Pinterest “Buyable Pins” And Ecommerce Liability

Agreement SM

Last week, Pinterest announced the release of “Buyable Pins” – streamlining the online purchasing process that enables Pinterest users to buy pinned items from several stores without having to leave the Pinterest site or app.  For consumers, Buyable Pins make it easier to move from a Pin to purchase. For businesses, this opens a door to a large new audience who loves to shop.

Here’s everything you need to know about selling on Pinterest and potential areas of Ecommerce liability.

Online Contracts Reduce Merchant Risk. Sometimes.

A substantial number of court opinions in recent years have looked at the validity of various provisions contained in online contracts. The starting point for most analyses is the point of contract formation, because terms of online contracts are enforceable only if the contract was validly formed. Courts have scrutinized ecommerce contracts, primarily in four areas: (a) Terms of Sale; (b) Returns/Exchanges; (c) Governing Law & Venue; and (d) Arbitration. Quite often, courts have refused to enforce such terms, due to deficiencies in the formation of online contracts.

As a general proposition, formation of contracts (offer and acceptance) and enforceability of contractual provisions (choice of governing law) are matters determined by reference to state law. However, in the United States, federal courts are often required to determine matters of state law and most states have relatively uniform requirements with respect to the three principal concepts in the determination of contract enforceability: offer, acceptance and consideration.

With respect to contract law in relation to online commerce (ecommerce), contracts generally take one of two forms: (1) “click-through” or “click-wrap” agreements, and (2) “browse-wrap” agreements, often referred to as Terms of Use or Terms of Service. It is worth noting that a recent Eastern District of New York court decision classified online contracts in four categories (a) browsewrap[sic]; (b) clickwrap[sic]; (c) scrollwrap[sic]; and (d) sign-in-wrap. Berkson v. Gogo, LLC, Case No. 14-CV-1199 (USDC E.D.N.Y. April 9, 2015). Functionally, the last three tend to look substantially similar (e.g. there is some action required to consent to the agreement, see discussion of “consent,” below) and will be treated as such for purposes of this article.

This is particularly important for merchants using “Buyable Pins” on Pinterest. Unless the online terms of the agreement between the merchant and the customer are validly binding and enforceable, many of the protections offered to the merchant in the online contract will not be available.

As noted above, courts have frequently refused to enforce provisions around a merchant’s ability to modify some terms post-sale (Terms of Sale), the availability of and methods for returns and exchanges, how and where lawsuits may be filed (Governing Law & Venue), and requirements to submit disputes to arbitration. This presents particular issues for Buyable Pins. Merchants need to think carefully about how a user is presented with the opportunity to accept or reject an online contract, and how the user “manifests consent to the agreement.”

The so-called “click-wrap” agreement is usually the agreement formed when a user purchases goods or services through an ecommerce shopping cart application. A user is presented with the online terms and conditions and must “click-through” as part of the transaction.

Consenting to Online Terms.

“Click-wrap” agreements derive their name from the shrink-wrap agreements that were first incorporated into commercially-distributed software. Users were deemed to have accepted the terms of the agreement by opening the package and installing the software. In ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir.1996), the court held that a user was bound by the terms and conditions of a software license agreement (contract) included in a users’ manual within the packaging, and which was displayed on a computer screen upon installation and use of the software. Such contracts are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable).

Consenting to Arbitration, Choice of Law and Venue.

Another concern is the scope of the terms and conditions applicable to the contracts, and whether additional terms may be incorporated by reference or presented after the transaction has been processed. Courts have been severely reluctant to enforce additional contract terms that would affect a user’s rights, such as the user’s ability to enforce the contract, including arbitration provisions, choice of law, and choice of venue provisions in online contracts, especially where such terms were communicated after-the-fact. This issue was addressed by a federal court in Schnabel v. Trilegiant. 697 F. 3d 110 (2nd Cir.2012)

Consenting to Changes in Price.

A very recent case involving Safeway grocery stores challenged a merchant’s practice of charging slightly different (and higher) prices for items ordered online than those purchased in-store. The in-store prices varied day-to-day. Typically, after a customer placed an online order, the items were actually selected from a physical store and delivered to the customer. At issue was the enforceability of Safeway’s “amend-at-will-without-notice” clause contained in the online terms.

