Category Archives: Contracts

Software development breach of contract lawsuit moves forward

Plaintiff sued defendant software developer for breach of contract and other claims, asserting that defendant failed to develop and deliver a video editing application on time and within budget. Defendant moved to dismiss the case, arguing that plaintiff had failed to state a claim upon which relief may be granted. The court denied the motion to dismiss the breach of contract claim, allowing that claim to move forward.

The court found that plaintiff had successfully pled a breach of contract claim under Texas law. Defendant had argued that the parties agreed to benchmark the developed software’s performance in comparison to “recreational” software, but that plaintiff later demanded the software be benchmarked against professional grade software. Plaintiff responded that it had asked defendant to benchmark the program’s speed to iMovie, which it characterized as recreational and not professional.

The court looked past this benchmarking aspect and found that even in light of the apparent disagreement on the standard, the allegations in the complaint – that defendant had not provided a viable product under the agreement – were sufficient to support a breach of contract claim.

Polar Pro Filters, Inc. v Frogslayer LLC, 2019 WL 5400934 (S.D. Texas, October 22, 2019)

Browsewrap enforceable: hyperlinked terms on defendant’s website gave reasonable notice

Plaintiff was bound by forum selection clause found in online terms and conditions. 

Plaintiff sued TripAdvisor and some related defendants (including Viator, a company that TripAdvisor acquired) for a number of torts arising from an ATV accident that plaintiff had while on a tour in Mexico that she had booked online through defendants’ website. Defendants moved to dismiss, or in the alternative, to transfer the matter to federal court in Massachusetts based on the forum selection clause found in the Terms and Conditions that plaintiff agreed to when she booked the tour. The court granted the motion to transfer. 

To purchase the tour, plaintiff was required to click on a “Book Now” icon, directly under which the following message was located: “[b]y clicking Book Now and making a reservation, I acknowledge that I have read and agree to be bound by Viator’s Terms and Conditions and Privacy Statement.” The phrase “Viator’s Terms and Conditions” appeared in blue underlined text, in the form of a hyperlink, which directed the consumer to the website’s Terms and Conditions.

Viator’s Terms and Conditions included a forum selection clause, which, in relevant part, provided:

[T]his agreement is governed by the laws of the Commonwealth of Massachusetts, USA. You hereby consent to the exclusive jurisdiction and venue of courts in Boston, Massachusetts, USA and stipulate to the fairness and convenience of proceedings in such courts for all disputes arising out of or relating to the use of this Website. You agree that all claims you may have against Viator, Inc. arising from or relating to this Website must be heard and resolved in a court of competent subject matter jurisdiction located in Boston, Massachusetts.

The court found that plaintiff had agreed to the forum selection clause, and that the clause was enforceable. In determining whether plaintiff was bound by the clause, the court was guided by “fundamental precepts of contract law.” More specifically, under New Jersey law, “[a] contract term is generally binding if the contract has been mutually agreed upon by the parties, is supported by valid consideration, and does not violate codified standards or offend public policy.” W. Caldwell v. Caldwell, 26 N.J. 9, 24-26 (1958).

Plaintiff had argued that the Terms and Conditions amounted to an invalid browsewrap agreement, because she neither received reasonable notice of their existence, nor provided an unambiguous manifestation of assent. Primarily relying upon Specht v. Netscape, plaintiff argued that she was not bound by the Terms and Conditions, because Viator’s website was designed so that a user can use its services without affirmatively assenting to the web page’s terms of use. According to plaintiff, she was ultimately permitted to purchase the ATV tour without ever being asked to check a box or click an “I Agree” button, or even acknowledge that the Terms existed. Without proper notice, plaintiff maintained that enforcing the forum selection was not appropriate. 

The court disagreed. It found that the hyperlinked terms on defendant’s website adhered to the requirements of reasonable notice. Regardless of whether plaintiff was required to scroll through the Check Out page, the hyperlinked Terms and Conditions were conspicuously placed directly underneath the “Book Now” icon. Based on its location, therefore, the court found that the hyperlink was not hidden in an area of the screen that plaintiff was unlikely to notice, but, instead, was clearly displayed in a section of the webpage that she needed to review in order to effectuate her purchase of the ATV tour. Stated differently, the hyperlink was placed within the immediate proximity of an icon that plaintiff was required to click, for the purpose of confirming her purchase on defendant’s website. 

Mucciariello v. Viator, Inc., No. 18-14444, 2019 WL 4727896, D.N.J. (September 27, 2019)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

Court will not aid company that was banned from accessing Facebook API

Facebook’s ability to decisively police the integrity of its platforms was without question a pressing public interest.

