False advertising litigation and the use of Google AdWords

16 Pages·2011·0.28 MB·English

e-commercelaw&policy
THEE-COMMERCENEWSLETTERFORLAWYERS
APRIL2011VOLUME13ISSUE04
WWW.E-COMLAW.COM
Chile clarifies New EU consumer rights place
landmark net
‘unfair burden on e-retailers’
neutrality law
Along-awaitedregulationclari- Europe’s business community beenpostponeduntilanagree- valued over 40 after a
€
fyingthescopeandimpactofa has responded negatively to a ment with the Council of consumer exercises their right
landmarkJuly2010netneutral- numberofamendmentstothe Ministers - representing the towithdraw.
ity law (‘the Law’) was finally Consumer Rights Directive Member States (MS) - is ‘Thisplacesanunfairburden
published in the Chilean (CRD), which were approved reached, the amendments are one-retailers,’theIMRGsaidin
Official Gazette on 18 March, by the European Parliament ‘toprotectonlineshoppersand a statement.‘For those sectors
puttinganendtothecriticism (EP)on24March. boostconsumerconfidencein thathavehighreturnratesand
and uncertainty surrounding “[This is] a costly vote for buyinginotherMS’and‘willbe lowproductcosts,thepotential
the rights and obligations of businesses, and it shows that the basis on which MEPs will lossescouldbecatastrophic.’
internet service providers Members of the European trytoreachanagreementwith Rohan Massey, Partner at
(ISPs). Chile became the first Parliament (MEPs) have lost MS,’theEPsaidinastatement. McDermott Will & Emery, is
countryintheworldtolegally sight of one of the key objec- “ThenewEPpositionisbad not surprised many retailers
prohibitISPsfromdiscriminat- tives[of theCRD],whichwas newsforbusinesses,”saidNick haverespondednegativelysince
ing against certain types of tocutlegalcostsforbusinesses Johnson, Partner at Osborne “the obligations [are] being
contentfollowingtheLaw,but wishing to sell cross-border,” Clarke.“[Businesses]willhave placedontraders”.Hepredicts
hasbeenfacedwithcontroversy said Arnaldo Abruzzini, to incur significant costs, but productsaregoingtobemore
astohowitwasgoingtoimple- Secretary General of withlittlebenefitinreturn.” expensive since “traders will
mentitinpracticeeversince.In Eurochambers, which repre- Under the new rules, goods looktooffsetcostsbyincreas-
particular,previousversionsof sents around 1,200 European must be delivered within 30 ingprices”.Johnsonagreeswith
the regulation, backed by ChambersofCommerce. daysandconsumerswillhavea this:“Ofcourse,consumerswill
telecomsregulatorSubtel,were AndrewMcClelland,Director 14-day EU-wide withdrawal ultimately pay for all of this.
interpretedasallowingISPsto of Operations and Regulatory period in which they may Prices [will] go up. That, in
block certain types of content AffairsattheInteractiveMedia changetheirminds. turn,meansEUbusinesseslose
providedtheyofficiallyjustified inRetailGroup(IMRG),said: ThenewlyintroducedArticle out to competitors in the US,
thereasonstodoso,defeating “Some of these amendments 17hasespecially angeredmany Asia and elsewhere - hardly a
thepurposeoftheLawitself. willhaveaterribleeffectonthe e-businesses,sinceitwillmake recipe for job creation and
The18Marchregulationhas growthofe-commerce.” retailersliableforcoveringthe economicgrowthinEurope.”
been hailed as more straight- Although a final vote has costofthereturnofaproduct MichielWillems
forward and protective of
consumer rights, as traffic Uncertainty over workability of
managementmeasureswillbe
strictlyrestricted.‘Wearesatis- browser ‘do not track’ systems
fiedwiththisoutcomeandthis
is an excellent result for the
protectionofinternetuserand TheUSAssociatedPressNews control over online tracking’. consensus on what ‘tracking’
entrepreneurialrights,’saidnet RegistryannouncedinMarchit Thisriseinthenumberofweb reallymeans”.Thisisathought
neutrality campaigners wasworkingonthetechnolog- browsers implementing such echoed by Andrew Tibber,
NeutralidadSí. ical requirements necessary to systems - and the different Senior Associate at Burges
implement Mozilla Firefox’s standards attached to them - Salmon,whopointedoutthat
E AdWordsAnewwave ‘DoNotTrack’(DNT)option- raises questions as to what “thecriticismlevelledatDNTis
U oflitigationintheUS03 afeatureintegratedintheweb extenttheadvertisingindustry that,tobeuniversallyeffective,
S SoftwareLiability&end browser that enables users to canself-regulate,and,particu- itneedsthebuy-inofwebsites
S useragreements06 signal they wish to opt out of larly, uncertainty as to how and advertising networks to
I
S SouthAfricaNew onlinebehaviouraladvertising these systems could actually recognise the ‘http’ header
HI consumerrightsAct08 (OBA). This is only the most workinpractice.Aspkesperson technologyitdeploys.Ontopof
Contentagreements recentexampleinthedevelop- for Google,which is currently that,foradvertisers,theobvious
T
&sitedevelopment10 ment of online DNT privacy working on its own‘Keep My fear is that target audience
N
UKASAextendsits features, implemented by an Opts-Out’ add-on for its numberscoulddecline,witha
I
onlineremit12 increasing number of web Chromebrowser,saidthat“the corresponding negative effect
PatentsProtectingthe browsers in response to user ideaofDNTisinteresting,but ontheattractivenessofOBAas
valueofsoftware14 demandsover‘morechoiceand there doesn’t seem to be abusinessmodel.”
