unjust enrichment – Attorney Evan Brown

January 12, 2024 Copyright, Unfair Competition

Google did not “trespass” on websites by placing ads in mobile app

trespass to chattels

Google’s Search App in the Android environment worked much like any web browser. When a user typed in a web address, the app would connect to the host web server and deliver up a copy of the requested web page to be viewed in the app. Between 2018 and 2020, Google configured the app so that a frame at the bottom of the screen accompanied the requested page. A user could click to expand the frame to display larger advertising banners. Google did not pay the owners of the websites over which these banners were displayed. The ads were triggered automatically using algorithms, presumably based on the content of the requested website.

A group of website operators sued Google in federal court, seeking to make the case into a class action. Plaintiffs asserted a number of claims under California law, including trespass to chattels and unjust enrichment. Google filed a motion to dismiss the case for failure to state a claim upon which relief could be granted. The lower court denied the motion to dismiss. Usually, a party who loses a motion to dismiss does not yet have the opportunity to appeal such a decision (that right is normally reserved for final decisions of a court). In this case, however, the court permitted Google to seek review of the denial of the motion to dismiss. On appeal, the Ninth Circuit reversed the lower court’s decision and ordered that the case be dismissed.

No trespass to chattels

Trespass to chattels is a tort that enables a party to recover when another has interfered with possession of personal property. It is in the nature of theft (what in civil proceedings would be called “conversion”) but “not sufficiently important to be classified as conversion”. Plaintiffs’ theory essentially was that when Google placed ads on top of their web pages, Google was messing with plaintiffs’ possessory interest in plaintiffs’ web pages. The “chattels” at issue were the copies of the web pages.

The court held that plaintiffs’ trespass to chattels claim failed because they did not allege a sufficient possessory interest in the copies of their web pages, nor did they allege an appropriate property interest in the pages.

As for the lack of possessory interest, the court observed that (1) the pages were created when a user visited the website using the Search App, (2) the copy existed on the user’s device, and (3) the page was deleted when the user left the page. Because the purported possessory interest was “entirely dependent” on the actions taken by individual users, plaintiffs could not claim ownership of such interest.

And as for the lack of property interest, the court held that the lower court erred in focusing the property-ownership analysis on the website itself, rather than the website copies that appeared on the user’s mobile device. It then applied a three-part test set out in Kremen v. Cohen, 37 F.3d 1024 (9th Cir. 2003) to determine that (1) a website copy is not “capable of precise definition” because there is no single way to display a website copy, (2) a website copy is not “capable of exclusive possession or control” because the user is the one who dispenses with the page in his or her local environment, and (3) there is no “legitimate claim to exclusivity” over website copies, making them different than other types of tangible property recognized as being subject to trespass.

Unjust enrichment claim preempted by federal copyright law

The court used a two-part test to assess whether plaintiffs’ state-law claim for unjust enrichment conflicted with the federal Copyright Act. The first step of the test examined the nature of how plaintiffs’ websites were presented, and led the court to determine that the websites involved the subject matter covered by federal copyright law.

In the second step, the panel compared the rights claimed by plaintiffs under their unjust enrichment claim to see whether they were equivalent to those rights protected by federal copyright law. The court held that it was appropriate to focus on the rights asserted by plaintiffs. It found that the described action of placing ads over the websites resulted in the creation of a derivative work – a right enumerated in the Copyright Act.

Additionally, the court found that plaintiffs’ state-law claim did not include any additional elements that would distinguish it from a typical federal copyright claim. This lack of an “extra element” was a key factor in the panel’s conclusion. As a result, the panel determined that plaintiffs’ state-law claim was indeed preempted by federal copyright law, aligning the state claim with the broader protections offered at the federal level.

What the case means for business

The ruling holds significant implications for digital enterprises, particularly concerning advertisement placement and risk management. This case underscores the legal complexities of embedding advertisements on digital platforms, highlighting the importance of legal compliance and awareness of intellectual property laws. Additionally, it emphasizes the need for diligent risk management in the company’s operations. This case serves as an important reminder of the potential legal risks associated with digital content and advertising practices, making it imperative for companies to maintain a proactive approach to legal compliance and risk mitigation in these areas.

Best Carpet Values, Inc. v. Google, LLC, 2024 WL 119670 (9th Cir., January 11, 2024)

Exploiting blockchain software defect supports unjust enrichment claim

blockchain unjust enrichment
Most court cases involving blockchain have to do with securities regulation or some other business aspect of what the parties are doing. The case of Shin v. ICON Foundation, however, deals with the technology side of blockchain. The U.S. District Court for the Northern District of California recently issued an opinion having to do with how the law should handle a person who exploits a software flaw to quickly (and, as other members of the community claim, unfairly) generate tokens.

