Author Archives: Katy M. McDonald

Retailers Beware: “Browsewrap” Agreements Threaten Enforcement of Website Terms of Use (Or, Back to Contract Basics)

As Black Friday and Cyber Monday approach, a word of caution for online retailers: your website’s terms of use may be a “browsewrap” agreement, which could jeopardize its enforceability.  By now, most attorneys are familiar with the legal issues surrounding “clickwrap” agreements, which require users of software, websites, and the like to expressly assent to an agreement’s terms by clicking a button (often “I Accept” or “Agree”).  “Browsewrap” agreements go one step further, and require no affirmative action on the part of the user whatsoever.  These types of agreements came under fire recently in the District of Nevada, where a court refused to compel arbitration of a dispute between Zappos.com, Inc. (“Zappos”) and its customers.  In In re Zappos.com, Inc., Customer Security Breach Litigation, 3:12-cv-00325 (D. Nev. Sept. 27, 2012), several customers sued Zappos after hackers successfully accessed certain information the customers provided when purchasing goods on two Zappos-owned websites.  Zappos then moved to compel arbitration pursuant to its terms of use policy.  The court denied this motion despite the broad federal policy favoring arbitration as a venue for dispute resolution.

In striking down the terms of use agreements, the court noted that even the most basic of contract formation principles – acceptance – was not met.  The websites failed to effectively notify users that the agreements existed, and the agreements required no action on the part of the user to agree to be bound.  Without a manifestation of intent, the court reasoned, there could be no acceptance of their terms, and therefore no valid contract existed.  In addition to finding the agreement lacked acceptance, the court also found it was illusory.  By its terms, Zappos.com could change the terms and conditions at any time.  Not surprisingly, the customer could not.   Reserving such a unilateral, unrestricted right once again rendered the contracts unenforceable.

The court’s decision is simple enough, but it has broad implications for retailers and customers alike.  Given the proliferation of online shopping, retailers would be wise to consult with legal counsel when drafting terms of use agreements for their sites.  In addition, customers should not let the promise of clothing, digital cameras, and high-definition televisions blind them to any terms and conditions that would be disadvantageous should a legal issue arise.

Advertisements

Cert. Grant: Already, LLC dba Yums v. Nike, Inc.

In trademark cases, does the plaintiff always dictate the existence of a case or controversy?  The Supreme Court has granted certiorari in a case in order to answer that question.  On June 25, 2012, the United States Supreme Court agreed to hear an appeal in Already, LLC dba Yums v. Nike, Inc., No. 11-982, in order to decide “whether a federal district court is divested of Article III jurisdiction over a party’s challenge to the validity of a federally registered trademark if the registrant promises not to assert its mark against the party’s then-existing commercial activities.”

In 2009, Nike sued YUMS over a YUMS brand shoe design that allegedly bore more than a passing resemblance to Nike’s federal trademark registration number 3,451,905.  It asserted claims for trademark infringement, unfair competition, and dilution under federal and state law.  In response, YUMS asserted a counterclaim for declaratory judgment, seeking to cancel Nike’s registration.

Nike then threw a curveball.  Before any decision on the merits was made, Nike provided to YUMS a covenant-not-to-sue on its registration.  Motivated in part by Nike’s desire to avoid the onerous time and expense of litigation, the covenant documented Nike’s promise to refrain from making any claims or demands, and from commencing any action (either directly or indirectly) against YUMS or its successors and customers, based upon Nike’s registration number 3,451,905.  Although the covenant was limited to YUMS’ current shoes and “colorable limitations” of current lines, it effectively eviscerated Nike’s claim in the suit.

Instead of dismissing its own claim in response, YUMS attempted to continue its declaratory judgment claim.  The district court dismissed the case, however, holding that there was no subject matter jurisdiction.  YUMS could not demonstrate that it had taken any “meaningful steps” toward developing any potentially-infringing products outside the scope of the covenant, and therefore there was no ongoing case or controversy for the court to decide.  The Second Circuit affirmed, and YUMS appealed to the Supreme Court.

Now, it is up to the Supreme Court to decide whether there was an ongoing case or controversy between Nike and YUMS.  Beyond the immediate result between the parties, the Supreme Court’s decision may limit years of existing precedent which tends to grant jurisdiction when a party seeks to invalidate intellectual property rights.  Will the other shoe drop?  Stay tuned… Docket here. Petition documents, via Patently-O, here.

A Power Shift Back to Artists?

One Minnesota artist is leading the charge in taking back power from large music labels.  Songwriter Steve Greenberg, through his attorney, recently invoked an underutilized section of the Copyright Act, which allows an author to re-claim ownership of a copyright-protected work after 35 years have passed.  17 U.S.C. § 203 specifically provides:

In the case of any work other than a work made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination…

Termination of the grant may be effected at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant; or, if the grant covers the right of publication of the work, the period begins at the end of thirty-five years from the date of publication of the work under the grant or at the end of forty years from the date of execution of the grant, whichever term ends earlier.

Greenberg’s claim to fame is “Funkytown” – the quintessential disco song that has been played in every type of media from radio to movies, from TV to live theaters, and even in museums.  Although Greenberg has made a great deal of money off the song through royalties and licensing fees, Universal Music Group, the record label that has owned the copyright since the song’s release in 1980, has made much more.

Come 2015, however, ownership will likely transfer to Greenberg, who will then hold significant bargaining power.  A successful transfer would mean Greenberg could either administer his copyright himself, or negotiate with Universal for better royalty and license rates.  Whatever the outcome, the power has begun to shift back into the hands of musical authors.

Notably, termination of transfers are not limited to musical works – a grant of a transfer or a license of copyright as to any copyright-protected work may be terminated pursuant to § 203.  Thus, termination is a powerful tool to keep in mind for clients, especially during this tough economic climate.  More information on termination of transfers can be found at: http://www.copyright.gov/docs/203.html and http://www.copyright.gov/docs/201-10-final.pdf.

%d bloggers like this: