by Lee Gesmer | Oct 15, 2014 | Contracts
I’ve often advised vendor-clients that one of the best ways to protect themselves is to include an acceptance clause in their agreements. This can be accomplished either through an explicit acceptance clause or a short warranty period, which can function as a de facto acceptance clause. For some reason, many customers seem to forget about the acceptance clause, giving the vendor a strong defense to a claim of breach.
This is what happened in Samia v. MRI Software, decided by Massachusetts federal district court judge Nathaniel Gorton on October 9, 2014.
Samia purchased computer software, consulting and technical support from MRI. The License and Services Agreement provided for a 30 day warranty period, during which Samia could notify MRI of any non-conformities and trigger a “repair-and-replacement” clause. This was, in effect, a 30 day acceptance period – Samia had 30 days to vet the software and notify MRI of any defects. This was the sole and exclusive remedy, and all other remedies were disclaimed.
The contract contained a separate provision addressing defects related to custom work authorizations. Here, Samia had a 30 day acceptance period during which it could “test any project elements … and notify [MRI] of all potential deficiencies relative to the applicable specification for such work.”
To make a long story short, Samia claimed to have found non-conformities and deficiencies, but it failed to given written notice to MRI during the 30 day period following delivery. On this basis, the court allowed MRI’s motion for summary judgment on most of its claims, leaving alive only a claim of negligent misrepresentation based on oral promises allegedly made to Samia. However, little is left of Samia’s case at this point.
If you are a vendor, do your best to include an acceptance clause (or a short warranty period) in your agreements. If you are a customer, challenge this, but if you are forced to accept it, be sure to rigorously test any deliveries in a timely manner, to avoid the defense that defeated Samia in this case.
Samia Companies LLC v. MRI Software LLC (D. Mass. Oct. 9, 2014)
by Lee Gesmer | Oct 10, 2014 | DMCA/CDA
Many observers have commented that if they had to identify one law that has had the greatest impact in encouraging the growth of the Internet, they would chose the Communications Decency Act (“CDA”) (47 USC § 230).
Under the CDA (also often referred to as “Section 230”) web sites are not liable for user submitted content. As a practical matter, in most cases this means Internet providers are not liable for defamation posted by users (many of whom are anonymous or judgment-proof).*
*note:The DMCA, not the CDA, provides Internet providers with safe harbors for claims of copyright infringement based on user submitted content.
Two recent cases illustrate the reach and limitations of this law. In one case the CDA was held to protect the website owner from liability for defamation. In the other, the law did not protect the website from potential liability based on negligence.
Jones v. Dirty World
The CDA provides immunity from information provided by users. However, if a site itself is the “content provider” — for example, the author of defamation — it is legally responsible for the publication. In other words, the CDA does not give Internet providers or web site owners license to engage in defamation, only immunity when their users do so.
Under the CDA the term “content provider” is defined as a person “that is responsible, in whole or in part, for the creation or development of information ….” Therefore, in many cases, the issue has been who is responsible for the “creation or development” of the defamatory content – the poster or the site owner?
This was the issue before the U.S. Court of Appeals for the Sixth Circuit in Jones v. Dirty World Entertainment Recordings LLC.
Nik Richie owns Dirty World, an online tabloid (www.thedirty.com). Users, not Mr. Richie or his company, create most of the content, which often is unflattering to its subjects. However, Dirty World encourages offensive contributions by its “dirty army,” and it selects the items that are published from user contributions. In addition, Mr. Richie often adds a sentence or two of commentary or encouragement to the user contributions.
Sarah Jones, a teacher and cheerleader for the Cincinnati Bengals was repeatedly and crudely defamed on the site. However, the defamation was contained in the posts written and contributed by users, not Richie or his company. In fact, it’s easy to see that Ritchie had been carefully coached as to what he can and cannot say on the site (as distinct from what his contributors say).
Dirty World refused to remove the defamatory posts, and Sarah Jones (who apparently was unaware of the Streisland Effect) sued Richie. Two federal court trials ensued (a mistrial and a $338,000 verdict for Jones).
