The FTC complaint, which was made public on March 8, stated that LifeLock's credit protection service actually consisted of the following elements: placing an Initial Alert on its customers' consumer reports with credit reporting agencies, obtaining and providing its customers with copies of their free annual credit reports, and submitting requests on its customers' behalf to remove their names from lists of prescreened offers of credit.
According to the FTC, these steps did not prevent identity theft and did not provide many of the protections LifeLock promised. While an Initial Alert can provide notice to businesses that someone may be impersonating another, it is only useful if the business accesses the consumer's credit report as part of the transaction - something that generally only occurs where a consumer opens a new account. According to the FTC, "Alerts do not protect against more common types of identity theft, such as misuse of an existing credit account . . . medical identity theft, employment-related identity theft, or using another's identity to evade law enforcement." An Initial Alert would also be highly unlikely to prevent wire transfer fraud, since financial institutions do not check credit reports before initiating wire transfers.
The FTC charged that LifeLock falsely claimed that its ID theft prevention service made customers' personal information useless to thieves and prevented unauthorized changes to customer address information. It also charged that LifeLock failed to take appropriate security measures to protect sensitive data that customers provided to LifeLock itself.
On March 9, LifeLock and Davis entered into a Stipulated Final Judgment and Order for Permanent Injunction to settle the FTC's claims. In this order, the defendants did not admit to the allegations in the FTC complaint. However, they did agree to an injunction prohibiting them from engaging in the activities charged in the FTC complaint, including, "misrepresenting" that its ID theft program "provides complete protection against all forms of identity theft by making customers' personal information useless to identity thieves."
The order further provided for judgment in the amount of $35 million payable to the FTC. However, the order suspended all but $11 million, unless the defendants default on the payment date or are found to have misrepresented their net worth. The $11 million sum apparently was based on the FTC's analysis of the defendants' financial resources and seems to reflect the amount the FTC believes that the defendants can actually pay.
The $11 million is to be used for consumer redress. The order requires LifeLock to provide the FTC with a list of customers who paid for LifeLock's services between April 1, 2005 and March 31, 2009. According to a press release, the FTC plans to send letters to LifeLock customers with instructions on how to apply for redress payments.
The FTC action is only one of many suits that LifeLock faces regarding its identity theft protection claims. Lifelock is also the subject of over a dozen consumer class actions that have been consolidated and are currently pending in the District of Arizona. See In re LikeLock Marketing and Sales Practices Litigation, D. Ariz., No. 2:08-md-01977.
The allegations in these class actions expand on those stated in the FTC complaint. According to the Master Consolidated Complaint, LifeLock's website stated "If you lose money as a result of [identity] theft, we're going to give it back to you." However, the terms and conditions of the actual guarantee disclaimed any obligation to cover theft losses, but only promised that LifeLock would "pay professionals to assist in restoring any such loss."
The class action complaint also claims that contrary to the claims in his TV ads, Davis was himself the subject of identity theft fraud. According to the complaint, "A Texas man secured a $500.00 payday loan using Davis' social security number. Nevertheless, LifeLock continues to run advertisements claiming that Davis knows his identity is safe with LifeLock, without disclosing that his identity has in fact been stolen as a result of the disclosure."
The class action has not proceeded far since consolidation in the Arizona District Court. The latest court filings indicate that the parties are still dealing with preliminary questions such as choice of law. Because the FTC action appears to have already raided LifeLock's cupboards, it is unclear whether the class actions will ever produce substantial additional recoveries recovery for the plaintiffs.
What is lesson from this case? Thieves can use exploit a wide variety of personal data -- financial institution account numbers, social security numbers, signatures, photographs, medical provider and insurance account numbers, telephone numbers and so on -- to commit identity fraud. And they can use an endless variety of methods to obtain and misuse this sensitive data - from SQL injection attacks, to phishing, to dumpster diving, to laptop and cellphone theft, and so on. So don't be fooled: there is no single magic bullet that will protect you identity theft fraud.
The case is a class action entitled Keller v. Electronic Arts, Inc., Northern District of California, No 4:09-cv-01967. Electronics Arts, which is based in the Los Angeles area, is the world's largest manufacturer of videogame software. In 2009, its gross revenues exceeded $4 billion on the strength of titles such as Madden NFL. Among its many sports titles is NCAA Football, a game which enables players to recreate football matches between college teams.
According to the complaint, EA designs NCAA Football to include characters that resemble real-life college athletes. The virtual players "share the same jersey numbers, have similar physical characteristics and come from the same home state." While EA omits the players' names, game users allegedly can "access online services to download team rosters and the athletes' names and upload them into the games." The complaint further charges that in recent versions, EA has included features to facilitate the upload of this data.
The complaint alleged that EA's actions violated the players' rights of publicity. California law contains both statutory and common law causes of action for violation rights of publicity. California's right of publicity statute provides that "any person who knowingly uses another's name, voice, signature, photograph or likeness, or in any manner, on or in products, merchandise, or goods . . . shall be liable for any damages sustained by the person or persons injured as a result." Cal. Civ. Code § 3344(a).
Electronic Arts conceded that the allegations in the complaint stated a claim for violation of their rights of publicity. However, EA countered that the players' rights of publicity claims were barred by the doctrines of transformative use and public interest use and a statutory "reporting" exception.
Judge Wilken disagreed.
Here, Judge Wilken found that EA's depiction of name plaintiff Keller, a former ASU and Nebraska quarterback, was not sufficiently transformative. According to Judge Wilken, "In the game, the quarterback for Arizona State University shares many of Plaintiff's characteristics. For example, the virtual player wears the same jersey number, is the same height and weight and hails from the same state. . . . EA does not depict Plaintiff in a different form; he is represented as what he was: the starting quarterback for Arizona State University."
The public interest defense, true to its name, bars a right of publicity claim for matters that are in the public interest. Courts have given the term "public interest" a very wide definition and found that it attaches to people "who by their accomplishments or mode of living create a bona fide attention to their activities." Hilton, 580 F.3d at 892. Based on this doctrine, courts have denied right of publicity claims by athletes who sought damages for the use of their names and statistics on websites or posters, finding that these forms of media merely make "historical facts available to the public." See Gionfriddo v. Major League Baseball, 94 Cal.App. 4th 400, 415 (2001). The doctrine has also been used to shield the use of player names and stats in fantasy football games, because the results in such games depend on the players' historical performances, so that they effectively are a form of commentary on those performances. See C.B.C. Distribution and Marketing v. Major League Baseball Advanced Media, 505 F.3d 818 (8th Cir. 2007)
But here, the Judge Wilken found that EA's NCAA Football was not merely providing historical information about actual events in game form. "Success in "NCAA Football" does not depend on updated reports of the real-life players' progress during the college football season," she stated. "Further, EA's game provides more than just the players' names and statistics; it offers a depiction of the student athletes' physical characteristics and . . . enables consumers to control the virtual players on a simulated football field."
Judge Wilken also rejected the "statutory reporting" defense, finding that it only applied to reporting as understood in the traditional sense of relating actual historical events. See California Civil Code § 3344(d). According to Judge Wilken, "EA is not entitled to the statutory reporting defense because its use of Plaintiffs' image and likeness extended beyond reporting information about him."