Plaintiffs provided software-as-a-service to help their clients locate social media content, gain approval to use that content, and then re-purpose it in the clients’ own advertising and marketing activities.

Previously, plaintiffs had operated in partnership with Facebook, whereby plaintiffs had access to the Facebook Open Graph API. In late August 2019 (a few weeks after a Business Insider article identified plaintiffs as misusing the Instagram platform) Facebook terminated the marketing partnership and access to the API.

After efforts to informally resolve the situation failed, plaintiffs, perhaps emboldened by the Ninth Circuit’s recent decision in hiQ v. LinkedIn, sued Facebook and Instagram asserting a number of claims, including breach of contract and tortious interference, and also sought a declaratory judgment that plaintiffs did not violate the Computer Fraud and Abuse Act. Plaintiffs sought a temporary restraining order that would have restored access to the platforms pending the case’s determination on the merits. But the court denied the motion. 

No irreparable harm likely

The court rejected plaintiffs’ argument that they would suffer irreparable harm if access was not restored. It found that plaintiffs’ allegations of imminent harms shared a common fatal flaw in that they merely alleged speculative harm – they did not sufficiently demonstrate that irreparable harm was likely to occur.

Plaintiffs did establish for purposes of this motion that much (though not all) of the work they conducted for clients before losing API access involved Facebook. But the court found that plaintiffs had not sufficiently shown that they would actually lose current customers, or fail to acquire new prospective customers, if access were not restored. 

Further, the court found that plaintiffs’ CEO’s statement that “this will soon reach a tipping point where [plaintiffs] can no longer operate” was not specific enough to demonstrate there was irreparable harm. “The extraordinary relief of a pre-adjudicatory injunction demands more precision with respect to when irreparable harm will occur than ‘soon.’ Such vague statements are insufficient evidence to show a threat of extinction.”

Not in the public’s interest

The court also found that the “public’s interest caution[ed] against issuing injunctive relief at this time.” 

Plaintiffs argued that the public interest favored an injunction because one would prevent the imminent destruction of plaintiffs’ business, preserve employee jobs, and generally allow plaintiffs to continue operating. Additionally, they argued that the public interest would be served by enjoining defendants’ wrongful conduct.

Defendants argued that the public had an interest in allowing Facebook to exclude those who act impermissibly on its platform and jeopardize user privacy by, in this instance, automating data collection and scraping content en masse. Defendants argued that the public has an interest in allowing them latitude to enforce rules preventing abuse of their platforms.

The court decided that awarding injunctive relief at this stage would compel Facebook to permit a suspected abuser of its platform and its users’ privacy to continue to access its platform and users’ data for weeks longer, until a preliminary injunction motion could be resolved. Moreover, as precedent within Facebook’s policy-setting organization and potentially with other courts, issuing an injunction at this stage could handicap Facebook’s ability to decisively police its social-media platforms in the first instance. Facebook’s enforcement activities would be compromised if judicial review were expected to precede rather than follow its enforcement actions.

And although the public certainly has some interest in avoiding the dissolution of companies and the accompanying loss of employment, the court found that Facebook’s ability to decisively police the integrity of its platforms was without question a pressing public interest. In particular, the court noted, the public has a strong interest in the integrity of Facebook’s platforms, policing of those platforms for abuses, and protection of users’ privacy.

Stackla, Inc. v. Facebook Inc., No. 19-5849, 2019 WL 4738288 (N.D. Cal., September 27, 2019)

Web design feature killed express license argument in copyright case

Plaintiff sued defendant for copyright infringement over unlicensed use of plaintiff’s musical works in advertisements that defendant created and uploaded to YouTube. Defendant argued that the language and structure of plaintiff’s website – from which the works were downloaded – resulted in an express license or at least an implied license to use the musical works for commercial purposes. The court rejected these arguments and awarded summary judgment to plaintiff. 

No express license

The basis for defendant’s argument that plaintiff’s website gave rise to an express license is not clear. In any event, plaintiff argued that a browsewrap agreement in place on the website established that the works could not be used for commercial purposes without the payment of a license fee. Citing to the well-known browsewrap case of Specht v. Netscape, 306 F.3d 17 (2d Cir. 2002), defendant argued that it did not have notice of the terms and conditions of the browsewrap agreement.