Exploiting software flaw to generate tokens

Mark Shin was a member of the ICON Community – a group that includes users who create and transact in the ICX cryptocurrency. The ICON Network hosts the delegated proof of stake blockchain protocol. The process by which delegates are selected for the environment’s governance involves ICX users “staking” tokens. As an incentive to participate in the process, ICX holders receive rewards that can be redeemed for more ICX. The system does not give rewards, however, when a user “unstakes” his or her tokens.

When a new version of the ICON Network software was released, Shin discovered that he was immediately awarded one ICX token each time he would unstake a token. Exploiting this software defect, he staked and unstaked tokens until he generated new ICX valued at the time at approximately $9 million.

Bring in the lawyers

Other members of the community did not take kindly to Shin’s conduct, and took steps to mitigate the effect. Shin filed suit for conversion and trespass to chattel. And the members of the cryptocurrency community filed a counterclaim, asserting a number of theories against Shin, including a claim for unjust enrichment. Shin moved to dismiss the unjust enrichment claim, arguing that the community’s claim failed to state a claim upon which relief could be granted. In general, unjust enrichment occurs when a person has been unjustly conferred a benefit, including through fraud or mistake. Under California law (which applied in this case), the elements of unjust enrichment are (1) receipt of a benefit, and (2) unjust retention of the benefit at the expense of another.

Moving toward trial

In this case, the court disagreed with Shin’s arguments. It held that the members of the community had sufficiently pled a claim for unjust enrichment. It’s important to note that this opinion does not mean that Shin is liable for unjust enrichment – it only means that the facts as alleged, if they are proven true, support a viable legal claim. In other words, the opinion confirms that the law recognizes that Shin’s alleged conduct would be unjust enrichment. We will have to see whether Shin is actually found liable for unjust enrichment, either at the summary judgment stage or at trial.

Examining the elements of unjust enrichment, the court found that the alleged benefit to Shin was clear, and that the community members had adequately pled that Shin unjustly retained this benefit. The allegations supported the theory that Shin materially diluted the value of the tokens held by other members of the community, and that he “arrogated value to himself from the other members.” According to the members of the community, if Shin had not engaged in the alleged conduct, the present-day value of ICX would be even higher. (It will be interesting to see how that will be proven – perhaps one more knowledgeable than this author in crypto can weigh in.)

Shin v. ICON Foundation, 2021 WL 6117508 (N.D. Cal., December 27, 2021)

February 13, 2014 Copyright

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)

State law claims against Turnitin fail

Christen v. Iparadigms, LLC, No. 10-620, 2010 WL 3063137 (E.D.Va. Aug. 4, 2010)

Plaintiff was a graduate student and one of her professors uploaded a couple of plaintiff’s papers to the web-based plagiarism detection service Turnitin. You may remember how the Fourth Circuit held last year that this uploading and use of students’ papers is a protected fair use that would not subject Turnitin to liability for copyright infringement.

Perhaps recognizing the difficulties of a copyright case against Turnitin, plaintiff pursued various state-law, non-copyright claims based on Turnitin’s inclusion of plaintiff’s works in its database. So plaintiff sued for conversion, replevin and unjust enrichment.

The court dismissed all three of these claims, holding that they were preempted by the Copyright Act.

The Copyright Act specifically preempts all state-law rights that are equivalent to those protected under federal copyright law. Many courts apply a two-pronged test to determine if a particular state-law claim is preempted: (1) the work must be within the scope of the subject-matter of copyright, and (2) the rights granted under state law must be equivalent to any exclusive rights within the scope of federal copyright.

The court found that there was “no question” that the works at issue — plaintiff’s unpublished manuscripts — fell within the subject-matter of copyright protection.

It went on to find that plaintiff’s conversion claim was “simply a copyright infringement claim dressed in state-law clothing.” And the rights in the works that the plaintiff asserted — mainly, to use and reproduce the copyrighted work — were exclusive rights granted by the Copyright Act. The conversion claim also failed because plaintiff was not seeking the return or destruction of tangible property, just code stored on the Turnitin server.

The court dismissed the replevin claim on similar grounds. Because there was nothing tangible to be purged or returned, an action in replevin would not be viable. But even more importantly, replevin actions are no longer recognized under Virginia law, as the cause of action was repealed by statute.

Finally, the court held that plaintiff’s unjust enrichment claim failed. Citing to Nimmer and a batch of cases holding unjust enrichment cases to be preempted by the Copyright Act, the court held that a state-law cause of action for unjust enrichment should be regarded as an “equivalent right” to rights granted under the Copyright Act.