The latest issue of our Socially Aware newsletter is now available here.

In this issue of Socially Aware, our Burton Award-winning guide to the law and business of social media, we examine the use of the Computer Fraud and Abuse Act to combat web scraping; we explore the launch of Google Glass in the UK and the issues it raises; we analyze the FDA’s latest attempt to provide direction for drug and device manufacturers concerning how and when they may use social media; we report on a recent case concerning whether service providers can avail themselves of certain DMCA safe harbors; we highlight the increasingly important role of social media services in proxy contests; we take a look at how the Supreme Court’s Aereo decision might impact other areas of technology; and we discuss the ongoing controversy regarding website accessibility under the ADA and California’s Unruh Act.

All this—plus a collection of thought-provoking statistics about social media and the World Cup…

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In a closely watched case, the U.S. Supreme Court ruled today in a 6-3 decision that Aereo’s Internet streaming service engages in unauthorized public performances of broadcast television programs in violation of the Copyright Act, reversing the Second Circuit’s decision in American Broadcasting Companies, Inc. v. Aereo, Inc. (No. 13-461).

In ruling against Aereo, the Court sought to limit its decision to Aereo’s service—which the Court considered to be “equivalent” to that of a traditional cable company—and noted that it was not addressing the legality of cloud storage lockers, remote-storage DVRs and other emerging technologies.  But the Court’s interpretation of the public performance right in the context of Aereo’s technology will nevertheless influence future decisions on whether the transmission of content using other technology constitutes copyright infringement.

Background

Aereo provides broadcast television streaming and recording services to its subscribers, who can watch selected programing on various Internet-connected devices, including smart televisions, computers, mobile phones and tablets.  Aereo provides its service through individual, “dime-sized” antennas that pick up local television broadcast signals and transmit those signals to an Aereo server where individual copies of programs embedded in such signals are created and saved to the directories of those subscribers who want to view such programs.  A subscriber can then watch the selected program nearly live (subject to a brief time delay from the recording) or later from the recording.  No two users share the same antenna at the same time, nor do any users share access to the same stored copy of a program.

In 2012, various broadcasting companies sued Aereo for copyright infringement in the Southern District of New York, claiming, among other things, that Aereo’s transmission of the plaintiffs’ copyrighted content to Aereo’s subscribers violated the copyright owners’ exclusive right to publicly perform those works.  That public performance right, codified in the 1976 Copyright Act, includes (1) any performance at a place open to the public or any gathering with a substantial number of people outside the “normal circle of family and social acquaintances,” and (2) the transmission of a performance to the public, whether or not those members of the public receive it in the same location and at the same time.  This latter provision, commonly referred to as the “Transmit Clause,” was added to the Copyright Act by Congress in part to overturn earlier Supreme Court decisions that had allowed cable companies to retransmit broadcast television signals without compensating copyright owners.

The district court denied the broadcast companies’ preliminary injunction requests, finding that, based on Second Circuit precedent, Aereo’s transmissions were unlikely to constitute public performances.  The Second Circuit affirmed the decision, relying on that court’s earlier decision in Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (“Cablevision”), which found that a cable company’s remote-storage DVR system did not run afoul of the public performance right because each transmission emanated from a unique copy of a program that was sent only to an individual user.  The Second Circuit held that Aereo does not engage in public performances because, as in Cablevision, Aereo’s system makes unique copies of every recording, and each transmission of a program to a customer is generated from that customer’s unique copy.   Continue Reading Supreme Court Stifles Aereo, but Tries to Keep the Cloud Away