Before and during the trial proceedings Richie asserted immunity under the CDA. The trial judge, however, refused to apply the law in Dirty World’s favor. The district court held that “a website owner who intentionally encourages illegal or actionable third-party postings to which he adds his own comments ratifying or adopting the posts becomes a ‘creator’ or ‘developer’ of that content and is not entitled to immunity.” Of course, there was a reasonably strong argument that Dirty World and Ritchie did exactly this – encouraged defamatory postings and added comments that ratified or adopted the posts — and hence the jury verdict in Jones’ favor.
After the second trial Richie appealed to the U.S. Court of Appeals for the Sixth Circuit, which reversed, holding that Dirty World and Richie were immune from liability under the CDA.
The first question before the Sixth Circuit was whether Dirty World “developed” the material that defamed Sarah Jones. In a leading CDA case decided by the Ninth Circuit in 2008 — Fair Housing Council of San Francisco Valley v. Roommates, LLC — the Ninth Circuit established the following “material contribution” test: a website helps to develop unlawful content, and therefore is not entitled to immunity under the CDA, if it “contributes materially to the alleged illegality of the conduct.”
The Sixth Circuit adopted this test, and held a “material contribution” meant ” being responsible for what makes the displayed content allegedly unlawful.” Dirty World was not responsible for the unlawful content concerning Ms. Jones.
Second, consistent with many other cases applying the CDA, the court held that soliciting defamatory submissions did not cause Dirty World to lose immunity.
Lastly, the Sixth Circuit rejected the district court’s holding that by “ratifying or adopting” third-party content a web site loses CDA immunity: A website operator cannot be responsible for what makes another party’s statement actionable by commenting on that statement post hoc. To be sure, a website operator’s previous comments on prior postings could encourage subsequent invidious postings, but that loose understanding of responsibility collapses into the encouragement measure of ‘development,’ which we reject.”
The $338,000 verdict was set aside, and the district court instructed to enter judgment in favor of Richie and Dirty World.
The Sixth Circuit’s decision was no surprise. Many people in the legal community believed that the trial court judge was in error in failing to dismiss this case before trial. Nevertheless, it is a reminder of how far the CDA can go in protecting website owners from user postings, and adds to the road map lawyers can use to make sure their clients stay on the “safe” side of the line between legal and illegal conduct under this law.
Jane Doe 14 v. Internet Brands (dba Modelmayhem.com)
Things went the other way for Modelmayhem, in a case decided by the Ninth Circuit on September 17, 2014.
Like Dirty World, this case involved a sympathetic plaintiff. The plaintiff, “Jane Doe,” posted information about herself on the “Model Mayhem” site, a 
networking site for the modeling industry. Two rapists used the site to lure her to a fake audition, at which they drugged and raped her. She alleged that Internet Brands knew about the rapists, who had engaged in similar behavior before her attack, but failed to warn her and other users of the site. She filed suit, alleging negligence based on “failure to warn.”*
*note: The two men have been convicted of these crimes and sentenced to life in prison.
In this case, like Dirty World, the district court again got it wrong and was reversed on appeal. However, in this case the district court wrongly held that the site was protected by the CDA.
The Ninth Circuit disagreed, stating –
Jane Doe … does not seek to hold Internet Brands liable as a “publisher or speaker” of content … or for Internet Brands’ failure to remove content posted on the website. [The rapists] are not alleged to have posted anything themselves. … The duty to warn … would not require Internet Brands to remove any user content or otherwise affect how it publishes such content. … In sum, Jane Doe’s negligent failure to warn claim does not seek to hold Internet Brands liable as the “publisher or speaker of any information provided by another information content provider.” As a result, we conclude that the CDA does not bar this claim.
This ruling has raised the hackles on advocates of broad CDA coverage. Their “parade of horribles” resulting from this decision includes questioning how broadly the duty to warn extends, practical questions about how a web site would provide effective warnings, and concerns about various unintended (and as yet hypothetical) consequences that may result from this decision. However, based on the broad interpretation the courts have given the CDA in the last two decades, it seems unlikely that this case will have significant implications for CDA jurisprudence. Nevertheless, like Jones v. Dirty World, it is one more precedent lawyers must take into consideration in advising their clients.
