Contracts

“Yet Another Hierarchical Officious Oracle” Is Unable to Create an Enforceable Online Agreement

May 14, 2013

“Yet Another Hierarchical Officious Oracle” is Yahoo!, of course. And, its lawyers should be embarrassed by Yahoo!’s inability to create enforceable online Terms of Service (TOS). The issue arose in Ajemian v. Yahoo!, decided by the Massachusetts Appeals Court on May 7, 2013. In this case the plaintiffs were the administrators of a decedent’s estate. They wanted access to the decedent’s email account to let his friends know of his death and memorial service, and later to locate assets of his estate. Yahoo! refused to provide the online password, and the administrators filed suit in Massachusetts to compel access. Yahoo!, in turn, argued the suit should have been brought in California and, in any event, it was too late. These arguments were based on Yahoo!’s terms of service which provide, in part, as follows: You and Yahoo agree to submit to the personal and exclusive jurisdiction of the courts located within the county of Santa Clara, California…. You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of the Service or the TOS must be filed within one (1) year after such claim or cause of action arose or be forever barred.” The decedent in this case had opened his account in 2002, and he died in 2006. In the interim Yahoo! had updated its…

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D. Mass. Judge Stearns: Advertising Claims Create Express Warranty Despite Disclaimer in EULA

May 6, 2013

Assume a software vendor makes advertising clams regarding its product’s functionality. However, its end-user license agreement (EULA) is very narrow – it provides a 30 day  express warranty that (i) “the medium (if any) on which the [s]oftware is delivered will be free of material defects” and (ii) that “the software will perform substantially in accordance with the applicable specification.” Assume further that that software performs in a manner consistent with the “applicable specification” (the user manual) but inconsistent with advertising claims for the product. In fact,  not surprisingly given that this case is in federal court, it malfunctions and wipes out the data on the purchaser’s hard drive.  You might think that the EULA would prevent a purchaser from claiming breach of express warranty, but under Delaware law (and the law of most states) you would be incorrect. AVG Technologies is the seller of PC TuneUp. In Rottner v. AVG Technologies, Massachusetts U.S. District Court Judge Richard Stearns, applying Delaware law (as stipulated in the EULA) ruled on this issue in the context of AVG’s motion to dismiss. He held that AVG’s advertising claims must be viewed as part of the express warranty for PC TuneUp, despite the EULA’s attempt to disclaim them: I am confident that the Delaware courts would consider PC TuneUp’s claimed functionality as an express warranty separate and apart from the EULA’s content-less warranty provisions.  … Here, although the EULA disavowed…

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You Want to Blog for Huffpost? Well, I Have to Warn You – We’re Pretty Darn Selective!

December 13, 2012

A lot of people blogged for The Huffington Post for free between 2005 and 2011. But after Huffpost was sold to AOL for $315 million in 2011, they had second thoughts about their generosity. They filed a class action seeking compensation for their work based on claims of unjust enrichment and deceptive business practices, seeking one-third of that money for the bloggers. The trial court, and now the Second Circuit, rejected their claims. As the Second Circuit stated early this week in Tasini v. AOL (2d Cir. Dec. 12, 2012): Plaintiffs’ basic contention is that they were duped into providing free content for The Huffington Post based upon the representation that their work would be used to provide a public service and would not be supplied or sold to “Big Media.” Had they known that The Huffington Post would use their efforts not solely in support of liberal causes, but, in fact, to make itself desirable as a merger target for a large media corporation, plaintiffs claim they would never have supplied material for The Huffington Post. The problem with plaintiffs’ argument is that it has no basis in their Amended Complaint. Nowhere in the Amended Complaint do plaintiffs allege that The Huffington Post represented that their work was purely for public service or that The Huffington Post would not subsequently be sold to another company. To the contrary, plaintiffs were…

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Baker v. Goldman Sachs – The Business Deal From Hell

December 10, 2012

An interesting “David v. Goliath” jury trial is scheduled to begin in Massachusetts U.S. District Court Judge Patti Saris’s Boston courtroom this week. The case has received a fair amount of press coverage, but not nearly enough in my opinion.  (Steven Syre Boston Globe column today, July 2012 NYT article). The events in Baker v. Goldman Sachs date back to the heady days of the dotcom era. In short, James and Janet Baker (pictured here) spent much of their careers pioneering speech recognition technology which they commercialized under their company Dragon Systems, based in Newton, Massachusetts. The Bakers were legendary in the Massachusetts tech community in the 1990s – home-based technologists who came up with a promising-today, sky-is-the-limit-tomorrow technology. In 2000 they sold Dragon for almost $600 million to Lernout & Hauspie, a Dutch company. Unfortunately, they were paid fully in Lernout stock, and almost immediately after the sale Lernout was discovered to have been cooking its books.  The stock went to zero, and so did the consideration the Bakers received for their company. For the Bakers, this was a business catastrophe of mythical proportions.  One day they owned an immensely valuable company that that owned technology they had spent decades developing.  The next day they had sold the company in exchange for almost $600 million of Lernout stock.  Within a few months, their company was gone and their stock worth…

