Social Media Contracts

A recent decision (Ardis Health LLC et al. v. Nankivell)of the U.S. District Court for the Southern District of New York dated 19 October 2011, provides a good insight into the best practices for parties contracting in the social media space.

 

“Social media” refers to any online medium that includes community features such as user-generated content, the ability to form groups and the ability to recommend, comment on, and share the content of others. Examples include Facebook and Twitter.

The plaintiffs in the proceedings were three companies that market online herbal and beauty products. The three plaintiffs are wholly owned and collaboratively operated by Jordan Finger. The defendant was hired by one of the plaintiffs, CYC, as a “Video and Social Media Producer”. The defendant signed a Work Product Agreement that provides that work created and developed by the defendant “shall be the sole and exclusive property of CYC, in whatever stage of development or completion”, and that it ”will be prepared as ‘work-for-hire’ within the meaning of the Copyright Act”. The agreement also provided that the defendant return all confidential information to the plaintiffs upon request, and that “actual or threatened breach of the agreement will cause irreparable injury and damage”.

 The U.S. District Court for the Southern District of New York judged that the plaintiffs own the rights to the Access Information, as the plaintiffs provided the Court with sufficient evidence to support this claim.

However according to the U.S. District Court the plaintiffs were not entitled to the return of the laptop computer at this time, nor were they entitled to prohibit the defendant from displaying Whatsinurs’ content on her website, as the plaintiffs presented little evidence in support of their claim.

Ardis Health LLC et al. v. Nankivell is therefore a further warning to businesses with an online presence. Such businesses must develop strategies to protect their social media presence and content. If content is developed and managed by an independent contractor, ownership of the content should be established by contract. However, even when a contractual relationship exists, enforcement is not always straightforward. As there is no similar “work for hire” concept under Irish law, the position here may be even murkier in circumstances where parties do not set out their rights clearly under contract.

 Jordan Finger and the defendant developed a social media website for cosmetic products (“Whatsinurs”). The plaintiffs drafted an additional agreement, “for the organisation and governance of Whatsinurs” but the parties never signed this agreement.

These arrangements were later terminated and the plaintiffs requested that the defendant return the laptop and the passwords used to access the websites (“Access Information”). The defendant refused this, and began displaying content from the Whatsinurs website on her own personal website.

European Commission publishes proposal for an optional Common European Sales Law

The European Commission has published a proposal for a Regulation on an optional Common European Sales Law. It is envisaged that the Common European Sales Law will exist alongside each Member State’s national contract law as a second, alternative, contract law regime available to consumers in cross-border situations.  The Commission has stated that the 27 different sets of contract law rules which currently exist in the EU act as a deterrent for both businesses and consumers to shopping and trading across EU borders. 

Justification for Proposal

The Commission has justified the proposal on the grounds that companies will benefit from one (optional) uniform regime of contract law in all 27 Member States, as traders will “no longer need to wrestle with the uncertainties that arise from having to deal with multiple national contract systems”. 

The Commission believes that, if adopted, the Regulation will also cut transaction costs for companies wishing to trade cross-border, and help small and medium-sized companies to expand into new markets. Consumers are expected to benefit from having the same level of consumer protection in all Member States, having a wider choice of products at lower prices, and from certainty about their rights in cross-border transactions.

Scope

The Common European Sales Law would apply upon express agreement by both parties to: (i) a cross-border contract, (ii) for the sale of goods, the supply of digital content, or for related services, (iii) where at least one party is established in a Member State of the EU. 

It would apply to business-to-consumer, and business-to-business transactions, where at least one party is a small or medium-sized enterprise (SME). An SME is defined as a trader which employs fewer than 250 persons, and has an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million.

It will not apply to financial services contracts, including online banking services; legal or financial advice provided in electronic form; electronic healthcare services; electronic communications services; or gambling.

The proposed Regulation leaves Member States free to decide to make the Common European Sales Law available to parties for use in purely domestic situations, and to enact legislation making it available for contracts between traders, neither of which is an SME.

Reason for an Optional Instrument

The Commission has proposed an optional instrument on the grounds that “a Directive or a Regulation replacing national laws with a non-optional European contract law would go too far, as it would require domestic traders who do not want to sell across borders to bear costs which are not outweighed by the cost savings that only occur when cross-border transactions take place”.

Comments and Next Steps

The Commission hopes to achieve agreement on the Common European Sales Law within a year. The proposal has been sent to the European Parliament and the Council for approval and adoption in the ordinary legislative procedure and by qualified majority. Once adopted, the Regulation will have direct effect, without the need for a transposing domestic law to be passed.

