Lahoti v. Vericheck Inc., No. 08-35001 (9th Cir., Nov. 16, 2009)
Opinion

On November 16th, the Ninth Circuit held that the district court’s finding that the mark “VeriCheck” was an inherently distinctive, legally protectable mark was based in part on erroneous legal reasoning and in part on valid reasoning. Accordingly, it vacated the lower court’s award of summary judgment in favor of the defendant and remanded. However, the Ninth Circuit affirmed the district court’s finding that the counterclaim defendant acted in bad faith. The court noted that it is proper for a court to consider the fact that the PTO has allowed others to register the mark at issue without requiring a showing of secondary meaning as weighing in favor of a finding of inherent distinctiveness.

The Ninth Circuit held that because the district court did not rely exclusively on the proper legal standard, its finding that Disputed Mark was distinctive must be vacated — even if there may have also existed proper legal grounds for finding the mark distinctive. The court also held that Lahoti acted at least “partially in bad faith” by gambling that the district court would agree with his interpretation of trademark law. He knew or should have known that he would risk cybersquatting liability if his gamble failed.

BNA and Michael Atkins, a Seattle trademark lawyer, provide relevant overviews of the case.

VeriCheck, Inc. (“VeriCheck”), a Georgia corporation that provides electronic financial transaction processing services, had unsuccessfully attempted to secure the vericheck.com domain name in 1999. David Lahoti claimed that in anticipation of future business pursuits, he registered a number of domain names with the “veri-” prefix, acquiring the vericheck.com domain name in 2003. After a failed negotiation in 2004 between Vericheck and Lahoti, VeriCheck filed an arbitration complaint pursuant to the Uniform Domain-Name Dispute-Resolution Policy in 2006. Although the arbitrator ordered the transfer of the Domain Name to VeriCheck, Lahoti sought a declaratory judgment that he did not violate the Lanham Act’s cybersquatting or trademark infringement provisions. Vericheck counterclaimed that Lahoti’s actions violated the Lanham Act, the Anti-Cybersquatting Consumer Protection Act (“ACPA”), the Washington Consumer Protection Act (“WCPA”), and Washington common law.

The Ninth Circuit reasoned that the proper standard of appellate review was for “clear error,” and it held that the district court’s decision that the “VeriCheck” mark was a distinctive, legally protectable mark under the ACPA and federal trademark law was based in part on reasoning contrary to federal trademark law and based in part on reasoning that could support the district court’s conclusion. Accordingly, because the district court did not rely exclusively on the proper legal standard, the appellate court vacated and remanded the judgment to the extent it determined the Disputed Mark was distinctive.

The appellate court also held that the record supported the district court’s summary judgment determination that Lahoti was motivated by a bad faith. Not only did he intend to profit from his use of the Disputed Mark, but also he was a repeat cybersquatter who has been admonished by other judicial bodies for cybersquatting. The court reasoned that Lahoti’s failed defenses in these other cases made it unlikely that he legitimately believed that his use of the Domain Name was wholly lawful in this case.

This case is significant because it maintains that the issue of whether a mark is suggestive or descriptive is a fact-intensive question that poses a difficult decision in many close cases. This case falls in line with a series of cases that have been reluctant to allow for the ACPA safe harbor defense that protects registrants who “believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” 15 U.S.C. 1125(d)(1)(B)(ii).

By Ian B. Brooks – Edited by Alissa Del Riego
United States v. Kilbride, No. 07-10528 (9th Cir. Oct. 28, 2009)
Opinion

The Ninth Circuit has affirmed the District Court for the District of Arizona, which had convicted and sentenced defendants Jeffery Kilbride and James Schaffer of transporting obscene materials for sale.

The Ninth Circuit held that a national community standard “must be applied in regulating obscene speech on the Internet, including obscenity disseminated via email.” United States v. Kilbride, No. 07-10528 at 14492 (9th Cir. Oct. 28, 2009).  Defendant Internet spammers Kilbride and Schaffer had appealed their convictions for interstate transportation for sale of obscene material in violation of 18 U.S.C. §§ 1462 and 1465. Judge Fletcher of the 9th Circuit examined the opinions of the fragmented Justices in the Supreme Court’s opinion in Ashcroft v. ACLU for guidance in reaching his conclusion that a national community standard would not pose the constitutional concerns that a local community standard would. Ashcroft v. ACLU, 535 U.S. 564 (2002)

Eric Goldman provides an overview of the case. Orin Kerr, of The Volokh Conspiracy, criticizes the Ninth Circuit’s reasoning in the case. Kerr argues that the Ninth Circuit should have followed the precedent set in Miller v. California, 413 U.S. 15 (1973), wherein local “contemporary community standards” were applied.