Judge Wilken's decision solely dealt with the sufficiency of the parties' allegations in their initial pleadings. A trial of the matter, which would involve a detailed review of the relevant evidence could produce a different result for EA. However, this case bears watching, since the ultimate resolution should help clarify how closely a video game avatar can be modeled on a real life character before creating right of publicity liability.
David D. Johnson
Epstein, Becker & Green
One California Street
26th Floor | San Francisco, CA 94111
(415) 399-6032 (direct)
DJohnson@ebglaw.com
Epstein, Becker & Green is a national firm with prominent practices in litigation, health care, science and technology, labor and employment, real estate, hospitality, financial services and energy law. For more details, see our firm website at www.ebglaw.com.
I'm excited to be able to practice in the beating heart of the Internet industry and plan to continue to specialize in cases involving Internet, science, technology and health law.
Look for my next Digital Media Lawyer Blog post soon!
David Johnson
We have frequently written about the differing standards that courts use when confronted with a request from plaintiffs to uncover the identity of the anonymous author of material posted on the Internet. The right to speak and write anonymously is protected by the First Amendment of the U.S. Constitution -- and to an even greater extent by some State constitutions. However, the extent of the right to anonymous speech varies based on the content of the speech. At one end of the spectrum, the author of purely political anonymous speech may be given absolute protection against disclosure of his identity. At the other end, the author of defamatory speech may ultimately be given no protection from disclosure at all, since defamatory speech is considered unprotected under the U.S. Constitution. Fn1
While certain types of speech, such as defamation, may get little or no protection, a court considering a complaint is not in a position to know whether the allegations have any merit. There is always a danger that the allegations will prove untrue, or that the defendant will be able to establish a valid affirmative defense. As such, to protect the rights of anonymous authors, courts around the U.S. generally require a plaintiff to show that their claims have at least some level of merit before being permitted to discover the identity of the anonymous author of the speech at issue.
These standards can vary greatly from court to court. Some courts impose what we have termed a "light" standard, and merely required the plaintiff to show that his complaint would withstand a motion to dismiss or that it was filed in "good faith." This light standard was applied in the recent Liskula Cohen case. See In re Liskula Cohen, Supreme Court of the State of New York, County of New York: Part 11, Index No. 100012/09. While this test has different labels, it ultimately merely requires the plaintiff to show that his complaint meets pleading standards -- no evidence or proof is required.
State and Federal judges in California have used both of these standards. In an early case, a Northern District of California judge used a version of the light standard and required a plaintiff to satisfy only the following simple requirements to uncover the identity of the anonymous operator of a website the allegedly violated the trademark of See's Candy: (1) identify the missing party with sufficient specificity so that the Court could determine that the defendant was a real person who could be sued in Federal court, (2) identify all previous steps taken to locate the defendant, (3) establish to the Court's satisfaction that the plaintiff's suit could withstand a motion to dismiss, and (4) file its request for discovery with the Court, along with a statement justifying the discovery requested and identifying the persons to be served. See Columbia Insurance v. Seescandy.com, 185 F.R.D. 573 (N.D. Cal. 1999).
However, more recent California cases have adopted the heavier standard. For example, in Krinsky v. Doe 6, H030767 (Cal. Ct. App. Feb. 6, 2008), an Internet defamation case, the California Court of Appeal stated that to permit discovery, "an attempt to notify the defendant" would be required. It also stated that the plaintiff should be compelled to made a "prima facie showing of the elements of libel" and show that discovery of the defendant's identity "is necessary to pursue the plaintiff's claim."
So why did Judge Trumbull reverted to the "light" standard in Zynga v. Does? One reason may be that she was unaware of the more recent cases. While the plaintiff's brief cited Columbia Insurance v. Seescandy.com to the Court, it made no mention of Krinsky or any other cases dealing with anonymous Internet speech from the past decade. The motion was unopposed, so there was no other party to provide these cases to the Court.
However, that does not mean that the Court's decision was wrong - because Zynga v. Does is not really about Internet speech.
Zynga is a social gaming company that provides online poker games, word games, board games, role playing games and party games. Users obtain a few free chips from Zynga when they sign up. They can obtain more chips either by winning them from other players or purchasing them from Zynga. According to the complaint, ZYNGACHIPS.US decided to horn in on this action be selling its own unauthorized Zynga chips. So this seems to be a classic trademark infringement case involving the sale of counterfeit goods, not a case which centers on the defendants' speech.
Because the defendants' First Amendment speech rights are not squarely at issue in this case, use of a lower standard to uncover their identity probably was appropriate. Indeed, since Columbia Insurance v. Seescandy.com was also an anonymous Internet trademark infringement case, Judge Trumbull's adoption of the standard from that case may well have been spot on.
What this means is that in deciding whether to impose light or heavy standards on a plaintiff seeking to uncover the identity of an Internet actor, a Court should consider whether the defendant has cognizable constitutional rights at stake - and the extent of these rights. For example, if the suit focuses on speech, and the speech is core political or religious speech, discovery of the speaker's identity should be absolutely prohibited. If the suit focuses on speech which might fall into an unprotected class, such as alleged defamation or indecency, then a court should permit discovery, but only if the plaintiff provides evidence that its claims have merit (the heavy standard above). If the suit is not really about speech, then the court should permit discovery, if the plaintiff shows that its claims state a cognizable claim for relief (the light standard above).
Notes:
Fn1 U.S. Supreme Court jurisprudence holds that certain types of harmful speech get no protection at all under the First Amendment of the U.S. Constitution. Ashcroft v. Free Speech Coalition (2002) 535 U.S. 234, 245-246 (freedom of speech "has its limits; it does not embrace certain categories of speech, including defamation, incitement, obscenity, and pornography produced with real children"). However, some State Constitutions provide that even such harmful speech may not be enjoined - although the speaker may be liable for damages caused by his speech. See Kramer v. Thompson, 947 F.2d 666, 677 (3d. Cir. 1991).
It is a fundamental tenet that privacy rights are personal and only the person whose privacy has been invaded can sue to recover damages for a breach. This means that if the victim has died, his relatives may not bring a claim for invasion of the victim's privacy either by suing personally, or on behalf of the deceased's estate. Fn2 As the law treatises put in -- there is no "relational right" to bring a claim for invasion of privacy. Fn3 Among the reasons for this limitation is a general judicial wariness towards claims of pure emotional injury, and concerns about permitting plaintiffs to gain a double recovery. Fn4.
However, courts have permitted relatives to recover where the breach also constituted an invasion of their own privacy rights. For example, in Vescovo v. New Way Enterprises, Ltd., the defendant ran a classified ad in an L.A. paper touting "Hot Lips --- Deep Throat Sexy young bored housewife Norma" and giving plaintiff Norma Vescovo's address. The California Court of Appeal permitted not only Norma, but also her 14 year old daughter, to bring claims for invasion of privacy. This was because the ad had resulted "in excess of 100 persons" coming to the Vescovo's home, day and night, "demanding to see Norma, creating disturbances, and using lewd, abusive and threatening language" and "in excess of 150 motor vehicles stopp[ing] in front or cruis[ing] slowly" by the residence, and subjecting the family, including the 14 year old, to neighborhood ridicule. Because the 14 year old sought to recover for the intrusion into her own seclusion, her claim was proper. Fn5
The Catsouras case fits into this exception. The facts of the case are tragic. On October 31, 2006, 18 year old Nicole Catsouras was decapitated in an automobile accident. CHP officers arrived at the scene and cordoned off the area. They also took multiple photos of the decapitated corpse. Two CHP officers allegedly emailed copies of these "graphic and horrific" photos to members of the public who were not involved in the investigation. Once released, the photos went viral and soon appeared on more than 2.500 websites around the world.
