User-Related Agreements: Recent Cases & Trends June 17, 2009

Agenda  Creating enforceable online agreements  Online agreements: lessons learned  Best practices for drafting enforceable arbitration agreements Will Rava Alvaro Alvarez Miriam D'Jaen Jason Howell Kirk Soderquist

Creating Enforceable Online Agreements Kirk Soderquist Jason Howell

The General Rule (Contracts 101)  Online agreements will typically be enforceable if the parties:  Had reasonable notice of the terms, and  Demonstrated an objective intent to enter into the agreement

Methods of Obtaining Assent Click to Accept with Link to Terms of Service Second Life There Second Life There

Methods of Obtaining Assent  Pop-up window  Must scroll through  Must click agree

Legal Landscape  Federal Law  Electronic contracts can be as valid as paper contracts (see federal E-SIGN Act)  Under E-SIGN, an electronic contract must be in a form that can be stored and accurately reproduced by all parties  State Law  State laws govern the formation and enforceability of online contacts

CoStar v. Field  CoStar ran an online database subscription service  Subscribers had to scroll through and accept pop-up terms of use the first time they logged on and periodically thereafter  Defendant non-subscribers obtained a subscriber's log on information and used the service for years  CoStar sued on breach of contract, fraud, copyright infringement and other grounds  Defendants filed a motion to dismiss for lack of personal jurisdiction  Does the forum clause in CoStar's online terms of use apply to defendants?

CoStar v. Field  Court upheld forum selection clause and found defendants had notice and assented  Pop-up window appeared on first log-in and users had to scroll through and accept terms  Log-in screen always noted that users must agree to linked terms of use  Users were periodically required to re-agree to terms through a pop-up window

Other Theories Supporting Enforceability  Plaintiffs argued they did not have sufficient notice of the online terms and were therefore not bound by the forum selection clause in AOL's Member Agreement  Sub-licensee theory - Motise v. America Online, Inc.  Plaintiff used stepfather's account  Court found:  Forum selection clause upheld  When a licensed user allows a third party to use its account, the third party becomes a sub-licensee and is equally bound by the terms

Other Theories Supporting Enforceability  Agency theory - Abramson v. America Online, Inc.  Plaintiff used account set up by son  Court found:  Forum selection clause upheld  Son acted as agent when plaintiff gave son actual/apparent authority and ratified contract

In the Matter of Sears Holdings Management Corp.  SHMC provided an optional, downloadable program that tracked user internet and computer use, and paid consumers $10 to participate  FTC alleged that the software could track secure online sessions (e.g., shopping and banking transactions), along with some other non-internet activity  Tracking was disclosed in the license terms

In the Matter of Sears Holdings Management Corp.  Scrolling through terms was possible, but not required  Users were required to click a box to agree to the terms  Was SHMC's notice and asset procedure sufficient?

In the Matter of Sears Holdings Management Corp.  FTC found SHMC's tracking disclosure insufficient and alleged deceptive practices  Under the proposed settlement:  If SHMC provides tracking software in the future, it must clearly and conspicuously disclose the  Data monitored, recorded, or transmitted;  Whether the data will be used by a third party  The disclosure must be made prior to installation and separate from any user license agreement, privacy policy or terms of use

Douglas v. Talk America, Inc.  Changes to an online contract are unenforceable without notice to the user  Subsequent acceptance by the end-user of the new terms

Best Practices (Notice and Assent)  Notice  Display online terms and agreements to consumers in a clear, conspicuous manner (e.g., via a large pop-up screen in easy-to-read font) "before" they play, participate, submit content, make a purchase, etc.  Require users to scroll through terms before they are permitted to proceed  Clearly and conspicuously state that users must agree to terms at log-in  Make terms and agreements printer-friendly

Best Practices (Notice and Assent)  Assent  Require users to click to agree initially and periodically thereafter  If a default I AGREE or I DISAGREE button or box is clicked, ensure "I DISAGREE" is the default  Give users sufficient time to carefully review terms and sign (e.g., do not time them out or temporarily flash terms

Online Agreements: Lessons Learned Will Rava

MDY Industries, LLC v. Blizzard Entertainment, Inc., 2008 WL (D. Ariz. July 14, 2008)

MDY Industries, LLC v. Blizzard Entertainment, Inc.  "Moreover, any person reading the TOU clearly would understand that a licensee is not authorized to play WOW with Glider" (at *7)  "One wonders what more could be done to make clear that the purchaser is a licensee, not an owner, of the software" (at *9)

Best Practices for Drafting Enforceable Online Agreements Alvaro Alvarez Miriam D'Jaen

To Arbitrate, or not to Arbitrate  Pros:  Speed and flexibility  Certainty  Confidentiality  Less formal  Cons:  Recent cases and invalidation  Increasing formalization and discovery  Fees add up  Split the baby  Less formal

Best Practices for Drafting Enforceable Arbitration Agreements  Procedural unconscionability  Provide conspicuous notice and opportunities for affirmative consent  Use clear headings, capitalized letters, and line breaks  Require consumers to initial arbitration clause or click an "I accept" button

Best Practices for Drafting Enforceable Arbitration Agreements  Substantive unconscionability  Mutuality of remedies and obligations  Costs and fee-sharing  Class action waiver  Choice of law and venue  Confidentiality

Bragg v. Linden Research, Inc.  Procedural Grounds  Take-it-or-leave-it  No market alternatives  "GENERAL PROVISIONS" = not acceptable  Obscure costs and rules  Substantive Grounds  One-sided remedies  No real "cost sharing"  "Sole discretion" on a number of items  Forced to arbitrate in California  Mandatory confidentiality

Questions?  Kirk Soderquist   Jason Howell   Will Rava   Alvaro Alvarez   Miriam D'Jaen 