Although the Ninth Circuit agreed with the defendants’ assertion that the district court erred in its jury instruction on the obscenity community standard, the court found that it was not a plain error and did not require reversal. The court reached its holding based on  Ashcroft, which found the Child Online Protection Act (COPA) unconstitutional because it was based partly on community standards to identify material that was harmful to children.

Defendants Kilbride and Schaffer operated a spamming business through Ganymede Marketing, a Mauritian company with servers operating in the Netherlands. Two images from the defendants’ sexually explicit emails lead to the obscenity charges. Kilbride and Schaffer were sentenced to 78 and 63 months respectively. On appeal, defendants challenged the District Court’s application of a contemporary community standard to email communications under Hamling v. United States, 418 U.S. 87 (1974), because it would subject the defendants to the least tolerant community standard in the country. The government challenged defendants’ argument by citing a prior case in the district, United States v. Dhingra, 371 F.3d 557 (9th Cir. 2004), in which the Ninth Circuit did not foreclose a local community standard where a crime occurred over the Internet. The Ninth Circuit distinguished Dhingra noting that it does not apply to a federal law that regulates speech.

Rather than applying Hamling, the Ninth Circuit followed Ashcroft. The Ashcroft case addressed the constitutionality of the COPA, which regulated material harmful to minors. The opinion of the Court in Ashcroft did not find it significant that Internet communications were not focused to a particular area and rejected the national community standard approach. The Ninth Circuit reasoned that the view of the Court was contrary to defendants’ argument but noted that the opinion was not joined by a majority of the court.The Ninth Circuit found support for its conclusion that a national obscenity standard should be applied by examining the multiple concurrences and dissent of the other Justices in Ashcroft. Judge Fletcher noted that six Justices raised constitutional concerns over the application of a local community standard for defining obscenity in Internet cases.

This case represents a departure from the local community standard that had been applied following Miller and goes against the reasoning of the opinion of the Court in Ashcroft, but applies what some believe to be the practical reasoning necessary for balancing Internet communications, free speech, and obscenity concerns. Looking forward, OneNewsNow provides a brief opinion on how the Ninth Circuit’s decision may impact defenses raised by attorneys.

By Abby Lauer – Edited by Alissa Del Riego
Siracusano v. Matrixx Initiatives, Inc., No. 06-15677 (9th Cir. Oct. 28, 2009)
Opinion

The Ninth Circuit has unanimously reversed the U.S. District Court for the District of Arizona’s holding, which had dismissed a class action claim against Zicam manufacturer Matrixx for the complaint’s failure to adequately allege a violation of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

In an opinion written by Tashima, J., the Ninth Circuit held that the District Court improperly relied on a statistical significance standard to determine that the plaintiffs’ complaint did not allege “a material misrepresentation or omission of fact.” Siracusano v. Matrixx Initiative, Inc., No. 06-15677 at 18 (9th Cir. Oct. 28, 2009). Instead of determining materiality as a matter of law, the district court should have allowed the jury to conduct a “fact-specific inquiry.” Siracusano v. Matrixx Initiative, Inc., No. 06-15677 at 20 (9th Cir. Oct. 28, 2009). In addition, the Ninth Circuit held that the lower court erred in dismissing plaintiffs’ complaint for failure to allege scienter on the part of Matrixx executives. The court reasoned that the inference that Matrixx executives knew about the possible link between Zicam and anosmia (loss of smell) before issuing allegedly misleading statements is at least as likely as any plausible opposing inference.

Phoenix’s East Valley Tribune provides an overview of the case. For further discussion of the opinion and pleading standard precedents, see The D & O Diary. For more information about homeopathic remedies, including Zicam, see this recent Washington Post article.

Plaintiffs brought the original action in April 2004, alleging that Matrixx had information of a possible causal connection between Zicam use and anosmia but failed to disclose this risk and instead issued false and misleading statements to consumers.