ecommercelaw&policy
THE E-COMMERCE NEWSLETTER FOR LAWYERS
VOLUME 13 ISSUE 04 APRIL 2011
WWW.E-COMLAW.COM
Turn the page Although the ASA was reached would be ameliorated if the ASA CECILEPARKPUBLISHING
Google’s precious plans to create in 2009 - stating that authors’ were converted from an ‘opt-out’ EditorLindseyGreig
[email protected]
a ‘digital library’ with most of the consent to publish their books is settlement to an ‘opt-in’ settle-
AssociateEditorMichielWillems
world’s books available for all presumed unless they explicitly ment”. He ‘urged’ the parties “to [email protected]
AssociateEditorAmélieLabbé-Thompson
seems further away than ever object - a number of writers and consider revising the ASA
[email protected]
after a New York City court ruled publishers, as well as the US accordingly”. SubscriptionsNgaioClaris
on 24 March it did not approve Department of Justice, kept Undoubtedly, Google will do [email protected]
telephone[phone]
the Amended Settlement rejecting the deal and said anything to prevent an ‘opt-in’ DesignMadeInEarnest
Agreement (ASA), a November Google should operate on an system. Under such a regime, it www.madeinearnest.com
PrintThePremierPrintGroup
2009 agreement between ‘opt-in’ basis (consent should be will take much longer to establish
Google, the Association of given explicitly), rather than ASA’s a ‘global online library’ - since FollowusonTwitter!
wwwwww..ttwwiitttteerr..ccoomm//EEccoommllaawwppoolliiccyy
American Publishers and the opt-out regime. Following these Google will have to ask each and
Authors Guild. Judge Denny objections, the ASA was subject every author for their approval - E-Commerce Law & Policy
is published monthly by
Chin, of the US District Court for to a ‘fairness hearing’ in February it will be costlier (some authors
Cecile Park Publishing Limited
the Southern District of New 2010 and Judge Chin ruled back will demand individual arrange- 17 The Timber Yard, Drysdale Street,
York, said “the question then the deal could not be ments) and it will be impossible London N1 6ND
telephone [phone]
presented [to the Court] is approved. Now, 13 months to include ‘orphan books’ - facsimile [phone]
whether the ASA is fair, down the line, Chin has come to works that are still under www.e-comlaw.com
adequate, and reasonable. I the same conclusion. copyright protection but whose
© Cecile Park Publishing Limited.
conclude that it is not”. Once Google has swallowed right holders cannot be located. All rights reserved. publication in whole or in
part in any medium, electronic or otherwise,
The latest twist in the Google the latest legal disappointment, it What should have become a
without written permission is strictly
Book saga is a heavy blow for will realise it has become unlikely page turner, is slowly turning into prohibited. ISSN 1466-013X
the internet giant, whose desire US courts are going to approve a never ending story. Judge
CECILE PARK PUBLICATIONS
to digitalise most of the world’s any settlement that continues to Chin has decided a ‘status E-Commerce Law & Policy
books dates back to 2005, when include an opt-out arrangement. conference’ will take place on 25 Monthly: launched February 1999
E-Commerce Law & Policy is a unique source
it was first sued by a number of In its current form, the courts April, where Google can outline of analysis and commentary on global
authors for copyright infringe- simply won’t buy it. Judge Chin its next steps and everyone will developments in e-business legislation. The
journal was nominated for the prestigious
ment after Google had started clearly stated that “many of the get a taste of what the next
British & Irish Association of Law Librarians
scanning the first books. concerns raised in the objections chapter is going to be like. (BIALL) Serial Publication of the Year Award in
2001, 2004 and 2006.
PRICE: £440 (£460 overseas).
AT A GLANCE
EEUUEU Court of Justice Advocate General Jääskinen held, in a 24 March Opinion, that a trade mark E-Commerce Law Reports
Six issues a year: launched May 2001
owner can prevent a third party from using its mark as a keyword, if users could be confused as to the The reports are authoritative, topical and
origin of the goods or services in question. relevant, the definitive practitioners’ guide to e-
commerce cases. Each case is summarised,
UUKKTelecoms regulator Ofcom published its Annual Plan 2011/12 on 4 April, outlining managing next
with commentary by practising lawyers from
generation broadband, spectrum, consumer switching and online piracy as key priorities. leading firms specialising in e-commerce.
PRICE: £440 (£460 overseas).
EEUUMicrosoft has filed a complaint against Google with the EU Commission alleging the search engine
giant has engaged in ‘anti-competitive’ practices. E-Finance & Payments Law & Policy
UUKKJustice Secretary Ken Clarke said that he does not expect many complaints will arise following the Monthly: launched October 2006
E-Finance & Payments Law & Policy provides
implementation of the Bribery Act 2010, on the basis that ‘reasonable hospitality’ principles would be all those involved in this fast evolving sector
implemented. The Ministry of Justice published guidance for this Act on 30 March. with practical information on legal, regulatory
and policy developments.