A number of Internet miscreants then decided to use the occasion to torture the decedent's relatives. For example, her father, Christos Catsouras, received several emails containing the photographs, include one entitled "Woo Hoo Daddy" that said "Hey Daddy I'm still alive." These and other emails caused the Catsouras's severe emotional and mental distress. As a result, the Catsouras's sued the CHP on invasion of privacy and related tort theories.
For example, in National Archives v. Favish, a case concerning a FOIA request for the death scene photographs of Vince Foster, the U.S. Supreme Court stated that "the right to personal privacy is not confined, to the "right to control information about oneself."" Here, Foster's family sought to prevent release of the photos, not "for fear that the pictures may reveal private information about Foster to the detriment of his own posthumous reputation or some other interest personal to him." Rather, "[t]hey [sought] to be shielded by the exemption to secure their own refuge from a sensation-seeking culture for their own peace of mind and tranquility, not for the sake of the deceased." Fn6.
The Supreme Court noted that "Burial rites or their counterparts have been respected in almost all civilizations from time immemorial." Accordingly, the Justices stated that they had "little difficulty . . . in finding in our case law and traditions the right of family members to direct and control disposition of the body of the deceased and to limit attempts to exploit pictures of the deceased family member's remains for public purposes." Fn7.
The California Court of Appeal slotted the Catsouras case into this precedential line, holding that that "family members have a common law privacy right in the death images of a decedent." Fn8.
However, the Court of Appeal also found that this privacy right was limited. According to the Court, there may be cases in which "matters pertaining to the dead or dying may involve matters of public interest." This might permit use of pictures of a decedent for "public education about . . . paramedics' use of life-saving techniques."
However, in the Catsouras case, the Court found that no issues of public interest or press freedom were involved. Rather, "the picture painted by the . . . complaint is one of pure morbidity and sensationalism without legitimate public interest or law enforcement purpose." Accordingly, it found that the Catsouras family could bring an action for invasion of privacy against the CHP. Fn9.
Notes:
Fn1 Catsouras v. Dept. of the California Highway Patrol., Cal. Ct. App., 4th App. Dist., Div. 3, Nos. G039916, G040330 (Jan 29, 1020).
Fn2 Elder, Privacy Torts at § 1:3 (West 2002).
Fn3 Witkin, Summary of California Law, Torts § 653 (2005 and Supp. 2009).
Fn4 Elder, Privacy Torts at § 1:3 (West 2002).
Fn5 Vescovo v. New Way Enterprises, Ltd., (1976) 60 Cal. 3d 582, 588.
Fn6 National Archives v. Favish (2004) 541 US 157, 165
Fn7 Id. at 167.
Fn8 Catsouras, Opinion at 3.
Fn9 Catsouras, Opinion at 17.
However, in 2003 decision regarding the Child Online Protection Act (COPA), several Justices discussed whether this standard should be changed for cases involving material distributed over the Internet. See Ashcroft v. ACLU, 5335 U.S. 564 (2002). Two Justices, O'Connor and Breyer, stated that a "national standard" should be adopted for such cases. Justice O'Connor argued that because Internet publishers cannot control where their materials will be downloaded, using a "local community" standard would impose the most restrictive view of obscenity taken by any community in the country on them. This would "potentially suppress an inordinate amount of expression."
Seizing on Justice O'Connor's language, in 2009 the 9th Circuit held that "a national community standards must be applied in regulating obscene speech on the Internet . . ." U.S. v. Kilbride, 584 F.3d 1240 (9th Cir. 2009). In support of its decision, the 9th Circuit claimed that a majority of the justices in Ashcroft had supported adoption of a national community standard for Internet cases.
As we wrote in our November 5, 2009 post, the 9th Circuit got this point wrong. In fact, the opinion by Justice Kennedy, which the 9th Circuit counted as expressing support for a national community standard, actually stated that a national community standard was "neither realistic nor beyond constitutional doubt." Because only Justices O'Connor and Breyer expressed support for a national community standard, this means that the Supreme Court left the "local community" standard of Miller intact -- even for Internet cases. See also Kilbride at 1719 (noting that the Kilbride decision also had actually not reached the issue of national v. local community standards).
Use of a local community standard does pose special problems for Internet publishers. Publishers of printed materials can choose not to distribute copies in markets where such distribution would violate local obscenity laws. However, as pointed out by the defendants in Little, when the defendants published their materials on the Internet, "the materials immediately became available to anyone in the world with Internet access. . . . Even if [the defendants] live in an area that is widely open to sexually explicit materials, these materials are equally accessible to individuals in the strictest corners of our nation."
While tacitly recognizing the persuasiveness of these arguments, the 11th Circuit chose not to join the 9th in adopting a national standard for the Little case. Rather, the 11th Circuit noted that the Supreme Court's decision in Ashcroft had not changed the standard to be applied in Internet obscenity cases. "As a result", the court stated, "the Miller contemporary [e.g., local] community standard remains that standard by which the Supreme Court has directed us to judge obscenity, on the Internet and elsewhere."
This meant that a jury in the Middle District of Florida, which the Little trial was held, was to determine whether the defendants had violated Federal obscenity law "on the basis of how the average person of the community as a whole -- the Middle District of Florida -- would view the material."
The standard for obscenity in Internet cases is clearly an issue that several U.S. Supreme Court Justices have already indicated interests them. I would not be surprised for the Court to take one of these cases soon in order to resolve this issue.
Note:
Federal statutes criminalize the distribution in interstate commerce of obscene material via an "interactive computer service" -- e.g., the Internet. See 18 U.S.C. § 1465.
]]>In the Layshock case, Justin Layshock, a 17 year old high school senior, created a "parody profile" of his principal, Eric Trosch, using his grandmother's computer. The profile included a photograph copied from the school district website and characterized Trosch as a habitual drunk and marijuana user, a "steroid freak", a "big whore" and a "big fag." Layshock "friended" several fellow students on the webpage. This caused news of it to "spread like wildfire" to most of the school's student body. The webpage was viewed by students in the school's online computer class, and three other students also created parody sites about Trosch.
Trosch complained to the local police and also instituted disciplinary proceedings against Layshock at the school. After a hearing, the school district found Layshock guilty of "gross misbehavior", "obscene, vulgar and profane language" and computer policy violations -- for use of school pictures without authorization. The school then imposed a ten-day, out-of-school, suspension on Layshock, placed him in an Alternative Education Program (for children who are unable to function in a normal classroom setting), banned him from all extra-curricular activities and prohibited him from participating the school's graduation ceremony. See Layshock v. Hermitage School District, 3d Circuit, N0. 07-4465, Opinion, Feb. 4, 2010).
In the J.S. case, J.S., a 14 year old middle school student, created a fake MySpace page for her principal, James McGonigle, using her parent's computer. The profile did not list his name, but included his photograph, which was taken from the school district's website. The website described McGonigle as a bisexual who liked "hitting on students and their parents" and "love[d] sex (of any kind)." J.S. initially set the MySpace profile as "public", but then changed the setting to private and granted "friend" status to about 20 children at the school. However, because the school computers block access to MySpace, students were only able to view the page from off-campus computers.