The Ninth Circuit held that plaintiffs’ complaint satisfied the heightened pleading standards of past Supreme Court cases Twombly and Tellabs and thus should have survived a motion to dismiss. In its holding on the materiality issue, the court examined allegations in the complaint to consider whether information regarding a possible link between Zicam and anosmia was information a reasonable investor might consider significant. The court found that the allegations were sufficient to satisfy the pleading requirement under the PSLRA and held that the issue of whether Matrixx’s misrepresentations were material should be left for a jury to decide. On the issue of scienter, the court emphasized that Matrixx was aware of at least 14 complaints linking Zicam to anosmia at the time it stated that a causal connection between the two was “completely unfounded and misleading.” The court also found a strong indication that high-level Matrixx executives knew that the company was being sued in a product liability action on the issue of anosmia when they released the allegedly misleading statements. Viewing the complaint as a whole, the court held that the inferences of scienter drawn by the plaintiffs’ complaint were sufficiently strong for it to survive a motion to dismiss.

The decision is the latest in a series of setbacks for Matrixx. Following a warning from the FDA last June that Zicam products could cause anosmia, the company voluntarily withdrew two forms of the drug. Matrixx continues to maintain that anosmia is caused by the cold virus, which Zicam is designed to treat, and not by the drug itself.

The case will now return to the District Court for further proceedings. Whether or not the plaintiffs eventually prevail at trial may have substantial implications for Matrixx, which relied on Zicam Cold Remedy products for about 70 percent of its total sales at the time the action was initially filed.

Facebook, Inc. v. Power Ventures, Inc.
By Gary Pong – Edited by Eric Engle

Facebook, Inc. v. Power Ventures, Inc., Case No. 08-cv-05780-JF (N.D. Cal. Oct. 22, 2009)
Order (Hosted by SPAM NOTES)

The United States District Court for the Northern District of California has granted a motion by Facebook to dismiss counter-claims and strike affirmative defenses in its ongoing case against Power Ventures (Power.com). In his order, United States District Judge Jeremy Fogel wrote that Power.com’s answer and counter-claim relied on legal conclusions which were not directly supported by factual allegations. Judge Fogel went on to note that antitrust claims, like those made by Power.com, “require a ‘higher degree of particularity in the pleadings.’” The order gives Power.com 30 days to amend its pleading.

TechCrunch provides an overview of the issues involved in this case. The Financial Times and Eric Goldman’s Technology & Marketing Law Blog comment on the decision.

Power.com is a service that aggregates various social networking sites so that users can access them all via Power.com. The service promotes to users that they can have “all [their] friends in just one place.” Power.com had allowed users to integrate their Facebook accounts into the service until Facebook filed suit on December 30, 2008. In its complaint (hosted and discussed by the New York Times), Facebook alleges, among other things, that Power.com had violated Facebook’s terms of use, infringed upon Facebook’s copyright and trademark, and violated the Digital Millennium Copyright Act (”DMCA”).

In response, Power.com filed a motion to dismiss (hosted by and discussed by SPAM NOTES) that was subsequently denied. It then filed an answer and counter-claim (hosted by Power.com and discussed by SPAM NOTES) against Facebook. In the counter-claim, Power.com alleges that Facebook engaged in monopolistic and anti-competitive behavior by placing restraints on Power.com’s ability to manipulate users’ Facebook data even when their consent was given. The present order by Judge Fogel gives Power.com 30 days to support its claims against Facebook with facts.

Whether or not Power.com ultimately prevails may have far-reaching effects on social networking sites and the personal data they amass, since one of Facebook’s greatest assets is the personal information it has collected on its over 300 million users. Facebook has an undeniable interest in keeping this information from potential competitors such as Power.com. In such an environment, it may be difficult for a new competitor to reach critical mass and to obtain enough users for the network effect to take hold. At the same time, users are very concerned about their privacy and Facebook has faced vocal criticism in the past whenever it instituted policies that users felt were threatening (e.g. Facebook Beacon). It would be even more difficult for Facebook to protect its users’ privacy if the data was shared with third-parties. With this in mind, it may not be hyperbole to say that the outcome of this case could affect a population the size of America.

