InternetCases.com Podcast — March 4, 2005

This week’s InternetCases.com Podcast discusses the Eolas v. Microsoft and Harrison v. Microfinancial cases.

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(Approximately 7 minutes)

Seventh Circuit issues first ever reported appellate decision under 1935 Indian Arts and Crafts Act

The Seventh Circuit’s recent decision in the case of Native American Arts, Inc. v. The Waldron Corp. may be a bit off-topic for this blog – it’s not a case involving the Internet – but it’s still noteworthy because of its legal novelty and potential interest to trademark practitioners. This is the first reported appellate decision under the Indian Arts and Crafts Act, 25 U.S.C. §305 et seq., which was enacted way back in 1935. Judge Posner’s decision upheld the judgment in favor of the defendant, but overturned the district court’s determination that certain regulations under the Act are unconstitutional. The court held that a jury is not required to be instructed that an “unqualified use” of the word “Indian” or a particular tribe’s name gives rise to a false suggestion that an art or craft item is an “Indian product.”

Native American Arts, Inc. v. The Waldron Corp., — F.3d —, 2005 WL 475357 (March 2, 2005).

Court orders truck driver to deliver domain name

The U.S. District Court for the District of Massachusetts has determined that the registration of the domain name leasecomm.org by a disgruntled former customer was made in bad faith, thus violating the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. §1125(d). The court placed special emphasis on the fact that the registrant had offered to sell the domain name to the rightful owner of the LEASECOMM mark without having used the domain name in connection with a bona fide offering for sale of goods or services.

The procedural alignment of the parties in this case was a bit unique. Plaintiff Harrison, a retired truck driver, had lost a dispute with Defendant Microfinancial over the domain name leasecomm.org. The dispute had been submitted to arbitration pursuant to the Uniform Domain Name Dispute Resolution Policy before an administrative panel of the World Intellectual Property Organization (“WIPO”). Microfinancial, Inc. v. Harrison, Case No. D2003-0396. Before the domain name could be transferred as ordered by the WIPO panel, Harrison filed suit to enjoin the transfer. Microfinancial counterclaimed under the ACPA, and both parties moved for summary judgment. The court granted Microfinancial’s motion, holding that Harrison had a bad faith intent to profit from the use of the LEASECOMM mark.

Leasecomm, Inc. (“Leasecomm”) is a wholly-owned subsidiary of Microfinancial, and owns the mark LEASECOMM. The mark has been used in commerce since 1985 and is the subject of pending applications with the United States Patent and Trademark Office. Leasecomm also owns the domain names leasecomm.com and leasecomm.net.

Harrison had become unhappy with the terms of a business arrangement he had made with Leasecomm, and in retaliation, registered the domain name leasecomm.org. He established a site at leasecomm.org critical of Microfinancial and Leasecomm’s conduct. Harrison offered to “give” the leasecomm.org domain name to Microfinancial in return for compliance with various demands, including refunding money Microfinancial had allegedly “stolen” from “victims” and writing letters of apology.

Harrison claimed that his offer to transfer the domain name in exchange for compliance with his demands was merely “rhetorical and polemical” and thus did not evidence a serious offer to make a deal. The court rejected Harrison’s argument and found that “the undisputed evidence is clear that Harrison sought to use the offered transfer of the domain name to Microfinancial as leverage to obtain financial benefit for himself and others (whom he described as victims.)”

The court considered several other bad faith factors under the ACPA (e.g., Harrison had registered multiple domain names with were identical or confusingly similar to Microfinancial’s trademarks) to determine that the Harrison registered the domain name in bad faith. It concluded that no reasonable jury could have found that Harrison did not have a bad faith intent to profit from his use of the domain name.

Harrison v. Microfinancial, Inc., 2005 WL 435255 (D.Mass., February 24, 2005).

Court wrongly took judicial notice of facts contained on government website

The Sixth Circuit has overturned the U.S. District Court for the Southern District of Ohio’s dismissal of a class action lawsuit against the City of Columbus, holding that the magistrate judge improperly considered evidence contained on the city’s website. The magistrate had taken judicial notice of the information contained on the website, but the Court of Appeals held that the website was not a public record containing information the accuracy of which could not reasonably be questioned.

Plaintiffs filed suit against the City of Columbus, Ohio alleging that a mediation program established by the city to handle disputes over bad checks violated the Federal Fair Debt Collection Practices Act and the Ohio Consumer Sales Protection Act. The City moved to dismiss, arguing that the program was neither a “debt collector” under the Federal act nor a “supplier” under the Ohio law, and thus could not be liable under either of the statutes. The magistrate judge granted the motion to dismiss. In reaching its decision, the magistrate judge took judicial notice of information contained on the City’s website, namely, a statement that the program’s purpose was to resolve disputes, not collect debts.

The Court of Appeals overturned the magistrate judge’s dismissal and remanded the case for further proceedings. At issue was whether the judge properly took judicial notice of the information contained on the City’s website. Noting that a district court generally may take judicial notice of the existence of public records, the Court of Appeals held that “a court may only take judicial notice of a public record whose existence or contents prove facts whose accuracy cannot reasonably be questioned.”

