had such rights, Blake filed a counterclaim in the ongoing litigation between the parties for breach of warranty.

Video Elephant moved to dismiss the counterclaim. The court denied the motion.

Due diligence dead end

Blake alleged that it conducted thorough investigations, consulting relevant rights databases and contacting business contacts in the movie industry, seeking to confirm the third party’s ownership of the rights. Despite these efforts, the ownership remained unverified, leading to Blake’s conclusion that the third party might not be the sole owner of the copyright in the licensed content. This situation, according to Blake, rendered it unable to use the content as intended under the agreement, thereby causing substantial damages.

Video Elephant, on the other hand, argued that Blake’s allegations were unfounded, asserting that Blake’s pleading failed to establish a claim for breach of express warranty. It argued that Blake had not demonstrated that the warranty was, in fact, breached.

Belief about doubt

In ruling in Blake’s favor, the court noted that Blake’s assertions “[u]pon information and belief,” that “[the third party] was not in fact the sole owner of all copyright rights in and to the content licensed” and Blake’s unsuccessful investigations into the ownership of the sublicensed content’s rights made the inference of breach plausible.

Moreover, the court found that under New York law, Blake had pled facts showing its reliance on the warranty as the basis for the agreement, since without such third party rights being granted, Blake would have been at risk of infringement liability. The court also found that the lack of assurances – and the resulting inability to use the content because of the resulting infringement risk – supported Blake’s allegations of “substantial damages”.

Video Elephant Ltd. v. Blake Broadcasting LLC, 2024 WL 68525 (S.D.N.Y. January 5, 2024)

See also:

January 6, 2024 Contracts, Copyright

Shake Shack shakes off typeface breach of contract claim

In an ongoing federal case in New York, the well-loved restaurant Shake Shack finds itself embroiled in a copyright and contract dispute with House Industries, a typeface foundry known for developing the Neutraface font. House Industries accused Shake Shack of using the Neutraface font in Shake Shack’s logos and signage without the necessary licensing, claiming that Shake Shack breached Hose Industries’ End User License Agreement (EULA).

The Core of the Dispute

House Industries’ argument centered around its claim that Shake Shack used the proprietary Neutraface font software for commercial purposes, specifically in logos and signage, without obtaining the appropriate permissions. House Industries asserted – in a counterclaim brought against Shake Shack, who had filed a declaratory judgment action against House Industries – that this breached the EULA, which explicitly prohibits use of the Neutraface font software in logos or for the sale of products (unless the user pays an additional license fee).

Shake Shack moved to dismiss the counterclaim. It argued that House Industries failed to provide plausible, non-speculative allegations sufficient to substantiate a breach of contract claim. Moreover, Shake Shack contended that the contract claim was preempted by the Copyright Act. The court agreed with Shake Shack and dismissed House Industries’ claims.

The Court’s Analysis and Ruling

In assessing the breach of contract claim, the court found significant deficiencies in House Industries’ allegations. To establish a breach of contract, House Industries had to demonstrate the existence of an agreement, performance by House Industries, breach by Shake Shack, and resultant damages. House Industries, however, could not substantiate the existence of a contract between itself and Shake Shack. The details of Shake Shack’s assent to the EULA, including who agreed to it and when, were notably absent in House Industries’ claim. The court noted that mere speculation and the inability to identify a specific agreement or its terms were insufficient to sustain a breach of contract claim.

The court also delved into the issue of preemption under the Copyright Act. The central question was whether House Industries’ claim attempted to enforce rights equivalent to those protected under copyright law. The court determined that the Neutraface glyphs, being graphic or pictorial works, fell within the subject matter of copyright. (It is interesting to note that House Industries did not assert that Shake Shack violated the EULA by using the font software without authorization. “House Industries has pleaded no details whatsoever concerning Shake Shack’s alleged use of the proprietary software.”)

Despite House Industries’ assertions to the contrary, the court concluded that the claims were qualitatively similar to a copyright infringement claim. This portion of the analysis was particularly interesting. Copyright law covers pictorial or graphic works – the category in which the glyphs would fall. But type faces are specifically excluded from copyright protection (37 C.F.R. § 202.1(e)). That exclusion did not matter. Even though the glyphs were not subject to copyright protection, they were the type of works copyright protects. Since House Industries’ claim was equivalent to a claim under the Copyright Act concerning these types of works, the court found the breach of contract claim preempted by the Copyright Act.

