e-Commerce Docket Sheet

CA Violent Videogames Law Stuck Down

A federal judge in California has preliminarily enjoined the enforcement of a California law that would require violent video games to be labeled and would prohibit the rental or sale of those games to minors. Video Software Dealers Assn. v. Schwarzenegger, No. 05-4188 (N.D. Cal. Dec. 21, 2005). The court rejected the argument that the law is unconstitutionally vague, but held that the plaintiffs had shown a probability of success on the merits of their claim that the law impermissibly infringes the First Amendment rights of minors. The court commented: “It is uncertain that even if a causal link exists between violent video games and violent behavior, the First Amendment allows a state to restrict access to violent video games, even for those under 18 years of age.”

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IL Violent, Sexually Explicit Videogames
Law Violates First Amendment

The Illinois Violent Video Games Law and the Sexually Explicit Video Games Law are unenforceable because they constitute content-based regulations of speech that violate the First Amendment. Entertainment Software Association v. Blagojevich, No. 05-4265, 2005 U.S. Dist. LEXIS 31100 (N.D. Ill. Dec. 2, 2005). Applying strict scrutiny to the statutory limitations on the sale of violent videogames to minors, the court found that the defendants had failed to present substantial evidence to support the legislative conclusions that playing violent video games causes minors to have aggressive feelings or engage in violent behavior. In addition, the court concluded that the definition of “violent video games” was unconstitutionally vague. Also applying strict scrutiny to the limitations on the sale of sexually explicit videogames, the court concluded that the statute is not narrowly tailored to achieve the legislative goal of limiting minors' access to sexually explicit materials, and regulates an unconstitutionally vague amount of speech.

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Fed. Law Trumps MN Wireless
Consumer Protection Law

The Minnesota Wireless Consumer Protection law, which regulates the terms and conditions of contracts with wireless subscribers, is pre-empted by the federal Communications Act of 1934. Cellco Partnership v. Hatch, No. 04-3198 (8th Cir. Dec. 9, 2005). The appeals court noted that the Communications Act expressly pre-empts state and local governments from regulating the “rates charged” by wireless providers. The court concluded that because the Minnesota law requires consumers to affirmatively consent to changes in contract terms that “could result” in increased rates, the law “prevents providers from raising rates for a period of time, and thus fixes the rates.”

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CDA Immunity Extends to Distributors

Section 230 of the Communications Decency Act (CDA), which immunizes a provider or user of an interactive computer service from liability as a “publisher or speaker” of information provided by a third party, also precludes holding a provider or user liable as a distributor of third-party content. Austin v. CrystalTech Web Hosting, No. 1 CA-CV 04-0823, 2005 Ariz. App. LEXIS 168 (Ariz. Ct. App., Div. 1, Dec. 22, 2005). The court granted summary judgment, dismissing a defamation claim brought against an Internet service provider on the ground that the ISP refused to remove allegedly defamatory statements contained in a Web site hosted on its servers. Citing the leading case of Zeran v. America Online, Inc., 129 F.3d 327 (4th Cir. 1997), the court rejected the plaintiff's argument that Section 230 of the CDA immunizes only publishers of defamatory content, leaving the ISP open to liability as a distributor of the statements that it “knew or had reason to know” were defamatory.

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Try Before Buying Is No Defense
In Music Downloading

The U.S. Supreme Court opinion in MGM Studios, Inc. v. Grokster (U.S. 2005) forecloses the argument that downloading and retaining copyrighted songs via a file-sharing service to sample prior to purchase is a protected fair use. BMG Music v. Gonzalez, No. 05-1314, 2005 U.S. App. LEXIS 26903 (7th Cir. Dec. 9, 2005). The court concluded that the defendant's conduct did not constitute fair use because, among other reasons, she downloaded and retained entire, unauthorized copies of copyrighted works that were available for retail sale. The court also held that the defendant was not entitled to a reduction in the award of the minimum statutory damages per work, because she was on notice that the downloaded songs were subject to copyright.

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DSW Settles FTC Charges on
Security of Sensitive Customer Info.

Retailer DSW Inc., settled charges by the Federal Trade Commission that its failure to provide reasonable and appropriate security for sensitive customer information is an unfair practice that violated federal law. In re DSW, Inc., No. 052-3096 (FTC Dec. 1, 2005). According to the FTC complaint, DSW engaged in a number of practices in the handling of customer credit-card, debit-card and check transactions that allowed hackers to gain access to information on 1.4 million credit and debit cards, and 96,000 checking accounts. DSW agreed to establish and maintain a comprehensive information-security program that includes administrative, technical and physical safeguards, and to obtain an independent audit of its security program every two years for the next 20 years. The FTC cited DSW's SEC filings indicating that the company's exposure for losses related to the breach ranged from $6.5 million to $9.5 million.

