Social media sites are transforming not only the daily lives of consumers, but also how companies interact with consumers. Here at Morrison Foerster, across all of our practice groups, we are seeing complex, cutting-edge legal issues arising out of social media. As with the Internet boom during the mid-to-late 1990s, social media is generating new legal questions at a far faster pace than the law’s ability to provide answers to such questions. In an effort to stay on top of these emerging issues, and to keep our clients and friends informed of new developments, Morrison Foerster publishes this blog devoted to the law and business of social media.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Aaron is the chair of the firm’s Technology Transactions Group and co-chair of the Interactive + Digital Media Group. He advises clients on a wide range of complex transactions involving intellectual property and technology, including structuring and negotiating strategic licensing, development, collaboration, procurement, and distribution deals.Aaron’s practice focuses on advising both established and emerging companies in a variety of data- and technology-intensive sectors, including software, SaaS, cloud-based technology, digital media (social media, AR/VR, gaming, streaming media, AdTech), AI, healthcare, consumer electronics, e-commerce, other online business models, and mobile applications. He also maintains an active practice counseling companies on branding and marketing, trademark licensing, and content-related transactions, as well as the intellectual property aspects of mergers, acquisitions, asset spin-offs, and private equity investments.He has represented clients such as Autodesk, Meta, OpenAI, Splunk, Konami, Kaiser Permanente, SoftBank, Visa, and Yahoo, among others.Aaron has been recognized by numerous publications for his work on market-defining technology transactions. He is currently ranked by Chambers USA for “Technology Transactions.”Aaron also serves as co-editor of Socially Aware, the firm’s award-winning newsletter and blog devoted to the law and business of social media, and regularly publishes on various IP and technology-related topics. Aaron is also a sought-after speaker on new and emerging areas of law, and is a frequent presenter and panelist at conferences and legal services programs. In addition to his active practice, Aaron regularly provides pro bono assistance to various nonprofit and charitable organizations such as Common Sense Media and the Starlight Children’s Foundation. He is a member of the board of directors of California Lawyers for the Arts.While in law school at the University of California, Berkeley, Boalt Hall School of Law, Aaron served as executive editor of the California Law Review and was elected to the Order of the Coif. Following law school, Aaron served as law clerk to the Honorable William H. Orrick and the Honorable Martin J. Jenkins, both United States District Judges for the Northern District of California.

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Partner

Aaron is the chair of our Technology Transactions Group. He advises clients on a wide range of complex transactions involving intellectual property and technology, including structuring and negotiating strategic licensing, development, collaboration, procurement, and distribution deals. Aaron’s practice focuses on advising both established and emerging companies in a variety of data– and technology–intensive sectors, including software, SaaS, cloud computing, AR/VR, AI, gaming, healthcare, consumer electronics, social media, e–commerce, other online business models, and mobile applications. He also maintains an active practice counseling companies on the intellectual property aspects of mergers, acquisitions, asset spin–offs, and private equity investments.

Aaron P. Rubin

Lawrence Gallick is of counsel in the firm’s Austin office and a member of the Technology Transactions Group.Lawrence focuses his practice on technology transactions and licensing matters. His diverse experience includes advising on SaaS agreements, cross-licensing agreements, research and collaboration agreements, development agreements, and distribution agreements. He counsels a broad range of companies across the software, hardware, life sciences, biotech and FinTech spaces, as well as other entities including universities.He advises clients in connection with general corporate matters including contract negotiations, and leasing and technology placement agreements.Lawrence also serves as co-editor of <a href="https://www.sociallyawareblog.com/" target="_blank">Socially Aware</a>, the firm’s award-winning newsletter and blog devoted to the law and business of social media, and regularly publishes on various IP and technology-related topics.Prior to joining the firm, Lawrence was counsel at another major law firm. Before earning his law degree, Lawrence was a web consultant, project manager, and web developer in Portland, Oregon, where he managed and consulted on projects using industry methodologies and performed custom development and integration of content management systems.Lawrence was named a Super Lawyers “Rising Star” in 2015 and 2018–2022, and is licensed in both California and New York. Lawrence earned his J.D. from the University at Buffalo School of Law, where he was the electronic systems editor for the Buffalo Law Review and awarded the ABA-BNA Award for Excellence in the Study of Intellectual Property Law.

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Lawrence Gallick

Anthony Ramirez is a partner in the Technology Transactions Group in the New York office of Morrison Foerster.Anthony advises clients on general commercial and transactional matters. He regularly advises companies on the IP aspects of their M&A transactions. His clients include technology, digital media and content for television and music, financial services, and communications companies with diverse intellectual property assets and issues.His practice focuses on the legal aspects of developing, licensing, and commercializing technology and intellectual property, as well as negotiating general commercial contracts, including outsourcing transactions, as well as content and data licenses. He regularly assists clients with legal issues relating to licensing and commercialization of digital media and content, digital content that is distributed over the Internet or streamed, mobile applications and social media, as well as the licensing of recorded music for distribution via digital platforms. Anthony is also experienced with issues relating to open-source software, software development, artificial intelligence and machine learning, cloud-based technology, and protection of proprietary information.Anthony has extensive experience working on matters involving disruptive technologies, such as blockchain. He has helped fintech clients with general intellectual property issues in connection with terms of service for online financial products and services.Anthony is an integral part of the outside pro bono legal team for nonprofit organizations based in New York, including advising clients on legal issues regarding entertainment, social media, privacy rights, and the negotiation of outsourcing and service agreements. Anthony received his J.D. from the University of Michigan Law School in 2009. He received his B.S. from Cornell University in 2004.

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Anthony Ramirez is a partner in the Technology Transactions Group in the New York office of Morrison Foerster. He advises clients on general commercial and transactional matters. His clients include technology, media, and communications companies with considerable intellectual property assets. His practice focuses on the legal aspects of licensing and commercializing technology and intellectual property, as well as negotiating general commercial contracts. He also regularly assists clients with legal issues relating to mobile applications and social media.