The City had argued that the website was a public record simply because it was the record of a public entity. The Court swiftly determined, however, that the plaintiffs had reasonably questioned the accuracy of the information, and that they should have been given the opportunity to introduce contradictory evidence. The magistrate judge’s reliance on the website constituted reversible error.

The court gave a nod to public policy considerations that should prohibit a court from blindly accepting the contents of government websites: “If all online statements by a government agency could be relied upon as true by a court considering a motion to dismiss, government agencies could defuse any complaint alleging improper governmental motives merely by stating an arguably proper motive on their website. Such a result could eviscerate all sorts of fraud, civil rights, and other laws requiring investigations into governmental motives.”

Passa v. City of Columbus, 2005 U.S. App. LEXIS 2832 (6th Cir. February 16, 2005).

Misappropriation of web development services not unfair competition

In Atari, Inc. v. Games, Inc., arising from a dispute over an agreement to license games for online use, the U.S. District Court for the Southern District of New York dismissed defendant’s counterclaim for unfair competition, holding that such a claim could not stand where (1) alleged misappropriation was merely of services and not of knowledge, and (2) counterclaimant had not shown it was the exclusive owner of rights allegedly infringed.

In early 2004, the parties entered into an agreement whereby Games would acquire the domain name Games.com, the website located there, and an exclusive right to provide online versions of certain games such as Scrabble. The parties structured the transaction to occur over a period of time, culminating in a final payment to be made by Games, at which time Games would acquire the exclusive license to the website and online versions of the games.

Before the exclusive license was to be turned over to Games, Atari was to continue developing the Games.com site, and was to incorporate advertising on the site to raise revenue. Atari was slow in implementing the advertising, and Games assisted in implementing the advertising before it was to acquire the exclusive license.

Soon before the date the final payment was due, Games learned that there was another online version of Scrabble available, which would violate the exclusivity of its license. For various reasons, the parties ended up in litigation, asserting claims and counterclaims against one another.

Among the counterclaims that Games brought forth was one for unfair competition. The plaintiffs moved to dismiss, and the court granted plaintiffs’ motion.

As one aspect of its unfair competition claim, Games asserted that Atari had misappropriated the “labor and know-how” of Games employees who had figured out how to place advertising on the Games.com website during the period before the site was to be transferred. The court noted that “under New York law, ‘the gravamen of a claim of unfair competition is the bad faith misappropriation of a commercial advantage belonging to another by infringement or dilution of a trademark or trade name or by exploitation of proprietary information or trade secrets.'” The court held that Atari’s alleged misappropriation of “labor and know-how” in implementing the advertising did not meet the gravamen of an unfair competition claim because Games did not allege that it had employed any skill that was proprietary to it, or that could not have been provided by many other companies. The court stated “[t]he alleged misappropriation is therefore of Games’s services, not knowledge, and this will not support an unfair competition claim.”

The other aspect of Games’s unfair competition claim was that the presence of the other versions of the games online infringed rights exclusively held by Games. The court rejected this claim, however, after an examination of the agreement revealed that Games never held such exclusive rights. The grant of such exclusive rights was contingent on the final payment, which admittedly never was made.

Atari, Inc., v. Games, Inc., 2005 WL 447503 (S.D.N.Y., February 24, 2005).

Introducing the InternetCases.com Podcast

Be sure to check out the first InternetCases.com Podcast, available in MP3. This week’s podcast discusses the recent case of Dix v. ICT Group, discussed on this site, in which the forum selection clause in AOL’s terms of service was held unenforceable.

A separate feed for this site is now available to add to your podcast aggregator.

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(6 min. 11 sec., appx. 1.09 MB)

Web developer was only “puffing” when it represented the quality of its services

The First Circuit has upheld the U.S. District Court for the District of Maine’s determination that a web developer’s litany of self-laudatory statements to its client did not give rise to actionable misrepresentation. The client was sophisticated enough to distinguish mere “puffery” from real factual assertions about the web developer’s services and abilities.

The case of Uncle Henry’s Inc. v. Plaut Consulting Co., Inc. arose out of “an agreement to create a website that went awry.” After Plaut’s Edgewing division failed to satisfactorily complete the complex auction website for which Uncle Henry’s had paid over a half million dollars, Uncle Harry’s sued, alleging breach of contract and fraud.

The proceedings quickly became complicated, as Plaut counterclaimed for breach of contract and quantum meruit. The hodgepodge of issues raised in the various claims and counterclaims and appeals and cross-appeals makes this case a good read for an insomniac practitioner in the First Circuit. There is too much detail to cover here in full, and in any event most of the issues are simply brick-and-mortar, that is, not unique to the law of the Internet.

One aspect of the case, however, may be of particular interest to web developers and the lawyers who represent them. This has to do with that dialect of commercial language known as “puffing.”

In the District Court, Uncle Henry’s had claimed that numerous statements that Plaut made about the quality of its work were fraudulently misrepresentative. Among these statements were that the developer would “provide Uncle Henry’s a total solution unsurpassed in the industry,” and that the developer “was a proven company with a long track record and many years’ experience.” The court granted summary judgment, holding that the statements constituted nothing more than “puffing” or “trade talk” upon which no reasonable person would rely. Citing to previous authority, the court poetically explained that “dealers talk” is “that picturesque and laudatory style affected by nearly every trader in setting forth the attractive qualities of the goods he offers for sale.”