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“Willful Misconduct” Requires
Intentional Or Reckless Acts

A provision in a technology license limiting damages for breach of the license to harm caused by “willful misconduct” requires a showing that the licensee conducted itself “with specific intent to harm,” or “with a positive, active and absolute disregard of the consequences of its actions.” Digital Envoy, Inc. v. Google, Inc., 2005 U.S. Dist. LEXIS 27939 (N.D. Cal. Nov. 8, 2005). The licensor claimed that the use of its geo-targeting technology in Google's popular AdSense advertising program violated the terms of the license. In dismissing the licensor's claim for damages for breach of the license, the magistrate judge noted prior rulings that questioned whether a trier of fact could conclude that the terms of the license were violated, and ruled that the licensor failed to show that the licensee believed that its use of the licensed technology would violate the terms of the license. The court refused, however, to dismiss the licensor's claim for damages based on the theory of misappropriation of its trade secrets, and ruled that the licensor could recover such damages if it could show “some causal nexus” between the licensee's profits and the use of the licensor's trade secrets.

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IL Fraud Act Does Not Apply
To Online Nonresident Buyer

The Illinois consumer-fraud statute does not apply to an online transaction between a corporation that maintains headquarters in Illinois and a consumer who does not live in Illinois. Shaw v. Hyatt International Corp., 2005 U.S. Dist. LEXIS 28250 (N.D. Ill. Nov. 15, 2005). The court dismissed a class-action complaint filed by a U.S. citizen residing in London, alleging that the room rates quoted by the defendant hotel chain on its Web site were deceptive because they misled consumers concerning the exchange rate to be applied in charging for rooms at international locations. The court noted that Illinois courts interpreting the statute have ruled that it does not apply to an action brought by a nonresident of Illinois if the only contact with Illinois is that the location of the defendant's corporate headquarters is in Illinois, or the origination of the alleged deceptive scheme was in Illinois. The court concluded that the statute is limited in its application to deceptive practices occurring “primarily and substantially within Illinois.”

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Zippo Sliding Scale Test
Inapplicable To Personal Jurisdiction

An eBay transaction conducted between the plaintiff's investigator located in the forum state as an eBay buyer, and the defendant as an eBay seller, is insufficient to establish personal jurisdiction over the eBay seller in the forum state. Action Tapes, Inc. v. Weaver, 2005 U.S. Dist. LEXIS 29312 (N.D. Tex. Nov. 23, 2005). In an action alleging that embroidery designs sold in an eBay auction infringed the plaintiff's copyrights, the district court concluded that the “sliding scale” of online interactivity adopted in Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997), didn't apply to a defendant who was a customer of eBay, and did not own or exercise control over the eBay Web site. The court ruled that the defendant was not subject to jurisdiction in the forum state because participation in “the usual online auction process does not rise to the level of purposeful conduct required to assert specific jurisdiction.”

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Class Action Complaint Alleges
Fraudulent Conduct By Web Dating Site

A subscriber to the Match.com Internet dating service has filed a class-action complaint alleging that the site engaged in fraudulent practices to encourage subscribers to renew their subscriptions. Evans v. IAC/Interactive Corp., No. 05-1104 (C.D. Cal. complaint filed Nov. 10, 2005). The complaint includes claims under California unfair business-practices and false-advertising statutes, as well as a claim under the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The complaint alleges that the service used “date bait” teams whose members pretended to be interested in dating subscribers whose subscriptions were nearing expiration, to entice them to renew. The complaint is available at www.gelfmagazine.com/GelfImages/051121_Match/Match%20lawsuit.pdf.

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UN Assembly Adopts Convention
On Electronic Contracting

The United Nations General Assembly adopted a new Convention on the Use of Electronic Communica-tions in International Contracting on November 23. The convention was prepared by the UN Commission on International Trade (UNCITRAL) during proceedings that commenced in 2002. The convention is intended to enhance legal certainty and commercial predictability in international electronic transactions. Among other things, the convention establishes the general principle that a communication or contract shall not be denied validity or enforceability solely on the ground that it is in electronic form. The convention was scheduled to open for signature by assembly states and acceptance by non-member states from last month through January 16, 2008, with some signatory event expected this summer during UNCITRAL's 39th session. The press release is available at www.un.org/News/Press/docs/2005/ga1042.doc.htm.