PRICE £545 (£565 overseas).
marketing consultant to a number of City NICK GRAHAM
EDITORIAL BOARD and West End law firms. He provides SNR Denton Data Protection Law & Policy
legal training to law firms and in-house Nick Graham is a Partner in the Monthly: launched February 2004
MARK BAILEY legal departments at a number of major Technology, Media & Telecoms Group at Data Protection Law & Policy is dedicated to
Speechly Bircham companies. Denton Wilde Sapte LLP. He also heads making sure that businesses and public
Mark Bailey is a Partner at Speechly [email protected] the firm's Information and Privacy Group. services alike can find their way through the
Bircham’s London office. He is a highly [email protected] regulatory maze to win the rewards of
experienced commercial, IP and IAIN CONNOR effective, well-regulated use of data.
technology lawyer, who provides advice Pinsent Masons NICK JOHNSON PRICE £410 (£430 overseas / £310 Govt).
on technology, infrastructure and Iain is a Partner specialising in IP matters Osborne Clarke
commercial contractual matters. with a broad range of experience dealing Nick Johnson heads Osborne Clarke's World Online Gambling Law Report
[email protected] with copyright, database rights, design digital media team. He co-founded Monthly: launched April 2002
rights, moral rights, trade marks and specialist website World Online Gambling Law Report provides
VANESSA BARNETT passing off matters. He advises on www.marketinglaw.co.uk in 1999 and up-to-date information and opinion on the key
Berwin Leighton Paisner BCAP, CAP and Clearcast issues as well became a Partner in 2001. issues confronting the industry.
Vanessa is a Partner at City law firm as comparative advertising, marketing [email protected] PRICE £545 (£565 overseas).
Berwin Leighton Paisner LLP where she and other media disputes.
advises clients ranging from household [email protected] ROHAN MASSEY World Sports Law Report
names to innovative start ups on a wide McDermott Will & Emery UK LLP Monthly: launched September 2003
range of e-commerce, digital media and KIRSTEN GILBERT Rohan Massey is a Partner in the World Sports Law Report is designed to
advertising and marketing matters. Marks & Clerk London office of McDermott Will & address the key legal and business issues
[email protected] Kirsten is a Partner at Marks & Clerk Emery LLP, and has previously worked in that face those involved in the sports industry.
Solicitors, a specialist IP firm. Kirsten its Los Angeles office. He focuses on e- PRICE £545 (£565 overseas).
RICO CALLEJA works with clients in many business commerce, outsourcing, IT, data
Calleja Consulting sectors advising them on trade marks, protection and commercial licensing. DataGuidance
Rico Calleja is an experienced legal mechanical patents, designs and [email protected] Launched December 2007
commentator and Editor. A Lawyer by copyright. The global platform for data protection
trade, he is a legal know-how and [email protected] and privacy compliance.
www.dataguidance.com
02
ADWORDS
False advertising litigation and
the use of Google AdWords
With AdWords in the limelight in Google's huge presence in the into the search term metadata,
the EU once again after the recent online advertising market has led most courts have concluded that
to a battle for supremacy in search confusion cannot be established
Advocate General Opinion in the
result listings among advertisers. merely by use of a purchased
Interflora v Marks & Spencer case
Online marketers and advertisers competitor trademark.
(which will be covered extensively purchase keywords, often including Not surprisingly, given the
in Volume 11 Issue 2 of our sister the trademarked names and growing failure of trade mark
phrases of their competitors, in infringement lawsuits, unhappy
Publication, E-Commerce Law
order to achieve a higher ranking. marketers who find their marks
Reports), the question of the power
Achieving a listing among the top piggybacked, and whose search
of online keywords is more than five on the first page can make the rankings have dropped, have
ever in need of an answer. In the difference between a successful recently resorted to more novel
US, those issues are giving rise to online campaign and one that theories in an effort to stymie the
performs poorly. practice. We have seen a growing
extensive litigation, as discussed by
Until recently, unhappy marketers number of false advertising cases
Christopher A. Cole and Lauren A.
who found their trademarked against keyword buyers, arising
Teitelbaum, of Manatt, Phelps & terms hijacked by competitors for under a related prong of the
Phillips, LLP. the purposes of Google search in Lanham Act, Lanham Act, 15
the United States had resorted to a U.S.C. § 1125(a)(1)(B). Like trade
variety of trade mark lawsuits in an mark infringement, this law offers
attempt to hinder the practice. potentially sweeping injunctive and
‘Piggybacking’ of competitor monetary relief, including
trademarks has given rise to many attorneys fees, to the successful
lawsuits against Google and plaintiff. In such cases, competitors
competitors for trademark have alleged that the use of the
infringement, in violation of the trademarked terms belonging to a
federal Lanham Act, 15 U.S.C. competitor constitutes false
1125(a). While numerous, advertising because consumers are
however, these cases have mostly likely to be misled to find that an
been unsuccessful, resulting in a advertisement brought up with
growing body of precedent that piggyback competitor keyword
endorses the secondary market for search is in reality offering items
direct competitors to buy not remotely comparable to those
trademarks for the purposes of of the trademark owner, or in
achieving a higher search ranking some occasions that are not for sale
and thereby diverting potential at all3. This can be likened to the
customers to their websites. concept of ‘initial interest
While the courts initially confusion’ or, in the false
disagreed regarding the threshold advertising terminology, ‘bait and
issue of whether mere purchase of switch’.
trademarked keywords constituted Two recent cases illustrate the
a ‘use in commerce,’ giving rise to newly emerging theories of false
potential liability for trade mark advertising in the context of
infringement, most courts have keyword searches. The first,
concluded that they are indeed a Morningware, Inc. v Hearthware
‘use in commerce’1. The cases have Home Products, Inc.4, includes an
typically foundered, however, when allegation of product
it came to a second prong of the disparagement based on the overall
infringement analysis: whether impression of an advertisement in
purchase of a competitor's trade the context of the keyword search.
mark for use in search terms is The second case, recently filed
inherently deceptive or likely to against Groupon, a social media
cause consumer confusion2. driven coupon provider that has
Because consumers do not peer enjoyed a meteoric rise in the US,
03
e-commerce law and policy april 2011
ADWORDS
alleges false advertising even where A new wave of relief, plaintiffs can seek to recover products were ‘imitations,’ whereas
the purchased keywords are not lawsuits is money damages, including lost Hearthware products were not.
breaking out.
trademarked, but nevertheless profits caused by the false Furthermore, Morningware alleged
Online
divert consumers from a advertising or disgorgement of the that the advertisement unfairly
marketers and
competitor's site to advertisements advertisers defendant's profits attributable to diverted consumers through
that may be unrelated to the initial using Google the false advertising campaign. deception to the Hearthware
keyword search. AdWords are Furthermore, plaintiffs can seek website and also injured
being targeted
treble damages and to recover Morningware's goodwill and
by allegations
False advertising under the of false court costs and attorneys' fees, reputation.
Lanham Act advertising although the latter are only The Court denied Hearthware's
Under US law, there is a broad when they awarded in extraordinary cases. motion to dismiss the claim,
purchase
remedy for false advertising by finding that the text of the ‘Why
keywords
competitors - provided by Section Product disparagement and Buy an Imitation?’ was sufficient to
43(a) of the Lanham Act. The law keyword advertising state a claim that consumers were
authorizes a party to sue a In Morningware, Inc. v Hearthware led to incorrectly believe that
competitor who, in connection Home Products, Inc., the Plaintiff, Morningware's products were
with the sale of goods or services, Morningware, which sells inferior or fake.
uses a ‘false or misleading countertop electric ovens, sued The Morningware case illustrates
description of fact, or false or Hearthware, its nearest competitor that online marketers and
misleading representation of fact in the countertop electric oven advertisers can be liable if their
which...in commercial advertising market, for false advertising. purchase of AdWords results in the
or promotion, misrepresents the Hearthware participated in pay- display of a message in response to
nature, characteristics, qualities, or per-click advertising offered by search results that can be
geographic origin of his or her or search engines, including construed as misleading in the
another person's goods, services, or AdWords. Hearthware's purchases context of the consumer
commercial activities’ 15 U.S.C. § included mentions of interaction with the search engine.
1125(a)(1)(B). To establish a Morningware's products. Thus, for Hearthware's claim, ‘Why buy an
violation of § 43(a), it is well example, when consumers entered imitation?’, might have been
established that the plaintiff must the search term ‘Morningware’ into considered puffery or otherwise
show, by a preponderance of the Google, a Hearthware not actionable if it had appeared in
evidence that: advertisement link would appear a neutral context, but by using the
(cid:2)The defendant has made false or before a link to the Morningware search engine optimization strategy
misleading statements about their website. Hearthware's link to force the claim into a primary
own or another's products. displayed a message stating, ‘The position above the name of a
(cid:2)The misrepresentation is Real NuWave(r) Oven Pro, Why competitor, Hearthware created a
material in that it is likely to Buy an Imitation? 90 Day Gty,’ The comparative context. Moreover,
influence the purchasing decision. Morningware mark was never damages from this activity would
(cid:2)The misrepresentation actually placed on this link, nor in any be much easier to measure than in
deceives or has the tendency to other Hearthware advertisement, the typical false advertising case,
deceive a substantial segment of its website, or on products. merely by counting the number of
audience. Among other claims, diverted ‘click-throughs’ and
(cid:2) The defendant placed the false Morningware alleged that comparing successful conversion
or misleading statement in Hearthware had caused the ‘Why rates both before and after the
interstate commerce. Buy an Imitation?’ statement to offending campaign.
(cid:2)There is a likelihood of injury to appear to consumers who merely
plaintiff (e.g., declining sales, loss entered Morningware's name into ‘Bait-and-switch’
of good will). Google, and that this was a false Last month, online daily-deal
Lanham Act suits are brought in and misleading claim regarding the service Groupon was hit with an
federal court, and generally are superiority of Hearthware products AdWords lawsuit in which
accompanied by a request for a to Morningware products. It allegations of false advertising took
preliminary injunction, seeking an alleged that consumers who viewed center stage. According to the
immediate halt to the offending the ‘why buy an imitation?’ lawsuit, Groupon manipulated the
advertisements pending a trial on language would likely be misled AdWords system by purchasing
the merits. In addition to equitable into believing that Morningware's keywords unrelated to any
04
e-commerce law and policy april 2011
ADWORDS
particular deals it was offering ‘operate[s] to make the amount bait-and-switch.
solely for the purpose of increasing Groupon has to bid to secure an
the popularity of its website and in advantageous ad position Christopher A. ColePartner
Lauren A. TeitelbaumAssociate
order to attain a more favorable ad artificially low, and make the price
Manatt, Phelps & Phillips, LLP
placement on Google at a lower the Plaintiff has to bid to secure an [email protected]
cost5. advantageous ad position [email protected]
The Plaintiff is a San Francisco artificially high’. In turn, this
1. See, e.g. Rescuecom Corp. v Google
tour company that depends almost diversion of customers and
Inc., 562 F.3d 123 (2d Cir. 2009).
entirely on online sales. It alleges increase costs allegedly threaten the 2. See, for example, 1-800 Contacts,
that it has participated in AdWords survival of the Plaintiff's business. Inc. v Lens.com, Inc., No. 2:07-cv-591
CW, 2010 U.S. Dist. LEXIS 132389 (D.
since 2005 and has had a The Plaintiff's theory of market
Utah 14 December 2010).