After learning about the website from a student, McGonigle called J.S. into his office. He told her that he was very hurt by the site and that he planned to take legal action against J.S. and her family. He later imposed a ten-day suspension on J.S., and prohibited her from attending school functions.
According to the school, the profile caused a minor disruption on campus. Two teachers had to quiet their classes while students talked about the profile, one guidance counselor had to proctor a test so another administrator could sit in on the meetings between McGonigle and J.S., and two students decorated J.S.'s locker to welcome her back following her suspension. J.S. v. Blue Mountain School District, 3rd Cir.., No. 08-4138, Opinion (Feb. 4, 2010).
In both of these case, the Third Circuit relied on the same precedent. The leading case relied on by the court was Tinker v. Des Moines Indep. Cmty Sch. Dist., 393 U.S. 503 (1969). In Tinker, school officials suspended several students who ignored a school ban and wore black arm bands protesting the Vietnam war to school. The Supreme Court held that the First Amendment "reach[es] inside the schoolhouse gate" and that speech cannot be suppressed unless school officials reasonably conclude that it will "materially and substantially disrupt the work and discipline of the school."
Here, in both the Layshock and J.S. cases, the 3rd Circuit concluded that relevant school conduct -- the creation of the parody MySpace profiles occurred off-campus. Following Tinker, the issue for the Third Circuit thus was whether this off-campus speech "would substantially disrupt school operations or interfere with the rights of others.' J.S. v. Blue Mountain, Slip Opinion at 20.
In the Layshock case, the District Court had found that Justin Layshock's conduct had not resulted in any substantial disruption. The school district did not contest this finding on appeal. The Third Circuit noted: "We have found no authority that would support punishment for creating such a profile unless is results in foreseeable and substantial disruption of school. According, the Third Circuit found that the discipline imposed on Layshock violated his First Amendment right of free expression. Layshock v. Hermitage School District, Slip Opinion at 47
On the other hand, in the J.S. case, the school district did claim that J.S.'s actions had caused disruption at the school -- pointing to two the two disquieted classes and other disturbances noted above. However, the Third Circuit brushed this evidence aside, aside finding that "these incidents did not amount to a substantial disruption of the Middle School sufficient to discipline the students for their speech." J.S., Slip Opinion at 23.
However, it found that under Tinker, the school was permitted to discipline J.S. because "the profile presented a reasonable possibility of future disruption, which was preempted only by McGonigle's expeditious investigation of the profile, which secured its quick removal, and his swift punishment of its creators." Id. at 24. Here, the Third Circuit was persuaded by evidence that the statements about McGonigle's sexual proclivities on the MySpace page had caused several eighth-grade girls to express concern about McGonigle and his family to a teacher at the school, and had also reportedly caused a severe deterioration in discipline at the school.
The fact that the MySpace profile was created off-campus made no difference. Rather, the Third Circuit held that "off-campus speech that causes or reasonable threatens to cause a substantial disruption of or material interference with a school need not satisfy any geographical technicality in order to be regulated under Tinker." Id. at 27.
The fact patterns in these case were virtually identical. With a little different spin from the school district litigators, both cases could have gone the other way. So this is yet another dinner-table lecture for parents to give their kids: You risk school discipline for writing defamatory things about your teachers, coaches and principals -- even if you post them on your home computer.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
Notes:
Thanks to Eric Goldman for notifying me of these cases on his blog. For a different analysis of these cases, see his blog entry for February 7, 2010.
The case is Williams v. MetroPCS Wireless, Inc., S.D. Fla, No. 1:09-cv-22890, Order (Jan. 5, 2010), a proposed class action against a pre-paid wireless phone carrier. The complaint alleged that MetroPCS marketed itself as a provider of unlimited nationwide coverage, but that in reality, its coverage reached less than half of the U.S. population and excluded 11 of the top 25 metropolitan areas. The complaint further alleged that MetroPCS offered flat rate plans in which customers were to pay by the month, not the minute, and were not required to sign a contract. However, lead plaintiff Marcia Williams claimed that after purchasing an unlimited $45/month plan, she was charged $225 for one month's service. The complaint sought equitable and declaratory relied, damages, attorneys' fees and a trial by jury.
MetroPCS contended that the allegations had no merit, and that Williams had entered into an arbitration agreement with MetroPCS, so the matter had to be settled in front of an arbitrator. According to MetroPCS . its standard business practice was to provide customers with several forms at the time service is initiated. These included an Agreement, a Start of Service Request Form and a Welcome Guide. The Welcome Guide referred customers to the MetroPCS website. At the footer of the website was a "Terms and Conditions" hyperlink that instructed users to review the Agreement. The Agreement contained an arbitration clause, requiring that claims or controversies relating to or arising out of the Agreement be resolved through individual binding arbitration.
MetroPCS claimed that under its standard business practices, Williams would have received these forms and hence had notice of the arbitration clause. However, MetroPCS was unable to provide testimony or other evidence showing that Williams actually received these forms.
Williams contended that she never received the Agreement or the Welcome Guide and never accessed MetroPCS's website. Williams further contended that the MetroPCS advertisements repeatedly stated that there was "no contract." One such advertisement allegedly featured a unicorn and a mermaid stating that no contract was required. Another commercial featured a contract being passed through an animated paper shredder and a drawing of a contract with a circle and diagonal line over it.
There is a liberal federal policy favoring enforcement of arbitration agreements. However, the policy only applies if the parties have actually entered into an agreement to arbitrate. Here there was no evidence that Williams had assented to the Agreement or its arbitration clause.
As a result, the Court concluded that it could not grant MetroPCS' request to send the matter to arbitration. Instead, Judge Altonaga decided that the proper procedure was to hold a jury trial on the limited issue of whether Williams had entered into the arbitration agreement with MetroPCS.
For companies that would like to have their contracts with consumers enforced -- regardless of whether they are documented via on-line or "dead-tree" media -- this case provides two important lessons. Lesson 1: Make sure that the customer receives the agreement in question. So set up a contracting process which documents the fact that the agreement has been delivered. Lesson 2: Don't provide contradictory advertising which states that no contracts are required. If your advertising tells customers that they are not required to enter into a contract to receive your services, a court is likely to hold you to your word.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
]]>At the FTC's December 2009 privacy roundtable, panelists raised concerns that collection and third party use of browsing data invades private space by: (1) revealing a user's innermost thoughts, such as a search history that reflect a user's explorations of his sexual identity, (2) taking away a user's control over her identity, such as by broadcasting compromising photos of a user at a Cancun Spring Break party to a potential employer, (3) revealing sensitive identity or financial information that can be misused by third parties to perpetrate fraud, or (4) intruding on a user's seclusion by serving targeted ads during a browsing session that reveal that outsiders are listening in.
Survey data presented at the roundtable indicated that consumers are aware that information is being collected about them online and are uncomfortable with the idea that third parties are using this data. Alan Westin of a Columbia University stated that surveys indicate that "a majority ranging in numbers from low of 50% all the way up to 70% to 80% say they're uncomfortable with behavioral marketing and would want to have at a minimum a kind of notice, choice, security and ways of intervening that would give them some comfort if they were going to have their information tracked in that way."