The doctrine of laches cannot be invoked as a bar to a plaintiff’s claim for damages brought within the Copyright Act’s three-year statute of limitations period, according to the United States Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc. The Court, in a 6-3 decision, held that Congress prescribed a specified period in which a copyright holder can recover damages for infringement and, “[t]o the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period . . . courts are not at liberty to jettison Congress’ judgment on the timeliness of suit.” A laches defense is still viable, however, to bar equitable relief “in extraordinary circumstances” and as a factor at the remedial stage. As a result of this decision, copyright holders who previously refrained from pursuing an infringement action could be invigorated to bring suit, and businesses should be mindful that relying on a copyright holder’s prior inaction will not bar a future copyright infringement suit, regardless of how much time or money was invested into the allegedly infringing activity. In addition, the Court’s decision raises questions regarding the applicability of a laches defense to other laws with statutory limitations periods—including patent law. Continue Reading Supreme Court Finds Laches Does Not Bar Copyright Infringement Claim: Petrella v. Metro-Goldwyn-Mayer, Inc.

The latest issue of our Socially Aware newsletter is now available here.

In this issue of Socially Aware, our Burton Award-winning guide to the law and business of social media, we analyze a groundbreaking FTC complaint alleging deceptive practices online that could turn website Terms of Use into federal law; we summarize a U.S. Supreme Court copyright case that could impact existing technologies and future technological innovation; we discuss a ruling from Europe’s highest court that will aid copyright owners in the fight against illegal streaming sites; we report on new SEC guidance on social media use by investment advisers as it relates to testimonials; we take a look at the development of the Internet of Things and the many regulatory, privacy and security issues that go along with it; and we highlight a recent class action decision that potentially impacts any company that hosts videos on its website.

All this—plus a collection of thought-provoking statistics about digital music…

In a case that could have a broad impact on how companies deliver content to consumers, the Supreme Court heard oral argument on April 22 in American Broadcasting Companies, Inc. v. Aereo, Inc. (No. 13-461).  At issue is whether Aereo’s service engages in public performances under the Copyright Act in transmitting broadcast television content to its subscribers’ wired and wireless devices.  While the Justices questioned both parties on a variety of issues, a clear focus for the Court was the potential impact of its decision on other technologies not at issue in this case.

Background

Aereo provides broadcast television streaming and recording services to its subscribers, who can watch selected programing on various Internet-connected devices, including televisions, mobile phones and tablets.  Aereo provides its service through individual antennas that pick up local television broadcast signals and transmit those signals to a server where individual copies of programs embedded in such signals are created and saved to the directories of subscribers who want to view such programs.  A subscriber can then watch the selected program nearly live (subject to a brief time-delay from the recording) or later from the recording.  No two users share the same antenna at the same time, nor do any users share access to the same stored copy of a program.

In 2012, various broadcasting companies sued Aereo for copyright infringement in the Southern District of New York claiming, among other things, that Aereo’s transmission of the plaintiffs’ copyrighted content to Aereo’s subscribers violated the copyright owners’ exclusive right to publicly perform those works.  That public performance right, codified in the 1976 Copyright Act, includes (1) any performance at a place open to the public or any gathering with a substantial number of people outside the “normal circle of family and social acquaintances,” and (2) the transmission of a performance to the public whether or not those members of the public receive it in the same location and at the same time.  This latter provision, commonly referred to as the Transmit Clause, was added to the Copyright Act by Congress in part to overturn prior Supreme Court precedent that had previously allowed cable companies to retransmit broadcast television signals without compensating the broadcaster.

The district court denied the broadcast companies’ preliminary injunction requests, finding that, based on Second Circuit precedent, Aereo’s transmissions were unlikely to constitute public performances.  The Second Circuit affirmed the decision, relying on the court’s earlier decision in Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (“Cablevision”), which found that a cable company’s remote-storage DVR system did not run afoul of the public performance right because each transmission was sent only to an individual user.  The Second Circuit held that Aereo does not engage in public performances because, as in Cablevision, Aereo’s system makes unique copies of every recording, and each transmission of a program to a customer is generated from that customer’s unique copy.