Jones v. Dirty World Entertainment Recordings LLC (6th Cir. 2014)
Doe v. Internet Brands, Inc. (9th Cir. Sept. 17, 2014)
by Lee Gesmer | Oct 9, 2014 | Copyright
Google has filed a certiorari petition with the Supreme Court, asking it to review and reverse the Federal Circuit’s May 9, 2014 decision holding that the declaring code of Oracle’s Java API software is not copyrightable. I have written about this case on several occasions, most recently on May 10, 2014 (CAFC Reverses Judge Alsup – Java API Declaring Code Held Copyrightable).
Google framed the “question presented” (framing the question in such a way as to catch the interest of the court is an art form in itself) as follows:
Whether copyright protection extends to all elements of an original work of computer software, including a system or method of operation, that an author could have written in more than one way.
The Supreme Court accepts review of approximately 1% of of cases appealed to it, and therefore lawyers spend a great deal of time and effort to make their cases as significant and interesting as possible. Here, Google asks the Court to take the case in order to decide an issue the Court deadlocked on in 1996 in Lotus v. Borland. Google’s brief states:
In 1995, this Court granted certiorari in Lotus Development Corp. v. Borland International, Inc., 516 U.S. 233 (1996), to resolve the question presented here. The First Circuit had held―consistent with the plain language of 17 U.S.C. § 102(b) but in conflict with other courts of appeals―that methods of operation embodied in computer programs are not entitled to copyright protection. This Court deadlocked, affirming by an equally divided court. Two decades later, this oft-acknowledged circuit split has deepened and the question presented has grown even more important as software has become a fixture of modern life.
This case directly implicates the unanswered question in Lotus because the Federal Circuit extended copyright protection to systems and methods of operation, including computer interfaces. That holding would obstruct an enormous amount of innovation in fast-moving, high-technology industries, in part because innovation depends on software developers’ ability to build on what has come before. If the Federal Circuit’s holding had been the law at the inception of the Internet age, early computer companies could have blocked vast amounts of technological development by claiming 95-year copyright monopolies over the basic building blocks of computer design and programming. By the time Google and countless other innovators even came onto the scene, others could have locked up the field for longer than most people will live.
. . . [By holding that] copyright protection … extend[s] to a system or method of operation so long as there was more than one way to write it the Federal Circuit usurped Congress’s role, deepened a circuit split that this Court previously granted certiorari to resolve, allowed Oracle to use copyright law to evade the limits on patent protection, and thereby blocked developers from building on what has come before. The court did so, moreover, in one of the most important cases of its kind, concerning the widely used Java language and Android platform. This Court’s review is needed now, before tomorrow’s innovation falls victim to the decision below.
Google is correct in arguing that there is a circuit split over the issue presented in Lotus v. Borland. In fact, no federal circuit court has held (as the First Circuit did in Lotus), that methods of operation based in computer software are uncopyrightable, leaving the First Circuit an outlier on this issue.
However, whether this issue will attract the Court’s attention is impossible to know – four justices must vote in favor of review, but that decision is made in the context of all of the competing cases presented to the Court. If the Court does accept review — and if the Supreme Court decides the issue it was unable to resolve close to 20 years ago — this will be an important and interesting copyright case.
The Supreme Court rarely accepts review of copyright cases, but the Court reviewed two copyright cases in its last term, so perhaps momentum will play a role in its decision whether to accept review in this case.
For those interested in how the Supreme Court viewed this issue in 1996 based on oral argument, the transcript of oral argument is linked here.
by Lee Gesmer | Oct 1, 2014 | Copyright
One thing that any online “music locker” company that relies on third-party content and hopes to benefit from the DMCA safe harbor should know is that employees should not upload copyrighted content to the service. Nothing will blow up a DMCA defense faster.
It seems that Grooveshark (legally “Escape Media”), didn’t get this message. As Joshua Greenberg, one of Grooveshark’s co-founders wrote to employees in 2007:
Download as many MP3′s as possible, and add them to the folders you’re sharing on Grooveshark. Some of us are setting up special ‘seed points’ to house tens or even hundreds of thousands of files, but we can’t do this alone… There is no reason why ANYONE in the company should not be able to do this, and I expect everyone to have this done by Monday… IF I DON’T HAVE AN EMAIL FROM YOU IN MY INBOX BY MONDAY, YOU’RE ON MY OFFICIAL SHIT LIST.
Strong stuff, and not the kind of thing you want to have pop up in discovery.