A growing number of firms with online presences are offering users a chance to review the data being collected about them and to opt-out or the change the collection and use of that data. For example, Google's Dashboard and Ad Preferences Managers provide users with extensive details on the browsing history Google has collected about them. They also let users select or de-select ad categories they want served to them.
However, most users do not take advantage of these "notice and choice" systems. According to Google's head of U.S. public policy, Alan Davidson, Google gets "tens of thousands of unique visitors to these sites each week." However, "four times as many people who come as visitors to the site actually change their preferences rather than opting out. . . . [a]nd actually, ten times as many people actually do nothing." Rick Erwin of Experian Marketing Services stated that about 7200 consumers choose to opt-out of Experian's marketing data collection activities. Jennifer Barrrett from Acxiom stated that over the past ten years "about a half a million consumers" have asked to opt-out or correct information gathered by her site.
One explanation for the low level of consumer response to notice and choice systems is that these systems are simply too complex and confusing for consumers to navigate. Another explanation is that despite the survey data and a few incidents where use of private data led to personal woe, consumers are really not that concerned about the collection and use of their personal data.
Behaviorally targeted advertising is also far more effective for advertisers. According to panelist Omar Tawakol, CEO of BlueKAI, an online data brokerage firm, targeted advertising sells for around 10 times the price of non-targeted or "network" advertising: "Run[s] of network pricing tends to be in the tens of cents. And typically when you use reasonable behavioral data to sell a campaign to an advertiser, it's going to be anywhere from the $2 to $8 range. So you're lifting inventory that would be anywhere from like 10 cents to 50 cents to $2 to $8 when you're talking about applying data to a run of network buy." Since users respond far more frequently to targeted advertising, I would argue that they are far more satisfied with this form of advertising, as well.
Despite this market evidence, FTC officials insist that the current "notice and choice" (generally, opt-out) and "harm-based" (public or private right to sue for actual damages) approaches used to policing online privacy are not sufficient. At the December 9 roundtable, FTC chairman Jon Liebowitz stated "I've been a supporter of opt-in for quite some time."
However, going to a pure opt-in system would vastly decrease user participation in data collection -- likely dooming behavioral targeting. According to Berin Szoka, Director of the Center for Internet Freedom, a market-oriented advocacy group, moving to an all opt-in approach could result in "having 10% or less people opt-in." Given the low participation in the current opt-out systems, my guess is that participation could be far lower -- well under 1% -- perhaps unless users were given a serious financial incentive to opt-in.
While the FTC is making noises about imposing stricter online privacy rules, it is not clear that it has the statutory authority to do so. There are Federal laws mandating privacy for medical, financial, children's and educational records, but there is no general Federal statute requiring the other consumer data be kept private. (See our post of November 4, 2009). The FTC has statutory authority to prosecute businesses that engage in commercial activities that are unfair or that involve misrepresentations. But the FTC Act is not a general grant of jurisdiction to the FTC to "go out and do good" and enact prescriptive regulations -- that may or may not benefit consumers -- wherever it sees fit.
At present, businesses are probably on safe grounds if they comply with the "Self-Regulatory Principles for Online Behavioral Advertising" announced by the FTC in 2007. These require behavioral targeters to (1) disclose their data collection and use, and provide users with an opt-in or opt-out, (2) provide reasonable data security measures, (3) obtain affirmative express consent form users before using data in a materially different way than initially promised, and (4) obtain affirmative express consent -- that is compliant with COPPA, FCRA or GLB requirements -- before using "sensitive data" about children, finances or health. (FN1)
This does not mean that firms involved in behavioral targeting can be complacent about the current FTC efforts to increase over online privacy. Even though the FTC may lack statutory authority to enact more restrictive regulations, this doesn't mean that it won't attempt do so anyway, via rulemaking or prosecution. It can take years or decades -- if ever -- for the courts to step in and curb the regulatory excesses of Federal agencies.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
Notes:
FN1 Businesses also need to comply with relevant state laws, such as California's OPPA, and international regulations, to the extent these apply.
This puts serious weapon in the hands of the general public that can be used protect legitimate copyright interests -- or can be misused by someone who has no rights in material used by a competing business to get its site shut down.
To prevent abuse of the notice and take down system, Congress put two major protective measures into the DMCA: the counter-notice procedures in § 512(g) and the misrepresentation rule in § 512(f). Section 512(f) provides that a person who "knowingly" misrepresents that material on a site is infringing is liable for any damages, including attorneys fees, incurred by the alleged infringer."
It can be very hard to prove a knowing misrepresentation occurred. Courts interpreting this statute have generally found that to be liable, the person who sent a false DMCA notice must have lacked the honest belief that material was infringing. As stated by the 9th Circuit, "Congress's apparent intent [was] that the statute protect potential violators from subjectively improper actions by copyright owners." Rossi v. MPAA, 391 F.3d 1000, 1005 (9th Cir. 2004).
To determine whether the sender of a false DMCA notice had a good faith belief in the truth of the notice, courts do not limit themselves to the testimony of the sender. Rather, courts consider the information that the sender relied on. However, it doesn't take much evidence for the court to find that the author of a DMCA notice acted in good faith.
For example, the Rossi case concerned the website www.internetmovies.com, which Rossi described as an online magazine that provided visitors with a directory of websites containing information about movies. Rossi's site contained the words "Join to download full length movies online now!" In fact, users could actually download no movies through Rossi's site or through the links to which he referred users -- a fact that MPAA investigators missed because they never attempted to download any movies from Rossi's site.
However, the 9th Circuit stated that the sender of a DMCA takedown notice is not required to perform a "reasonable investigation" and "cannot be held liable simply because an unknowing mistake is made, even if the copyright owner acted unreasonably in making the mistake." Id. at 1005. Accordingly, the 9th Circuit found that the MPAA acted in subjective good faith because the language on Rossi's site "led the MPAA employees to conclude in good faith that motion pictures owned by MPAA members were available for immediate downloading from the website."
The absconding president argued that he could not be held liable for under Section 512(f) because he believed that he the right to take control of the websites. He was the person that had registered them, and he had registered them prior to the formation of the Wisconsin corporation -- although after he had agreed with the other directors to form Third Education Group.
The Court ultimately found that the absconding president's belief that he had a right to the websites was ill-founded and that the domain names belonged to the Wisconsin corporation. However, the Court nevertheless found that he could not be held liable for misrepresenting his entitlement to the domain names. The Court stated that "[d]etermining the ownership of the website material required resolution of complex and somewhat novel questions common law related to unincorporated associations and how the intellectual property of a voluntary association is affect when the association subsequently incorporates." The absconding president was also largely responsible for coming up with the idea of the journal, and did or paid for nearly all the work on the website, including writing the allegedly infringing content at issue. As such, the judge concluded that there was no evidence that he acted in bad faith when he issued his DMCA notices. Id. at p. 16.
Many reading this are no doubt shouting, "What about the Lenz case?" Didn't that essentially impose a duty on the sender of a DMCA notice to at least investigate whether the use of the content at issue was fair? See Lenz v. Universal Musical Corp., 572 F.Supp.2d 1150 (N.D. Cal. 2008). Actually, what Judge Fogel stated in Lenz was that the DMCA requires copyright owners to make an "initial review of the potentially infringing material prior to sending a takedown notice." Id. at 1155 (emphasis added). As part of that initial review, there must a consideration of factors that relate to whether the use of copyrighted material is infringing, including the possible applicability of the fair use doctrine.