‘satisfactory and profitable’ manipulation by Groupon seems
3. See for example, Soaring Helmet
experience with the program, with unlikely to prevail, absent some Corp. v Nanal, Inc., No. C09-0789JLR,
its ads ‘consistently displayed in evidence of collusion between 2011 U.S. Dist. LEXIS 262 (W.D. Wash.
3 January 2011).
one of the top 3-4 spots’ until Groupon and Google, which the
4. 673 F.Supp.2d 630 (N.D. Ill. 2009),
Groupon began to bid on its Plaintiff has yet to allege. The 5. Google explains that ‘having relevant
preferred search terms in Plaintiff has a better shot at keywords and ad text, a strong CTR
September 2010. At that point, the showing that consumers who were (Click Through Rate) on Google, and a
high CPC (Cost Per Click) bid will result
Plaintiff claims that it noticed the diverted to the Groupon
in a higher position for your ad.’ See
‘costs of its click-throughs began to advertisements were misled by the http://adwords.google.com/support/aw/
skyrocket’ and its ranking began to offers for ‘90%’ off popular bin/answer.py?hl=en&answer=6111
See Complaint, San Francisco
decline for important search terms. destinations, when no such offers
Comprehensive Tours, LLC v Groupon,
According to the complaint, were actually provided. Still, it will Inc., CV11-1300 (N.D. Cal. 17 March
Groupon has engaged in have to demonstrate standing to 2011).
prohibited bait-and-switch pursue such a claim under the
advertising by bidding on terms Lanham Act, as it is entirely
such as ‘San Francisco Tours,’ ‘Napa unclear whether the Plaintiff could
Wine Tours,’ and ‘Alcatraz Tours’ establish an adequate causal nexus
because it falsely implies that it between its alleged injury and such
offers such tours, often at a claims.
discount such as ‘90% off’ or ‘50-
90% off’. Furthermore, although Conclusion
such search terms were purchased It is well-known that Google
and used by Groupon, consumers AdWords can lead to trademark
who clicked through on the infringement claims. A new wave
resulting link were most often of lawsuits is breaking out,
offered an irrelevant coupon. Some however. Online marketers and
Groupon links, however, contained advertisers using Google AdWords
the allegedly false claims ‘It's like are being targeted by allegations of
San Francisco at 90% off’ and ‘Do false advertising when they
Napa at 50-90% off’. purchase keywords. To minimize
The Plaintiff argued that it has the risk of liability, the advertiser
suffered ‘the loss of customers and should avoid creating a false,
potential customers who, once disparaging impression of a
diverted, either give up their search competitor's product or brand,
in frustration, or pursue other even where it does not use the
avenues of advertising or competitor's trademark in the
information to locate tours in the resulting online link or advertising.
San Francisco area’. Additionally, Even if the purchased keywords are
the Plaintiff offers the unusual not trademarked, advertisers
argument that it has been injured should ensure that the products
in fact because Groupon's strategy they offer are actually related to the
of using broad keywords unrelated key words, in order to avoid
to products it is actually selling allegations of false advertising and
05
e-commerce law and policy april 2011
SOFTWARE
Liability matters under end
user licence agreements
When it comes to software, users The simple answer is no. Take the also likely to be prohibited under
as well as owner rights and example where a consumer buys the Unfair Terms in Consumer
the latest version of Windows from Contracts Regulations 1999.
obligations are often characterised
a retailer. There will clearly be a So, if these EULAs are neither
by uncertainty and complexity. The
contract for the supply of the necessary for the consumer's
questions of acceptance, goods (the box containing the CD- benefit, nor helpful to the software
enforceability and, importantly, of ROM on which the Windows owner, why do they exist and are
software is loaded) between the they enforceable? Unfortunately,
acceptance of the terms of licence
consumer and the retailer. there is very little case law in
agreements are crucial issues to
However, Microsoft, as the England2that applies to EULAs
which there are no precise answers,
software owner, is not party to this and they have never met any real
as there is very little case law on the agreement and, in reality, the opposition in the country, either.
matter. Mark Webber and Lee software in the box is licensed and The only substantial issues that
not sold. The traditional doctrine have been raised have been those
Rubin, of Osborne Clarke, discuss
of privity of contract suggests that relating to the general mechanisms
the scope and legal implications of
the EULA must be put in place to of creating a contract. To highlight
licence agreements. establish a contractual relationship some of these issues, it is helpful to
between Microsoft and the distinguish between the two types
Whether you are using your consumer so that the consumer of EULAs:
laptop, your Blackberry or your may actually use the software and (cid:2)Shrink-wrap agreements are
Playstation, it is becoming copy it onto his computer. But the those EULA which are ‘wrapped’ in
increasingly common to see consumer already has this right the box containing the software
windows that pop up before you under statute - the Copyrights ‘sold’ by a retailer. Typically, the
install a new piece of software, or Designs and Patents Act 1988 EULA will contain terms such as
any software update, full of (CDPA) says that a person who ‘by opening this box you are
legalese. To complete the legally acquires computer software bound by the terms and conditions
installation, you have to scroll has the right to copy it if that is of this licence agreement’ so that
through pages of text and then what is necessary to make the opening the box to install the
click the ‘I Agree’ button. These software useable. software indicates consent to the
End User Licence Agreements Similarly, a second principle terms of the EULA.