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District of Massachusetts Case Shows Challenges in Software Development Litigation

November 29, 2012

Custom software development agreements that go awry and end up in litigation are notoriously difficult cases. The reasons for this (to name just a few) are the finger-pointing (“your fault, no yours”), the complexity, ambiguity or incompleteness of the functional/technical specifications, the presence of third-party developers or hardware vendors (who can also be blamed), and the obscure, technical nature of the cases, which make them distasteful to judges and dull to juries. Massachusetts U.S District Court Judge Richard G. Stearns issued a rare decision in one of these disputes last week. The case, Liberty Bay v. Open Solutions, involved loan origination software developed under a standard, milestone payment-based License Agreement. After a four year development project plagued with difficulties the Client terminated the agreement and the software Vendor filed suit, seeking the balance owed under the license agreement. The Client, for its part, wanted a refund of monies paid and additional consequential damages. Each side asked the court to issue summary judgment in its favor, and Judge Stearns wrote a decision addressing the contentions. The background of the case is typical of thousands of similar projects.  The project went off-schedule almost from the start. After a series of delays and defective deliveries the Client terminated the agreement and demanded a refund of monies paid to date. The Vendor asked for more time, and the Client agreed to provide it. However, subsequent…

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Online Agreements – Easy To Get Right, Easy To Get Wrong

October 16, 2012

It’s easy to create an enforceable online “click-wrap” agreement.  But, as two recent cases remind us, it’s also easy to do it wrong.  Two recent cases are a reminder of this. In the first case, In re Zappos.com Security Breach Litigation, Zappos was sued in connection with a large data security breach. Responding to the predictable class action lawsuit, Zappos argued that the plaintiffs were required to arbitrate under Zappos’ online user agreement. However, Zappos didn’t have a ‘user agreement,” it only had terms and conditions.  And, it did not require purchasers to “click through” to indicate acceptance of those terms.  The terms, which included the arbitration requirement, were under a link users were not even required to access while making a purchase, much less consent to. Quoting the court: we cannot conclude that Plaintiffs ever viewed, let alone manifested assent to, the Terms of Use. The Terms of Use is inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use. No reasonable user would have reason to click on the Terms of Use, . . . . . . The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic…

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First Circuit: Company’s Vague Contract Insufficient to Prevent Supplier From Competing

September 5, 2012

A contract between a company and its supplier states that the supplier shall not “develop any other product derived from or based on” the company’s product.  Can the company enforce this provision against the supplier when the supplier develops a product that does not appropriate any trade secrets or novel features of the company’s product? Not according to a decision of the First Circuit issued on September 4th. Where the features of the product are well known in the art, and there has been no appropriation of novel features of the product, such a contract provision cannot be used to enjoin sales of the “derived” product: “a private contract may restrict copying of an idea that was not in the public domain at the time of contracting, but may not withdraw any idea from the public domain.” Contour Design, Inc. v. Chance Mold Steel Co., Ltd. (1st Cir., Sept. 4, 2012)

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The Road Goes on Forever, But the Lawsuits Never End: ConnectU, Facebook, Their Entourages

January 18, 2010

The ConnectU/Facebook legal saga is truly astounding.  Imagine a mature Oak tree.  Now give the it properties of Kudzu vine (the “vine that ate the South”).  Each branch of this tree is another lawsuit involving ConnectU, Facebook, the principals, and their lawyers. Now, a new branch has burst forth.  Wayne Chang has sued ConnectU and its lawyers in Superior Court Business Litigation Session in Suffolk County, Boston, claiming that Chang is entitled to as much as 50% of the value of the ConnectU/Facebook settlement (so called, since ConnectU has challenged the finality of the settlement). You can read about the ConnectU/Facebook saga here, or wait until the movie comes out. Here is the complaint in the Chang case, and apologies to Robert Earl Keen. Chang v. Winklevoss Complaint

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"STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REVISED TERMS TO THE WEBSITE" . . .

