CURRENT ISSUES IN END USER LICENCE AGREEMENTS Presented

CURRENT ISSUES IN END USER LICENCE AGREEMENTS Presented By: Ken Sheets Intellectual Property Manager Computer Patent Annuities www. cpaglobal. com

EULAS Take Many Forms • • • Software license agreement that states the terms under which an end-user may use the licensed software Shrinkwrap - EULAs that come wrapped in plastic with a box of software Browsewrap - If a EULA is merely posted somewhere on a Web site, typically show TOS Clickwrap - If clicking an “I Agree. . . ” button or checking a box is required prior to installing software or using a Web site “” Sneakwrap - If loads adware or other malicious hidden SW 2

Assert/Fight EULAs • • • Federal Courts for Diversity/Federal Question State Courts Arbitration (J. A. M. S. ) Governmental Actions: FTC, Interpol International Arbitration, Foreign Courts 3

EULA Common Clauses • • • IP Rights – who owns what and how can it be used Hyperlinking restriction clauses Jurisdiction, choice of forum Prohibition of reverse engineering Disclaimers Release and Indemnity Prohibited Content “Gagwrap” – bans disparagement of Web site or content “Browsewrap” clauses – acceptance of clickwrap means acceptance of Terms of Service posted somewhere • Disclosure/confidentiality 4

Tale of Two Lawyers Suing Big Online Software Companies Feldman v. Google and Bragg v. Linden Research • Both cases over Clickwrap EULAs • Both brought in Federal Court in Philadelphia : (U. S. District Court for the Eastern District of Pennsylvania) • Google decision March 28, 2007 (Judge Giles – Chief Judge of the E. D. Court, epitome of nononsense judge) • Linden decision May 30, 2007 (Judge Robreno) 5

Feldman v. Google Court upheld a clickwrap forum selection, transferred case to N. D. California • Feldman is a lawyer with own law firm, Feldman & Assoc. • Purchased ads from Google’s “Ad. Words” program - when someone searches terms “Vioxx” “Bextra” “Celebrex” the Lawyer’s ad appears (i. e. he’s an ambulance chaser) • Pay per click ad – became victim of “click fraud” “improper clicks” “trick clicks” • class action lawsuit in Arkansas settled 2006, Plaintiff opted out of the settlement and sued Google on his own 6

Adwords Contract: “There was a reasonable notice of and mutual assent to the Ad. Words agreement” -J. Giles • Plaintiff cited Specht v. Netscape Comms. Corp. (2 nd Cir. 2002 Browsewrap Case – EULA terms were “submerged” and not immediately displayed) • Adwords EULA: user had to visit webpage which displayed the Agreement in a scrollable text box, click “I Agree. . . ” • Preamble, immediately visible, made clear assent to the terms was binding • top of page had “Carefully read the following terms and conditions” • Agreement presented in readable 12 -point font, only seven paragraphs long , printer-friendly, full screen version available 7

Jab at Lawyer • Not Unconscionable: procedural (unequal bargaining and hidden terms of adhesion contracts) and substantive (“shock the conscience”) • Courts consider buyers sophistication, use of high-pressure tactics, availability of alternative sources of supply • “A reasonably prudent internet user would have known of the existence of terms in the Ad. Words agreement. Plaintiff had to have had reasonable notice of the terms. • Plaintiff is a sophisticated purchaser, an attorney, who had full notice of the terms. . . by clicking. . assented to them” 8

Yahoo Alternative? • Plaintiff countered that only Yahoo offers comparable advertising and that Yahoo’s sign up system is similar to Google’s • J. Giles: “Plaintiff. . . had not offered any evidence in support of his assertion” • Plaintiff argues going to California prohibitive b/c “his heart condition requires that he restrict his travel” and would have to hire a lawyer! • J. Giles: Plaintiff, or any attorney that he employs, could appear pro-hac in Calif. , “sympathetic to Plaintiff’s health concerns” but should go anyway 9

Bragg v. Linden Research (Second Life): Def’s Motions to Dismiss for Lack of Jurisdiction, to Compel Arbitration Denied • “This case is about virtual property maintained on a virtual world on the Internet” but “the dispute is real • Marc Bragg, Esq. , claims ownership interest in virtual property, was confiscated by Philip Rosedale and Second Life • LR: distinguished from others by offering Avatars full “virtual” intellectual property rights for digital content they created or otherwise own in Second Life • Rosedale’s 2003 press release “Until now, any content created by users for. . . Everquest or Star Wars Galaxies become the property of the host company • “Owning property in and having access to this virtual world is, moreover, apparently important to the plaintiff. ” 10

Second Life’s EULA: Procedurally and Substantively Unconscionable • compared to Paypal Decision, a “large company with millions of online customers” and small amounts of each transaction, no alternatives • SL’s EULA: clickwrap, Bragg clicked “accept” button • TOS are California choice of law • Arbitration provision • Forum selection clause for San Francisco, but • located at 14 th line of “GENERAL PROVISIONS” following export control provisions 11

Sympathy for the Lawyer • Linden’s TOS are contract of adhesion “take it or leave it” • “Although Bragg is an experienced attorney, who believes he is expert enough to comment on numerous industry standards and the “rights” of participants in virtual worlds. . . • . . . he was never presented with an opportunity to use his experience and lawyering skills to negotiate terms different from TOS that Linden offered. ” 12