Vernor v. Autodesk, Inc., No. C07-1189RAJ (W.D. Wash., Sept. 30, 2009)
Opinion

On September 30, the United States District Court for the Western District of Washington granted, in part, Vernor’s motion for summary judgment against Autodesk.After Autodesk became aware of Vernor’s attempts to sell copies of its copyrighted software, AutoCAD, on eBay, it invoked the takedown provisions of the Digital Millennium Copyright Act, causing Vernor to be barred from selling anything on eBay for a month. Vernor sued, seeking, among other remedies, declaratory judgment that these sales were not in violation of copyright. In granting summary judgment for Vernor, the Court held that a customer who had acquired AutoCAD packages pursuant to Autodesk’s software license agreement (”License”) became an owner of the physical copies of the software with the right to resell the AutoCAD packages under the first sale doctrine (17 USC § 109(a)).

The Court also accepted that the owner was protected from claims of contributory copyright infringement by 17 USC § 117. The Court had previously considered very similar issues in the context of Autodesk’s earlier motion to dismiss. See Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008)).

A selection of briefs and relevant court documents are available here. The Technology & Marketing Law Blog provides a useful overview and analysis of the case. The outcome was heralded as pro-consumer by the Electronic Frontier Foundation, but Blog Nauseum suggests that the decision is not much of a win for consumers.

In holding as it did, the Court rejected Autodesk’s argument that it merely licensed the AutoCAD packages and remained the owner of the copies of the copyrighted material contained therein. The decision turned on the specific wording of the License and the resolution of two conflicting lines of precedent.

The AutoCAD packages in question were first transferred from Autodesk to Cardwell/Thomas Associates (“CTA”), an architecture firm, pursuant to the License. CTA then transferred the packages to Vernor in a sale of office equipment.  Vernor subsequently attempted to resell the AutoCAD packages on eBay, prompting Autodesk to invoke the “takedown” procedure. Vernor was barred from selling anything on eBay for a month. There was no suggestion that Vernor had used the software himself.

The Court’s determination turned on whether or not Autodesk had transferred ownership of the AutoCAD packages to CTA. If ownership was transferred, CTA and Vernor had first sale rights. The crucial question was therefore whether the terms of the Autodesk License transferred ownership of the software copies included in the AutoCAD packages to CTA, or whether CTA was a mere licensee.

The Court characterized the License as a “hodgepodge of terms” that could support both transfer of ownership and mere license. The fact it was designated a “license” was not determinative. Autodesk expressly retained title to the “Software and accompanying materials” but had no right to regain possession. The use and further transfer of the software was severely restricted. However, Licensees paid a single up-front price, consistent with ownership. Whether these terms were sufficient to transfer ownership required the Court to resolve conflicting precedents.

In United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), an agreement that reserved all rights and title in the copyright holder was found to transfer ownership of the copy when coupled with upfront payment and the “rest of the language” of the agreement, in particular, the fact that the copyright holder had no right to regain possession.

On the other hand, a trio of cases referred to as the “MAI trio” characterized agreements transferring possession of software as mere licenses (MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); Wall Data Inc. v. L.A. County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006)).

The Court refused to select between precedents on the basis of policy, commenting that courts, unlike Congress, are not suited to render judgments on policy. Rather, the Court applied the principle that it must follow the oldest precedent among conflicting opinions from three-judge Ninth Circuit panels. Accordingly, the case fell to be decided for Vernor on the basis of Wise.

Vernor is one of a number of cases to consider first sale rights in the software context. Because this controversial issue was resolved on the basis of a technical rule of precedent, this decision is unlikely to be the end of the matter. Autodesk may appeal, and the Ninth Circuit is currently hearing several cases raising similar issues (see Electronic Frontier Foundation’s commentary). In the meantime, we can expect that attorneys for software developers will be reviewing the language of their clients’ “licenses” to strengthen the claim that ownership of the copy does not pass to the consumer.

By Vera Ranieri – Edited by Amanda Rice
United States v. Drew, No. CR 08-0582-GW (C.D. Cal. Aug. 28, 2009)
Opinion

On August 28, 2009, Judge Wu of the Central District of California released a written opinion outlining his reasons for granting Lori Drew’s FRCP 29(c) motion for a post-verdict acquittal, a decision he had initially announced in early July. Judge Wu’s decision overturned the jury’s conviction of Lori Drew for violating the Computer Fraud and Abuse Act (”CFAA”) by breaching the MySpace Terms of Service (”ToS”).

Ars Technica and Wired summarize the case. Eric Goldman provides a thoughtful analysis of the case, characterizing it as “a good jurisprudential development” while criticizing its lack of clarity.

The Government claimed that Drew violated MySpace’s ToS when she created a profile under a fictitious persona, contrary to terms that required her to submit only truthful and accurate information. As a result, the jury found her guilty of “accessing a computer involved in interstate or foreign communication without authorization or in excess of authorization to obtain information in violation of Title 18.”

In overturning the misdemeanor conviction, Judge Wu found the CFAA unconstitutionally vague as applied to the facts presented. Judge Wu conducted a thorough analysis of the statutory language, policy implications, and constitutional requirements in reaching his decision. First, Judge Wu examined the language of the CFAA and found that Drew’s actions had potentially violated the CFAA. He found no legislative history indicating that the words of the statute were to be given special meaning to exclude ToS violations, and indeed found that website owners had legitimate reasons to exclude certain activity on their websites through contractual agreements.

However, Judge Wu found that these violations could not be criminal, as to do so would be unconstitutionally vague. He examined the CFAA as applied to determine whether it provided sufficient notice, and whether it set guidelines for law enforcement, as required to render a law not unconstitutionally vague. He found that the law as applied violated both of these tenets.

There were several reasons why Judge Wu found that the law lacked sufficient notice. First, Judge Wu noted that applying the CFAA this case would essentially criminalize breaches of contract. Because a breach of contract is not normally considered criminal on its own, a person would not expect such activity to render her a criminal.  Second, Judge Wu noted that the MySpace ToS contained many terms that were potentially violated daily by MySpace users. Accordingly, he found that the statute was “incredibly overbroad,” failing to give the government any direction on when to prosecute. Third, allowing the website owner to determine when access was “unauthorized” could itself lead to vagueness problems. Many websites, he noted, used terms that were undefined and subject to varying standards. For example, the definition of “unfair content” was unclear and subject to varying interpretations. Finally, he noted the conflicts that arose between terms of the contract under California law and criminalization under CFAA.

Judge Wu also found that the law was unconstitutionally vague due to the lack of guidelines provided to law enforcement officials. He recognized that criminalizing breaches of ToS would render a vast majority of the Internet using population criminals.

The Volokh Conspiracy author Orin Kerr, who helped represented the defense, notes the importance of this case in ensuring civil liberties on the Internet are not curbed. Many civil liberties organizations, including the Electronic Frontier Foundation and the Center for Democracy and Technology, believed that the application CFAA to Drew’s case would have substantially threatened common Internet activities.

Paris Hilton Obtains Small Victory in Ninth Circuit

WSJ Blogs reports that the Ninth Circuit gave Paris Hilton the green light on August 31 to proceed in her lawsuit against Hallmark for its use of her image and the phrase “That’s Hot” in a birthday greeting card. The court made note of the similarities between the card and Hilton’s appearance on the television show “The Simple Life.” In support of Hilton, the court stated that she “has at least some probability of prevailing on the merits before a trier of fact.” The case name is Hilton v. Hallmark Cards.

Cable Companies No Longer Capped at 30% Market Share

The Washington Post reports that on August 28, the Court of Appeals for the D.C. Circuit in Comcast v. FCC invalidated an FCC rule that capped the market share of cable companies at 30%. The FCC supported the rule because it believed that cable companies with market share larger than 30% would harm consumers. The court rejected the FCC’s rule in part because it failed to show how consumers would be harmed by the large cable companies in the current market, given the competition between cable, satellite, and fiber optic providers.

Texas Links DNA to Criminal Records

WSJ Blogs reports that on September 1, a new law took effect in Texas will link DNA evidence to sexual assault suspects’ criminal records. The link will be maintained regardless of whether the statute of limitations has passed or the suspect has been tried. The law’s supporters want to ensure harsher penalties to these suspects should they face legal troubles in the future, as the record would be available to parole boards and prosecutors. Critics of the law, including the ACLU, fear the potential abuse of due process rights.

Florida Bar Wants Access to Certain Applicant Facebook Profiles

The Florida Board of Bar Examiners will now be requesting access to the Facebook profiles of certain applicants on a case-by-case basis. The Board has identified a number of categories of applicants that it will require access from, including persons with a history of certain types of legal experience or substance abuse. The Citizen Media Law Project notes many of the privacy concerns related to the Bar’s decision.