Anthony M. Ramirez

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Socially Aware is devoted to the law and business of social media, proactively addressing emerging issues and keeping our clients informed of new developments. We cover fields such as artificial intelligence, privacy and data security, Section 230, intellectual property, and much more.

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The latest issue of our Socially Aware newsletter is now available. In this issue, we explore legal concerns raised by Google Glass; we provide an overview of the growing body of case law addressing ownership of business-related social media accounts; we take a look at two circuit court decisions addressing the interplay between social media usage and the First Amendment; we examine the trend toward collaborative consumption and associated legal issues; we discuss an important new decision regarding unilateral modifications to online terms of use; and we highlight an industry warning to website operators who collect data for purposes of online behavioral advertising.  For a free subscription to the newsletter, please email us at <a href="mailto:sociallyaware@mofo.com">sociallyaware@mofo.com</a>.

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Hot Off the Press – New Issue of the Socially Aware Newsletter

Hot Off the Press – New Issue of the Socially Aware Newsletter

The latest issue of our Socially Aware newsletter is now available here. In this issue, we explore legal concerns raised by Google Glass; we provide an overview

In November 2013, the Berlin District Court ruled that all of the 25 provisions in Google’s online terms of use and privacy policy that had been challenged by the German Federation of Consumer Associations (VZBV) are unenforceable.  In reaching its decision, the court found that German law applies to terms of use and privacy policies to the extent they are directed to German consumers.Under German unfair contract terms legislation, clauses that contradict main elements of German law and unfairly disadvantage consumers are invalid.  In this respect, the court found that the German Federal Data Protection Act and the Telemedia Act constituted key elements of law to be considered in relation to standard terms, and hence considered these statutes irrespective of the fact that these statutes only apply to organizations established in Germany or using equipment in Germany.  Google has announced that it will appeal the decision, but, if the judgment is upheld, any online terms of use or privacy policy applicable to German consumers could be challenged under German law and in a German forum.In the case, Google claimed that the unfair contract terms legislation was not applicable because its terms of use and privacy policy do not constitute contracts and the related Google services had been provided free of charge.  The court disagreed, observing that users were required to consent to these terms upon registration or use, and the services were not for “free” because of the commercial value of the personal data collected by Google and subsequently used for marketing purposes.Among other clauses, the court found the following provisions in the terms of use to be invalid, many of which are relatively standard provisions in U.S. terms of use:<ul><li>Google’s right to unilaterally terminate its services in the case of any breach of its terms of use or policies without prior notice that would allow users to remedy the breach;</li><li>Google’s right to monitor content for compliance with its policies;</li><li>Google’s right to alter its services at its discretion;</li><li>Google’s right to amend its terms of use without further notice or consent; and</li><li>The (mutual) liability limitation for bodily harm and life, or statutory product liabilities.</li></ul>The court also found that Google had not obtained valid consent for the collection, use and sharing of personal data via its consent box (“I agree to the use terms and I have read the privacy policy.”).  German law requires that users be informed as to the specific data to be collected and how such data will be used and shared.  Google’s privacy policy, however, provided insufficient detail and relied on blanket statements to describe its rights, for example:<ul><li>Google’s right to collect information (including device-type information) and location data “relating to the services”;</li><li>Google’s right to share data with organizations that “Google reasonably believes to have a need to know”;</li><li>Google’s right to share data in the context of a merger;</li><li>Google’s right to record phone calls without any specific notice;</li><li>Google’s right to merge data from different platforms without further notice or consent;</li><li>Google’s limitations on users’ rights to access data provided to Google; and</li><li>Google’s right to share data with law enforcement agencies without further notice or consent.</li></ul>The court also objected to the privacy policy’s broad cookie language, including Google’s statement that only “cookies and other anonymous data” are collected by Google.  Cookie IDs and other tracking information were considered by the court to be personal data in this context.

German Court Finds 25 Provisions in Google’s Online Terms of Use and Privacy Policy to Be Unenforceable

In November 2013, the Berlin District Court ruled that all of the 25 provisions in Google’s online terms of use and privacy policy that had been challenged by t

German Court Finds 25 Provisions in Google’s Online Terms of Use and Privacy Policy to Be Unenforceable