There may, however, be issues with the EU’s adoption of this proposal. For example, concerns have been expressed about the degree of legal uncertainty that the proposal could introduce in a settled legal environment, and whether the proposal leaves businesses with sufficient freedom to contract. It is questionable whether the current proposal contains sufficient advantages for business to business transactions in order to motivate businesses to use it.  The draft Regulation is a complex document, containing 186 articles, which will need to be closely reviewed and debated before it is adopted by the EU.

If the Regulation is adopted, there will also be a significant exercise involved in educating consumers and businesses as to the implications of using this so-called optional Common European Sales Law, in particular to explain the practical differences between that law and existing domestic laws, and the implications if it is used and a dispute arises between the parties.

The Commission has published useful FAQs on the Common European Sales Law. To view  the proposal please click here

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Lightning Strikes the Clouds

The recent reports of a lightning strike at Dublin data centres illustrates the importance of giving close consideration to the contractual consequences of such unplanned events. This is particularly so where the cloud platforms are essential to run business critical activity such as sales or finance and accounting functions.
 
With cloud services, customers first need to decide what business critical activity can be 'cloud dependent' bearing in mind the risks. They then need to consider the extent to which they mitigate the risk of a single point of failure at the supplier end by keeping some disaster recovery and back-up in house. Arguably the more they keep in-house, the less financial benefits they will get from cloud services. In some cases though, it will be a price worth paying.
 
When lightning strikes, two key issues arise:
 
(a) business continuity - what is the supplier obliged to do to avoid business interruption to the customer? and
 
(b) data risk - if systems are down, can data be lost forever or simply rendered unavailable but always restorable and how is related liability and financial risk shared between supplier and customer?
 
To offer real benefits, the contract should have sufficient remedies, built into the agreed price, which mean that termination, supplier switching and in the worst case, threats of legal claims (all of which can involve major business interruption) are options of the very last resort. One example is service credits. But be alert to the steps required in order to qualify for credits and whether credits are in effect the only financial remedy. Another is a clear obligation to implement a disaster plan and data retrieval services, including in particular for force majeure events. But be alert to confirming that these are in scope and their associated cost.
 
Contract discussions should analyse exactly how the service will operate and work through the practical consequences of unforeseen events such as a lightning strike.
Often the obligation to meet a particular service level (and liability to pay credits) will not apply where the unavailability is caused due to force majeure events such as lightning strikes. But query whether the contract effectively suspends any obligation to provide any service, including disaster related service.
 
Many buildings (even domestic dwellings) are designed to include lightning protection systems. Asking a cloud provider if it has such physical protections in place is good due diligence.
 
On the face of it, a force majeure clause ensures a party is not liable for its resulting failure to perform the contract. With business critical IT contracts, that is where the discussion should start, not finish.
 
 

Loss of Confidentiality prevents grant of an Injunction - The BBC fails against "The Stig"

The BBC has been refused an application by the UK High Court for an interim injunction against Ben Collins, his publishers and service company in connection with the publication of Collins’ autobiography revealing the identity of “The Stig” in the BBC’s Top Gear television show.

Collins played the part of “The Stig” from 2003 until the summer of 2010. In 2009, he engaged in discussions with HarperCollins Ltd to discuss the publication of his autobiography.  Collins told the producer of Top Gear in July 2010 that he was thinking about writing a book and was considering leaving the programme. The BBC issued proceedings, seeking in particular an interim injunction restraining the defendants from disclosing certain information. It was alleged that publication of the autobiography would be, amongst other things, in breach of Collins’ equitable duty of confidence to the BBC which prevented him from revealing his identity as “The Stig”.

The Court refused to grant an interim injunction on various grounds. The main point being that the BBC could not rely on breach of confidentiality on the basis that the identity of “The Stig”, due to several press reports, had become so generally accessible that it had lost its confidential character by the time of the BBC’s application. Unfortunately for the BBC, the huge public interest created as a consequence of the anonymity of “The Stig” arguably perpetuated the media frenzy surrounding this character which led to his identification and ultimately the BBC’s loss of confidentiality.

This case confirms that the UK courts will not grant an injunction to prevent a person from disclosing information that has ceased to be confidential even if that person has benefitted from a past breach of an equitable duty of confidence. It will be interesting to see whether the BBC pursues the defendants in respect of breach of contract, and/or any other claims and damages.