By Dmitriy Tishyevich-Edited by Anthony Kammer
Zango, Inc. v. Kaspersky Lab, Inc., June 25, 2009, No. 07-35800.
Slip Opinion

On June 25, the Court of Appeals for the Ninth Circuit affirmed the district court’s grant of summary judgment for Kaspersky Lab, which distributes software that filters and blocks malicious programs.  The Ninth Circuit held that Kaspersky qualified for civil liability immunity under the Communications Decency Act Sec. 230(c)(2)(B) and rejected Zango’s argument that Sec. 230 immunity was limited only to Internet content providers.

The E-Commerce and Tech Law Blog summarizes the opinion. Eric Goldman provides another summary, agreeing with the outcome, but pointing out some questions the decision left open.

Kaspersky Internet Security is anti-virus software that warns users if the program they are about to download has been classified as malware and gives the user the option of allowing or rejecting the download.  Zango created several downloadable programs, which provided free access to its catalog of online videos, games, music, and tools if the customers agreed to have online ads displayed as they browsed the Internet.  Kaspersky classified Zango’s programs as adware, a type of malware that monitors the users’ Internet usage and causes pop-up ads to appear while the user is online.  In response, Zango filed suit against Kaspersky claiming that its software interfered with customers’ use of Zango’s programs, links, and promotional materials.

The Ninth Circuit affirmed the district court’s holding and held that Kaspersky was entitled to immunity under the Communications Decency Act Sec. 230(c)(2)(B), which grants immunity from civil liability to interactive computer service providers for screening and blocking of offensive material.  The court rejected Zango’s argument that Congress intended to grant immunity under the Communications Decency Act only to Internet content providers.  It determined that Kaspersky met the statute’s definition of an interactive computer service provider, as it made available anti-malware software which enabled users to filter, screen, and allow or disallow particular content.

The court also noted that though the legislative history indicated that Internet content providers were to be granted immunity, this was but one of the purposes of Sec. 230(c), and the plain language of the statute and other legislative history showed that the CDA was also meant to immunize providers of interactive computer services that make filtering software available.  The court further determined that extending immunity to providers of malware filtering software was consistent with Congress’ goals for immunity as articulated in Sec. 230, noting that extending immunity would encourage development of technologies that enable users to exercise control over the information they receive, and would remove disincentives for development of filtering software that permits parents to restrict their children’s access to inappropriate online materials.

Judge Fisher concurred that the CDA provided immunity to Kaspersky as an access software provider.  He noted, however, that a broad grant of immunity could be of concern if providers of blocking software could unilaterally block dissemination of material, because a provider might abuse the immunity by blocking competitors’ content without the user’s knowledge.  He suggested further that unless Sec. 230(c)(2)(B) imposed some implicit good faith requirement, immunity may stretch to include conduct that Congress likely did not intend to protect.

The Sunbelt Blog suggests that Judge Fisher’s concerns are misplaced because given the competitiveness of the anti-malware software market, vendors cannot unilaterally block content that users actually want installed on their computers.

Supreme Court to Consider Business Method Patents

Patently-O reports that the Supreme Court granted certiorari on Bilski v. Doll. The Court will address whether a patentable “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing. The Court will also consider whether this “machine-or-transformation” test, which effectively forecloses meaningful patent protection to many business methods, runs counter to the intent of Congress in enacting 35 U.S.C. § 273 establishing special rules for “method[s] of doing or conducting business. JOLT Digest covers the earlier en banc decision by the Federal Circuit here, and Patently-O offers a detailed summary of the earlier decision here.

Review of NASA Security Regulations Denied

The Metropolitan News-Enterprise reports that on Thursday the Ninth Circuit declined to review en banc a privacy case involving employees at the Jet Propulsion Laboratory (JPL), a part of NASA. A three-judge panel of the appellate court had previously ruled that NASA’s mandatory background checks threatened workers’ constitutional right to privacy. The petition for rehearing generated a plethora of concurring and dissenting opinions, including an opinion by the appellate court concurring in the denial that referred to the background check as a “free-floating, wide-ranging inquiry with no standards, limits, or guarantee of non-disclosure to third parties.” Three opinions dissenting from the rehearing en banc are available here, here, and here. The JPL employees have also created a website voicing their opposition to the background checks.

Court Dismisses Eavesdropping Lawsuits

Wired reported on Wednesday’s decision by a judge for the Northern District of California to dismiss more than three dozen lawsuits aimed at telecommunication companies for assisting in a Bush administration eavesdropping program. The judge ruled that the companies were entitled to immunity based on legislation passed over the summer, which purports to immunize the telecommunications firms from liability. The Electronic Frontier Foundation plans to appeal the decision.

