Want your online agreements to be enforceable? Keep good transaction data.

Chicago internet attorney Evan Brown

A recent court decision underscores the importance of building online e-commerce platforms with the ability to reliably gather information about transactions. The case also says some troubling things about open source.

Plaintiff loaned money in exchange for the borrower assigning its accounts receivable to plaintiff. As part of plaintiff’s services, it provided a platform for its borrower to generate and send invoices to the borrower’s customers. The borrower began generating fake invoices, and one of its customers — the defendant in this case — refused to pay. There was a dispute over whether defendant had accepted or rejected the invoices using plaintiff’s invoice platform.

After a trial, the judge ruled in favor of defendant. The court found that the digital data showing whether defendant had accepted or rejected the invoices was unreliable. The court found credible the testimony of one of defendant’s employees that he never clicked “I agree” on the fraudulent invoices. And there was no good database evidence that he had.

Plaintiff sought review with the Court of Appeal of California. On appeal, the court affirmed, agreeing that the data was unreliable, and further commenting on the problematic use of open source software in plaintiff’s online invoice platform.

The court of appeal found that substantial evidence supported the lower court’s findings. Specifically, it agreed with the lower court’s findings that the defendant’s employee never clicked on the “I agree” button to accept the fraudulent invoices. The court also credited the lower court’s finding that the data was unreliable in part because plaintiff’s website was developed from open source code, and that the developer made untested changes to the software on a weekly basis.

The treatment of the open source aspect is perhaps unfortunate. One unfamiliar with open source would read the court’s opinion as an indictment against open source software’s fundamental reliability:

Open source code is problematic because anonymous people on the internet design it, and “holes” are not fixed by vendor updates. Notifications that there are issues with the code may not go out.

The lack of reliability of the data in this case was not due to the fundamental nature of open source. (We know that open source software, e.g., Linux, powers essential core features of the modern internet.) So it is unfortunate that future litigants may look to this case to argue against vendors who use open source solutions. Fortunately, the case is not citable as precendent (many California Court of Appeal cases are not citable). But the court’s negative treatment of the nature of open source is a troubling example of how a judge may be swayed by a technological red herring.

21st Capital Corp. v. Onodi Tooling & Engineering Co., 2015 WL 5943097 (Not officially published, California Court of Appeal, October 13, 2015)

Evan Brown is a Chicago attorney advising enterprises on important aspects of technology law, including software development, technology and content licensing, and general privacy issues.

Photo by Flickr user bookfinch under this Creative Commons license.

California court okays lawsuit against mugshot posting website

The Court of Appeal of California has held that defendant website operator – who posted arrestees’ mugshots and names, and generated revenue from advertisements using arrestees’ names and by accepting money to take the photos down – was not entitled to have the lawsuit against it dismissed. Defendant’s profiting from the photos and their takedown was not in connection with an issue of public interest, and therefore did not entitle defendant to the relief afforded by an anti-SLAPP motion.

Plaintiff filed a class action lawsuit against defendant website operator, arguing that the website’s practice of accepting money to take down mugshots it posted violated California laws against misappropriation of likeness, and constituted unfair and unlawful business practices.

Defendant moved to dismiss, arguing plaintiff’s claims comprised a “strategic lawsuit against public participation” (or “SLAPP”). California has an anti-SLAPP statute that allows defendants to move to strike any cause of action “arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue …, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”

The court held that the posting of mugshots was in furtherance of defendant’s free speech rights and was in connection with a public issue. But the actual complained-of conduct – the generating of revenue through advertisements, and from fees generated for taking the photos down – was not protected activity under the anti-SLAPP statute.

Because the claims did not arise from the part of defendant’s conduct that would be considered “protected activity” under the anti-SLAPP statute, but instead arose from other, non-protected activity (making money off of people’s names and photos), the anti-SLAPP statute did not protect defendant. Unless the parties settle, the case will proceed.

Rogers v. Justmugshots.Com, Corp., 2015 WL 5838403, (Not Reported in Cal.Rptr.3d) (October 7, 2015)

Evan Brown is an attorney in Chicago helping clients manage issues involving technology and new media.