The impact of the Lenz case is that it implies that to act in good faith, the person sending a DMCA notice must have at least a basic knowledge of copyright law. This means that when reviewing a potentially infringing site (or setting up a review system), a copyright holder should consult with an expert on copyright law so that it can appropriately take into account the numerous factors that determine whether a use is infringing.
However, the case law on Section 512(f), as a whole also indicates that a copyright holder's review of a potentially infringing site does not have to go very far. If the facially obvious evidence supports a conclusion that a use is infringing and there is no other evidence that the copyright holder acted in bad faith, a Court is unlikely to hold it liable for sending a DMCA notice that ultimately proves to rest on a false claim of infringement.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
]]>In a recent decision, the 4th Circuit has reaffirmed its position that the CDA provides ISPs with immunity from suit for information created and developed by third parties. See Nemet Chevrolet v. Consumeraffairs.com, 4th Cir., No. 08-2097 (Dec., 29. 2009).
According to the Court,
"This Circuit has recognized the 'obvious chilling effect' the 'specter of tort liability' would otherwise pose to interactive computer service providers given the 'prolific' nature of speech on the Internet . . . Section 230 immunity, like other forms of immunity, is generally accorded effect at the first logical point in the litigation process. As we have often explained in the qualified immunity context, immunity is an immunity from suit rather than a mere defense to liability: and 'it is effectively lost if a case is erroneously permitted to go to trial'. . . We thus aim to resolve the question of §230 immunity at the earliest possible stage of the case because that immunity protects websites not only from 'ultimate liability,' but also from "having to fight costly and protracted legal battles." (emphasis added).
In the Nemet case, this meant that the Court resolved the question of §230 immunity in a 12(b)(6) motion to dismiss, which was filed at the outset of the case. The Court ultimately dismissed the claim, concluding that the factual allegations in the complaint could not plausibly support an inference that Consumeraffairs.com could be considered a creator of the defamatory posts in question.
Even Circuits that have dissented from a strict immunity interpretation of the CDA have also been willing to entertain such early motions to dismiss defamation suits. See Chicago Lawyers, 521 F.3d at 672 (affirming judgment on the pleadings based on a CDA immunity defense); Barnes v. Yahoo, 570 F.3d 1096 (9th Cir. 2009) (affirming motion to dismiss negligence claim based on CDA immunity defense). This suggests that the debate over whether the CDA is an "immunity" statute may be a bit of a tempest in a teapot without much practical effect on actual court decisions.
In any event, regardless the Circuit in which an Internet defamation claim is brought, plaintiffs with a colorable CDA defense are still advised to attempt to seek dismissal at the earliest stage in the litigation possible -- such as via an anti-SLAPP motion or motion to dismiss.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
No one on the defense side was represented at the preliminary injunction hearing. The court order also suggests that no one at the domain name registries/registrar/web hosting companies received notice of or were represented at the hearing. As a result, the order appears to be rife with substantive and procedural defects. (Not an unusual result when an order is issued without the benefit of defense counsel briefing).
But what about the substantive issue at stake in this order: What rights does a person who is the object of a defamatory Internet post have to get the post removed? Can the aggrieved seek an injunction against the author of the post? If she can't locate the author, who may be anonymous, does she have the right to get an injunction against the host of the website to get it removed?
In fact, the law is somewhat unsettled in this area, and the relief available may depend on the jurisdiction in which the plaintiff sues.
• The First Amendment to the U.S. Constitution bars injunctive relief, but only until a jury trial on whether the statement in question is defamatory has been conducted.
The First Amendment to the U.S. Constitution protects freedom of speech, but this protection is not unlimited. A series of U.S. Supreme Court decisions have held that a media outlet may be enjoined from further publication of a libelous statement. See Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 390 (1973). However, such an injunction may only be issued after a full jury determination that the statement is in fact defamatory. See Kramer v. Thompson, 947 F.2d 666, 676 n. 25 (3d. Cir. 1991) (summarizing cases).
• Free speech guarantees in several State constitutions bar all injunctive relief for defamatory speech.
The constitutions of certain states contain language that provides broader protections to free speech than the U.S. Constitution. For example, Article I, section 7 of the Pennsylvania Constitution provides:
"The free communication of thoughts and opinions is one of the invaluable rights of man and every citizen may freely speak, write and print on any subject, being responsible for the abuse of that liberty."
This provision has been held to mean that while a person may be held civilly liable for defamation, he may not be enjoined from speaking or repeating the defamation. Kramer v. Thompson, 947 F.2d 666, 677 (3d. Cir. 1991). So even if a jury had held that a web post is defamatory, neither the post's author, nor a web site that published it, could be ordered to take the post down. (The New Jersey Constitution contains free speech language similar to Pennsylvania's: " Every person may freely speak, write and publish his sentiments on all subjects, being responsible for the abuse of that right." The New Jersey court order may have violated this provision, as well).
On the other hand, courts in some other states have permitted injunctions against further publication of defamatory statements, once the plaintiff has obtained a jury verdict. See id. at 676-77. In these states, there would be no state or federal constitutional bar to injunctive relief against the author or publisher, once the plaintiff obtained a jury verdict finding the web post defamatory.
• The Communications Decency Act likely bars actions for injunctive relief against ISPs for third party posts
The Communications Decency Act (47 U.S.C. § 230) provides that "No provider or user on an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." See Section 230(c)(1). Section 230(c)(3) further states that "No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section."
Some early court decisions held that these provisions mean that an ISP cannot be held liable for tort damages for third party posts, but a court may issue an injunction requiring an ISP to take down a defamatory post. See Mainstream Loudon City Library v. Board of Trustees of the Loudoun City Library, 2 F.Supp.2d 783, 790 (E.D. Va. 1998).
However, this position was not followed by subsequent courts, who viewed the CDA as providing ISPs with immunity from any type of civil action for third party defamatory posts. See, e.g., Ben Ezra, Weinstein and Co. v. AOL, 206 F.3d 980 (10th Cir. 2000); Noah v. AOL Time Warner, 261 F.Supp.2d 532, 539-540 (E.D. Va. 2003).
Recent cases in the 7th and 9th Circuits have questioned whether it is proper to think of the CDA as an immunity statute. It remains to be seen whether this will affect legal thinking on whether the CDA bars injunctive relief against ISPs for third party posts. (At present, this looks like another substantive error by the New Jersey court).
In sum . . .
What all this means is that the relief available to a plaintiff depends on the jurisdiction in which he/she attempts to get an injunction. In all jurisdictions, the First Amendment prohibits a court from issuing an injunction against further publication until a full evidentiary hearing on whether the post was defamatory. In some jurisdictions, current state law prevents a court from issuing an injunction prohibiting further publication against any party - including the ISP or the author of a post. In other jurisdictions, current views on the CDA prevent a court from issuing such an injunction against an ISP, but not the author of the post.