The court distinguished this case from Specht. In this case, plaintiff’s home page contained – similar to the case of Major v. McCallister, 302 S.W.3d 227 (Mo. Ct. App. 2009) – “immediately visible” hyperlinks that referenced terms of use and licensing information. A user did not have to scroll to find these links. So the terms and conditions of the browsewrap agreement were enforceable. Since the browsewrap agreement contained provisions requiring a license for commercial use, no reasonable jury could find that plaintiff had granted defendant an express license to use the musical works for commercial purposes free of charge. 

No implied license

Defendant argued in the alternative that plaintiff had granted defendant an implied license to use the musical works, based on (1) plaintiff’s company name “Freeplay,” and (2) the absence of any conspicuous warning that the works were not available for commercial use. 

The court found these arguments to be “easily disposed of.” Citing to I.A.E., Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996), the court noted that an implied license exists only when: 

  • a person (the licensee) requests the creation of a work,
  • the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and 
  • the licensor intends that the licensee-requestor copy and distribute his work.

The court found that defendant failed to prove any of these elements. Defendant never asked plaintiff to create any works. Nor did plaintiff make any works at defendant’s request to be used in defendant’s YouTube videos. Moreover, given plaintiff’s paid license requirements for business use of the copyrighted works available on its website, it could not be said that plaintiff intended that defendant download and distribute those works free of charge. Accordingly, the court found that no implied license existed.

Freeplay Music, LLC v. Dave Arbogast Buick-GMC, Inc., No. 17-42, 2019 WL 4647305 (S.D. Ohio, September 24, 2019)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

Sony’s EULA did not protect it from liability under CFAA and for trespass to chattel

Plaintiff filed a class action lawsuit against Sony after Sony issued a software update that bricked plaintiff’s Sony Dash. Sony moved to dismiss for failure to state a claim. The court granted the motion on a number of claims but allowed the Computer Fraud and Abuse Act (CFAA) and trespass to chattel claims to move forward.

CFAA Claim

Sony had argued that the CFAA claim should fail because plaintiff had not alleged the software update was “without authorization,” given the language of the end user license agreement, which read:

From time to time, Sony … may automatically update or otherwise modify the Software, for example, but not limited to for purposes of error correction, improvement of features, and enhancement of security features. Such updates or modifications may change or delete the nature of features or other aspects of the Software, including but not limited to features you may rely upon. You hereby agree that such updates and modifications may occur at Sony’s sole discretion, and that Sony may condition continued use of the Software upon your complete installation or acceptance of such updates or modifications.

Specifically, Sony argued that the EULA authorized Sony to “modify” the software at any time, and warned that such modifications may change or delete the nature of features or other aspects of the software, including features the consumer may rely upon. A court addressed a similar argument in In re Apple, 596 F.Supp.2d 1288 (N.D. Cal. 2008). In that case, Apple, as defendant, relied on the following language to argue that it acted “with authorization” for purposes of the CFAA when bricking iPhones that had been unlocked to access third-party applications:

IF YOU HAVE MODIFIED YOUR IPHONE’S SOFTWARE, APPLYING THIS SOFTWARE UPDATE MAY RESULT IN YOUR IPHONE BECOMING PERMANENTLY INOPERABLE

In that case, the court concluded that usage of the term “may” (as in “may result” in damage) created too much ambiguity surrounding Apple’s warning and found plaintiff’s allegations as to its CFAA claim sufficient to defeat Apple’s motion to dismiss.

Here, Sony had used the same ambiguous “may” (as in “may change or delete the nature of features”) and even more uncertain language than in In re Apple. Unlike in In re Apple, Sony did not explicitly warn that a subsequent software update could render the Dash “permanently inoperable.” The EULA did not say that Sony could delete all features. Instead, it vaguely warned consumers that Sony “may change or delete the nature of features” that a consumer “may rely upon.” This sentence was also prefaced by the following: “From time to time, Sony … may automatically update or otherwise modify the Software, for example, but not limited to for purposes of error correction, improvement of features, and enhancement of security features.”

The court found that this preface implied that automatic software updates would improve or enhance the Dash – not destroy its functionality. The court could not say at this stage that by using the Dash and thus implicitly agreeing to the EULA, plaintiff authorized Sony to render his device inoperable. Accordingly, the court found that plaintiff plausibly pled that Sony acted “without authorization” in bricking the Dash.