Implications and Conclusion

This ruling highlights the complexities of intellectual property rights concerning the use of digital assets like fonts in commercial endeavors. It underscores the importance for companies to clearly understand and comply with licensing agreements when using digital creations. This case serves as a reminder of the nuanced legal landscape governing the intersection of technology, art, and commerce.

Shake Shack Enterprises v. Brand Design Company, Inc., 2023 WL 9003713 (S.D.N.Y. December 28, 2023)

See also:

January 3, 2024 Contracts

Customer was not “under duress” to agree to clickwrap agreement for continued services

Plaintiff filed a lawsuit in federal court against car maker Hyundai alleging issues airsing from Hyundai’s Blue Link and connected services. Defendant Hyundai moved to compel arbitration and to stay the proceedings. The court granted the motion, finding that plaintiff and defendant had entered into a valid agreement to arbitrate such claims via a clickwrap agreement.

The court found there was unrebutted evidence that plaintiff assented to the terms of the “Connected Services Agreement” which contained an arbitration provision. He did so when he reactivated the services in 2021 and when he logged onto the mobile app. The court likewise found the clickwrap process to be proper because they “adequately communicate[d] all the terms and conditions of the agreement,” and “the circumstances support[ed] the assumption that the purchaser receive[d] reasonable notices of those terms”.

Plaintiff had argued that it was unfair and amounted to duress for him to be required to accept new terms for Hyundai’s Blue Link service years after the initial agreement, risking cancellation if not agreed to. However, the court rejected this argument because plaintiff failed to meet the “high standard” required for showing duress. Such a defense requires a showing that one is compelled to make a contract under a wrongful threat, removing free will. That was not the case here. Plaintiff had the option to reject Hyundai’s updated terms and conditions but chose to accept them, indicating the presence of free will in his decision-making process.

Tamburo v. Hyundai Motor America Corporation, 2024 WL 22230 (N.D. Ill. January 2, 2024)

December 12, 2023 Contracts, First Amendment, Social Media

California court decision strengthens Facebook’s ability to deplatform its users

Plaintiff used Facebook to advertise his business. Facebook kicked him off and would not let him advertise, based on alleged violations of Facebook’s Terms of Service. Plaintiff sued for breach of contract. The lower court dismissed the case so plaintiff sought review with the California appellate court. That court affirmed the dismissal.

The Terms of Service authorized the company to unilaterally “suspend or permanently disable access” to a user’s account if the company determined the user “clearly, seriously, or repeatedly breached” the company’s terms, policies, or community standards.

An ordinary reading of such a provision would lead one to think that Facebook would not be able to terminate an account unless certain conditions were met, namely, that there had been a clear, serious or repeated breach by the user. In other words, Facebook would be required to make such a finding before terminating the account.

But the court applied the provision much more broadly. So broadly, in fact, that one could say the notion of clear, serious, or repeated breach was irrelevant, superfluous language in the terms.

The court said: “Courts have held these terms impose no ‘affirmative obligations’ on the company.” Discussing a similar case involving Twitter’s terms of service, the court observed that platform was authorized to suspend or terminate accounts “for any or no reason.” Then the court noted that “[t]he same is true here.”

So, the court arrived at the conclusion that despite Facebook’s own terms – which would lead users to think that they wouldn’t be suspended unless there was a clear, serious or repeated breach – one can get deplatformed for any reason or no reason. The decision pretty much gives Facebook unmitigated free speech police powers.

Strachan v. Facebook, Inc., 2023 WL 8589937 (Cal. App. December 12, 2023)

July 24, 2023 Artificial Intelligence, Contracts

Generative AI executive who moved to competitor slapped with TRO

generative ai competitor

Generative AI is obviously a quickly growing segment, and competition among businesses in the space is fierce. As companies race to harness the transformative power of this technology, attracting and retaining top talent becomes a central battleground. Recent legal cases, like the newly-filed Kira v. Samman in Virginia, show just how intense the scramble for expertise has become. In the court’s opinion granting a temporary restraining order against a departing executive and the competitor to which he fled, we see some of the dynamics of non-competition clauses, and the lengths companies will go to in order to safeguard their intellectual property and strategic advantages, particularly in dealing with AI technology.

