Browsewrap License Cases: Fteja v. Facebook 2012 WL 183896 (SDNY 2012)

Contracts, Internet Law, Online Agreements

In Fteja v. Facebook  2012 WL 183896 (SDNY 2012), the Southern District of New York held that the forum selection clause in Facebook’s terms of service was enforceable against a site user.  The user sued Facebook in New York for terminating his account. He essentially claimed he was emotionally distraught over being kicked off of the site.  Facebook made a motion to remove the case to California pursuant to the forum selection clause in its Terms of Service.

Court found the Terms of Service was a hybrid clickwrap/browsewrap stating that it was “somewhat like a browsewrap agreement in that the terms are only visible via a hyperlink, but also somewhat like a clickwrap agreement in that the user must do something else — click ‘Sign Up’ — to assent to the hyperlinked terms. Yet, unlike some clickwrap agreements, the user can click to assent whether or not the user has been presented with the terms.” Id. at 838.

I think it was a clickwrap agreement, and this is an example of a court treating a clickwrap agreement as a browsewrap agreement, a trend which has leaked into other cases.  As browsewrap agreements require a little bit more as far as assent from the user this trend is important to note.

The Terms of Service required that to create an account each user had to click on a “Sign Up” button and agree to the following “By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service” where the words Terms of Service were a hyperlink to another page which contained the Terms of Service (which you did not have to view to sign up).

The Court held that the forum selection clause was enforceable against the user, and that failure of a user to read the terms does not let them avoid the agreement (user was savy enough to know how hyperlinks work). Court analogized to the cruise ship cases (below) where ticket holders were deemed to have had actual or constructive knowledge of the terms on the back of the ticket regarding forum selection.

See Effron v. Sun Line Cruises, 67 F.3d 7 (2d Cir. N.Y. 1995) (upheld forum selection clause requiring all suits be brought in Greece, where NY resident bought ticket in FL, and was injured in cruise off of Brazil).

See Also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (held that United States federal courts will enforce forum selection clauses so long as the clause is not unreasonably burdensome to the party seeking to escape it.  There, the contract was printed on the back of the ticket.  The customer bought the ticket in WA, the ticket’s forum selection said claims would be heard exclusively in FL.  The customer boarded in CA, and was injured off Mexico.  The court held the clause enforceable.).

A similar decision on Facebook’s terms of use was rendered in E.K.D. v. Facebook, Inc., 885 F. Supp. 2d 894 (S.D. Ill. 2012).

Other NY courts have followed the precedent in Fjeta.  See 5381 Partners LLC v. Shareasale.com, Inc., 2013 U.S. Dist. LEXIS 136003, 24-25 (E.D.N.Y. Sept. 23, 2013) (“The instant case presents circumstances that are quite analogous to those in Fteja, and the Court agrees with the Fteja court’s analysis. Unlike the license terms at issue in Specht, defendant’s reference to its Merchant Agreement appears on the same screen as the button a prospective merchant must click in order to activate its account. (See Littleton Decl. Ex. B.) Plaintiff did not need to scroll or change screens in order to be advised of the Merchant Agreement; the existence of, and need to accept and consent to, the Merchant Agreement was readily visible. Moreover, whereas Facebook’s Terms of Use were referenced below the button a prospective user had to click in order to assent, defendant’s reference to its Merchant Agreement appears adjacent to the activation button (id.), thereby making it even more clear [*25] that prospective merchants of ShareASale are aware that by clicking the button to activate their account, they manifest their assent to the Merchant Agreement.”).

Clickwrap License Cases: Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007)

Contracts, Internet Law, Online Agreements

Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007).

I think this case gives a more “substantive” holding than some of the other cases which merely hold that procedural items are enforceable, such as forum selection, class action waivers, etc.  This case actually enforces UPS’s online shipping website’s Terms of Use to the detriment of the shipper.

In this case, a user shipped a ring worth $100,000 via UPS’s online shipping website.  He submitted the ring in a package for shipping with the shipping label.  UPS then lost or misplaced the package.