An FTC settlement with a mobile app over its privacy disclosures alleged to be deceptive may seem to be run-of-the-mill.  After all, the FTC has been settling cases for years with companies whose data collection and use practices are allegedly not consistent with the representations those companies make in their privacy policies.But the FTC’s Complaint and Order with Goldenshores Technologies (“Goldenshores”), announced on December 5th, is a particularly noteworthy Section 5 case because the FTC’s theory is that the company’s alleged violation of Section 5 resulted not out of an affirmative representation regarding its app alleged to have been deceptive, but from an alleged material omission, and from an allegation that whatever disclosures there were did not rise to the required level of prominence because they were in the privacy policy and EULA only.These types of allegations and policy determinations have heretofore been limited to spyware, and have crept into online behavioral advertising, but have generally not been part of FTC enforcement actions in other contexts.  This case represents the FTC’s signal to industry that material facts, especially those involving sensitive data, and especially where the facts involve collection, use, or disclosure of data that may surprise ordinary users because it is out of context of the use of the service, must be disclosed not only in a privacy policy, but also outside the privacy policy, clearly and conspicuously, prior to collection of the data.The App’s Collection and Use of “Sensitive Data”Goldenshores is the developer of the immensely popular “Brightest Flashlight Free” flashlight app (the “app”) for Android devices.  The FTC Complaint explains that the app can be downloaded from the Google Play application store, amongst other places.  The gravamen of the FTC’s Complaint stems from the allegation that while the app is operating as a flashlight (using the phone’s screen and LED flash for the camera) it is also collecting and transmitting certain information from the mobile device to third parties including ad networks.  This information includes precise geolocation information and persistent device identifiers that can be used to track a user’s location over time.The app ran into two problems with these alleged data collection and use practices.  First, the FTC alleged that it did not adequately disclose that information including geolocation and the persistent device identifiers would be collected and shared with third parties, such as advertising networks.  Second, the app did not accurately represent consumers’ choices with regard to the collection, use and sharing of this information.However, the Complaint does not start out by focusing on these collection and use practices, and the app’s disclosures relating to them.  Instead—and not insignificantly—it starts by describing the app’s promotional page on the Google Play store.  The Complaint notes that this page describes the flashlight app, but “does not make any statements relating to the collection or use of data from users’ mobile devices” (emphasis added).  Similarly, the FTC notes that the general “permission” statements that appear for all Android applications provide notice about the collection of sensitive information, but not about any sharing of sensitive information.  But these issues do not reappear in the FTC’s allegations regarding the actual violations of Section 5 of the FTC Act for deceptive practices.  Thus, it seems safe to assume that the FTC cited the lack of notice prior to download about the use and sharing of sensitive information to signal to app developers and platforms that it expects to see such disclosures.The App’s Disclosures Regarding Sensitive DataThe FTC’s allegations specifically focus on the disclosures made by the app in its privacy policy and end user license agreement (“EULA”).  In short, the Complaint notes that while the app’s privacy policy discloses that the app collects information relating to “your computer,” it does not specifically disclose: (1) that sensitive information such as precise geolocation is collected; or (2) that it is transmitted to third parties.  Based on this failure to disclose, the FTC alleged that the app violated Section 5 by materially misrepresenting the scope of its data collecting and sharing, specifically the collection and sharing of precise geolocation information and persistent device identifiers.As for the EULA, the Complaint explains that after a user downloads and installs the app, the user is presented with a EULA that must be accepted to use the app.  First, like the privacy policy, the FTC alleges that the EULA does not accurately and fully disclose the data and sharing practices of the app.  Second, the FTC alleges that the EULA also misleads consumers by giving them the option to “refuse” its terms.   As the Complaint puts it, “that choice is illusory.”  The problem is that the app transmits device data including precise geolocation and the persistent identifier before the user accepts—or refuses—the terms of the EULA.  As a result, the EULA misrepresented that consumers had the option to “refuse” the collection of this information, because “regardless of whether consumers accept or refuse the terms of the EULA, the Brightest Flashlight App transmits . . . device data as soon as the consumer launches the application…”New Disclosures Required by the SettlementFor the most part, the <a href="http://ftc.gov/os/caselist/1323087/131205goldenshoresorder.pdf">Agreement and Consent Order</a> is what we’ve come to expect from the FTC in Section 5 cases relating to data collection and use practices.  Thus, for instance, Goldenshores and any apps it develops, including this Flashlight app, are barred from misrepresenting the manner in which information is collected, used, disclosed or shared.What makes this Order unique, however, is the specificity the FTC provides with regard to the disclosures Goldenshores must make about the collection and use of precise geolocation information in its apps.  The Order requires a notice that goes significantly beyond the typical boilerplate “just-in-time” opt-in notice that apps typically use to obtain consent for the collection of precise geolocation information.  In this case, the separate out-of-policy just-in-time notice and opt-in consent that the app must provide prior to collecting precise geolocation information must include a disclosure that informs the user:  (1)  That the application collects and transmits geolocation information; (2)  How this information may be used; (3)  Why the application is accessing geolocation information; and (4)  The identity or specific categories of third parties that receive geolocation information directly or indirectly from the app.ConclusionThus, what looks at first to be a simple privacy policy FTC deception case is actually rather significant for three reasons.  First, this is about the failure to disclose collection and use practices relating to “sensitive data,” which includes precise geolocation and the device’s unique identifier.  Second, the FTC flagged the lack of disclosures about such collection and use practices in the app store prior to download.  And third, the FTC gave very specific and detailed instructions to the app on how it must provide notice and choice about the collection of precise geo-location information, which could perhaps be an indication of where the FTC expects the entire industry to go in the near future.

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FTC Expands Reach on Conspicuousness of Privacy Disclosures in Settlement with Android Flashlight App

FTC Expands Reach on Conspicuousness of Privacy Disclosures in Settlement with Android Flashlight App

An FTC settlement with a mobile app over its privacy disclosures alleged to be deceptive may seem to be run-of-the-mill.  After all, the FTC has been settling c