Aereo has been sued by other broadcasters in other jurisdictions as well.  The District of Massachusetts reached the same result as the Second Circuit, while the District of Utah came to the opposite conclusion.  Further, both the D.C. District Court and the Central District of California have issued preliminary injunctions against FilmOn X, a company that offers a service similar to Aereo’s. Continue Reading Which Way is Aereo Pointing? The Supreme Court Hears Arguments in Public Performance Copyright Case

The ability to associate goods and services with a specific domain name can make or break a business, so much so that companies are still willing to fork over millions to purchase domain names.  And although you may consider yourself lucky to have registered a catchy domain name that drives plenty of traffic to your website, query whether the domain name is actually your property; not only do companies that provide domain name registration services frequently take the position that domain names are not property, but at least one recent case law suggests this as well.

The concept that domain names can be “owned” as intangible personal property seems reasonable on its face, particularly given the close relationship between domain names and trademarks, the latter of which historically have been considered property.  Domain names frequently contain a registrant’s trade name or trademark associated with the registrant’s goods or services.  Moreover, the Anticybersquatting Consumer Protection Act of 1999 (15 U.S. Code § 1125) permits a trademark owner to pursue an in rem action against a domain name that violates the mark owner’s rights, and the availability of an in rem action implies that the Act treats domain names as property.

On the other hand, domain names and trademarks are distinguishable.  For example, certain prerequisites for federal trademark registration, such as proof of the mark being used in interstate commerce to identify a specific type of good or service, do not apply to domain name registrations (which instead are registrable on a first-come, first-served basis).  And although similar marks used by different companies can potentially co-exist depending on territorial and other factors, each registered domain name is unique, at least with respect to the applicable top-level domain.  (Given that uniqueness, and the ability of domain names to “point” Internet users to information sources, domain names have been likened to toll-free “vanity” telephone numbers; like domain names, vanity telephone numbers that include a company’s name or mark are, in a sense, tools that can help drive traffic to the company’s offerings.)

On November 7, 2013, in Alexandria Surveys, LLC v. Alexandria Consulting Group, the U.S. District Court for the Eastern District of Virginia held that under Virginia law, domain names, like telephone numbers, are not property.  In Alexandria, two competitors, Alexandria Surveys LLC (“ASL”) and Alexandria Consulting Group (“ACG”), each sought the rights to the domain name ALEXANDRIASURVEY.COM, which previously had been registered by Alexandria Surveys International (“ASI”), a debtor in bankruptcy.  ASL had purchased from Cox Communications ASI’s former telephone number and domain name, which had not been scheduled by the trustee in ASI’s bankruptcy proceeding.  ASI’s estate was later reopened, and among other assets, the trustee auctioned off that same telephone number and domain name to ACG.  The bankruptcy court ordered ASL to hand over the disputed assets to ACG, and ASL appealed.

The District Court, noting the absence of any on-point Fourth Circuit precedent, relied on the 2000 decision in Network Solutions Inc. v. Umbro International, Inc. et al., in which the Virginia Supreme Court held that domain names are contractual rights rather than property rights subject to garnishment, that is, that they are merely “the product of a contract for services between the registrar and registrant,” because they cannot exist without the provider performing services under the applicable domain name registration services agreement.  Although the court in Alexandria acknowledged a split in authority concerning the proprietary nature of telephone numbers, the court ultimately agreed with the Virginia Supreme Court’s conclusion that “Virginia does not recognize an ownership interest in . . . web addresses[,]” and held that ASI’s domain names were not transferred as part of the estate.  Although the court in Alexandria acknowledged that a domain name can be valuable, the court reasoned that such value is subjective and therefore in itself insufficient to support an argument that domain names constitute property.

The view that domain names are not personal property can be viewed as contrary to the Ninth Circuit’s well-known 2003 ruling in Gary Kremen v. Stephen Michael Cohen, et al., concerning the wrongful transfer of the highly lucrative domain name SEX.COM.  In Kremen, Gary Kremen, the original registrant of SEX.COM, sought to recover against Network Solutions (“NSI”) under theories of breach of contract and conversion after NSI transferred the domain name to Stephen Cohen without his authorization.  Although Kremen’s breach of contract claim failed for want of consideration—Kremen had registered SEX.COM in the mid-1990s, when NSI was issuing domain name registrations to companies and individuals free of charge—the Ninth Circuit ruled that a registrant does have a property right in a registered domain name and that the unauthorized transfer of that domain name serves as a basis for a claim of conversion.  In support of this conclusion, the Ninth Circuit pointed out that domain names represent an interest that is well-defined; that domain names are subject to exclusive possession or control; and that registrants can have a legitimate claim to exclusivity over domain names.

Meanwhile, some domain name registration service providers go to great lengths to inform their customers that domain names are not property.  Namecheap’s registration agreement states: “You further agree that domain name registration is a service, that domain name registrations do not exist independently from services provided pursuant to this or a similar registration agreement with a registrar, and that domain name registration services do not create a property interest.”  And GoDaddy’s registration agreement requires customers to “acknowledge and agree that by registering a domain name, you are not acquiring any property rights in that domain name.”

Also keep in mind that treating domain names as property is not without potential problems.  For example, as the Virginia Supreme Court pointed out in Network Solutions, treating domain names as property and thereby subjecting them to garnishment could open the door to garnishment of other business indicia, such as corporate names, “by serving a garnishment summons on the State Corporation Commission since the Commission registers corporate names and, in doing so, does not allow the use of indistinguishable corporate names.”  It is unclear how problems like these might be resolved in the future.

For now, the answer to whether domain names constitute personal property is a tough question and may depend on the jurisdiction where a claim is ultimately raised.  And, from a practical standpoint, care should be taken in how domain names are treated in commercial transactions, given that they are frequently among a business’s most important features. 

The Supreme Court’s 1968 decision in Pickering v. Board of Education allows governmental employers, including law enforcement agencies, to fire or discipline employees for disrupting operations with excessive complaining, but it prohibits governmental employers from firing or disciplining an employee for speaking out on matters of public concern as a private citizen if the employee’s interest in speaking outweighs the agency’s interest in maintaining efficiency. While the line between disruptively complaining and responsibly speaking out may be clear enough in theory, however, it is often difficult to draw in practice, particularly when the employees in question work in law enforcement. The most recent case to dive into this thicket is Graziosi v. City of Greenville, from the Northern District of Mississippi.

We previously discussed the First Amendment rights of law enforcement personnel in connection with the Eleventh Circuit case Gresham v. City of Atlanta. In Gresham, the plaintiff was passed over for a promotion after making a Facebook post critical of what she saw as obstruction of justice by a fellow officer.  The court held that the plaintiff had spoken on a matter of public concern, but that her interest in speaking did not outweigh the government’s interest in promoting efficiency.  The key point was that the plaintiff had configured her Facebook post to be viewable only by her friends, which indicated that her post was not “calculated to bring an issue of public concern to the attention of persons with authority to make corrections . . . the context was more nearly one of Plaintiff’s venting her frustration with her superiors.”

The decision in Graziosi deals with the same elusive line between mere complaining on the one hand, and alerting the public to important information about the operations of government agencies on the other.  A member of the Greenville Police Department, Sergeant Graziosi, made a series of public Facebook posts criticizing the chief of police for failing to send a representative to the funeral of a fellow officer.  Graziosi posted these complaints first as her own Facebook status update, and then posted them on the campaign page of the local mayor.  The chief of police fired Graziosi for making the posts, which the chief of police contended violated several internal police department policies that forbid public criticism and excessive complaining by officers.  Graziosi filed a lawsuit alleging that her termination violated the First Amendment.