Tresspass to Chattel

Under New Jersey law, “[a] cognizable claim for trespass to chattel occurs ‘when personal property, in the actual use of the owner, is injured or taken by a trespasser, so that the owner is deprived of the use of it.’” Arcand v. Brother Int’l Corp., 673 F. Supp. 2d 282, 312 (D.N.J. 2009) (quoting Luse v. Jones, 39 N.J.L. 707, 709 (N.J. 1877)). “[P]hysical contact with the chattel, for instance, where a person kicks another’s car bumper, is not required.” Id. “All that is required … is interference with the chattel as a direct or indirect result of an act done by the actor.” Id.

In this case, Sony’s software update bricked plaintiff’s Dash. The court found that contrary to Sony’s assertions, plaintiff had not consented to Sony rendering his device wholly nonfunctional by agreeing to the EULA.

Sony had also argued that plaintiff never owned the software used by the Dash (in accordance with the EULA) and therefore Sony could not be liable for altering that software in the update. But the court saw it otherwise — whether plaintiff owned the software, Sony, at a minimum, indirectly injured plaintiff’s physical Dash by rendering it completely nonfunctional through the software update. The court again looked to In re Apple wherein that court found that the plaintiffs plausibly pled trespass to chattel by alleging that Apple released a software update that rendered the plaintiffs’ iPhones permanently inoperable. On these facts, the court found that plaintiff had plausibly pled his trespass to chattel claim.

Grisafi v. Sony Electronics Inc., 2019 WL 1930756 (D.N.J. April 30, 2019)

Failure to pay software license fees was breach of contract, not copyright infringement

As part of a larger business dispute that found its way into litigation, counterclaimant DDS sued counterdefendant EGS for copyright infringement after EGS allegedly used DDS’s software without paying required license fees. EGS moved to dismiss the copyright infringement claims, asserting that there was no copyright infringement occurring, only a breach of the license agreement. The court granted the motion to dismiss. 

The court found that the provision of the agreement between the parties, requiring EGS to pay license fees, was a covenant and not a condition that must be met for use of the software to be authorized. The finding was critical because whether the failure of a non-exclusive licensee to pay royalties constitutes copyright infringement turns on the distinction between a promise subject to a condition and a covenant or contractual promise. Broadly speaking, the promise to pay royalties in a license agreement is generally considered a covenant, not a condition. 

In this case, the agreement between the parties provided that:

Upon [EGS’s] payment of [a one-time fee], and subject in each instance to [EGS’s] subsequent timely payment of the applicable [recurring] licensing fee, [DDS] hereby grants to [EGS] a limited, nonexclusive license . . . . 

The court determined this language established that DDS would install its software and then EGS would pay for the right to use the software. Under this line of thinking, the duty to pay fees did not accrue until the software was installed, meaning that payment could not be a condition on the rights to use the software (and that nonpayment would not be a failure of that condition). 

Eclipse Gaming Systems, LLC v. Antonucci, 2019 WL 3988687 (N.D. Ill. Jan. 31, 2019)

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Arbitration provision in web-based contract was not enforceable

Defendants moved to compel arbitration based upon a purported arbitration clause in an agreement between them and plaintiffs that plaintiffs electronically signed through defendants’ website.

The court found that defendants failed to meet their burden to show, by undisputed material facts, that the parties entered into an agreement to arbitrate the claims in the case. The court looked to the Ninth Circuit decision in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014) to support the idea that courts will enforce clickwrap-type agreements where the user indicates actual notice of the terms of the agreement or was required to acknowledge the terms of the agreement before proceeding with further use of the site. Enforcement of a browsewrap-type agreement, which lacks such an acknowledgment, will depend upon whether the website’s design and content would put “a reasonably prudent user on inquiry notice of the terms of the contract.” The conspicuousness of the terms and notices, as well as the overall design of the webpage, will contribute to the determination that a user was on inquiry notice.

In this case, according to the court, defendants had not offered evidence explaining the design and content of the webpage in question, or how the agreement appeared on the website. The court could not determine whether the terms of the agreement appeared on the registration page itself, or if a user would have had to click a link to see the full terms. Likewise, the court could not determine other factors that might contribute to determining plaintiffs’ notice of the terms, such as the size of the font or other aspects of the appearance and presentation of the terms online. The declaration offered by defendant did not provide evidence to show that: (1) either of the plaintiffs had actual knowledge of the arbitration agreement; or (2) whether the agreement was a clickwrap or a browsewrap agreement, how the website was designed and where these terms appeared, and whether plaintiffs assented by clicking an “I agree” box, or were deemed to agree by continuing in the registration process.