Finding the clause unenforceable, the court reasoned “beyond the impracticality of expecting consumers to spend time inspecting a contract they have no reason to believe has been changed, the imposition of such an onerous requirement on consumers would be particularly lopsided, as Safeway is aware that it has — or has not — made changes to the Terms and is the party to the contract that wishes for the new terms to govern.” Rodman v. Safeway Inc., 2014 WL 6984703 (N.D. Cal. Dec. 10, 2014)

Best Practices For Merchants.

“Buyable Pins” highlight the legal risks inherent in ecommerce contracts. Seamlessly moving form Pin to purchase will no doubt increase sales and customers and reduce abandoned virtual shopping carts. However, merchants need to be mindful that the risk of losing a lawsuit because of an unenforceable contract is greater than the risk of losing a sale because a customer had to objectively consent to that contract.

Here are six “best practices” to ensure that the online contract formation process is bullet-proof: 1) use a multi-step account activation (or transaction confirmation) process where the user is shown the contract (can be in a separate “pop-out” window); 2) use a notice appearing in bold print stating, “Carefully read the following terms and conditions. If you agree with these terms, indicate your assent below;” 3) present the terms and conditions in a new window, with a scroll bar that allows the user to scroll down and read the entire contract (the Berkson “scrollwrap” agreement; 4) link to a printer-friendly version to read the contract printed on paper or view it on a full-screen; 5) display a box and the words, “Yes, I agree to the above terms and conditions” viewable without scrolling; and 6) have a functional requirement that the user click the box in order to proceed to the next step.

While I cannot guarantee that using these techniques will ensure that your online contracts will be fully-enforceable 100% of the time, it will make it exceptionally hard for a potential plaintiff to argue that there was no enforceable contract.

When it comes to addressing emerging ecommerce legal risks, it is often difficult to determine whether you should slow down, change course, signal for help, or simply muddle through. Often, companies need to quickly identify potential issues, assess the risk, and implement controls to steer clear of unneeded exposure. The professionals at the Adler Law Group can help you review, enhance and adopt standardized contracts and implement methodologies for approaching these challenges by setting objectives, determining scope, allocating resources, and developing agreements that will efficiently and effective manage risks, while keeping pace with the business.

Focus | Vision | Perspective | Passion

Executives face a confusing and dynamic set of challenges ensuring their business remains legally compliant. Yet few can afford the highly-qualified and versatile legal staff needed to deal with today’s complex legal & regulatory environment. Adler Law Group was created to provide clients with a competitive advantage by enabling them to leverage their intangible assets and creative content in a way that drives innovation and increases the overall value of the business.

For a FREE, no-obligation 1 hour consultation to learn the best ways to identify, protect and leverage your ideas, please call: (866) 734-2568, click: http://www.adler-law.com, or write: David @ adler-law.com.

Adler Law Group – Providing innovative legal counsel that elevates aspirations to achievements.™

Three Idea & Design Protection Tips For Interior Designers Ping® July 2015

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Interior Design can be a competitive business. It is no secret that one designer may begin a project, only to have it completed by another, including a former employee. As a result, Designers need to be vigilant about protecting both their designs and relationships. The case of Hunn v. Dan Wilson Homes, Inc., 13-11297, 14-10365, 114 qUSPQ2d 2002 (5th Cir 2015) offers several lessons for Designers.

Synopsis.

Ben Lack, who was employed as a draftsman at the Plaintiff architectural design firm Marshal Hunn Designs (HD), resigned from his job while in the middle of a project for the firm’s client, Dan Wilson Homes, Inc. (DWH). After Lack’s resignation, Lack was hired by DWH to complete the project. HD sued Lack and DWH alleging that they secretly agreed in advance with DWH to cut HD out of the business. The court ruled in favor of Lack (and DWH) finding they never entered into any “secret agreement” and there was no merit to the eight other legal claims, including copyright infringement and false designation of origin under the Lanham Act.

Facts.

DWH is a custom home construction company. DWH contracted with HD to produce plans for four (4) custom homes. DWH wanted the plans drafted by Lack. Lack was the only HD employee who worked on the four custom homes for DWH and HD’s only representative at all weekly meetings with respective homeowners.

While the home construction projects were still underway, Lack informed HD of his desire to resign. Lack also requested by email that a friend of his convert some of the project files into AutoCAD versions. This conversion was required because Lack maintained his own copy of AutoCAD software on his home computer.

HD permitted draftsman to take home files because they often worked on projects on their own home computers as well as work computers. Lack had permission to work on the files at home.