If a plaintiff wishes to obtain an enforceable takedown order against an ISP, it should prepare for an uphill battle. However, with careful pre-litigation planning, it can at least reduce the number of battles that it will have to fight.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
The Court's decision arose out of a controversy over the film Hillary: The Movie, a film criticizing Sen. Hillary Clinton, that nonprofit organization Citizens United wished to broadcast during the 2008 election season. Citizens United was concerned that the film and ads that supported it would be covered by §441b's ban on corporate-funded expenditures, so it filed a suit for declaratory and injunctive relief against the Federal Election Commission (FEC). A District of Columbia District Court three-judge panel denied Citizens United's petition for a preliminary injunction, holding that §441b was facially constitutional under Supreme Court precedent.
The Supreme Court has now overruled that District Court ruling. The opinion was written by the "centrist" Justice Kennedy, with concurrences by Justices Roberts, Alito, Scalia, and Thomas.
Justice Kennedy's opinion characterized §441b's prohibition on independent corporate expenditures as a "ban on speech." He noted that laws that burden political speech are subject to strict scrutiny, which requires the Government to prove that the restriction "furthers a compelling interest and is narrowly tailored to that interest." Few restrictions on speech have ever satisfied this test.
According to Kennedy, "the First Amendment stands against attempts to disfavor certain subjects or viewpoints," Indeed, "[s]peech restrictions based on the identity of the speaker are all too often simply a means of content control." This means that the Government cannot impose restrictions on certain disfavored speakers. That includes corporations, because "First Amendment protections extend to corporations." Political speech does not lose First Amendment protection "simply because its source is a corporation."
Kennedy admitted that since the latter part of the 19th Century, state and federal laws have imposed a ban on direct corporate contributions to candidates. However, laws prohibiting corporate expenditures for independent corporate advocacy were not enacted until 1947. Corporate expenditures that are made to candidates are different from independent expenditures, because donations made directly to candidates raise the possibility of corruption -- as held in Buckley v. Valeo, 424 U.S. 1, 47-48 (1976). As such, until 1990, the Supreme Court upheld laws restricting corporate donations to candidates, but struck down laws restrictions on corporate independent expenditures. See, e.g., First Nat. Bank of Boston v. Belotti, 435 U.S. 765, 784 (1978).
Justice Kennedy now argued that the Austin decision should be abandoned because it was contrary to the political structure set up by the Constitution and because of its damage to free press rights. Leveling electoral opportunities means that the Congress is imposing its own judgments on what candidate capabilities should contribute to the outcome of an election. But "the Constitution confers on voters, not Congress, the power to choose the Members of the House of Representatives." Citing Davis v. FEC, 554 U.S.___ (2008).
Moreover, accepting Austin's anti-distortion rationale "would produce the danger and unacceptable consequence that Congress could ban political speech of media corporations." While media corporations are current exempt from §441b, they also accumulate wealth with help of the corporate form. So there is no reason that the Government couldn't use as anti-distortion rationale to also squelch their speech as well -- a result that would certainly be at odds with all First Amendment precedent. Moreover, why give a special exemption for media corporations? Kennedy noted that "[w]ith the advent of the Internet and the decline of print and broadcast media . . . the line between the media and others who wish to comment on political issues becomes far more blurred."
Justice Kennedy argued that Austin interferes with the "open marketplace" of ideas protected by the First Amendment. "It permits the Government to ban political speech by millions of associations of citizens . . . most of [which] are small corporations without large amounts of wealth." Indeed, while the §441b is ostensibly designed to prevent the 'distorting effects of immense aggregations of wealth', "[i]t is not even aimed at amassed wealth," since the vast majority of corporations are quite small in size. As a result, "[t]censorship we now confront is vast in its reach," muffling the voices that best represent the most segments of the economy." While large corporations are able to afford other means to reach Government officials, such as employing lobbyists. The effect of §441b is that "smaller or nonprofit corporations cannot raise a voice to object when other corporations, including those with vast wealth, as cooperating with the Government."
Kennedy rejected the notion at §441b is needed to control bribery or undue influence on public officials. Because independent corporate expenditures are not pre-arranged or coordinated with individual candidates, this "undermines the value of the expenditure to the candidate." Independent expenditures also do not lead to quid pro quo corruption. He further rejected the argument that corporate independent expenditures should be limited to protect dissenting shareholders from being forced to fund political speech. After all, this argument would prevent even media corporations from engaging in political speech.
In a direct nod to those involved in Internet media (including me), Kennedy added:
"Rapid changes in technology -- and the creative dynamic inherent in the concept of free expression-- counsel against upholding a law that restricts political speech in certain media or by certain speakers. . . Today, 30-second television ads may be the best way to convey a political message. . . . Soon, however, it may be that Internet sources, such as blogs and social networking Web sites, will provide citizens with significant information about political candidates and issues. Yet, §441d would seem to ban a blog post if that blog were created with corporate funds. . . . The First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech."
The conclusion of Kennedy and the majority of the Court was that Austin was overruled and the provisions in § 441b on corporate independent expenditures were invalidated.
On the other hand, the Court did uphold provisions requiring televised electioneering communications to disclose the identity of the organization responsible for the ad. This could include requiring ads funded by persons other than the candidate to contain a disclaimer that "____ is responsible for the content of this advertising," and that the communication "is not authorized by any candidate or candidate's committee." This part of the Court's ruling is consistent with a long history of Supreme Court precedent and was joined by all members of the Court, except for Justice Thomas.
This ruling is great news for those involved in all forms of media, who no longer need to fear the restraining hand of Government when speaking their mind about those who would rule them.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.
]]>As the basis for its actions against Comcast, as well as its proposed rulemaking, the FCC cited its longstanding agency policies to encourage the development of broadband and promote the open and interconnected nature of the Internet. See, e.g., FCC, Notice of Proposed Rulemaking, FCC 09-93 (Oct. 22, 2009). However, the FCC is not a part of the legislative, but the executive branch of government. It is a creature of statute and has no power to regulate anything except as provided by Congress via statute.
Accordingly, Comcast filed an appeal against the FCC's actions against it, claiming that the FCC lacked jurisdiction -- i.e. -- statutory authority -- to regulate the Internet. See Comcast v. FCC, D.C. Cir, No. 08-1291. The FCC's briefs indicate that the basis for its claimed jurisdiction against Comcast is the same as the basis for its claimed right to promulgate its net neutrality rules. So, a ruling against the FCC in the Comcast case could well doom its proposed net neutrality rules, as well.
Reports from the D.C. Circuit's hearing of the Comcast appeal indicate that the Court viewed the FCC's jurisdictional claims with considerable skepticism. So how solid are the FCC's claims that it has the right to promulgate net neutrality rules?
By way of background, the federal statute the provides the FCC with its authority is the Telecommunications Act. The Act is subdivided into multiple sub-chapters or "Titles" that provide rules for specific communications technologies: Title II regulates common carriers (e.g., telephone companies), Title III regulates radio and Title V regulates cable. The Act states in broad terms that the FCC "shall execute and enforce the provisions of" the Telecommunications Act." 47 U.S.C. § 151.
The Internet uses telephone, cable and radio services which are subject to FCC regulation. However, at its heart, the Internet is a system of interconnected computers that is far broader than any of these communication services. Accordingly, since the 1970s, the FCC has recognized a distinction between computer processing services (including the Internet), and communications services (like telephone services) over which these computer processing services are carried. These separate classifications were incorporated by Congress into the 1996 Telecommunications Act -- which distinguishes between "information services" and "telecommunications services." Information services include "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications" -- the kinds of services provided via the Internet. 47 U.S.C. § 153(20). Telecommunications services include "transmission of information, without a change in its form or content" -- i.e., traditional telephone data services. 47 U.S.C. §§(43), (46).