In order to ship the ring the user had to click not once, but twice, to agree to UPS’s websites shipping Terms of Use.  The terms provided that UPS would not be responsible for any item of “unusual value” which it stated was anything over $50,000 (which is the maximum amount UPS let you insure an item for).

The shipper then put in a claim with UPS, and UPS disclaimed stating it did not have to pay him anything because it was an item of unusual value. The shipper then sued for the value of the ring and the court upheld UPS’s Terms of Use, finding that UPS provided adequate notice on its website to anyone shipping an item.

The Court held that using a clickwrap agreement for online transactions was “common in Internet commerce” where “one signifies agreement by clicking on a box on the screen.”  The court reasoned that merely because the user chose not to read the terms, that does not let him avoid any of the provisions he does not like.

Clickwrap License Cases: Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005)

Contracts, Internet Law, Online Agreements

In Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005), the Court of Appeals for the Eighth Circuit upheld a clickwrap agreement that prohibited reverse engineering. In that case, the clickwrap agreement that had to be accepted prior to playing the online game prohibited reverse engineering.

The clickwrap agreement was included in the End User License Agreement that each user had to affirmatively agree to (by clicking on “I Agree” button) when installing the game, and you could not play the game without agreeing. Users also had to enter a CD Key which was included on the copy of the CD the game came on. The CD Key was connected to the CPU’s IP address to prohibit pirating and copying of the CDs.

Certain users, unhappy with the games’ performance and the system used to play the online game, reverse engineered the game and created their own site to play it against others on the game maker’s site.  Blizzard, the game maker sued.

The Court of Appeals for the Eighth Circuit upheld the clickwrap agreement provision that prohibited reverse engineering, stating that the users had expressly relinquished their right to reverse engineer by agreeing to the terms of the license agreement.

There were various other copyright claims, and the court also held that the users violated the Digital Millennium Copyright Act, which seemingly made ruling against the users easier.

 

Quicker, Shorter IRS Form 1023-EZ for 501(c)(3) Tax-Exempt Status

Tax

On July 1, 2014, the IRS introduced a new application form to allow small charities to apply for tax exempt status under IRC Section 501(c)(3).

Form 1023-EZ is only three pages long, and organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible to use it.  Charities filing the 1023-EZ, provided everything is in order, will know of their status within a couple of weeks (that’s right, weeks, not months).

Compare this with the regular Form 1023 which is 26 pages long and asks for a laundry list of information on the charity, the board of directors and officers.  Many applicants using the Form 1023 didn’t hear back from the IRS for many months, sometimes as long as nine, which can seem like an eternity when in fundraising mode.

The new 1023-EZ Form must be filed online, see here.  The instructions include an eligibility checklist.

Clickwrap License Cases: Patterson v. Compuserve

Internet Law, Licensing, Online Agreements

Compuserve v. Patterson, 89 F.3d 1257 (6th Cir. 1996).

Patterson, a resident of Texas (a lawyer and software programmer), sold his own software to third parties over Compuserve’s system, pursuant to the terms of a clickwrap agreement (where he had to type “I Agree” into various sections of the agreement).

Compuserve began to sell its own software that was similar to Patterson’s and Patterson demanded Compuserve pay him $100,000 as a settlement.  Compuserve then filed a declaratory judgment action in Federal court in Ohio.

Patterson moved to dismiss the action due to alleged lack of personal jurisdiction, claiming he never visited, did business in, or consented to suit in Ohio.

The Sixth Circuit found that making Patterson subject to suit in Ohio due to his acceptance of the clickwrap agreement, a Shareware Registration Agreement, did not violate the due process clause of the United States Constitution.

The Court reasoned that Patterson personally availed himself to do business with Compuserve, and made money doing so, and could therefore have reasonably expected he’d have to defend himself in Ohio due to the terms of the agreement.