Grooveshark has been the target of multiple industry lawsuits. Two, in particular, are an action in SDNY in which the court, on September 29, 2014, entered summary judgment against Grooveshark, and a New York state action alleging infringement of pre-1972 sounds recordings, which at present are not covered by federal copyright law.
However, it is difficult to see how the September 29th decision doesn’t mark the end of the line for Grooveshark. The decision holds Grooveshark and its two founders (Greenberg and Samuel Tarantino) liable for direct and secondary copyright infringement. A few additional quotes from the 57 page opinion tell the story:
- When it began “Grooveshark did not have a large user base to leverage as a source for content.” Therefore, it told its employees “to create Grooveshark user accounts and to store hundreds of thousands of digital music files on their computers in order to upload or ‘seed’ copies of these files to other Grooveshark users.”
- “Escape’s senior officers searched for infringing songs that had [been] removed in response to DMCA takedown notices and re-uploaded infringing copies of those songs to Grooveshark to ensure that the music catalog remained complete.”
- Grooveshark “was aware that its business model depended on the use of infringing content,” but decided to “bet the company on the fact that it is easier to ask forgiveness than it is to ask permission.”
- After moving from a peer-to-peer to a centralized storage model, Grooveshark “designed its … software so that it would automatically copy every unique music file from each of its users’ computers and upload them to the storage library. … Grooveshark referred to this as a ‘cache everything’ policy.” Grooveshark “instructed its employees to obtain copies of digital music files from any possible source and to upload them to the central music library.”
The court found that the Grooveshark employees uploaded more than 150,000 files, and that Grooveshark’s library of songs hit the company’s goal of 2 million files.
Needless to say, Grooveshark’s activities were blatantly illegal. While the DMCA provides safe harbors for web sites that host copyrighted work uploaded by third parties, it has no relevance to works uploaded by company employees, as was the case here. One can only wonder what Grooveshark’s owners and employees were thinking to participate in what bordered on group insanity.
Whether Grooveshark sought legal advice before embarking on this voyage of folly we may never know.
In any event, it is over now. Grooveshark.com will soon be dark, and the two founders will be stripped of their assets or forced into bankruptcy. Grooveshark’s investors (yes, it appears that “angels” may have invested over $6 million in the company) will (to borrow from Samuel Clemens) not only receive no return on their money, they’ll receive no return of their money.
For some additional thoughtful comments on this case in the broader context of how the courts have come to view music sharing sites, see Jeff John Roberts’ post on GigaOm, here.
UMG Recording v. Escape Media Group, Inc. (S.D.N.Y Sept. 24, 2014)
by Lee Gesmer | Sep 19, 2014 | Internet Law
Imagine this.
You go to a new dentist and, before she will take you as a patient she requires you to sign an agreement that you won’t post negative reviews of her on the Internet. You go to book a wedding reception at a restaurant and before they will book your reception they ask you to sign a similar document. Even worse, you must agree that if you do post a negative review, you will owe the restaurant a $500 fine.
The Internet has been full of stories of this sort, but now one state — California — has put a stop to it. And, as is sometimes said when it comes to new laws, as California goes, so goes the country.
A bill signed into law in California on September 9, 2014, popularly referred to as the “Yelp” bill, prohibits the use of “non-disparagement” clauses in consumer contracts. The law takes effect on January 1, 2015.
Under the new law a “contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.” It will also be “unlawful to threaten or to seek to enforce” such a provision, or to “otherwise penalize” a consumer for making any such statement. The law carries statutory penalties ranging from $2,500 for the first offense, up to $10,000 for “willful” violations.
The impact of this law will not be limited to California businesses: it will apply to anyone doing business with consumers in California.
One aspect of this law that is important to understand is that it does not give consumers free license to defame businesses, nor does it limit the right of businesses to sue consumers for defamatory statements. It is limited to using a contract or proposed contract (whether online or on paper) to preclude the publication of reviews — even defamatory reviews — in the first place. If a review is defamatory, the business owner’s legal rights remain as they were before enactment of this law.
Practice tip: it is possible that the new law will be viewed as an invitation to class action plaintiffs to seek aggregated statutory damages. Therefore, it is important that companies that do business with consumers in California (whether the business itself is in California or not), review their contracts and online terms and conditions to remove non-disparagement clauses that would violate this law.
The Yelp Bill – Civil Code Section 1670.8
