On July 19, 2018, in May, et al. v. Expedia Inc., U.S. Magistrate Judge Mark Lane issued a Report and Recommendation recommending that U.S. District Judge Robert Pitman for the Western District of Texas grant a motion to compel arbitration and dismiss a putative class action on the grounds that the plaintiff agreed to the defendants’ website’s Terms and Conditions, which contained a mandatory arbitration clause.

HomeAway User Files Putative Class Action 

HomeAway is an online marketplace for vacation rental properties where property owners can list their properties for rent and travelers can book rental properties. HomeAway’s original business model was to charge owners a fee to list their properties (either on a one-year subscription or pay-per-booking basis) and to allow travelers to search and book rentals for free. HomeAway was acquired by Expedia in 2015 and changed its business model to charge travelers a fee to book rentals in mid-2016. Plaintiff James May had been a property owner who used HomeAway since 2013. Continue Reading Sneaky Website User Bound by Online Terms of Use’s Arbitration Provision Despite Renewing Subscription in Spouse’s Name

Social_Community85The explosive growth of social media has clients facing legal questions that didn’t even exist a few short years ago. Helping your clients navigate this muddled legal landscape will have them clicking “like” in no time.

What’s in a Like?

Not long ago, the word “like” was primarily a verb (and an interjection used by “valley girls”). You could have likes and dislikes in the sense of preferences, but you couldn’t give someone a like, claim to own a like or assert legal rights in likes. Today, however, a company’s social media pages and profiles, and the associated likes, followers and connections, are often considered valuable business assets. Courts have come to various conclusions regarding whether likes and similar social media constructs constitute property, but one thing is clear: Every company that uses social media should have in place clear policies regarding employee social media use and ownership of business-related social media accounts.

Employees who manage a company’s social media accounts often insert themselves as the “voice” of the brand and establish a rapport with the company’s fans and followers. Without clear policies that address ownership of social media accounts, and clearly distinguish between the company’s accounts and employees’ personal accounts, your client may find itself in a dispute when these employees leave the company and try to take the company’s fans and followers with them.

Read a more detailed description of “likes” as assets here.

Dirty Laundry

It comes as no surprise that employees frequently use social media to complain about managers and coworkers, pay, work conditions and other aspects of their employment. Companies often would prefer not to air these issues publicly, so they establish policies and impose discipline when employees’ social media activity becomes problematic. Companies need to be careful, however, that their policies and disciplinary actions comply with applicable law.

A number of National Labor Relations Board decisions have examined whether employees’ statements on social media constitute “concerted activity”—activity by two or more employees that provides mutual aid or protection regarding terms or conditions of employment—for purposes of the National Labor Relations Act (which, notably, applies regardless of whether the employees are unionized or not). Companies also need to be careful to comply with state statutes limiting employer access to employees’ personal social media accounts, such as California Labor Code Section 980, which prohibits an employer from asking an employee or applicant to disclose personal social media usernames or passwords, access personal social media in the presence of the employer, or divulge personal social media.

Read more about the intersection of social media policies and labor law here and here.

Terms of (Ab)use

Companies often consider their social media pages and profiles to be even more important than are the companies’ own websites for marketing and maintaining customer engagement. But a company’s own website has one advantage over a third party social media platform: The company sets its own terms for use of its website, while the third party social media platform is subject to terms of use imposed by the platform operator. And, in many cases, the terms imposed on users of social media platforms are onerous and make little distinction between individual users using the platform just for recreation and corporate users who depend on the platform for their businesses.

Social media terms of use often grant platform operators broad licenses to content posted on the platform, impose one-sided indemnification obligations on users, and permit platform operators to terminate users’ access with or without cause. You may have little luck negotiating modifications to such online contracts for your clients, but you can at least inform your clients of the terms that govern their use of social media, so that they can weigh the costs and benefits.

Read more about social media platforms’ terms of use here, here, and here.

Same as It Ever Was

When it comes to using social media for advertising, the media may be new but the rules are the same as ever. Companies that advertise through social media—especially by leveraging user endorsements—need to comply with Section 5 of the FTC Act, which bars “unfair or deceptive acts or practices.” Bloggers and others who endorse products must actually use the product and must disclose any “material connections” they have with the product providers (for example, a tech blogger reviewing a mobile phone that she received for free from the manufacturer should disclose that fact). Because this information is likely to affect consumers’ assessment of an endorsement, failure to disclose may be deemed deceptive. So if you have a client that uses endorsements to promote its products, make sure to brush up on the FTC “Dot Com Disclosures” and other relevant FTC guidance.

Read more about endorsement disclosure obligations here.

Good Rep

As noted, a company’s social media pages, followers, etc., may constitute valuable business assets. But buyers in M&A transactions often neglect such assets when formulating the seller’s reps and warranties. Buyers should consider asking the seller to disclose all social media accounts that the target company uses and to represent and warrant that none of the target’s social media account names infringe any third party trademark or other IP rights, that all use of the accounts complies with applicable terms of service, and that the target has implemented policies providing that the company (and not any employee) owns all business-related social media accounts and imposing appropriate guidelines regarding employee use of social media.