Newspaper not liable for alleged defamatory letter to editor published online

The Appellate Court of Illinois has sided in favor of a local newspaper in a defamation lawsuit brought against the paper over a reader’s allegedly defamatory letter to the editor. The court held that the Communciations Decency Act (at 47 U.S.C. 230) “absolved” the newspaper of liability over this appearance of third party content on the newspaper’s website.

Plaintiff — a lawyer and self-identified civil rights advocate — sent several letters to local businesses claiming those businesses did not have enough handicapped parking spaces. Instead of merely asking the businesses to create those parking spaces, he demanded each one pay him $5,000 or face a lawsuit.

One local resident thought plaintiff’s demands were greedy and extortionate, and wrote a letter to the editor of the local newspaper covering the story. The newspaper posted the letter online. Both the newspaper and the letter’s author found themselves as defendants in plaintiff’s defamation lawsuit.

The letter-writer settled with plaintiff, but the newspaper stayed in as a defendant and moved to dismiss, arguing that federal law immunized it from liability for content provided by the third party letter-writer.

The lower court dismissed the defamation claim against the newspaper, holding that the Communications Decency Act (at 47 U.S.C. §230) protected the newspaper from liability for the third party letter-writer’s comments posted on the newspaper’s website.

Plaintiff sought review with the Appellate Court of Illinois. On appeal, the court affirmed the dismissal.

The Communications Decency Act (at 47 U.S.C §230(c)(1)) says that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” The appellate court found that the leter-writer was another information content provider that placed comments on the newspaper’s website. Therefore, it held that the Communications Decency Act “absolved” the newspaper from responsibility.

Straw v. Streamwood Chamber of Commerce, 2015 IL App (1st) 143094-U (September 29, 2015)

Evan Brown is an attorney in Chicago helping clients manage issues involving technology and new media.

Court provides guidance on how to effectively communicate online terms of service

Are online terms of service provided via hyperlink in an email binding on the recipient of that email? The Second Circuit recently addressed that question, and the decision gives guidance on best practices for online providers.

Plaintiff booked a trip to the Galapagos Islands using defendant’s website. When she purchased her ticket, she got a booking information email, a confirmation invoice and a service voucher. (It is not clear how plaintiff got the confirmation invoice and the service voucher – the court’s opinion says they were sent as emails, but the PACER record does not show them as emails. In any event, plaintiff did not dispute that she received all three documents, nor did she dispute all three documents contained a hyperlink to defendant’s “terms and conditions” which were available online.)

One evening during the trip, a tour guide allegedly assaulted plaintiff. She sued defendant for negligently hiring and training that tour guide. Defendant moved to dismiss, pointing to language in the online terms and conditions that called for disputes to be heard in Canadian court. The district court dismissed the action, and plaintiff sought review with the Second Circuit. On appeal, the court affirmed. It held that defendant had reasonably communicated the forum selection clause to plaintiff by using hyperlinks and the appropriate language in the terms and conditions.

Each of the documents contained an underlined hyperlink, and accompanying language advising plaintiff to click on the hyperlink. The booking information email contained a standalone provision with the heading “TERMS AND CONDITIONS”. This section stated that “[a]ll . . . passengers must read, understand and agree to the following terms and conditions.” The hyperlink immediately followed. Both the confirmation invoice and the voucher contained a link to the terms and conditions, preceded by “[c]onfirmation of your reservation means that you have already read, agreed to and understood the terms and conditions. . . .”

The actual structure and language of the terms and conditions also served to reasonably communicate the forum selection clause. The second paragraph stated that the terms and conditions “affect your rights and designate the governing law and forum for the resolution of any and all disputes.” Later in the terms and conditions, a standalone section titled “APPLICABLE LAW” provided that all matters arising from the agreement were subject to Ontario and Canadian law and the exclusive jurisdiction of the Ontario and Canadian courts.

The decision validates the notion that an e-commerce provider can rely on establishing valid and binding contracts with its customers without having to actually transmit a copy of the terms and conditions that would apply to the transaction. Though the facts of this case dealt with email, there is no substantive reason why the best practices revealed by the court’s decision would not apply to providers of mobile apps and other online platforms.

Starkey v. G Adventures, Inc., — F.3d —, 2015 WL 4664237 (2nd Cir. August 7, 2015)

Evan Brown is an attorney in Chicago helping clients manage issues involving technology and new media.

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