One pivotal issue in the case was whether the criticisms Graziosi posted on Facebook qualified as speaking out on a matter of public concern as a private citizen.  Graziosi argued that a decision about whether or not to send police officers to a funeral is inherently a matter of public concern because it involves the spending of public funds.  However, the court noted that if anything that involved spending funds was a matter of public concern, then “almost anything” would satisfy that requirement of the Pickering test.  Instead, the court looked to the primary motivation for speaking.  The court determined that “Graziosi’s comments to the Mayor, although on a sensitive subject, were more related to her own frustration of Chief Cannon’s decision not to send officers to the funeral and were not made to expose unlawful conduct within the Greenville Police Department.  Her posts were not intended to help the public actually evaluate the performance of the GPD.”  The court found that Graziosi was speaking out about a matter that was primarily internal to the police department, and hence, she was speaking not as a citizen, but as an employee, and not on a matter of public concern, but on a matter of personal concern.  Therefore, her comments did not pass the threshold requirement of the Pickering test.

This decision is similar to the decision in Gresham, but differs in important ways.  In both cases, the complaints that a law enforcement officer posted on Facebook were denied First Amendment protection because those complaints were more fairly described as venting frustrations than as attempts to get important information to the public.  In both cases, the court found that although the topic of the speech was of at least some concern to the public, the speaker was primarily motivated by a desire to vent frustration.  In Gresham, the court made this determination by considering the audience that the plaintiff spoke to; in Graziosi, the court made this determination by considering what the plaintiff spoke about.  However, the courts applied the determination that the speaker was motivated primarily by a desire to vent at different steps in the analysis.  In Gresham, the court found that the plaintiff’s interest in complaining was less weighty than the interest of the police department in preserving efficiency.  However, in Graziosi, the court found that the plaintiff’s primary purpose of venting personal grievances defeated her claim before the weighing stage was even reached.  Because the plaintiff’s intent was primarily to vent frustration, she was not speaking as a private citizen or speaking on a matter of public concern, and hence would not have been eligible for First Amendment protection even if her interest had outweighed the interest of the police department.

Viewed in the light of recent high profile situations involving governmental employees speaking out about matters of public concern contrary to applicable governmental policies, such as the leaks by Edward Snowden and Chelsea (formerly Bradley) Manning, clarifying the rules in this area is more important than ever.  And the fact that so much of the relevant communication now takes place in the diverse and always-changing world of social media only increases the complexity of the issues.  As a result, we can expect that the courts will continue to develop the law in this area for many years, but the outline of how the First Amendment applies to governmental employees using social media is at least beginning to take shape.

Two recent U.S. appellate court decisions have clarified the extent to which the First Amendment protects the social media activities of government employees.  In Gresham v. City of Atlanta, the Court of Appeals for the Eleventh Circuit found that an individual’s First Amendment interest in posting to Facebook is reduced when he or she configures such post to be private, while in Bland v. Roberts, the Court of Appeals for the Fourth Circuit held that Facebook “likes” constitute protected speech under the First Amendment.  Although both decisions deal with the rights of government employees in particular, the decisions have relevance beyond government employees.

U.S. courts have long held that the government has a greater interest in restricting the speech of its employees than it does in restricting the speech of the citizenry in general.  However, the government’s ability to restrict the speech of its employees is limited by a test the U.S. Supreme Court outlined in Pickering v. Board of Education in 1968.  The test requires that, in order for the employee to maintain a successful First Amendment claim against his or her governmental employer, the employee must, among other things, show that he or she was speaking about a matter of public concern, and that his or her interest in doing so outweighs the government’s interest in providing effective and efficient service to the public.

First Amendment protection for “likes”: Bland v. Roberts.  In August of 2012, we discussed the decision of a District Court in Virginia that a government employee “liking” a Facebook page was insufficient speech to merit constitutional protection.  Deputies of the Hampton Sheriff’s Office alleged that they were terminated because they “liked” the campaign page of a candidate running against their boss, the current sheriff.  While much of the suit dealt with the current sheriff’s claim to qualified immunity and whether or not the deputies held policymaking positions which can be staffed based on political allegiances, the court also dismissed the deputies’ contention that their termination violated their First Amendment right to speak out on a matter of public concern.  The court held that merely “liking” a page “is not the kind of substantive statement that has previously warranted constitutional protection.”  The decision stirred considerable controversy and debate among constitutional scholars and within the social media industry.