Kira and Samman Part Ways

Plaintiff Kira is a company that creates AI tools for law firms, while defendant DeepJudge AG offers comparable AI solutions to boost law firm efficiency. Kira hired defendant Samman, who gained access to Kira’s confidential data. Samman had signed a Restrictive Covenants Agreement with Kira containing provisions that prohibited him from joining a competitor for 12 months post-termination. Samman resigned from Kira in June 2023, and Kira claimed he joined competitor DeepJudge after sending Kira’s proprietary data to his personal email.

The Dispute

Kira sued Samman and DeepJudge in federal court, alleging Samman breached his contractual obligations, and accusing DeepJudge of tortious interference with a contract. Kira also sought a temporary restraining order (TRO) to prevent Samman from working for DeepJudge and to mandate the return and deletion of Kira’s proprietary information in Samman’s possession.

Injunctive Relief Was Proper

The court observed that to obtain the sought-after injunction, Kira had to prove, among other things, a likelihood of success at trial. It found that Kira demonstrated this likelihood concerning Samman’s breach of the non-competition restrictive covenant. It determined the non-competition covenant Samman breached to be enforceable, given that it met specific requirements including advancing Kira’s economic interests. The court found that the evidence showed Samman, after leaving his role at Kira, joined a direct competitor, DeepJudge, in a role similar in function, thus likely violating the non-competition restrictive covenant.

The court found that Kira faced irreparable harm without the injunction, especially given the potential loss of clients due to Samman’s knowledge of confidential information. The court weighed the balance of equities in favor of Kira, emphasizing the protection of confidential business information and enforcement of valid contracts. It required Kira to post a bond of $15,000, to ensure coverage for potential losses Samman might face due to the injunction.

Kira (US) Inc. v. Samman, 2023 WL 4687189 (E.D. Va. July 21, 2023)

See also:

When can you use a competitor’s trademark in a domain name?

June 19, 2023 Contracts, Social Media

How do you sort out who owns a social media account used to promote a business?

Imagine this scenario – a well-known founder of a company sets up social media accounts that promote the company’s products. The accounts also occasionally display personal content (e.g., public happy birthday messages the founder sends to his spouse). The company fires the founder and then the company claims it owns the accounts. If the founder says he owns the accounts, how should a court resolve that dispute?

The answer to this question is helpful in resolving actual disputes such as this, and perhaps even more helpful in setting up documentation and procedures to prevent such a dispute in the first place.

In the recent case of In re: Vital Pharmaceutical, the court considered whether certain social media accounts that a company’s founder and CEO used were property of the company’s bankruptcy estate under Bankruptcy Code § 541. Though this was a bankruptcy case, the analysis is useful in other contexts to determine who owns a social media account. The court held that various social media accounts (including Twitter, Instagram and TikTok accounts the CEO used) belonged to the company.

In reaching this decision, the court recognized a “dearth” of legal guidance from other courts on how to determine account ownership when there is a dispute. It noted the case of In re CTLI, LLC, 528 B.R. 359 (Bankr. S.D. Tex. 2015) but expressed concern that this eight year old case did not adequately address the current state of social media account usage, particularly in light of the rise of influencer marketing.

The court fashioned a rather detailed test:

Are there any agreements or other documents that show who owns the account? Perhaps an employee handbook? If so, then whoever such documents say owns the account is presumed to be the owner of the account.
But what if there are no documents that show ownership, or such documents do not show definitively who owns the account? In those circumstances, one should consider:
- Does one party have exclusive power to access the account?
- Does that same party have the ability to prevent others from accessing the account?
- Does the account enable that party to identify itself as having that exclusive power?
If a party establishes both that documents show ownership and that a party has control, that ends the inquiry. But if one or both of those things are not definitively shown, one can still consider whether use of the social media account tips the scales one way or the other:
- What name is used for the account?
- Is the account used to promote more than one company’s products?
- To what extent is the account used to promote the user’s persona?
- Would any required changes fundamentally change the nature of the account?