(EULAs) are used as steps to legally behind the rationale of EULAs, (cid:2)Click-wrap agreements are those
bind consumers to a number of that they are necessary to protect EULAs which have evolved from
the strict terms - where you never the business interests of the shrink-wrap agreements whereby
sign your name and often in reality software owner, can also be the software is electronically
you may never fully read the terms refuted. The CDPA prohibits purchased and then installed.
you are agreeing to, or even have unlawful copying of software: no Under these types of EULAs, the
authority to bind or enter into the additional agreement between a user consents to the terms by
EULA1. software owner and a consumer is clicking the ‘I Accept’ button at the
What purpose do these EULAs necessary, and software owners time of installing the software or at
serve? EULAs were first developed have brought successful the website from which the
as a method of creating a legally- prosecutions in the past. In software can be downloaded.
binding contract between the addition, although software owners The position of the enforceability
software owner and the consumer. will often seek to use EULAs to of shrink-wrap agreements is
The aim was to not only protect hold the software owner harmless unclear as questions over a clear
the rights of the software owner, in the event that the software acceptance mechanism have been
but also to allow the licence terms causes damage to the consumer's raised. It is uncertain whether the
to be enforced directly against the computer or data, it is questionable opening of a box is sufficient
consumer. This aim is summarised depending on the circumstances evidence of acceptance of the
by two principles. First, it may be whether this is lawful under the terms of the EULA. Although not
presumed that if a consumer has Unfair Contract Terms Act 1977. addressing whether a legally
bought some software, he cannot Any attempt to force a consumer binding contract has come into
use the software without explicit to agree to terms which exclude the existence, the Contracts (Rights of
agreement from the software software owner's liability if the Third Parties) Act 1999 (CRTP) is
owner - but is this actually correct? software is not fit for purpose is helpful in that where there is a
06
e-commerce law and policy april 2011
SOFTWARE
contract in place between the By ripping that the use of EULAs is set to worth installing that latest game or
retailer and the end user and where open that box diminish there is another form of the most recent version of your
or scrolling
that contract contains clauses that click-wrap agreements becoming favourite social networking app?
down to click
benefit a third party - the software more widespread - a Terms of
the
owner - then those provisions will acceptance Service (TOS) agreement. Like Mark WebberPartner
Lee RubinSolicitor
generally be enforceable by the button, you EULAs, TOS agreements bind
Osborne Clarke
software owner by virtue of the could consumers without signature and [email protected]
be...allowing
CRTP. attempt to govern consumers' use [email protected]
another
Turning to click-through of online services, such as social
person to use
agreements, generally, English law your content networking sites, webmail and 1. See BMMSoft, Inc. v White Oaks
favours online contracts. In the or rights, and online gaming. Many terms such as Technology, Inc. [2010] WL 3340555
(N.D.Cal. 25 August 2010) where the US
past, the only substantial issues potentially those dealing with liability are court held that a subcontractor hired to
open yourself
that have been raised in relation to common between an EULA and a install software at the offices of the end
up to
this type of EULA have been those litigation TOS agreement, but typically, user, was not bound by the EULA since
it had clicked acceptance (as agent for
relating to how an offer can be threatened by especially in the social networking
the end user) on behalf of the end user
accepted on a website. Historically, a software arena, a TOS agreement includes and not on its own behalf.
in December 2001, whilst owner terms that expressly forbid types of 2. For enforceability of EULAs elsewhere
in the world: in the US, see Hotmail v
reviewing formal requirements in behaviour and communication,
Money Pie, Inc. [1998] (47 U.S.P.Q 2d
commercial transactions, the UK and some even state that all user
(BNA) 1020 (N.D.Cal 1998) where the
Law Commission concluded that communication through an online court held that by the end user clicking
clicking on a website button can service will be monitored. on the ‘I agree’ button at the bottom of
the page with the Hotmail terms of
demonstrate consent to the terms Additionally, many are
service was sufficient to indicate the end
of an agreement. Similarly, at an international (often US) in origin user's consent to those terms; Specht v
EU-level, the E-Commerce and have not been adapted for Netscape Communications Corp. [2001]
Directive (2000/31/EC) supports English law and local consumer 150 F. Supp. 2d 585, 591-96 (S.D.N.Y.
2001) where the court held that the
electronic business in the EU. protections (for example, denying
EULA was unenforceable as prior to
Article 9 of this Directive states the jurisdiction of local courts or downloading the software end users
that any kind of agreement excluding implied warranties and were invited to review the terms of the
EULA which was located elsewhere on
(including EULAs) can be validly conditions that cannot be
the website and could only be viewed by
concluded electronically, but a excluded). It is likely that it will accessing a hyperlink. The court held
Member State may exclude certain become increasing common for that the mere reference to the EULA and
contracts from being concluded in TOS agreements to forbid the lack of a specific consent
mechanism did not make the EULA
this way. However, to date no consumers from using products to
enforceable; Ibid.; in Canada see Bérubé
Member State has exercised its discuss certain topics, and, as most v Rational Entertainment Limited [2010]
right here to exclude EULAs from online services require software to ONSC 5545 (CanLII) where an end user
in Ontario agued that the click though
being concluded electronically. be installed on a user's computer
EULA was a standard-form contract that
The EU Commission has recently or provide access to software in the
was against public policy because it
launched a consultation3on e- cloud, TOS agreements may claim related to the use of an online gambling
commerce and the implementation to govern activity on a user's own site (online gambling was not legal in
Ontario). The court disagreed and held
of the E-Commerce Directive to computer.