Two recent U.S. appellate court decisions have clarified the extent to which the First Amendment protects the social media activities of government employees.  In <a href="https://law.justia.com/cases/federal/appellate-courts/ca11/12-12968/12-12968-2013-10-17.html">Gresham v. City of Atlanta</a>, the Court of Appeals for the Eleventh Circuit found that an individual’s First Amendment interest in posting to Facebook is reduced when he or she configures such post to be private, while in <a href="https://law.justia.com/cases/federal/appellate-courts/ca4/12-1671/12-1671-2013-09-18.html">Bland v. Roberts</a>, the Court of Appeals for the Fourth Circuit held that Facebook “likes” constitute protected speech under the First Amendment.  Although both decisions deal with the rights of government employees in particular, the decisions have relevance beyond government employees.U.S. courts have long held that the government has a greater interest in restricting the speech of its employees than it does in restricting the speech of the citizenry in general.  However, the government’s ability to restrict the speech of its employees is limited by a test the U.S. Supreme Court outlined in Pickering v. Board of Education in 1968.  The test requires that, in order for the employee to maintain a successful First Amendment claim against his or her governmental employer, the employee must, among other things, show that he or she was speaking about a matter of public concern, and that his or her interest in doing so outweighs the government’s interest in providing effective and efficient service to the public.First Amendment protection for “likes”: Bland v. Roberts.  In <a href="https://www.sociallyawareblog.com/2012/08/14/update-whats-not-to-like/">August of 2012, we discussed</a> the decision of a District Court in Virginia that a government employee “liking” a Facebook page was insufficient speech to merit constitutional protection.  Deputies of the Hampton Sheriff’s Office alleged that they were terminated because they “liked” the campaign page of a candidate running against their boss, the current sheriff.  While much of the suit dealt with the current sheriff’s claim to qualified immunity and whether or not the deputies held policymaking positions which can be staffed based on political allegiances, the court also dismissed the deputies’ contention that their termination violated their First Amendment right to speak out on a matter of public concern.  The court held that merely “liking” a page “is not the kind of substantive statement that has previously warranted constitutional protection.”  The decision stirred considerable controversy and debate among constitutional scholars and within the social media industry.On appeal, the Fourth Circuit overturned the lower court’s holding that Facebook “likes” are too insubstantial to merit First Amendment protection.  The court held that “liking” a Facebook page is both pure speech and symbolic speech, and is protected by the First Amendment even with respect to government employees.  The court found that the act of “liking” a Facebook page results in publishing a substantive position on a topic.  The court reasons that “liking” a political candidate’s campaign page is “the Internet equivalent of displaying a political sign in one’s front yard, which the Supreme Court has held is substantive speech.”  As a result, at least within the political context, “likes” enjoy the same strong First Amendment protection that other political speech does.First Amendment protection for private posts: Gresham v. City of Atlanta.  The interplay between social media and the First Amendment was also at issue in the Gresham case.  In Gresham, an Atlanta police officer named Maria Gresham became concerned when a suspect she arrested was taken into a room alone by another officer who turned out to be the suspect’s aunt.  The suspect gave some items to his aunt and they may have spoken.  Officer Gresham felt that this constituted an inappropriate interference with her investigation and she aired her concerns by making a Facebook post which was only viewable by her friends.  In Atlanta, departmental rules for the conduct of police officers prohibit publicly criticizing other officers.  The department received a complaint that Gresham’s post had violated these rules and opened an investigation.  As a result of that investigation, Gresham was passed over for a promotion.  Gresham sued the city, asserting that the department had retaliated against her for engaging in protected First Amendment speech.The District Court for the Northern District of Georgia found that Gresham’s First Amendment interest in making the post was outweighed by the City of Atlanta’s interest in maintaining good relations among its police officers.  In weighing Gresham’s First Amendment interest in making the post, the District Court noted that “the ability of the citizenry to expose public corruption is one of the most important interests safeguarded by the First Amendment.”  The District Court found that Facebook posts are protected under the First Amendment.  It also found, however, that the officer’s decision to configure her Facebook post to be viewable only by her friends made “her interest in making the speech . . . less significant than if she had chosen a more public vehicle.”On appeal, the Court of Appeals for the Eleventh Circuit upheld the District Court’s decision and expanded on the District Court’s reasoning, observing that “the context of Plaintiff’s speech is not one calculated to bring an issue of public concern to the attention of persons with authority to make corrections, nor was its context one of bringing the matter to the attention of the public to prompt public discussion to generate pressure for such changes.”  Because her audience was small and poorly situated to act on the information she shared, the officer’s “speech interest is not a strong one.”  The Court of Appeals agreed with the District Court that the government has a strong interest in maintaining good relations among police officers, and that this interest outweighed Gresham’s weak First Amendment interest in making the post.  As a result, the City of Atlanta was found not to have violated Gresham’s First Amendment rights by restricting her speech.The resulting rule for Gresham and her fellow officers may be somewhat counterintuitive: Atlanta police officers are effectively allowed to criticize one another very privately or very publicly, but the officers risk being disciplined if they criticize another officer in a somewhat public forum.  A minor breach of the departmental policy against public criticism is more likely to carry consequences than a major breach is.  That being said, the purpose underlying the Pickering rule is to ensure that crucial information reaches the public; making a post private undermines that purpose, so it reduces the protection the post receives under the Pickering rule.In any event, with social media becoming more and more integrated into the daily fabric of our lives, one can assume that courts will be struggling with the intersection of free speech rights and social media usage for years to come.

Two Circuits Address the First Amendment Status of Facebook Activity

Two recent U.S. appellate court decisions have clarified the extent to which the First Amendment protects the social media activities of government employees.  