Companies utilizing social media accounts run by influental individuals with well-known personas should take guidance from this decision. Under this court’s test, creating documentation or evidence of the account ownership would provide the clearest path forward. Absent such written indication, the parties should take care to establish clear protocols concerning account control and usage.

In re: Vital Pharmaceutical, 2023 WL 4048979 (Bankr. S.D. Fla., June 16, 2023)

What is a copyright license and why do you need one?

A copyright license is a formal agreement that allows another party to exercise rights in a copyright-protected work legally, which would otherwise infringe on the copyright owner’s exclusive rights. This agreement can be limited or extensive, temporary or perpetual, depending on the terms upon which the parties agree. A license does not transfer the copyright ownership; it simply grants specific permissions to the licensee. Features of a copyright license often include:

The scope of use: This sets forth which rights the licensee may exercise. It could specify whether the licensee can reproduce, distribute, publicly perform, display, or create derivative works from the copyrighted material.
Geographic location: The license might provide where the copyrighted material can be used.
Duration: This sets forth how long the licensee can exercise rights in the copyrighted material.
Exclusivity: It indicates whether the copyright owner can grant similar licenses to others.

Absent certain limited situations such as fair use, need a copyright license to legally exercise rights in someone else’s copyrighted work. Infringing on a copyright – using it without permission – can lead to legal consequences, including liability in court and the obligation to pay the other side’s attorney’s fees. For businesses, obtaining a copyright license can help them use, incorporate, and benefit from a copyrighted work, such as software, a piece of music, or a photograph, while respecting the legal rights of the copyright owner.

The licensing process also facilitates economic growth and cultural exchange by providing a legal framework for creators to monetize their work and for users to access and incorporate it into their own creations. For the creator, licensing can provide a source of income and allows it to control how and where its work is used. For the user, the license offers a way to legally and ethically utilize a work that adds value to its own product, service, or project.

See also:

Intellectual property issues in a speaker’s agreement

March 17, 2023 Contracts, Trademarks

The power of publicity and trademark use provisions in legal agreements

publicity agreement

In today’s brand-conscious marketplace, legal agreements between businesses often contain clauses allowing for publicity of the agreement itself and use of each other’s trademarks. This practice of mutual brand promotion can lend credibility to the involved parties and also serve as a powerful marketing strategy.

Understanding Publicity and Trademark Use Provisions

Publicity provisions in a legal agreement permit the parties involved to disclose specific details about their agreement to third parties. This could involve a simple announcement about the partnership or a more detailed disclosure about the agreement’s purpose and scope.

Trademark use provisions allow parties to use each other’s trademarks, logos, or brand names. This could be in marketing materials, on products, or in other forms of communication such as websites and social media content.

Why Include Publicity and Trademark Use Provisions?

While the specifics can vary, there are several general reasons why parties might wish to include these provisions:

Brand Awareness: Such provisions can help increase brand visibility and recognition, particularly when partnering with a well-known or highly respected company.
Credibility and Trust: The ability to publicize a partnership or to use a trusted brand’s trademark can lend credibility and foster trust among customers and stakeholders.
Market Penetration: For companies looking to break into new markets, a strategic partnership with a well-known brand can offer a significant advantage.

Key Considerations

Before including these provisions in an agreement, the parties should consider several key points:

Scope of Use: The agreement should clearly define what aspects of the agreement can be publicized and how each party’s trademarks can be used.
Quality Control: Trademark owners will want to ensure that their trademarks are used in a manner consistent with their own quality standards and brand identity.
Duration and Termination: It should be clear when the rights to publicity and trademark use begin and end, and what happens upon termination of the agreement.
Approval Process: Typically, any use of the other party’s trademark or any public disclosure of the agreement would require prior approval.
Indemnification: The agreement should include indemnification provisions to protect against any legal repercussions from the use of trademarks or publicity statements.

Publicity and trademark use provisions can be powerful tools in a legal agreement, offering enhanced brand visibility, credibility, and market penetration. However, they must be handled with care, considering the scope, quality control, duration, approval, and indemnification issues that may arise.