On appeal, Uncle Henry’s argued that an exception to the rule that puffery should not be believed applies to it. Such exception provides that “puffing” statements are actionable if the hearer of them is so unsophisticated or lacking in information as to be “at the mercy” of the speaker. The Court of Appeals did not buy this argument, however, and affirmed the District Court on this point. As support for the conclusion that Uncle Henry’s was not merely at the mercy of Plaut, the court noted both that counsel for Uncle Henry’s had aggressively investigated and negotiated the contract before signing it, and that Uncle Henry’s had experience in web development before its dealings with Plaut.

Alas, I cannot resist. Isn’t it a coincidence that this puffing case comes from Maine, well known for its puffins?

puffin image

Uncle Henry’s Inc. v. Plaut Consulting Co., 2005 WL 407394 (1st Cir. Feb. 22, 2005).

Puffin photo used courtesy of a Creative Commons license from Martin Burns.

Application of “effects test” brings pool table manufacturer out from behind the personal jurisdiction 8-ball

In the case of Brunswick Bowling & Billiards Corp. v. Pool Tables Plus, Inc., the U.S. District Court for the Northern District of Illinois held that the listing of the defendant’s company name, address and email address on two websites did not give rise to personal jurisdiction under the “sliding scale” test. Application of the effects test to defendant’s non-Internet activities, however, was sufficient for the exercise of personal jurisdiction.

Brunswick sued its competitor Pool Tables Plus in the Northern District of Illinois for various Lanham Act and state law violations, accusing Pool Tables Plus of misrepresenting both the relationship between Brunswick and Pool Tables Plus and the quality of Brunswick’s products. Pool Tables Plus moved to dismiss for lack of personal jurisdiction, submitting an affidavit stating it was “completely devoid of Illinois contacts.”

In determining the question of personal jurisdiction, the court began by applying the “sliding scale” test articulated in the case of Watchworks v. Total Time, Inc., 2002 WL 424631 (N.D.Ill. 2002). Under this test, the court determined that the presence of defendant’s mailing address and email address on websites found at http://www.superpages.com and http://www.pooltablesflorida.com did not make the defendant’s business conducted over the Internet sufficiently “active” to show minimum contacts with Illinois. Thus, the court declined to exercise personal jurisdiction on this basis.

Under the “effects test,” however, set forth in the case of Riddell, Inv. v. Impact Protective Equip., L.L.C., 2003 WL 21799935 (N.D.Ill. 2003), the court determined that the exercise of personal jurisdiction would be proper. The defendant’s non-Internet activities, namely, making representations to its customers about Brunswick, caused harm to Brunswick that was felt in Illinois. Furthermore, Illinois had an interest in adjudicating a case in which harm to a business within its borders was alleged.

Even though the court held that it could exercise personal jurisdiction over Pool Tables Plus, it dismissed the case on venue grounds.

Brunswick Bowling & Billiards Corp. v. Pool Tables Plus, Inc., 2005 WL 396304 (N.D.Ill., February 16, 2005).

AOL does not get to choose where it can be sued

In a recent decision in the case of Dix v. ICT Group, Inc., reversing the lower court, the appellate court in the state of Washington held unenforceable a forum selection clause in AOL’s terms of service which stated that Virginia courts have exclusive jurisdiction over any dispute arising in connection with the services.

The plaintiffs had sued AOL (and its independent contractor ICT to answer customer service questions) in Washington state court, claiming that they had been swindled when AOL started charging them for secondary accounts for which the plaintiffs had never signed up. AOL moved to dismiss, claiming that under the terms of service, Virginia was the only place in which such suit could be brought. The trial court agreed, and dismissed the lawsuit. The appellate court held otherwise, reversing the lower court’s dismissal and remanding the case for further proceedings.

The appellate court began its analysis by reminding us that a party to a contract challenging a forum selection clause bears a heavy burden. In the state of Washington, absent evidence of fraud, undue influence, or unfair bargaining power, courts are reluctant to invalidate forum selection clauses because they enhance contractual predictability.

The plaintiffs put forward two arguments to invalidate the forum selection clause. The court did not accept the plaintiffs’ first argument of fraud: that AOL began billing them for the new accounts without giving them the opportunity to sign new terms of service. The second argument, that enforcing the provision would violate public policy, passed muster.

Washington is not the first state to have had the opportunity to rule on the enforceability of AOL’s forum selection clause. The court looked to some mixed decisions on the issue coming from such states as California, Maryland and Florida. In the end, the court’s decision to hold the forum selection clause unenforceable was based mostly on the policy underlying the state’s consumer protection statue. Denying the ability to litigate the question in a Washington court would “undermine the very purpose” of the consumer protection act, which is to offer broad protection to its citizens.

Dix v. ICT Group, Inc., — P.3d —, 2005 WL 372483 (Ct. App. Wash., Feb. 17, 2005)

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