After Lack’s employment ended, HD ask Lack to return physical files related to the project, but not the AutoCAD files.

The relationship between DWH and HD deteriorated. DWH offered to pay HD a prorated amount for the work completed up to the date of termination of Lack. HD refused. DWH later tendered payment for the full contract price, even covering items and services that had not been completed.

HD declined to accept payment and responded by filing a complaint alleging eight causes of action: 1) copyright infringement, false designation of origin under the Lanham Act, 3) breach of contract, 4) breach of fiduciary duty, 5) breach of covenant not to solicit, 6) tortious interference, 7) violation of the computer fraud and abuse act, and 8) conspiracy.

During his deposition, Lack indicated that he believed he would have had at least two more weeks of employment after tendering his notice of resignation, and that he would be able to complete the plans. DWH also believed that Lack would complete the plans under the employment of HD.

The District Court granted summary judgment in favor of the defendants Lack and DWH on all claims. HD appealed the judgment. The appellate court affirmed the District Court’s decision.

Analysis.

The District Court found that there was no breach of contract because DWH’s only duty was to pay for the services which he offered to do.

The District Court found there was no breach of fiduciary duty because any duty terminated upon termination of employment, and Lack did not disclose trade secrets or any confidential information. Although HD alleged that the AutoCAD files were confidential and proprietary information, the court held that they were not because HD had disclosed them to Lack without restriction.

The District Court found that there was no violation of the computer fraud and abuse act because Lack never exceeded his authority. HD routinely permitted employees to take files home and put them on their personal computers.

Although Lack had a non-complete clause in his at-will employment agreement, the Court found there was no violation because the clause was unenforceable. The clause states “in the event you leave or are separated from Hunn Designs’ employment, you agreed not to solicit, either directly or indirectly, business from, or undertake with any customers serviced by you while the employment of Hunn Designs, or any other Hunn Designs customers for a period of two years thereafter.”

The District Court held the non-compete clause was unenforceable do to a lack of independent consideration. Continued employment in at-will agreement is illusory.

The District Court ruled that even if the drafts of house designs were copyrightable, there was no violation of copyright because of the existence of an implied license authorizing use of the designs.

The court found particularly interesting “the fact that the home owners themselves essentially came up with their design ideas and sought to have those self designed homes built [after their ideas were] placed into the drafting stage.”

The District Court cited the 7th Circuit case of I.A.E., Inc. v. Shaver 74 F.3d 768 (7th Cir. 1996) for the proposition that an architect in a similar situation had granted an implied license. Even though the architect in Shaver testified that he did not intend for use of the drawings past the drafting stage unless he was the architect on the project, this was not supported by the record.

The court found there was no violation of the Lanham ask prohibition against false designation of origin, because there was no evidence that use of the plans had a substantial economic effect on interstate commerce, as required by the Lanham Act.

Take Aways:

Based on my review of the court’s opinion, there are potentially three (3) things the Plaintiff (Hunn) could have done differently that may have changed the outcome of this case. First, have a clear, written policy in place defining what constitutes trade secrets and other proprietary information and proper methods for handling those. Second, have policies restricting how and when employees may take company property and files home, and addressing storage and return of property and files. Third, create and enforce clear conditions for access, distribution and use of drafts, proposals, files and other works-in-progress to avoid inadvertently granting an implied license to third parties such as contractors, consultants or clients.

*THIS IS NOT LEGAL ADVICE*

*CONSULT A QUALIFIED ATTORNEY ABOUT YOUR SPECIFIC SITUATION*

GEAR UP FOR FALL! Now Is A Good Time To Take A Look At Those Contracts

Contracts

One of the most important tools to protect your business – your ideas, customer relationships and talent pool – is your written contract. A solid contract is the foundation for a reliable relationship for you, your customers and your employees. More importantly, it helps to prevent misunderstandings and false expectations that can lead to a breakdown in your customer relationship, jeopardize the project and result in litigation.

Many companies start with a model or “form” contract adapted from forms available online or drafted when the business first started. As businesses develop over time, you may have revised your contracts, adding a little here, removing a little there. Maybe you read an article about an important case in your industry and decided to add some text from the contract discussed in the court’s legal opinion. In many cases, over time, the agreements become “Franken-contracts” an odd amalgamation of trade lingo, inconsistent terms and even contradictory conditions. At best these are ambiguous and confusing to read. At worst, they become unenforceable.