On appeal, the Fourth Circuit overturned the lower court’s holding that Facebook “likes” are too insubstantial to merit First Amendment protection.  The court held that “liking” a Facebook page is both pure speech and symbolic speech, and is protected by the First Amendment even with respect to government employees.  The court found that the act of “liking” a Facebook page results in publishing a substantive position on a topic.  The court reasons that “liking” a political candidate’s campaign page is “the Internet equivalent of displaying a political sign in one’s front yard, which the Supreme Court has held is substantive speech.”  As a result, at least within the political context, “likes” enjoy the same strong First Amendment protection that other political speech does.

First Amendment protection for private posts: Gresham v. City of Atlanta.  The interplay between social media and the First Amendment was also at issue in the Gresham case.  In Gresham, an Atlanta police officer named Maria Gresham became concerned when a suspect she arrested was taken into a room alone by another officer who turned out to be the suspect’s aunt.  The suspect gave some items to his aunt and they may have spoken.  Officer Gresham felt that this constituted an inappropriate interference with her investigation and she aired her concerns by making a Facebook post which was only viewable by her friends.  In Atlanta, departmental rules for the conduct of police officers prohibit publicly criticizing other officers.  The department received a complaint that Gresham’s post had violated these rules and opened an investigation.  As a result of that investigation, Gresham was passed over for a promotion.  Gresham sued the city, asserting that the department had retaliated against her for engaging in protected First Amendment speech.

The District Court for the Northern District of Georgia found that Gresham’s First Amendment interest in making the post was outweighed by the City of Atlanta’s interest in maintaining good relations among its police officers.  In weighing Gresham’s First Amendment interest in making the post, the District Court noted that “the ability of the citizenry to expose public corruption is one of the most important interests safeguarded by the First Amendment.”  The District Court found that Facebook posts are protected under the First Amendment.  It also found, however, that the officer’s decision to configure her Facebook post to be viewable only by her friends made “her interest in making the speech . . . less significant than if she had chosen a more public vehicle.”

On appeal, the Court of Appeals for the Eleventh Circuit upheld the District Court’s decision and expanded on the District Court’s reasoning, observing that “the context of Plaintiff’s speech is not one calculated to bring an issue of public concern to the attention of persons with authority to make corrections, nor was its context one of bringing the matter to the attention of the public to prompt public discussion to generate pressure for such changes.”  Because her audience was small and poorly situated to act on the information she shared, the officer’s “speech interest is not a strong one.”  The Court of Appeals agreed with the District Court that the government has a strong interest in maintaining good relations among police officers, and that this interest outweighed Gresham’s weak First Amendment interest in making the post.  As a result, the City of Atlanta was found not to have violated Gresham’s First Amendment rights by restricting her speech.

The resulting rule for Gresham and her fellow officers may be somewhat counterintuitive: Atlanta police officers are effectively allowed to criticize one another very privately or very publicly, but the officers risk being disciplined if they criticize another officer in a somewhat public forum.  A minor breach of the departmental policy against public criticism is more likely to carry consequences than a major breach is.  That being said, the purpose underlying the Pickering rule is to ensure that crucial information reaches the public; making a post private undermines that purpose, so it reduces the protection the post receives under the Pickering rule.

In any event, with social media becoming more and more integrated into the daily fabric of our lives, one can assume that courts will be struggling with the intersection of free speech rights and social media usage for years to come.

Companies that provide services to consumers have often sought to reduce the risk of class action lawsuits by requiring that their customers agree to arbitrate any disputes.  Such arbitration agreements may require customers to arbitrate on an individual basis only, with customers being obligated to waive any rights they might otherwise have to pursue claims through class actions.  In recent years, many such arbitration provisions, particularly those that included class action waivers, had been held unenforceable under state law contract doctrine.  In April 2011, however, the U.S. Supreme Court held in AT&T Mobility v. Concepcion that the Federal Arbitration Act preempts most state law challenges to class action waivers.