Finally, if you have clients that use social media, it’s important to be familiar with the popular social media platforms and their (ever-changing) rules and features. Learning to spot these issues isn’t going to turn you into the next Shakira—as of this writing, the most liked person on Facebook with well over 100 million likes—but your clients will surely appreciate your help as they traverse the social media maze.

Read more about social media assets in M&A transactions here.

This piece originally appeared in The Recorder.

Morrison & Foerster’s Sherman Kahn Interviews American Arbitration Association Vice President, Sandra Partridge

Many companies are providing for arbitration of disputes in their terms of service agreements governing use of their websites or other online or mobile services. Arbitration clauses in online terms of service agreements should be carefully drafted in order to ensure that they are enforceable, particularly when arbitrations under the agreement may be conducted between the business and a consumer. It is also important to design the presentation of the clause so that the counterparty is aware of the clause and consents to it. We have previously written about these issues in Click-Accept Arbitration: Enforcing Arbitration Provisions in Online Terms of Service.

One of the decisions that must be made when drafting an arbitration clause is which organization will administer the arbitration. One of the organizations frequently chosen to administer arbitrations arising from online terms of service agreements is the American Arbitration Association (AAA). We are pleased to publish here a discussion with Sandra Partridge of the AAA. Ms. Partridge is the Commercial Vice President for the AAA in New York. She shares practical advice in the interview regarding how to provide for arbitrations in connection with your terms of service agreements.

Ms. Partridge, can you tell us about the AAA and its administration of arbitrations arising from online terms of service?

The AAA administers two types of arbitrations arising from online terms of service agreements—business-to-business and business-to-consumer. Business-to-business agreement disputes are heard under the AAA Commercial Arbitration Rules and proceed the same way as any other business-to-business arbitration. The AAA is prepared to handle both large and small business-to-business disputes. The AAA’s Commercial Rules include Expedited Procedures to govern the arbitration where the amount in dispute is under US$75,000. The AAA Expedited Procedures provide parties with a fast, cost-efficient method for resolving less complicated disputes.

Can you explain how the AAA’s approach differs when it is administrating a business to consumer dispute?

Pre-dispute arbitration clauses (i.e., agreements entered into before a dispute arises), such as clauses in online terms of service agreements, that may result in arbitration between the business and a consumer require additional scrutiny. This is because when businesses enter a pre-dispute arbitration agreement with consumers, a greater level of due process protection is required in order to ensure fairness. The AAA, in conjunction with a variety of other organizations, jointly developed a Consumer Due Process Protocol that addresses issues such as locale for arbitration hearings, cost-shifting and allocation, legal representation and access to remedies. Businesses considering adding pre-dispute arbitration clauses to terms of service agreements would find it advisable to become familiar with the Consumer Due Process Protocol. The AAA has also developed supplementary procedures for the conduct of consumer arbitrations. It is helpful to review those procedures before preparing a consumer-directed arbitration provision. In addition, the AAA has dedicated a section of its website to disputes between businesses and consumers that provides a variety of helpful material for the arbitration clause drafter.

What additional steps should the arbitration clause drafter take if the drafter expects that arbitrations under the agreement may include arbitration of disputes between the business and consumers?

As mentioned above, the drafter should refer to the Consumer Due Process Protocol when drafting the arbitration clause. In addition, where a clause may result in arbitration with consumers, the AAA requires that the clause drafter submit the clause to the AAA for review and approval in advance of the administration of any arbitration under the clause.

Why does the AAA require pre-arbitration review of arbitration clauses?

The AAA requires that a consumer-directed pre-dispute arbitration clause be in compliance with the Consumer Due Process Protocol before it can administrate cases brought under that clause. The AAA only administrates cases between businesses and consumers arising from pre-dispute arbitration provisions that are in compliance with the Protocol in order to ensure fairness and a level playing field for both sides. Consumers and businesses can expect a fair process and enforceable awards. Pre-approval also allows the AAA to administrate any cases that are filed pursuant to the clause without delay.

How would the AAA proceed if presented with a consumer arbitration filing based upon an arbitration clause that the AAA had not pre-approved?

When a case is submitted based on a compliant but not previously approved pre-dispute arbitration clause, the AAA’s consumer department will conduct an immediate review, approve the clause, and contact the business to arrange for administration of the case.  However, if a clause is not pre-approved, the business runs the risk that the clause will not be approvable as written, causing the AAA to reject the filing.

Some companies are concerned that the pre-review will take substantial time and effort, and potentially require major changes to clauses that have already been approved by top management. Can you respond to those concerns?

The AAA is able to approve a compliant clause in a matter of days. If a clause is not compliant, the AAA will notify the drafter of the specific reasons why; allowing the drafter to promptly correct those concerns. This can also be done in a matter of days. Top management’s concerns may be assuaged by the realization that a compliant clause contributes to both fairness and enforceability.

How can companies get in touch with the AAA to discuss potential administration of an arbitration program?

Neil Currie, the AAA Vice President who oversees the consumer area, is the best individual to contact for information, answers to questions and ultimate approval of an arbitration program involving consumers. His email is Currien@adr.org and his phone number is 213-362-1900.

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.