At some point, you should review, revise and generally “tighten” existing contracts. You should have your lawyer review them to make sure that there are no mistakes, ambiguities or omissions that could cost you or your customers. I urge clients to have their contract forms reviewed on an annual basis. Depending on changes in the law, changes in the industry or changes in your own business, this process should only take a few hours.

The following are six things to consider as you review your existing contract forms and business practices.

First, are you using a written contract? Simply having a written agreement in place will help prevent the often difficult, time-consuming and expensive dispute that comes down to a “he said / she said” situation.

Second, make sure that the key terms of your contract are consistent and understandable. Pricing and payment terms, clear descriptions of the services to be performed or the goods to be delivered, as well as due dates and acceptance criteria will go a long way toward preventing breach of contract claims. More importantly, ambiguous and internally-contradictory terms may expose you to fraud claims or claims under an unfair business practices act. These types of claims are typically much more difficult and more expensive to defend against.

Third, create a mechanism for changes in your contract. Circumstances change. When they do, make sure that you document them and that your customer initials and dates any additions or changes to the contract after it is signed.

Fourth, don’t overlook intellectual property (“IP”) rights, Many business relationships involve collaborative sharing or development of knowledge, skills and protectable IP assets such as copyrights, trademarks, patents and trade secrets. Intangible assets are often the most important drivers of revenue creation and value. Overlooking creation, ownership and control of IP rights may result in the loss of these assets.

Fifth, ensure that your contracts are up-to-date with respect to local laws and industry regulations. Recent developments in technology, e.g., BYOD, Social Media, Mobile commerce, and online privacy had produced a raft of state, federal and industry specific laws, rules and regulations. Do you regularly update your forms to make sure they comply with changes to local laws?

Sixth, understand your “escape” options. Not every relationship is meant to last forever. Your contracts should have clear and concise terms for ending the relationship such as failure to perform, failure to pay or adverse business conditions.

To find out more about how the Adler Law Group can help you tighten your contracts, or even draft new ones, contact us for a free, no-obligation consultation.

Launch Designer Workshops By EDITOR-AT-LARGE: Contracts

Contracts for Interior Design Professionals

This crash course on legal contracts is designed for interior designers who are drafting a contract for the first time or wanting to make an existing one airtight.

There’s a reason you became a designer, and it probably didn’t have anything to do with lawyers and contracts.

You’re the expert in color, fabric, floor plans, and furniture schemes, not intellectual property and arbitration provisions. If you’re already confused, don’t fret. This crash course is designed for those drafting a contract for the first time or wanting to make an existing one airtight. Led by David Adler, an actual lawyer who understands the ins and outs of the design industry, this workshop will cover the clauses you need to protect yourself in the unfortunate event that something doesn’t work out as planned. Clients can be difficult enough. Don’t let legal trouble slow you down.

In this class, you will learn how to:

  • Define what you are doing for your client, as well as NOT doing for them
  • Make sure you get paid on time and in full
  • Protect yourself against outside factors that may affect cost and ability to complete a project
  • Give yourself a way to get out of your contract if things aren’t working

By the end of class, you will have:

  • A basic understanding of key contract terms and the reasons as to why they are there
  • A basic client agreement that you can use or customize

The Instructor, David Adler, is an attorney, nationally-recognized speaker, and founder of a boutique law practice focused on serving the needs of creative professionals in the areas of intellectual property, media, and entertainment law. He provides advice on choosing business structures, protecting creative concepts and ideas through copyright, trademark, related intellectual property laws and contracts, and structuring professional relationships. He has 17 years experience practicing law, including drafting and negotiating complex contracts and licenses with Fortune 500 companies, advising on securities laws (fundraising) and corporate governance, prosecuting and defending trademark applications, registrations, oppositions, and cancellations before the US Patent & Trademark Office (USPTO), and managing outside counsel. Currently recognized as an Illinois SuperLawyer® in the areas of Media and Entertainment Law, he was also a “Rising Star” for three years prior. He received his law degree from DePaul University College of Law in 1997 and a double BA in English and History from Indiana University in Bloomington, Indiana. Outside the practice of law, David is an Adjunct Professor of Music Law at DePaul College of Law, formerly chaired the Chicago Bar Association’s Media and Entertainment Law Committee, and is currently a member of the Illinois State Bar Association Intellectual Property Committee.