CA Violent Videogames Law Stuck Down

A federal judge in California has preliminarily enjoined the enforcement of a California law that would require violent video games to be labeled and would prohibit the rental or sale of those games to minors. Video Software Dealers Assn. v. Schwarzenegger, No. 05-4188 (N.D. Cal. Dec. 21, 2005). The court rejected the argument that the law is unconstitutionally vague, but held that the plaintiffs had shown a probability of success on the merits of their claim that the law impermissibly infringes the First Amendment rights of minors. The court commented: “It is uncertain that even if a causal link exists between violent video games and violent behavior, the First Amendment allows a state to restrict access to violent video games, even for those under 18 years of age.”

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IL Violent, Sexually Explicit Videogames
Law Violates First Amendment

The Illinois Violent Video Games Law and the Sexually Explicit Video Games Law are unenforceable because they constitute content-based regulations of speech that violate the First Amendment. Entertainment Software Association v. Blagojevich, No. 05-4265, 2005 U.S. Dist. LEXIS 31100 (N.D. Ill. Dec. 2, 2005). Applying strict scrutiny to the statutory limitations on the sale of violent videogames to minors, the court found that the defendants had failed to present substantial evidence to support the legislative conclusions that playing violent video games causes minors to have aggressive feelings or engage in violent behavior. In addition, the court concluded that the definition of “violent video games” was unconstitutionally vague. Also applying strict scrutiny to the limitations on the sale of sexually explicit videogames, the court concluded that the statute is not narrowly tailored to achieve the legislative goal of limiting minors' access to sexually explicit materials, and regulates an unconstitutionally vague amount of speech.

---

Fed. Law Trumps MN Wireless
Consumer Protection Law

The Minnesota Wireless Consumer Protection law, which regulates the terms and conditions of contracts with wireless subscribers, is pre-empted by the federal Communications Act of 1934. Cellco Partnership v. Hatch, No. 04-3198 (8th Cir. Dec. 9, 2005). The appeals court noted that the Communications Act expressly pre-empts state and local governments from regulating the “rates charged” by wireless providers. The court concluded that because the Minnesota law requires consumers to affirmatively consent to changes in contract terms that “could result” in increased rates, the law “prevents providers from raising rates for a period of time, and thus fixes the rates.”

---

CDA Immunity Extends to Distributors

Section 230 of the Communications Decency Act (CDA), which immunizes a provider or user of an interactive computer service from liability as a “publisher or speaker” of information provided by a third party, also precludes holding a provider or user liable as a distributor of third-party content. Austin v. CrystalTech Web Hosting , No. 1 CA-CV 04-0823, 2005 Ariz. App. LEXIS 168 (Ariz. Ct. App., Div. 1, Dec. 22, 2005). The court granted summary judgment, dismissing a defamation claim brought against an Internet service provider on the ground that the ISP refused to remove allegedly defamatory statements contained in a Web site hosted on its servers. Citing the leading case of Zeran v. America Online, Inc. , 129 F.3d 327 (4th Cir. 1997), the court rejected the plaintiff's argument that Section 230 of the CDA immunizes only publishers of defamatory content, leaving the ISP open to liability as a distributor of the statements that it “knew or had reason to know” were defamatory.

---

Try Before Buying Is No Defense
In Music Downloading

The U.S. Supreme Court opinion in MGM Studios, Inc. v. Grokster (U.S. 2005) forecloses the argument that downloading and retaining copyrighted songs via a file-sharing service to sample prior to purchase is a protected fair use. BMG Music v. Gonzalez, No. 05-1314, 2005 U.S. App. LEXIS 26903 (7th Cir. Dec. 9, 2005). The court concluded that the defendant's conduct did not constitute fair use because, among other reasons, she downloaded and retained entire, unauthorized copies of copyrighted works that were available for retail sale. The court also held that the defendant was not entitled to a reduction in the award of the minimum statutory damages per work, because she was on notice that the downloaded songs were subject to copyright.

---

DSW Settles FTC Charges on
Security of Sensitive Customer Info.

Retailer DSW Inc., settled charges by the Federal Trade Commission that its failure to provide reasonable and appropriate security for sensitive customer information is an unfair practice that violated federal law. In re DSW, Inc., No. 052-3096 (FTC Dec. 1, 2005). According to the FTC complaint, DSW engaged in a number of practices in the handling of customer credit-card, debit-card and check transactions that allowed hackers to gain access to information on 1.4 million credit and debit cards, and 96,000 checking accounts. DSW agreed to establish and maintain a comprehensive information-security program that includes administrative, technical and physical safeguards, and to obtain an independent audit of its security program every two years for the next 20 years. The FTC cited DSW's SEC filings indicating that the company's exposure for losses related to the breach ranged from $6.5 million to $9.5 million.