By Ezra Pinsky – Edited by Dmitriy Tishyevich
Barnes v. Yahoo!, Inc., May 7, 2009, No. 05-36189.
Slip Opinion

On May 7th, the Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s 12(b)(6) dismissal of a complaint which had sought to impose negligence liability on Yahoo for hosting a fraudulent personals profile created by the plaintiff’s ex-boyfriend, despite plaintiff’s requests that it be removed and Yahoo’s assurances that it would be.  The district court dismissed the claim, holding that Section 230(c)(1) of the Communications Decency Act immunized Yahoo from liability.  Writing for the Court of Appeals, Judge O’Scannlain affirmed in part, upholding the district court’s finding that Section 230(c)(1) protects Yahoo from negligence liability for third-party tortious material hosted on its website.  However, the court reversed in part and remanded, holding that Section 230(c)(1) does not protect Yahoo from a promissory estoppel claim if they promised to remove such content but failed to follow through.

Marc Randazza of the Citizen Media Law Project and Daniel Solove of Concurring Opinions provide overviews of the decision.  Eric Goldman of the Technology and Marketing Law Blog criticizes the opinion for being “filled with gratuitous and dangerous dicta, sloppy reasoning and sloppy language.”

The district court held that Barnes, whose ex-boyfriend posted fraudulent and harmful personal profiles of her on a website operated by Yahoo, could not maintain a negligence claim against the company.  In so doing, it relied on Section 230(c)(1), which, under certain circumstances, makes Internet service providers immune from liability for material that is published on their website by third parties by not treating the providers as publishers or speakers of that information.  Goldman summarized the district court’s decision.

The Ninth Circuit affirmed in part by recognizing that despite Barnes’ attempt to bypass Section 230(c)(1) by suing Yahoo for negligence rather than defamation, Yahoo would nevertheless be immune from liability if Barnes’ cause of action sought to treat the company as a “publisher or speaker” of harmful material provided by a third party.  The court concluded that Barnes’ tort claim would treat Yahoo as a publisher, noting that “removing content is something publishers do, and to impose liability on the basis of such conduct necessarily involves treating the liable party as a publisher of the content it failed to remove.” The negligence claim was therefore barred by Section 230.

However, the court also noted that Barnes’ complaint cited “Yahoo’s ‘promise’ to remove the indecent profiles and her reliance thereon to her detriment,” which it construed as a promissory estoppel claim, a form of liability that lies in breach of contract rather than negligence.  The court determined that “Barnes does not seek to hold Yahoo liable as a publisher or speaker of third party content, but rather as the counter-party to a contract, as a promisor who has breached.”  The potential liability would be based on Yahoo’s manifested intention to remove the content, which it ultimately did not do.  The court held that if Yahoo had made a promise with the constructive intent that it be enforceable, it implicitly agreed to waive its Section 230(c)(1) immunity upon breach of that promise.  The court remanded the case to determine if Yahoo’s assurance of action in fact qualified as such a promise.

Daniel Solove points out that this decision may have negative consequences by deterring Internet service providers from taking a firm stand on removing tortious material from their website.  As the Ninth Circuit noted, “this makes it easy for Yahoo to avoid liability: it need only disclaim any intention to be bound.”  Solove observes that consequently, instead of making a strong effort or providing any assurance that may be construed as a promise, providers will “hide under Section 230’s umbrella by weakening promises to take down harmful content.” 

Eric Goldman suggests that this promissory estoppel decision should not substantially change Section 230 jurisprudence because promissory estoppel claims are very difficult to win.  Additionally, websites will still be able to avoid liability by being careful with their words.  However, he points out that the ability of plaintiffs to raise this claim will still have negative consequences, since it will allow them to “get further into the litigation process (to the summary judgment stage or even to trial) and substantially raise the costs of a 230 defense.”

In a recent update, Goldman also notes that Yahoo, supported by an amicus brief from a coalition of public interest groups, has petitioned for a rehearing en banc.  Yahoo is seeking rehearing of the panel opinion’s holding that Sec. 230 provides an affirmative defense that must be asserted by responsive pleading, and may not justify dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6). Citizen Media Law Project analyzes the legal merits of the petition and of the Ninth Circuits ruling. CMLP also hosts the petition here.