Drafting Contract Termination Clauses – Termination for Breach by Non-Breaching Party

One of the key issues that must be examined when negotiating or drafting any contract is how the parties may get out of, or “terminate,” that contract. While many attorneys will rest on standard “termination for breach with notice and cure” language, the recent case of Powertech Tech. v. Tessera, Inc. demonstrates how artful drafting can put limitations on a party’s right to terminate. The Opinion in U.S. District Court for the Northern District of California case No. C 11-6121 can be found here.

Powertech and Tessera were parties to a patent license agreement, although the court’s reasoning does not seem limited to only those types of agreements. The license agreement allowed Powertech to use Tessera’s patents in exchange for payment of license fees.

The contract contained the following clause regarding termination for breach:

“Termination for Breach. Either party may terminate this Agreement due to the other party’s breach of this Agreement, such as failure to perform its duties, obligations, or responsibilities herein (including, without limitation, failure to pay royalties and provide reports as set forth herein). The parties agree that such breach will cause substantial damages to the party not in breach. Therefore, the parties agree to work together to mitigate the effect of any such breach; however, the non-breaching party may terminate this Agreement if such breach is not cured or sufficiently mitigated (to the non-breaching party’s satisfaction) within sixty (60) days of notice thereof.”

The court held that Powertech was not permitted to terminate a license agreement with Tessera for Tessera’s breach because Powertech itself was in breach of the agreement by its failure to pay royalties to Tessera.

Acknowledging Powertech’s argument that Tessera was itself in breach, that in and of itself did not give Powertech the right to terminate the contract. Only a “non-breaching” party may terminate the agreement. Said the court “[a]lthough the first sentence of the termination clause is broad – ‘Either party may terminate this Agreement due to the other party’s breach’ — the language of the clause as a whole makes clear that only a non-breaching party may terminate. Reading the clause as a whole, the court concluded “[t]he termination clause refers to a “breaching party” and a “non-breaching party” in every sentence after the first… [therefore]…the clause requires the party seeking to terminate for the other party’s purported breach to be substantially in compliance with its own obligations first.

The Powertech agreement’s termination clause is useful because it put conditions on a party’s ability to terminate the agreement even when the other party was in breach.

Social Media World Legal News Roundup

The legal and regulatory environment impacting social media is constantly evolving. Here is a collection of recent articles impacting everything from law enforcement use of social media to new legislation.

A social media tip line for police
Boston.com
“Use of social media has provided an additional outlet for people to interact with law enforcement” says Lauri Stevens – founder of LAwS Communications, a consulting company that helps law enforcement agencies expand into social media.

Social media limits and the law
Monterey County Herald
Leland Yee, a San Francisco Democrat, introduced a bill that would prohibit employers, public or private, from requiring or requesting in writing a prospective employee to disclose user names or passwords for personal social media accounts.

Ariz. bill says unlawful to ‘annoy’ others online
BusinessWeek
“Speaking to annoy or offend is not a crime,” Media Coalition Executive Director David Horowitz said. Horowitz said if the proposal becomes law, speech done in satire, political debate or even sports trash talking could get people in unnecessary legal trouble.

Social Media in China, Innovation
Washington Post
Apr. 2, 2012 – April 2 (Bloomberg) — Vivek Wadhwa, fellow at Stanford Law School and head of academics at Singularity University, talks about social media in China and innovation.

UAE legal experts want libel to apply to social networking sites
GMA News
Claiming that Facebook, Twitter and other social networking sites can be used to spread rumors and false information, the legal community in the United Arab Emirates (UAE) is seeking that libel laws be applied to offenders on the Internet.

Is Your Facebook Password Like Your Mail, House Key, or Drug Test?
The Atlantic
A day after it was proposed, the amendment was voted down — almost entirely along party lines — thus closing one door to social media privacy legislation, at least on the national level. (There are similar social media privacy laws — full bills, …

Sponsor: Arizona bill isn’t aimed at Internet trolls
CNN
The fear is that the bill would prohibit hateful comments on news and social-media sites, amounting to a ban on so-called Internet trolling. The problem: The bill won’t do any of that, its sponsor told CNN on Wednesday. “I think they’re absolutely …

How Family Law Attorneys Use Social Media Evidence [Infographic]
PR Web (press release)
Family Law Attorneys Dishon & Block formally released today an infographic that illustrates how attorneys use social media to collect “smoking gun” evidence for divorce and child custody cases. With the advancement in technology and modernizing of laws …
See all stories on this topic »
PR Web (press release)