---

“Willful Misconduct” Requires
Intentional Or Reckless Acts

A provision in a technology license limiting damages for breach of the license to harm caused by “willful misconduct” requires a showing that the licensee conducted itself “with specific intent to harm,” or “with a positive, active and absolute disregard of the consequences of its actions.” Digital Envoy, Inc. v. Google, Inc., 2005 U.S. Dist. LEXIS 27939 (N.D. Cal. Nov. 8, 2005). The licensor claimed that the use of its geo-targeting technology in Google's popular AdSense advertising program violated the terms of the license. In dismissing the licensor's claim for damages for breach of the license, the magistrate judge noted prior rulings that questioned whether a trier of fact could conclude that the terms of the license were violated, and ruled that the licensor failed to show that the licensee believed that its use of the licensed technology would violate the terms of the license. The court refused, however, to dismiss the licensor's claim for damages based on the theory of misappropriation of its trade secrets, and ruled that the licensor could recover such damages if it could show “some causal nexus” between the licensee's profits and the use of the licensor's trade secrets.

---

IL Fraud Act Does Not Apply
To Online Nonresident Buyer

The Illinois consumer-fraud statute does not apply to an online transaction between a corporation that maintains headquarters in Illinois and a consumer who does not live in Illinois. Shaw v. Hyatt International Corp., 2005 U.S. Dist. LEXIS 28250 (N.D. Ill. Nov. 15, 2005). The court dismissed a class-action complaint filed by a U.S. citizen residing in London, alleging that the room rates quoted by the defendant hotel chain on its Web site were deceptive because they misled consumers concerning the exchange rate to be applied in charging for rooms at international locations. The court noted that Illinois courts interpreting the statute have ruled that it does not apply to an action brought by a nonresident of Illinois if the only contact with Illinois is that the location of the defendant's corporate headquarters is in Illinois, or the origination of the alleged deceptive scheme was in Illinois. The court concluded that the statute is limited in its application to deceptive practices occurring “primarily and substantially within Illinois.”

---

Zippo Sliding Scale Test
Inapplicable To Personal Jurisdiction

An eBay transaction conducted between the plaintiff's investigator located in the forum state as an eBay buyer, and the defendant as an eBay seller, is insufficient to establish personal jurisdiction over the eBay seller in the forum state. Action Tapes, Inc. v. Weaver, 2005 U.S. Dist. LEXIS 29312 (N.D. Tex. Nov. 23, 2005). In an action alleging that embroidery designs sold in an eBay auction infringed the plaintiff's copyrights, the district court concluded that the “sliding scale” of online interactivity adopted in Zippo Mfg. Co. v. Zippo Dot Com, Inc. , 952 F. Supp. 1119 (W.D. Pa. 1997), didn't apply to a defendant who was a customer of eBay, and did not own or exercise control over the eBay Web site. The court ruled that the defendant was not subject to jurisdiction in the forum state because participation in “the usual online auction process does not rise to the level of purposeful conduct required to assert specific jurisdiction.”

---

Class Action Complaint Alleges
Fraudulent Conduct By Web Dating Site

A subscriber to the Match.com Internet dating service has filed a class-action complaint alleging that the site engaged in fraudulent practices to encourage subscribers to renew their subscriptions. Evans v. IAC/Interactive Corp., No. 05-1104 (C.D. Cal. complaint filed Nov. 10, 2005). The complaint includes claims under California unfair business-practices and false-advertising statutes, as well as a claim under the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The complaint alleges that the service used “date bait” teams whose members pretended to be interested in dating subscribers whose subscriptions were nearing expiration, to entice them to renew. The complaint is available at www.gelfmagazine.com/GelfImages/051121_Match/Match%20lawsuit.pdf.

---

UN Assembly Adopts Convention
On Electronic Contracting

The United Nations General Assembly adopted a new Convention on the Use of Electronic Communica-tions in International Contracting on November 23. The convention was prepared by the UN Commission on International Trade (UNCITRAL) during proceedings that commenced in 2002. The convention is intended to enhance legal certainty and commercial predictability in international electronic transactions. Among other things, the convention establishes the general principle that a communication or contract shall not be denied validity or enforceability solely on the ground that it is in electronic form. The convention was scheduled to open for signature by assembly states and acceptance by non-member states from last month through January 16, 2008, with some signatory event expected this summer during UNCITRAL's 39th session. The press release is available at www.un.org/News/Press/docs/2005/ga1042.doc.htm.