Given the lack of evidence of how the registration process appeared on its website, how one of the plaintiffs had declared that he did not see an arbitration agreement, and the reasonable doubts and inferences that must be drawn in that plaintiff’s favor under the applicable standard, the court found that plaintiffs had presented a genuine issue of fact concerning notice of, and assent to, the arbitration agreement here. The court could not find that plaintiffs were reasonably on notice of the agreement to arbitrate, and the accordingly the motion to compel was denied.

Chen v. Premier Financial Alliance, Inc., 2019 WL 280944 (N.D. Cal. Jan. 22, 2019)

Facebook did not violate HIPAA by using data showing users browsed healthcare-related websites

Plaintiffs sued Facebook and other entities, including the American Cancer Society, alleging that Facebook violated numerous federal and state laws by collecting and using plaintiffs’ browsing data from various healthcare-related websites. The district court dismissed the action and plaintiffs sought review with the Ninth Circuit. On appeal, the court affirmed the dismissal.

The appellate court held that the district court properly determined that plaintiffs consented to Facebook’s data tracking and collection practices.

Plaintiffs consented to Facebook’s terms

It noted that in determining consent, courts consider whether the circumstances, considered as a whole, demonstrate that a reasonable person understood that an action would be carried out so that their acquiescence demonstrates knowing authorization.

In this case, plaintiffs did not dispute that their acceptance of Facebook’s Terms and Policies constituted a valid contract. Those Terms and Policies contained numerous disclosures related to information collection on third-party websites, including:

  • “We collect information when you visit or use third-party websites and apps that use our Services …. This includes information about the websites and apps you visit, your use of our Services on those websites and apps, as well as information the developer or publisher of the app or website provides to you or us,” and
  • “[W]e use all of the information we have about you to show you relevant ads.”

The court found that a reasonable person viewing those disclosures would understand that Facebook maintained the practices of (a) collecting its users’ data from third-party sites and (b) later using the data for advertising purposes. This was “knowing authorization”.

“But it’s health-related data”

The court rejected plaintiffs claim that—though they gave general consent to Facebook’s data tracking and collection practices—they did not consent to the collection of health-related data due to its “qualitatively different” and “sensitive” nature.

The court did not agree that the collected data was so different or sensitive. The data showed only that plaintiffs searched and viewed publicly available health information that could not, in and of itself, reveal details of an individual’s health status or medical history.

This notion supported the court’s conclusion that the use of the information did not violate the Health Information Portability and Accountability Act of 1996 (“HIPAA”) and its California counterpart.

The court held that information available on publicly accessible websites stands in stark contrast to the personally identifiable patient records and medical histories protected by HIPAA and other statutes — information that unequivocally provides a window into an individual’s personal medical history.

Smith v. Facebook, Inc., 2018 WL 6432974 (9th Cir. Dec. 6, 2018)

Facebook and iOS game developer’s browsewrap terms of service were not enforceable

Plaintiffs sued defendant game developer in court alleging defendant’s game (Available on Facebook and via an iOS app) constituted illegal gambling in violation of Washington state law, and that they should get back the money they spent on virtual chips bought in-game.

Defendant moved to compel arbitration. The court denied the motion. It held that the game did not present its terms of service in a manner that would place users on notice of the provisions. Since the plaintiffs never effectively agreed to resolve their claims through arbitration, it was proper to allow the case to stay in court.

The court noted a number of problems with the game’s “browsewrap” agreement.

When a user would first access the Facebook app, the “App Terms” link on the initial pop-up window was located far below the “Continue” button in small grey text. The court found that the pop-up window’s main purpose was to gain permission for data sharing between Facebook and defendant, and was not a point traditionally associated with binding terms unrelated to the data sharing itself.

When a user would first download the iPhone app, the app page contained a link to the “License Agreement” that could only be viewed after significant scrolling. Compounding the problem was the fact that a user could download the app directly from the search results list within the App Store without ever accessing the particular app page. So neither the initial link on Facebook or on the mobile app was coupled with a notification informing a user that downloading or playing defendant’s game created a binding agreement.

The hyperlinks within the game itself also did not put a user on inquiry notice.

On Facebook, the “Terms of Use” hyperlink was located at the very bottom of the gameplay screen in small font next to several other links, and was not visible unless a user would scroll down.

On the mobile app, the link to the Terms of Use was located within a settings menu that a player might never have even needed to access. Furthermore, links that were available only via the settings menu were not “temporally coupled” with a discrete act of manifesting assent, such as downloading an app or making a purchase, and were thus less likely to put a reasonable user on inquiry notice.

Benson v. Double Down Interactive, LLC, 2018 WL 5921062 (W.D.Wa. Nov. 13, 2018)

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