This distinction makes a difference, because only providers of telecommunications services are considered "common carriers" and subject to Title II regulations. 47 U.S.C. § 153(44). See NCTA v. Brand X Internet Services, 545 U.S. 969 (2005). Among Title II regulations is a provision prohibiting common carriers from engaging in "any unjust or unreasonable discrimination" in services. 47 U.S.C. § 202(a).
So what is the basis for the FCC's proposed Internet neutrality rule making?
The FCC bases its claim for jurisdiction in its "ancillary jurisdiction." According to the FCC, it has "ancillary jurisdiction over matters not directly addressed in the Act when the subject matter falls within the agency's general statutory grant of jurisdiction and the regulation is reasonably ancillary to the effective performance of the Commission's various responsibilities." FCC, Notice of Proposed Rulemaking, No. 09-93 (Oct. 22, 2009) at 36.
The U.S. Supreme Court has recognized that the FCC does have ancillary authority to regulate. However, as argued by Comcast, this ancillary authority is restricted to responsibilities that are specifically granted to the FCC in the Act. Comcast v. FCC, D.C. Cir., No. 08-1291, Petition at 64. As stated by Chief Judge David Santelle of the D.C. Circuit Court of Appeals at the hearing on Comcast's Petition, the FCC's ancillary jurisdiction is not a general mandate for the FCC to go out and do good. Fn1.
The problem for the FCC is that there is no "Title" in the Telecommunications Act that specifically targets the Internet and gives the FCC jurisdiction over it. Lacking this specific grant of authority, the FCC has pointed to statements of general policy, such as those contained in Sections 230(b) and 706(a) of the Act, as the basis for its claimed jurisdiction. See FCC, Notice of Proposed Rulemaking, No. 09-93 (Oct. 22, 2009) at 36, FCC v. Comcast, D.C. Cir., No. 08-1291, Respondent's Brief at 36-42.
In its Comcast brief, FCC cited a few statements in the preamble to Section 230(b) which state that "It is the policy of the United States . . . to promote the continued development of the Internet . . . to preserve the continued development of the Internet" and "to preserve the vibrant and free market that presently exists for the Internet." Comcast v. FCC, No. 08-1291, Respondent's Brief at 36. However, while the preamble to Section 230(b) contains these nice statements, the statute nowhere directs the FCC to do anything to enforce these sentiments. Rather, Section 230 provides several laws of general applicability to further these policy aims. Moreover, the full text of the sections cited by the FCC actually state that "It is the policy of the United States . . . (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation . . ." 47 U.S.C. § 230(b)(2). Frankly, it seems disingenuous for the FCC to have cited this sections as a basis for its net neutrality regulations.
Section 706(a) does state that the FCC and state regulators shall "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans broadband services." But again, nowhere does this section indicate that the FCC is to regulate the Internet itself. Again, The FCC's citation of this statute appears to be a clear overreach.
As back-up arguments for net neutrality jurisdiction, the FCC also argues that it has the right to regulate bits and pieces of the Internet that are related to other communications services that it does have the authority to regulate. For example, Section 257 tells the FCC to promote diversity and competition in the provision of telephone services. According to the FCC, this means that it has ancillary jurisdiction over VOIP services, because "VOIP can affect the "national policy" of "vigorous economic competition [and] technological advancement" and the removal of barriers to market entry that are the subject ot 47 U.S.C. § 257." See FCC, Notice of Proposed Rulemaking, No. 09-93 (Oct. 22, 2009) at 36, FCC v. Comcast, Respondent's Brief at 44-45.
Similarly, the FCC also argues that it has the right to regulate Internet services to the extent these are provided via "spectrum-based facilities" -- i.e. mobile phones. FCC, Notice of Proposed Rulemaking, No. 09-93 (Oct. 22, 2009) at 36.
Of course, this piecemeal basis for jurisdiction would not appear to give the FCC the right to regulate the portions of the Internet that do not involve VOIP or wireless transmission -- which is most of the Internet. In addition, the FCC's prior position has been that Internet services should not be regulated, regardless of the medium over which they are provided, whether it be telephone lines, cable or wireless -- a position that is consistent with the Act's exemption of information services from Title II common carrier regulations.
Given the aggressiveness of the FCC's recent attempts to regulate the Internet, the weakness of its jurisdictional basis for doing so is astounding. It is not surprising that the FCC has been making noises about pushing for Congressional action to give it the authority over the Internet it presently may well lack.
Notes:
Fn1 In its Respondent's Brief in Comcast, the FCC argued that its ancillary jurisdiction under Title I of the Act alone provided a sufficient jurisdictional basis for its net neutrality actions. However, the FCC seems to have little confidence in this argument. It placed it last in its Comcast brief and arguably does not advance this as a separate theory in its proposed rulemaking.
Courts routinely enforce clickwrap agreements. See our post of November 13, 2009. However, the FTC has begin to subject such agreements to increased scrutiny and found some to be unfair where users were asked to register their assent to the agreement before being aware of all their terms. See our post of September 21, 2009. Courts often have difficulty enforcing browsewrap agreements for similar reasons -- because it is often difficult to demonstrate that the user ever read the terms of use or assented to them.
However, in recent case, a Missouri Court of Appeals upheld a browsewrap agreement - but one that verged on actually being a clickwrap agreement. The case, Major v. McCallister, Missouri Court of Appeals, No. CD29871 (Dec. 23, 2009), involved a website operated by ServiceMagic, which offered users free referrals to construction contractors.
A visitor to the ServiceMaster website first encountered several screens in which he/she inputted information about his/her remodeling project. Each of these pages contained a hyperlink to ServiceMaster's Terms of Use. A user was not required to click on the hyperlink or read the Terms of Use to proceed.
After the user entered his/her project information, the ServiceMaster site would produce a screen stating that the user had been matched to several contractors. The screen also contained space for the user to enter his/her contact information, followed by a "Submit for Matching Pros" button. Next to the button was a blue hyperlink to the website's Terms of Use and the statement "By submitting you agree to the Terms of Use."
The Court was not bothered by the fact that a user could opt not to read the Terms of Use. Rather, it cited approvingly a statement from the Eastern District of Missouri that "[f]ailure to read an enforceable online agreement, as with any binding contract, will not excuse compliance with its terms. A customer on notice of contract terms available on the Internet is bound by those terms." (Citing Burcham v. Expedia, Inc., 2009 WL 586513 at *2).
So what do we make of this ruling? While the Court characterized the ServiceMaster site as involving a browsewrap agreement, the site design verges on a clickwrap agreement. So this ruling may not tell us much about how the Court would rule when dealing with other browsewrap agreements. However, recent FTC actions to the contrary notwithstanding, as the Internet portion of the economy grows and Internet contracting becomes more pervasive, we are likely to see more courts ruling as the Missouri Court of Appeals did here.
David Johnson's practice focuses on complex litigation and science, technology and health law. David can be contacted at (415) 399-6032 or DJohnson@ebglaw.com.