Two Circuits Address the First Amendment Status of Facebook Activity

Contractual provisions giving a website operator the unilateral right to change its end user terms of service are ubiquitous and appear in the online terms of many major social media sites and other websites, including Facebook, Twitter, Instagram and Google. Although amendments to terms of service <a href="http://www.theverge.com/2013/10/17/4845828/digging-through-new-google-terms-of-service">quite often</a> <a href="http://consumerist.com/2009/02/15/facebooks-new-terms-of-service-we-can-do-anything-we-want-with-your-content-forever/">cause</a> <a href="http://readwrite.com/2011/03/03/how_recent_changes_to_twitters_terms_of_service_mi#awesm=~omVExYmQimbZMM">consumers</a> <a href="http://www.huffingtonpost.com/2012/12/20/instagram-terms-of-service-change_n_2333284.html">to complain</a>, litigation regarding such changes is relatively rare. A recent decision from the U.S. District Court in the Northern District of Ohio, however, challenges the enforceability of unilateral amendments to online terms of service in at least some circumstances.In Discount Drug Mart, Inc. v. Devos, Ltd. d/b/a Guaranteed Returns, Discount Drug Mart, a distributor of pharmaceuticals, sued Guaranteed Returns, a company that processes pharmaceutical product returns, for Guaranteed Returns’ failure to remit credits due under a written distribution agreement between the parties. Guaranteed Returns pointed to the forum selection clause on its website, which it argued required the parties to bring suit in either Nassau or Suffolk County in the State of New York. This provision appeared in Guaranteed Returns’ online “standard terms and conditions,” which Guaranteed Returns claimed were incorporated into the parties’ written distribution agreement.The court held otherwise, citing the Sixth Circuit case Int’l Ass’n of Machinists and Aerospace Workers v. ISP Chemicals, Inc. and stating that “[i]ncorporation by reference is proper where the underlying contract makes clear reference to a separate document, the identity of the separate document may be ascertained, and incorporation of the document will not result in surprise or hardship.” The court also pointed out that Guaranteed Returns’ purported right to change its standard terms and conditions unilaterally could result in Discount Drug Mart being subject to surprise or hardship. Further, the court noted that there was no evidence that the forum selection clause had been included in the standard terms and conditions at the time the distribution agreement was signed (and Guaranteed Returns did nothing to try to prove this fact). Thus, the court concluded that the standard terms and conditions were not properly incorporated into the distribution agreement (although the court ended up finding in favor of Guaranteed Returns on other grounds).It is difficult to say what, if any, precedential force Discount Drug Mart will have. Putting aside the facts that the case was brought in the Northern District of Ohio and was ultimately dismissed on grounds unrelated to this holding, the underlying background of the case was nuanced. First, although the court stated in dicta that “one party to a contract may not modify an agreement without the assent of the other party,” a statement that could be interpreted to mean that unilateral amendment of contracts is never permitted, the holding itself was limited to situations in which terms and conditions are incorporated by reference. That said, even this limited holding may be relevant to many website operators in the social media world, as the larger social media sites often use a network of contracts that reference each other (for example, Facebook’s “<a href="https://developers.facebook.com/policy/">Platform Policies</a>” requires developers to agree to the company’s “<a href="https://www.facebook.com/#!/legal/terms">Statement of Rights and Responsibilities</a>,” which are “requirements for anybody who uses Facebook” and which can be unilaterally modified by Facebook).Second, the Discount Drug Mart court did not elaborate on the “surprise or hardship” standard, so it is possible that unilateral changes to end user terms would be upheld if the website operator gave proper notice to its end users of such changes in order to avoid causing surprise or hardship. The leading social media platforms currently have different approaches to providing notice of changes to their online terms of use. For example, <a href="https://www.facebook.com/legal/terms">Facebook</a> provides seven days’ notice (although “notice” here includes posting on Facebook’s site governance page); <a href="https://twitter.com/tos">Twitter</a> will notify users of changes to its terms of service via an “@Twitter” update or through email (but only for changes that Twitter deems to be material in its sole discretion); and <a href="http://instagram.com/legal/terms/">Instagram</a> notifies users of its changes to its terms of use by posting them on Instagram. A court could find that notification of changes using one or more of these methods is sufficient to avoid subjecting an end user to surprise or hardship.Finally, the court seemed to give weight to the lack of any evidence that the forum selection clause was included in Guaranteed Returns’ standard terms and conditions at the time that the parties entered into the distribution agreement. Today, however, most Internet service providers include “last modified” dates in their terms of use. Recording version dates and keeping copies of older terms of use could help a website operator show that a particular provision existed in terms of use at the time that the parties entered into an agreement referencing such terms (although these practices could also provide evidence to the contrary).Discount Drug Mart is not the first decision to challenge a company’s right to unilaterally modify its online terms and conditions. In the 2007 case <a href="http://pub.bna.com/eclr/0675424_071807.pdf">Douglas v. Talk America, </a>the Ninth Circuit Court of Appeals held that Talk America could not enforce an arbitration clause against an individual who had initially accepted the applicable terms of service prior to Talk America’s unilateral addition of the arbitration clause. Although Talk America posted the amended terms online, the court noted that the individual’s assent to the new terms could only be inferred “after [the individual] received proper notice of the proposed changes.” Discount Drug Mart seems consistent with this decision to the extent that the case suggests that failure to provide adequate notice to end users of changes to online terms may invalidate such changes.A decision in the Northern District in the U.S. District Court of Texas in 2009, <a href="http://epic.org/amicus/blockbuster/Opinion_DC.pdf">Harris v. Blockbuster Inc., </a>went further than the Douglas court by holding an arbitration clause in Blockbuster’s online terms of use rendered the terms of use illusory and unenforceable. The court’s holding was based on the fact that Blockbuster could, in theory, unilaterally modify the arbitration provisions and apply those modified provisions to earlier disputes. Harris cited the Fifth Circuit case, <a href="https://law.justia.com/cases/federal/district-courts/FSupp2/49/529/2467514/">Morrison v. Amway Corp., </a>in which the court had held an arbitration clause in online terms of use to be illusory under Texas law when defendant Amway attempted to apply arbitration terms that been had modified after the plaintiff had agreed to Amway’s standard terms. Although limited to the Northern District of Texas (for now), the implications of Harris could be troubling to online service providers, as the case suggests that if a company includes language allowing it to make unilateral changes to its terms by simply posting the revised terms on its website, those terms could be deemed invalid. In fact, <a href="http://blog.ericgoldman.org/archives/2009/06/stop_saying_we_1.htm">at least one legal scholar</a> has suggested that companies should not include such language in their online terms.Discount Drug Mart does not necessarily provide any clear guidelines that online service providers must follow for their online terms to be valid and enforceable. Because the court based its holdings on specific factual circumstances and provided little insight into its reasoning, it is unclear at this point whether other courts will follow this opinion and impose limitations on companies’ rights to unilaterally change their online terms of service under different circumstances. However, given the legal precedent on the subject, it will likely behoove companies that incorporate their online terms into other documents to consider re-evaluating their amendment and notification practices to minimize any chance of subjecting end users to “surprise or hardship.”