that the clause in the EULA was clear
address its concern that e- Consumers should be warned to that ‘the Software is not for use
commerce has not been as approach EULAs with caution, or by...individuals connecting to this Site
successful as it could be, and at least more caution than has been from jurisdictions from which it is illegal to
do so. PokerStars is not able to verify
highlighting a figure of less than used of late. By automatically
the legality of the Service in each
2% of Europe's total trade ripping open that box or scrolling jurisdiction and it is the User's
attributable to e-commerce. With down to click the acceptance responsibility to verify such matters.’ The
court dismissed the case based on the
its objective to develop retail button, you could be agreeing to
terms of the EULA to which the end user
electronic commerce, it is unlikely hugely onerous terms, allowing had agreed.
that the European Council will another person to control your 3. See http://ec.europa.eu/
come down hard on the questions communication, use your content internal_market/consultations/docs/2010
/e-commerce/questionnaire_%20e-
surrounding the enforceability of or rights, and potentially opening
commerce_en.pdf
EULAs. yourself up to litigation threatened
With no indication, either in the by a software owner. You may need
English courts or at an EU-level, to ask yourself whether it is really
07
e-commerce law and policy april 2011
SOUTH AFRICA
Insight into the new Consumer
Protection Act
The recent Consumer Protection Scope of the Consumer Consumer rights and the Act
Act of South Africa has been hailed Protection Act of South Africa There are eight fundamental
Although the Consumer Protection consumer rights oulined in the Act.
by some as the most exhaustive
Act of South Africa (‘the Act’) was It is strongly recommended that all
and comprehensive piece of
introduced in 2009, it has only e-commerce suppliers familiarise
legislation on consumer rights in the been fully operational since 31 themselves with the detail of each
world, dealing with issues ranging March 2011. The Act is technology in conjunction with the Electronic
from direct marketing to cancellation neutral, meaning it applies to every Communications and Transactions
consumer, regardless of the Act. Subject to certain exceptions -
policies and contract phrasing.
medium used to conlude a for example, the provision of
Gerrit Van Gaalen, Partner at Van
contract. However, it has particular certain goods or services to
Gaalen Attorneys, examines how implications for the e-commerce minors, or price differences for
this new Act will change the industry one should keep in mind. people over the age of 60 - the
Some say that following this Act, supplier must treat all consumers
consumer law landscape in the
South African consumers will be the same. Some of the main rights
country.
the most extensively protected in covered in the Act are oulined here.
the world. The term ‘consumer’ is
understood in the traditional sense The right to privacy
- a physical person - as well as a The supplier must implement
juristic person (which includes appropriate procedures - during
associations, partnerships, and within a reasonable timeframe
corporate bodies and trusts). The after a direct marketing
government recommended that communication - allowing the
the threshold over which a consumer to refuse direct
business can no longer be marketing techniques and to
protected is ZAR 3 million request the supplier to desist from
(approximately £286,000) - all further direct marketing
juristic persons below that amount techniques. The supplier or person
will thus be dealt with as if they are initiating the communication may
consumers. Importantly, the not charge consumers for
definition of ‘consumer’ covers not managing their demand.
only the person who bought the Furthermore, the consumer will
goods or services, but also their have the right to pre-emptively
actual user or recipient, the scope block any direct marketing attempt
of which could potentially be huge. made by email, letter, telephone
On the other side, a supplier is call etc, which means that any
seen as a person who markets the supplier involved in direct
goods or services, meaning that marketing - especially via the
they will be the ones who promote internet - will have to ensure that it
or supply them. does not target those consumers
If an organisation thinks it is that have added their names to a
exempt from the application of the register, soon to be established by
Act because it only provides the National Consumer
information on the internet, it is Commission. After the supplier has
mistaken. The scope of ‘services’ directly contacted the consumer
under the Act includes the over the internet, he will have to
provision of information as well as refrain from contacting the
any education, advice or consumer for five business days -
consultation, banking or financial known as the ‘cooling off’ period.
services (except where such The direct marketer will not be
services constitute advice services, allowed to contact the consumer
as per relevant specific legislation). during certain proposed periods:
on Sundays and public holidays,
between 7pm and 8am on
08
e-commerce law and policy april 2011
SOUTH AFRICA
weekdays, and before 9am and If an Furthermore, a provision which Conclusion
after 12am on Saturdays. organisation will surely create some legal This is not just another act. What
thinks it is
uncertainty is the one covering the Labour Relations Act did for
exempt from
The right to choose shrink-wrapped goods such as employees in South Africa in 1995,
the
Suppliers that consider bundling application of computer software.The consumer this Act will do for consumers.
goods or services must ensure that the Act is entitled to inspect the goods to Although some commentators
they can explain to the consumer because it make sure they correspond to his believe this Act will ultimately limit
only provides
that the benefits of bundling expectations, a provision which e-commerce initiatives, it will most
information
outweigh their limitations or that will most likely give rise to definitely ensure that suppliers deal
on the
there is an associated economic internet, it is complications. with consumers fairly and without
benefit. mistaken as On this basis, consumers shall withholding important
No fixed-term agreement for the scope of have the right to return goods information.