EULA Voided: “no reasonably available market alternatives” to Defeat Claim of Adhesiveness • Second Life first and only virtual world to grant property rights in virtual land • Linden buried the TOS’s arbitration provision in a lengthy paragraph under the benign heading “GENERAL PROVISIONS” • Linden failed to make available costs and rules of arbitration in the agreement or any other TOS hyperlink to a webpage • No mutuality under Calif. law: “Whether or not a customer has breached the Agreement is determined in Linden’s sole discretion” • Linden reserved right to return no money at all “Lindies” based on mere “suspicions of fraud” or other violation • Linden may amend at any time 13

Hung with Their Own Law: SL’s EULA is Substantively Unconscionable • “In effect, the TOS provide Linden with a variety of onesided remedies to resolve disputes, while forcing its customers to arbitrate any disputes with Linden” • “The effect of Linden’s unilateral right to modify the arbitration clause is that is could. . . craft precisely the sort of asymmetrical arbitration agreement that is prohibited under California law as unconscionable. ” • “Imposes consumer costs greater than a complainant would bear if he or she would file the same in court. ” TOS unreasonably demanded that SL users travel to California to arbitrate claims (What about Feldman v. Google? ? ) 14

Adsit and the Seat Covers Clickwrap Agreement Court of Appeals of Indiana (Oct. 16, 2007) • The Gustins (in Texas) returned 1967 Mercedes Roadster seat covers to the wrong return address (Adsit’s manufacturer) - Who bore risk of loss in the mail? • Indiana Court cited Feldman v. Google (E. D. Pa. 2007) said Gustin had reasonable notice by clicking, upheld EULA, forum selection clause, disclaimers, everything • Not adhesion contract b/c “. . . [Def. ] was capable of understanding its terms, consented to them, and could have rejected them with impunity. 15

Adsit’s Forum Selection Clause OK Because “Mary. . . did. . . participate telephonically” • Forum selection clause to Delaware County, Indiana upheld • In big, bold print, and • “Finally, we note that Mary was not deprived of her day in court, inasmuch as she and Julie retained counsel, requested and obtained permission to participate telephonically in hearings, and did, in fact, participate telephonically. ” 16

Adsit Loses Anyway • Adsit still lost • Court used Indiana’s UCC to determine Adsit should have put the correct address as the return address on the original box shipped to the Gustins • Justice will find a way to prevail! 17

Open Source Litigation • Jacobson (JMRI Open Source project contributor) v. Katzer (works for KAM Indust. ), no. 3: 06 -cv-01905 (N. D. Calif. Aug. 17, 2007): model railroad software • Court held Def. ’s alleged failure to adhere to provisions of the Artistic License, by distributing copies of code covered by the license without the required attribution to the JRMI project, constitutes a breach of the license, but not copyright infringement. 18

SFLC Files First GPL Violation Lawsuit: Copyright Damages 19

Southwest Airlines v. Boardfirst (N. D. Texas Sep. 12, 2007) EULA Upheld and Enforced • SWA had browsewrap for not using their site for commercial purposes • Boardfirst used it for commercial purposes • SWA won because sent letter and copy of EULA by certified mail, not b/c of browsewrap • SWA alleged Computer Fraud and Abuse Act violation: won a prior scraping decision under CFAA, SWA v. Farechase, Inc. (2004) • Judge did not grant summary judgement on CFAA b/c “without authorization” clause in dispute 20

Apple i. Phone EULAs and Bricks • Unlocking programs used to connect the i. Phone to cellular networks other than AT&T causes “irreparable damage” when software update is released • “Apple. . . said that when people went to update their software with their computer through i. Tunes, a warning appeared on the computer screen, making it clear that any unauthorized modifications to the i. Phone software violated the agreement that people entered into when they bought the phone. ” (NYT Article, Sept. 29, 2007) 21

We Warned You • i. Phone Terms: “Apple is not responsible for damage arising from failure to follow instructions relating to the product’s use. ” • “Anyone who hacks must know that they are taking certain risks. . . If they aren’t willing to assume the risks up front – like a brick i. Phone – then maybe they should not hack the device. ” Noah Funderburg, Asst. Dean Univ. Alabama School of Law. (quoted in NYT story) 22

“Pirate” Agrees with Apple • Blogs – “Pirate. . . ” “Geez. If Apple had to allow for all the hacks when upgrading firmware there would BE no upgrades. It would cost millions and i. Phones would cost $1000. . . a hack is a hack. . . ” • My judge friend told me the case would never be heard. He said simply: Read the user agreement. 23

Is this the Best Way to Enforce EULA’s? Yes – the company wanted to maintain control over the i. Phone’s functions to protect carrier networks [AT&T] and to make sure the phone was not damaged (Steve Jobs, NTY 9/29) Yes – I don’t blame them for fighting the unlocks, they are trying to make money, as a business. I get that (Briam Lam, Gizmodo Editor, NTY 9/29) No – Still. . . disabling someone’s phone “instead of just relocking it and to wipe out the apps, it seems like Apple is going way too far; I’d call it uncharacteristically evil. ” (Briam Lam, Gizmodo Editor, NYT 9/29) No – Apple seems to be going out of its way to extract defeat from the jaws of victory. (Alexander Wolfe (10/2/07 Informationweek. com) 24

Un-Bricking for i. Phone 1. 1. 1 • “If the damage was due to use of an unauthorized software application, voiding their warranty, they should purchase a new i. Phone. ” Apple Spokeswoman Jennifer Babcock, New York Times, Sept. 29, 2007. • i. Phone Sim. Free “is now capable of completely restoring/repairing software unlocked “bricked” i. Phone. • “un-bricking” the phone allows it to be updated to 1. 1. 1 safely • But no way to jailbreak/reactivate the phone for use with a sim card other than the original AT&T card 25

QUESTIONS? Ken Sheets ksheets@cpaglobal. com (703) 236 -2994 26