June 11, 2009

… says Professor Eric Goldman, in his apologetically belated comments on Harris v. Blockbuster Inc., (N.D. Tex. April 15, 2009).  I discussed this case briefly in April, shortly after the decision was published.  To reprise, the court held that an arbitration clause in Blockbuster’s online t’s and c’s was unenforceable because Blockbuster was permitted to unilaterally amend the contract without notice. Prof. Goldman’s take on it (in addition to the title of this post), is – This language has a significant risk of killing the entire contract, which would strip away a lot of very important provisions that should be/need to be in the contract. So far Blockbuster has only lost its mandatory arbitration clause, but it’s possible other important risk management clauses (warranty disclaimer, liability limits, dollar caps, etc.) will similarly fall. If those clauses fail, let the plaintiff feasting begin! Professor Goldman has commented on a Ninth Circuit case to similar effect, Douglas v. US District Court ex rel Talk America, (9th Cir. 2007).  After discussing that case (which is very similar to Blockbuster), he stated: Although I don’t have any great practice-oriented recommendations based on this opinion, I do hope this opinion will help contribute to the demise of the “check back frequently for amendments” provisions in online user agreements. I’ve always considered those among the worst excesses of the dot com era.

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"Sign This Contract. By the Way, We Can Modify It At Any Time." Is This Enforceable?

April 22, 2009

Here’s an interesting case out of the U.S. District Court, Northern District of Texas.  In Harris v. Blockbuster the court refused to enforce an arbitration provision in Blockbuster’s online click-wrap agreement. The reason was that Blockbuster’s click-wrap contract was unilaterally modifiable by Blockbuster.  Here is the key paragraph, which is still on the Blockbuster Online site as of today: These Online Rental Terms and Conditions are subject to change by Blockbuster at any time, in its sole discretion, with or without advance notice. The most current version of the Online Rental Terms and Conditions, which will supersede all earlier versions, can be accessed through the hyperlink at the bottom of the blockbuster.com site. You should review the Online Rental Terms and Conditions regularly, to determine if there have been changes. Continued use of your BLOCKBUSTER Online membership constitutes acceptance of the most recent version of the Online Rental Terms and Conditions. Yep, I’m sure many Blockbuster subscribers check Blockbuster’s online T&Cs regularly to see if they’ve changed.  Shame on you if you don’t! The court wrote: The Court concludes that the Blockbuster arbitration provision is illusory . . . .  There is nothing in the terms and conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website. The Court concludes that the Blockbuster…

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First Circuit Weighs in on the Law of Unjust Enrichment in Massachusetts

March 3, 2009

The terms “unjust enrichment,” “restitution,” “quasi-contract” and “constructive trust” cause the average lawyer to recoil with apprehension (although she doesn’t show it, of course). We were forced to grapple with some of these ancient legal concepts in law school, but we quickly migrated to more modern legal principles, and although we may have remembered the terms (any lawyer worth his salt can throw around the terms unjust enrichment and restitution), the depth of knowledge of most lawyers on these topics is shallow at best. We were relieved when we could move on to things like the Uniform Commercial Code, which dates back only to the early 1950′s. In fact, it’s easy to trace “unjust enrichment” and related terms back as far as the 1600s, and earlier. A search on Google Book Search reveals a volume titled “Unjust Enrichment in England before 1600.” References to Roman Law are also not difficult to find. When you start dealing with legal principles forged during the Middle Ages or Roman times, you know it’s going to be difficult. Imagine, then, how QLT, Inc., a Canadian-based biopharmaceutical company, felt when it learned that it had been sued in federal court in Massachusetts and that the outcome of the case hinged on the application of these ancient legal doctrines? That was the situation that QLT faced. Even worse, QLT found itself in the courtroom of U.S….

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And Now, a Brief Reminder From the SJC: Employee Handbooks Can Create a Binding Obligation on the Part of the Employer, So Be Careful

January 15, 2009

For more years than I can remember we’ve been warning clients that an employee handbook can create unintended legal obligations.  A case decided by the Supreme Judicial Court late last year (December 2008), serves as a reminder of this hazard. The court found that a sick day policy contained in a handbook bound the Mass Turnpike Authority to pay certain benefits. The case attempts to leave the issue of whether a handbook creates a binding obligation open to a case-by-case analysis (especially when it comes to promises of employment to at-will employees, where it seems less likely that a handbook can get employers in trouble), but the fact remains that this is an area fraught with risk. Who even wants to go through the hassle and expense of defending one of these cases, when they are so easy to avoid? Placing a prominent “disclaimer” at the front of the book will do the job: “This handbook is is presented as a matter of information only and its contents should not be interpreted as a contract or other form of obligation between the firm and any of its employees” Rarely does the law make avoiding a legal headache so simple. Link to the case: LeMaitre v. Massachusetts Turnpike Authority (SJC, 2008).

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