How broadly lower courts will interpret the AT&T decision remains to be seen.  For example, on February 1, 2012, the Second Circuit held in In re American Express Merchants’ Litigation that the AT&T decision did not preclude invalidation of an arbitration waiver where the practical effect of enforcement would impede a plaintiff’s ability to vindicate his or her federal statutory rights.

Nonetheless, in the wake of AT&T, many companies that provide online products or services to consumers are exploring whether to include an arbitration clause and class action waiver in their online Terms of Service.  For those companies that decide to adopt an arbitration provision, whether with or without a class action waiver, it is important to ensure that such arbitration provision will not be invalidated on the ground that no contract was formed with the consumer.

Courts have enforced the arbitration provision in an online Terms of Service agreement where the consumer clearly assents to – or “click-accepts” – the terms and conditions of such agreement, e.g., by checking a box stating “I agree” to such terms and conditions.  For example, in Blau v. AT&T Mobility, decided in December 2011, the plaintiff consumers, who were arguing that AT&T Mobility’s network was not sufficiently robust to provide the promised level of service, had specifically assented to AT&T Mobility’s Terms of Service, which included an arbitration clause.  One of the plaintiffs was bound by an e-signature collected by AT&T Mobility at a retail store.  He asserted that he was not bound because another user of his account had provided the signature.  The court rejected this argument because the user who signed was an authorized user of the plaintiff’s account.  A second co-plaintiff had accepted the Terms of Service by pressing a button on his mobile phone’s keypad; the court held that this acceptance was valid even though the co-plaintiff could not recall whether he had seen the AT&T Mobility Terms of Service.

The enforceability of an arbitration provision becomes more problematic where there is evidence that the consumer did not affirmatively assent to the agreement containing such provision.  In Kwan v. Clearwire Corp., decided in January 2012, the Western District of Washington denied the defendant’s motion to compel arbitration in a putative class action against Clearwire, an Internet service provider, under a variety of state and federal consumer protection statutes in connection with allegedly poorly performing modems.  Clearwire sought to compel arbitration based on an arbitration provision in its online Terms of Service.  Two named plaintiffs, Brown and Reasonover, argued that they could not be bound by the arbitration provision because they had never agreed to the Terms of Service.  The court held that an evidentiary hearing would be required to determine whether an arbitration agreement had been formed with respect to Brown after she introduced evidence that a Clearwire technician who installed her modem, and not Brown, had click-accepted the Clearwire Terms of Service.  Likewise, an evidentiary hearing was required as to Reasonover because Clearwire could not produce a record of a click-acceptance for Reasonover, who testified that she had “abandoned” the Clearwire website without click-accepting the Terms of Service.

What lessons can be drawn from the Blau and Kwan decisions?  First, for an arbitration provision contained in an online Terms of Service agreement to be enforceable against a consumer, there should be clear consent by the consumer to be bound by the agreement.  If the arbitration provision is contained in a passive “browsewrap” Terms of Service, requiring no affirmative consent from the consumer, this may be insufficient – absent other factors – to bind the consumer with respect to arbitration.  In addition, an online Terms of Service containing an arbitration provision should be presented to customers in a reasonably conspicuous manner before the consumer click-accepts the Terms of Service; the agreement should not be “submerged” within a series of links, placed on a part of the screen not visible before the consumer reaches the “I accept” button or buried in small print at the footer of a long email message.

Second, robust records documenting individual consumers’ “click-acceptances” of an online Terms of Service agreement incorporating an arbitration provision will substantially improve the likelihood that such agreement (and the incorporated arbitration provision) will be enforced.  A click-accept record that is linked to the individual who actually click-accepted the agreement is best.  Moreover, the Terms of Service agreement should be drafted to make clear that it applies not only to the individual who originally click-accepted such agreement, but also to other users to whom the individual provides access to his or her account.