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Jessica’s practice focuses on complex civil litigation, with an emphasis on class action, financial services litigation and enforcement, and commercial disputes. Recent representative matters include the defense of a leading marketplace lender in a putative nationwide class action under state usury laws; a major consumer products company in multidistrict antitrust litigation; a

Jessica Kaufman

Jessica’s practice focuses on complex civil litigation, with an emphasis on class action, financial services litigation and enforcement, and commercial disputes. Recent representative matters include the defense of a leading marketplace lender in a putative nationwide class action under state usury laws; a major consumer products company in multidistrict antitrust litigation; a professional services firm in a malpractice action; a lingerie company facing consumer protection claims, including claims of false advertising; and financial institutions facing claims under the federal and state contract and antitrust laws, RICO Act, Right to Financial Privacy Act, Fair Debt Collection Practices Act, and state unfair and deceptive practices statutes. She also regularly advises and represents clients in complex commercial disputes.What do you like best about your work? Our work is our role as problem solvers. As litigators, we help clients address immediate problems. But when we know our clients and their businesses well, our clients also turn to us for longer term advice, to help identify issues before they arise, and think about how to do things better.What do you enjoy doing in your free time? I try to work with my hands. I started learning wheel-thrown pottery last year and enjoy forcing my family and friends to accept impractically shaped mugs, not just at Christmas, but — lucky for them — all year long.How do you see your practice changing in the next few years? I see my practice including more state AG enforcement work in the years ahead. The regulatory environment for our financial services clients is poised to change dramatically at the federal level; active AGs in New York and California will see that as an opportunity to fill the void.

Potential Limitations Placed on Unilateral Right to Modify Terms of Use

Contractual provisions giving a website operator the unilateral right to change its end user terms of service are ubiquitous and appear in the online terms of m

Potential Limitations Placed on Unilateral Right to Modify Terms of Use

From our sister blog, <a href="http://www.mofotechblog.com/">MoFo Tech</a>:Widely applicable rules regarding consumer privacy disclosures in our increasingly mobile world are only now emerging. Government agencies, individual states, and professional associations are all weighing in on how mobile app developers should disclose how they collect, store, use, and protect the wide range of highly personal data being collected every day.The Application Privacy, Protection, and Security Act of 2013, better known as the APPS Act, is intended to bring conformity to the unwieldy world of mobile app development. With a divided Congress struggling to pass even mandatory legislation, though, passage of any type of discretionary legislation this year seems unlikely, says D. Reed Freeman Jr., a partner with Morrison & Foerster in Washington, D.C. In the meantime, Freeman says, developers should focus on the Federal Trade Commission, “because even without congressional action, it has broad jurisdiction, and it has already brought cases and issued guidance on mobile privacy and data security.”Charged with the intentionally broad mandate of guarding consumers from “deceptive” and “unfair” business practices, the FTC has been proactively applying its consumer protection laws across nearly all media, including mobile technology. A recent FTC policy document is especially revealing because it describes how the FTC expects disclosures of material facts to be made on mobile devices, “and privacy disclosures can certainly be material,” Freeman says.So it’s up to the mobile app company to think carefully about the ways its program could surprise a reasonable user and disclose them appropriately. Freeman offers this rule of thumb:  “Would a reasonable consumer, under the circumstances, understand what information is being collected about her while she’s on a mobile device and what it is being used for?” If so, companies need to disclose those facts clearly and not bury them in EULAs or terms of use.California’s Online Privacy Protection Act, passed in 2003, has taken consumer privacy one step further than the FTC has. It requires companies that operate commercial websites or online services and that collect personal information of any kind—including usernames and passwords—to prominently post a privacy policy somewhere on their homepage, says <a href="http://www.mofo.com/Andrew-B-Serwin/" target="_blank" rel="noopener">Andrew Serwin</a>, a partner in Morrison & Foerster’s San Diego office.And while California’s jurisdiction ends at the state line, its reach is often national, Serwin adds. “Companies with customers in all 50 states have to ask themselves whether they want to develop state-specific programs or apply standards across the board,” he says. Since the mobile world doesn’t recognize geographic boundaries, Serwin recommends that developers work toward the highest standards and beyond. “Privacy isn’t just a legal issue. It’s a brand issue,” he says.Apart from knowing the law, businesses need to consider their own reputations and their customer relationships when collecting, using, and protecting personal information, Serwin says. For example, how could losing users’ passwords tarnish the company’s image in the market? “Current law doesn’t specifically cover that possibility, but,” he notes, “it may be in the company’s best interest to address these types of issues.”

Mobile Apps: No Surprises, Please

From our sister blog, MoFo Tech: Widely applicable rules regarding consumer privacy disclosures in our increasingly mobile world are only now emerging. Governme

Mobile Apps: No Surprises, Please

From our sister blog, <a href="http://www.mofotechblog.com/">MoFo Tech</a>:The FCC’s revised rules for telemarketers and text marketers, which took effect on October 16, 2013, could signal a big shift in how companies direct market, posits Julie O’Neill, a Morrison & Foerster attorney specializing in privacy issues.  One section prohibits the use of an autodialer to call or text cell phones for marketing purposes, unless the caller has the called party’s signed, written consent.  “It’s almost impossible to tell which numbers on a call list are cell phones, so [almost] every list will have to be scrubbed,” she says.The new consent obligations also require new disclosures.  Because the new rules will apply retroactively, even companies with agreements in place must re-sign every customer if their agreements don’t meet the new rules’ disclosure and signature requirements.  “Companies that want to continue marketing by phone or text message are working hard to come into compliance by the rules’ mid-October effective date,” she says.Complying with these rules could prove cumbersome and costly, adds John Delaney, a partner in Morrison & Foerster’s New York office and co-editor of the Socially Aware blog.  He predicts more companies will ditch the dialup and focus on social media marketing.  “It’s a natural transition for the industry because social media is a much more engaged interaction with potential customers,” he says.