Best Practices for Drafting Browsewrap and Clickwrap Agreements

Internet Law, Online Agreements

There’s still some hostility from the court system, and the public at times, on the enforceability of browsewrap and clickwrap agreements. Having an enforceable license for your website, software or mobile application is of the utmost importance.

The ABA Committee on Cyberspace Law provided general rules to ensure your online agreement is enforceable:

  1. The user must have adequate notice that the proposed terms exist;
  2. The user must have a meaningful opportunity to review the terms;
  3. The user must have adequate notice that taking a specified, optional action manifests assent to the terms; and
  4. The user must, in fact, take that action.

I fully agree with the above.  Notice, notice, notice is so important. But not just any notice.  You need to ensure that the notice is reasonable, that is that a reasonable person using your software/website/application would understand that by taking a certain action (clicking or continuing use of the site) it renders the agreement binding on them. My reading of the case law on shrinkwrap, browsewrap and clickwrap agreements made me come up with my own list in addition to the ABA Committee’s pointers:

  1. Create an easy to read, reasonable license that follows industry norms;
  2. Give the user reasonable notice that the license exists;
    • Make sure the notice is CLEAR AND CONSPICUOUS
    • Colors, size, font, placement, timing, etc. all relevant. Don’t “bury” it.  Get it in front of the user’s faces.
  3. Let the user read the full license if he or she so chooses (scrollable pop-up being preferred), prior to acceptance (click or use);
  4. Opt for clickwrap over browsewrap if possible.

 

 

Paper this Deal Book Review: PLI’s Health Care Mergers and Acquisitions Answer Book 2014

Book Reviews, Health Care, Mergers & Acquisitions

We’re going to start a new series of posts on legal and business guides, treatises and books.  First up is PLI‘s Health Care Mergers and Acquisitions Answer Book 2014.

Health Care MA AB 2014PLI recently provided me a copy and I’ve used it in connection with a recent acquisition and generally for information needed for counseling a health care client.  The book provides insight into general counseling of clients in the industry,  including compliance, business and accounting/tax issues. It’s useful for more than simply M&A type work.

The way the book is set up is different than most legal texts (i.e. info dump) which is refreshing – it is called an “Answer Book” after all and is therefore comprised of answers to the most common questions about health care generally, M&A transactions generally and M&A transactions in the health care context. It also has information on the typical structure of these types of transactions, as well as case studies in the important precedent applicable.  Case law is inserted throughout for general propositions. Read more

Clickwrap and Browsewrap Agreements Kickoff

Copyright, Intellectual Property, Internet Law

I’ve been involved in drafting numerous versions of online agreements, including privacy policies, service agreements, pricing policies, various other policies and last but not least both browsewrap and clickwrap agreements.  I’ve done a quick post on case law with respect to browsewrap and clickwrap agreements in the past, and was recently asked to speak for a webinar entitled Drafting Clickwrap and Browsewrap Agreements: Advanced Strategies for Enforceable Online Contracts held by Strafford.  If you’d like to listen to the webinar email me or contact them.

I feel that more and more contracting is going to be done over the Internet in the future and I am going to start a series of blog posts on drafting these types of browsewrap and clickwrap agreements as well as case law in the area, which serves to let corporate lawyers know how they have to draft the agreement, and have the users accept it. Read more

Use your Retirement Plan to Fund your Startup

Business Entity Formation, Financing Your Business, Startup Formation, Stock, Tax

First of all, I won’t advise anyone to withdraw their 401(k) funds early as the tax hit the IRS enacts is insane.  If you are thinking about doing that, please don’t, or at least don’t do so until you’ve spoken to your accountant.

This post will, however, detail how to use your qualified retirement plan or IRA to start a new, or buy an existing, business.  This name given to the process I’ll discuss is rollovers as business startups (“ROBS”).  The main gist is that an individual’s current retirement plan is rolled over into a newly established 401(k) plan sponsored by a startup company and then used to purchase the startup company’s stock.  The ROBS arrangement allows income taxes and penalties (see IRC Section 72(t))to be avoided because it is a rollover from one qualified plan to another. Read more