‘services’
services or goods may be longer where they had no opportunity to It is clear from the above and
under the Act
than 24 months. The consumer includes the examine them before delivery. from the rest of the Act that no e-
will further have a right to cancel provision of commerce supplier should
equivalent to 20 business days information The right to disclosure and promote or supply goods or
as well as
advance notice, subject to the information services to South African
any
supplier’s right to a reasonable Notices including terms and consumers without first reading
education,
cancellation fee if such cancellation advice or conditions must be written in plain very carefully through this piece of
occurs during the 24 months consultation, language so consumers with legislation and obtaining proper
period. No charge will be allowed banking or ‘average literacy skills and minimal legal advice.
financial
at the expiration of the agreement experience’ are able to understand.
services
period. A supplier offering goods and Gerrit Van GaalenPartner
Van Gaalen Attorneys
Under a fixed-term agreement, services via the internet will still
[email protected]
the supplier must, no more than 80 have to comply with the
days and no less than 40 days prior requirements under Section 43 of
to the expiration date, provide the the Electronic Communications
consumer with a written notice Act in terms of price disclosure
that the agreement will expire, be and sales records (i.e. provision of
renewed and the options available a written record of each
to the consumer. This, in itself, will transaction to be provided to the
most definitely create an additional consumer).
administration burden for the
supplier. Business names
The consumer shall further have The consumer must know who he
the right to cancel advance is dealing with, especially on the
reservations, bookings or orders. internet. As a result, the supplier
However the supplier shall be will only be able to trade with a
entitled to request a deposit on consumer under the name it has
accepting the booking or order, previously registered on a relevant
and charge a reasonable business register. The practice of
cancellation charge. using ‘trading as’ names with no
It will be imperative for suppliers other reference to a registered
to ensure that they sell what they name has now been abolished.
present on the internet. If the
consumer has agreed to purchase Consumer complaints
goods solely on the basis of a The Act entitles the consumer to
description or sample provided by address complaints to a court and
the supplier, the goods delivered to to utilise alternative dispute
the consumer must in all material forums. A consumer will be able to
respects and characteristics lodge a complaint with the
correspond to that which an National Consumer Commission,
‘ordinary alert consumer’ would various appointed ombudsmen or
have been entitled to expect. in certain industries, to a Tribunal.
09
e-commerce law and policy april 2011
CONTENT AGREEMENTS
Website development: content
and advertising agreements
Establishing an online businesses itself; to be considered in relation to
can be a demanding and lengthy (cid:2)copy the content from other content and advertising
sources; and agreements are set out below.
process. Following on from last
(cid:2)have third parties provide the
month’s article, which tackled the
content. Use of content
issues of website development and Providing content in house: while The company will need to consider
hosting contracts, Sam de Silva, content can be created in house, why the content is being provided
this can be time consuming and and the extent to which the
Partner at Taylor Walton LLP,
expensive. Copying content from internet user is able to manipulate
considers they key issues in respect
other sources: if the content that is the content:
of content and advertising
being copied, is not in the public (cid:2)Does the content need to be
agreements. domain or has not been authorised displayed in a particular form?
(and is still within its period of (cid:2)Can the content on the website
Content and advertising copyright protection), this is be combined with content
agreements infringement of another party's provided by another content
One of the main reasons for the copyright. provider?
internet's popularity is that it Having third parties provide There is a need to state clearly in
provides access to vast amounts of content: if a third party is going to the content agreement exactly
information and is an effective tool provide content for a website, a which types of media the content
for gathering and providing content agreement is then can be displayed on. Issues to be
information. With increasing necessary to set out the rights and considered are:
bandwidth has come the ability to obligations of the content user and (cid:2)From where will the company
provide increasingly diversified content provider. However, it be getting the content?
forms of content for a website. should be kept in mind that the (cid:2)Can that content be displayed
The convergence of the issues that arise for provision of on the internet?
telecommunications, broadcasting, content for the internet are similar (cid:2)Which party bears the risk if
media and information technology to those that arise for ‘bricks and there is a claim about misuse of the
industries increases marketplace mortar’ businesses, such as content?
competition and creates magazine publishers that use or (cid:2)Is there a limit on the extent to
innovation opportunities. One provide content. which parties will be liable?
such opportunity is the The list of questions and issues to
development of strategic alliances Advertising consider depends on the
with media companies, resulting in Advertising is a form of content company's particular
websites that use content from a that populates many websites. circumstances.
number of different providers. Although advertising has its The content agreement should
particular issues, an advertising also contemplate the different
Providing website content agreement is similar in a lot of platforms that can access content
The main aim of the website is to respects to other content on the internet. Although the
attract potential customers. As agreements. Although the internet internet is mainly accessed over a
businesses have become more has created its own unique forms wired platform consisting of many
sophisticated, the type and form of of advertising (for example, banner networks that are physically linked,
the content available on the advertising that can be clicked on it is possible to access the internet
website can be what makes one to take a user to the advertiser's over a wireless platform. Will the
business stand out from all the website), many of the advertising content agreement for display of
others. The website's purpose also issues are the same as if the content on the internet cover the
needs consideration. There is little advertising was not online. display of content to a mobile
point in having a sophisticated e- There are also a number of phone using WAP technology?
commerce enabled website if all websites that act as intermediaries
the website does is provide between advertisers and website Exclusivity
information. The content must suit publishers. Advertisements are The exclusivity of the arrangement
the potential market. selected and placed on websites will depend on whether a party
The three main ways a business publishing the types of wishes to limit the extent to which
can build website content are: advertisement being offered. other content users can use the
(cid:2)create and provide the content Some of the key issues that need same content provided by the
10
e-commerce law and policy april 2011