Telemarketing? Try Tweeting

From our sister blog, MoFo Tech: The FCC’s revised rules for telemarketers and text marketers, which took effect on October 16, 2013, could signal a big shift i

Telemarketing? Try Tweeting

Peer-to-peer (“P2P”) business models based on the Internet and technology platforms have become increasingly innovative.  As such models have proliferated, they frequently result in clashes with regulators or established market competitors using existing laws as a defensive tactic.  The legal battles that result illustrate the need for proactive planning and consideration of the likely legal risks during the early structuring phase of any new venture.<a href="http://en.wikipedia.org/wiki/Collaborative_consumption">Collaborative consumption</a>, or the “sharing economy” as it is also known, refers to the business model that involves individuals sharing their resources with strangers, often enabled by a third-party platform.  In recent years, there has been an explosion of these P2P businesses.  The more established businesses include online marketplaces for goods and services (<a href="http://www.ebay.com/">eBay</a>, <a href="https://www.taskrabbit.com/">Taskrabbit</a>) and platforms that provide P2P accommodation (Airbnb, <a href="http://www.onefinestay.com/">One Fine Stay</a>), social lending (<a href="http://www.zopa.com/">Zopa</a>), crowdfunding (<a href="http://www.kickstarter.com/">Kickstarter</a>) and car sharing (<a href="http://www.blablacar.com/">BlaBlaCar</a>, <a href="http://www.lyft.me/">Lyft</a>, Uber).  But these days, new sharing businesses are appearing at an unprecedented rate; you can now find a sharing platform for almost anything.  People are sharing meals, dog kennels, boats, driveways, bicycles, musical instruments – even excess capacity in their rucksacks (cyclists becoming couriers).The Internet – and, more specifically, social media platforms and mobile technology – has brought about this economic and cultural shift.  Some commentators are almost evangelical about the potential disruption to traditional economic models that the sharing economy provides, and it’s clear that collaborative consumption offers a compelling proposition for many individuals.  It helps people to make money from under-utilized assets and tap into global markets; it gives people the benefits of ownership but with reduced costs and less environmental impact; it helps to empower the under-employed; and it brings strangers together and offers potentially unique experiences.  There’s clearly both supply and demand, and a very happy set of users for a great many of these new P2P services.However, not everyone is in favor of the rapid growth of this new business model.  Naturally, most of the opposition comes from incumbent businesses or entrenched interests that are threatened by the new competition or those that have genuine concerns about the risk posed by unregulated entrants to the market.  Authorities and traditional businesses are challenging sharing economy businesses in a variety of ways, including arguing that the new businesses violate applicable laws, with accommodation providers and car-sharing companies appearing to take the brunt of the opposition to date.Bed SurfingOne of the most successful P2P marketplaces, San Francisco-founded Airbnb is a platform that enables individuals to rent out part or all of their house or apartment.  It currently operates in 192 countries and 40,000 cities.  Other accommodation-focused P2P models include <a href="http://www.onefinestay.com/">One Fine Stay</a>, a London-based platform that allows home owners to rent out empty homes while they are out of town.Companies such as these have faced opposition from hoteliers and local regulators who <a href="http://www.crainsnewyork.com/article/20130819/HOSPITALITY_TOURISM/130819909">complain</a> that home owners using these platforms have an unfair advantage by not being subject to the same laws as a traditional hotel.  City authorities have also cited zoning regulations and other rules governing short-term rentals as obstacles to this burgeoning market.  It has been reported that some residents have been served with <a href="http://ny.curbed.com/archives/2013/08/21/elizabeth_street_resident_evades_eviction_for_airbnb_activities.php">eviction notices</a> by landlords for renting out their apartments in violation of their leases, and some homeowner and neighborhood associations have adopted rules to restrict this type of short-term rental.These issues are not unique to the United States.  Commentators have reported similar resistance – with mixed responses from local or municipal governments – in cities such as Barcelona, Berlin and Montreal.It’s not particularly surprising that opposition to P2P accommodation platforms would come from existing incumbent traditional operators – after all, that’s typical of most new disruptive business models in the early stages before mainstream acceptance.  But the approaches taken by P2P opponents illustrate that most regulations were originally devised to apply to full-time commercial providers of goods and services, and apply less well to casual or occasional providers.This has consequences for regulators, who are likely to have to apply smarter regulatory techniques to affected markets.  <a href="http://www.dutchnews.nl/news/archives/2013/06/amsterdam_tones_down_oppositio.php">Amsterdam</a> is piloting such an approach to accommodation-sharing platforms, realizing the benefits that a suitably-managed approach to P2P platforms could have on tourism and the local economy.Car Sharing Companies that enable car-sharing services have also faced a barrage of opposition, both from traditional taxi companies and local authorities.  In many U.S. cities, operators such as <a href="http://www.lyft.me/">Lyft</a> and Uber have faced bans, fines and court battles.It was <a href="http://www.bizjournals.com/sanfrancisco/blog/2013/07/sfo-arrests-drivers-for-new-ride-apps.html?page=all">reported</a> in August 2013 that eleven Uber drivers and one Lyft driver were recently arrested at San Francisco airport on the basis of unlawful trespassing offenses.  In addition, during summer 2013, the Washington, D.C. Taxicab Commission proposed new restrictions that would prevent Uber and its rivals from operating there.  Further, in November 2012, the California Public Utilities Commission (“CPUC”) issued $20,000 fines against Lyft, SideCar and Uber for “operating as passenger carriers without evidence of public liability and property damage insurance coverage” and “engaging employee-drivers without evidence of workers’ compensation insurance.”All three firms appealed these fines, arguing that outdated regulations should not be applied to peer-rental services, and the CPUC allowed the companies to keep operating while it drafted new regulations, which were eventually <a href="http://techcrunch.com/2013/07/30/california-regulator-proposes-new-ride-sharing-rules-in-a-victory-for-uber-lyft-and-sidecar/">issued</a> in July 2013.  In August 2013, the Federal Trade Commission intervened and <a href="http://ftc.gov/os/2013/06/130612dctaxicab.pdf">wrote</a> to the Commissions arguing that the new rules were too restrictive and could stifle innovation.  The <a href="http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K132/77132276.PDF">CPUC rules</a> (approved on September 19, 2013) require operators to be licensed and meet certain criteria including in terms of background checks, training and insurance.  The ridesharing companies will be allowed to operate legally under the jurisdiction of the CPUC, and will now fall under a newly created category called “Transportation Network Company.”Some operators have structured their businesses in an attempt to avoid at least some of the regulatory obstacles.  For example, Lyft does not set a price for a given journey; instead, riders are prompted to give drivers a voluntary “donation.”  Lyft receives an administrative fee in respect of each donation.  In addition, in its <a href="http://www.lyft.me/terms">terms</a>, Lyft states that it does not provide transportation services and is not a transportation carrier; rather, it is simply a platform that brings riders and drivers together.  In <a href="http://www.blablacar.com/">BlaBlaCar</a>’s model, drivers cannot make a profit, just offset their actual costs, which helps to ensure that drivers are not considered to be traditional taxi drivers, thereby helping them avoid the regulation that applies to the provision of taxi services.Traditional players embracing the new modelInterestingly, not all traditional players are taking a completely defensive approach.  From recent investment decisions, it appears that some companies appreciate that it could make sense for them to work closely with their upstart rivals, rather than oppose them.  For example, in 2011, GM Ventures invested $13 million in <a href="http://www.relayrides.com" target="_blank" rel="noopener">RelayRides</a> and, in January 2013, Avis acquired Zipcar, giving Avis a stake in Wheelz, a P2P car rental firm in which Zipcar has invested $14 million.The incentive for incumbent operators to embrace P2P models will likely vary by sector.  Perhaps it’s no surprise that this is best illustrated in the car rental industry, where there already exists a financial “pull” and a regulatory “push” towards greener and more sustainable models of service provision.Legal and Regulatory IssuesLawmakers and businesses around the world are currently grappling with how to interpret existing laws in the context of P2P sharing economy business models and considering whether new regulation is required.  For example, the European Union is preparing an opinion on collaborative consumption in the light of the growth of P2P businesses there.  One hopes that European policy makers focus more on incentivizing public investment in P2P projects via grants or subsidies than on prescriptive regulation of the sector.Importantly, however, it’s a particular feature of the market for P2P platforms that much of the regulatory activity tends to be at the municipal or local level, rather than national.  This tends to make for a less cohesive regulatory picture.In the meantime, anyone launching a social economy business will need to consider whether and how various thorny legal and regulatory issues will affect both the platform operator and the users of that platform.  Often, this may mean tailoring services to anticipate particular legal or regulatory concerns.<ul><li>Consumer protection.  Operators will need to consider the extent to which their platforms comply with applicable consumer protection laws, for example when drafting appropriate terms of use for the platform.</li><li>Privacy.  Operators will need to address issues of compliance with applicable privacy laws in terms of the processing of the personal data of both users and users’ customers, and prepare appropriate privacy policies and cookie notices.</li><li>Employment.  Where services are being provided, the operator will need to consider compliance with any applicable employment or recruitment laws, e.g., rules governing employment agencies, worker safety and security, and minimum wage laws.</li><li>Discrimination.  Operators will need to consider potential discrimination issues, e.g., what are the consequences if a user refuses to loan their car or provide their spare room on discriminatory grounds, for example due to a person’s race or sexuality?  Could the operator attract liability under anti-discrimination laws?</li><li>Laws relating to payments.  One key to success for a P2P business model is to implement a reliable and effective payment model.  But most countries impose restrictions on certain types of payment structures in order to protect consumers’ money.  Where payments are made via the P2P platform rather than directly between users, operators will need to address compliance with applicable payment rules, and potentially deal with local payment services laws.  Fundamentally, it needs to be clear whose obligation it is to comply with these laws.</li><li>Taxation.  Operators will need to consider taxation issues that may apply – both in terms of the operator and its users.  Some sectors of the economy – hotels, for example – are subject to special tax rates by many cities or tax authorities.  In such cases, the relevant authorities can be expected to examine closely – and potentially challenge, or assess municipal, state or local taxes against – P2P models that provide equivalent services.  In some places, collection of such taxes can be a joint and several responsibility of the platform operator and its users.</li><li>Safety and security.  When strangers are being brought together via a platform, security issues will need to be addressed.  Most social economy businesses rely on ratings and reciprocal reviews to build accountability and trust among users.  However, some platforms also mitigate risks by carrying out background and/or credit checks on users.  Airbnb also takes a practical approach, employing a full-time Trust & Safety team to provide extra assurance for its users.</li><li>Liability.  One of the key questions to be considered is who is legally liable if something goes wrong.  Could the platform attract liability if a hired car crashes or a host’s apartment is damaged?</li><li>Insurance.  Responsibility for insurance is also a key consideration.  The issue of insurance for car-sharing ventures made headlines in April 2013 when it was <a href="http://www.nytimes.com/2012/04/14/your-money/relayrides-accident-raises-questions-on-liabilities-of-car-sharing.html?pagewanted=all">reported</a> that a Boston resident had crashed a car that he had borrowed via RelayRides.  The driver was killed in the collision and four other people were seriously injured. RelayRides’ liability insurance was capped at $1 million, but the claims potentially threaten to exceed that amount.  Given these types of risks, some insurance companies are refusing to provide insurance coverage if policyholders engage in P2P sharing.  Three U.S. states (California, Oregon and Washington) have passed laws relating to car sharing, placing liability squarely on the shoulders of the car-sharing service and its insurers.</li><li>Industry-specific law and regulation.  Companies will need to consider issues of compliance with any sector-specific laws, whether existing laws or new regulations that are specifically introduced to deal with their business model (such as crowd-funding rules under the JOBS Act in the United States, and P2P lending rules to be introduced shortly in the United Kingdom).  As noted above, some social economy businesses have already experienced legal challenges from regulators, and as collaborative consumption becomes even more widely adopted, regulatory scrutiny is likely to increase.  Accordingly, rather than resist regulation, the best approach for sharing economy businesses may be to create trade associations for their sector and/or engage early on with lawmakers and regulators in order to design appropriate, smarter policies and frameworks for their industry.</li></ul>ConclusionErasmus said, “There is no joy in possession without sharing.”  Thanks to collaborative consumption, millions of strangers are now experiencing both the joy – and the financial benefits – of sharing their resources.  However, the legal challenges will need to be carefully navigated in order for the sharing economy to move from being merely disruptive to become a firmly established business model.

Collaborative Consumption – Is It Good to Share?