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Privacy & Cybersecurity Update - March 2014

Business Litigation Report -- February 2014

E.K.D., by her next friend Melissa K. DAWES, and C.M.D., by his next friend Jennifer E. Deyong, and others so siutuated, Plaintiffs, v. FACEBOOK, INC - Class Action, Targeted Advertising,

According to the record of this case, Facebook operates facebook.com, a free, Internet-based social networking site with over 153 million members in the United States; over fourteen million facebook.com users in the United States are under the age of eighteen. To join facebook.com, a user must provide his or her name, age, gender, and a valid e-mail address, and click a button leading to a message stating that "By clicking Sign Up, you are indicating that you have read and agree to" Facebook's Terms of Service ("TOS"), with a hyperlink to Facebook's TOS. Once registered, a facebook.com user receives a "profile" page, may upload a "profile photo" of himself or herself, and may connect with other facebook.com users by approving them as "friends." Also, facebook.com allows users to share information with friends. Users may "post" by adding text, images, videos, and hyperlinks to their own profile page, "check-in" by announcing their geographical 897location using the website's "places" feature, and "like" content by clicking on a thumbs-up button that appears next to certain items on the Internet, both within facebook.com and on external sites. When facebook.com users take one of these actions, facebook.com generates a "story," which appears on their friends' "news feed."

Facebook earns revenue primarily through the sale of targeted advertising that appears on facebook.com users' profile pages. Plaintiffs challenge one of Facebook's advertising services in particular, known as "sponsored stories," which Facebook launched on January 25, 2011, and which was enabled for all facebook.com users by default. A sponsored story is a form of paid advertisement that appears on a facebook.com user's profile page and that generally consists of another friend's name, profile picture, and an assertion that the person "likes" the advertiser. A sponsored story may be generated whenever a facebook.com user utilizes the website's post, like, or check-in features, or uses an application or plays a game that integrates with facebook.com, and the content relates to an advertiser in some way determined by Facebook. Thus, if a facebook.com user clicks on the "like" button on a company's website, the facebook.com user's user name and profile picture, which bears the user's likeness, will appear on the facebook.com pages of the user's friends in a sponsored story advertisement stating that the user likes the company, operating in effect as an endorsement by the facebook.com user of the company or its products and services to the facebook.com user's friends. Such sponsored story advertisements are more valuable than standard facebook.com advertisements, and Facebook profits from selling this added value to advertisers.

Users of facebook.com can modify the commercial use of their names and likenesses by Facebook, but they cannot opt out of the sponsored stories feature of the website entirely. Specifically, Facebook's TOS advise facebook.com users that "You can use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored, or related content (such as a brand you like) served or enhanced by us. You give us permission to use your name and profile picture in connection with that content, subject to the limits you place." Doc. 63-1 at 4 § 10(1). Plaintiffs, who are minors residing in Illinois and users of facebook.com, allege that Facebook's practice of misappropriating their names and likenesses for commercial endorsements without their consent violates their right of privacy under the laws of various states. Federal subject matter jurisdiction is proper in this case on the basis of 28 U.S.C. § 1332, as amended by the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).

^[1] Plaintiffs seek class certification:

The proposed class is defined as follows:

All facebook users, who during a time that facebook records identified them to be under the age of 18, had their name used in connection with a facebook advertisement. (the "Class" or "Class Members").

Alternatively, Plaintiffs seek certification of a class defined as follows:

898All facebook users, who during a time that facebook records identified them to be under the age of 18 and a resident of California, Ohio, Nevada, Illinois, or Indiana and had their name used in connection with a facebook advertisement. (the "Class" or "Class Members").

Facebook in turn has moved for transfer of this case to the United States District Court for the Northern District of California pursuant to a forum-selection clause in Facebook's TOS. The clause advises users of facebook.com:

You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to [these TOS] or Facebook exclusively in a state or federal court located in Santa Clara County[, California]. The laws of the State of California will govern [these TOS], as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.

Having set out the relevant background of this case, the Court turned next to the merits of Facebook's motion for transfer of the case.

Before reaching the issue of the forum-selection clause  and the its enforceability, the Court first determined whether Facebook was barred from enforcing the forum-selection clause against Plaintiffs, by the doctrine of infacy.

Certain categories of persons are held by the law to have no capacity, or only a limited capacity, to contract:

(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.

(2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is

(a) under guardianship, or

(b) an infant, or

(c) mentally ill or defective, or

(d) intoxicated.

Restatement (Second) of Contracts § 12 (1981). The commentary to the Restatement notes that "[h]istorically, the principal categories of natural persons having no capacity or limited capacity to contract were married women, infants, and insane persons." Id.cmt. b. The doctrine of infancy is codified in California law. Under that law, "minors" are all persons under eighteen years of age. See Cal. Fam. Code § 6500. California law provides,

A minor cannot do any of the following:

(a) Give a delegation of power.

(b) Make a contract relating to real property or any interest therein.

(c) Make a contract relating to any personal property not in the immediate possession or control of the minor.

Cal. Fam. Code § 6701. The contracts enumerated in the statute are void, and no act of disaffirmance is required to avoid them. See Burnand v. Irigoyen, 30 Cal.2d 861, 186 P.2d 417, 419 (1947). Contracts that are not void under California law are voidable, and may be disaffirmed by the minor, either before majority or within a reasonable time thereafter. See Cal. Fam. Code § 6710. See also Berg v. Traylor, 148 Cal.App.4th 809, 56 Cal.Rptr.3d 140, 148 (2007) (a minor may disaffirm a contract by any act or declaration disclosing 899*899 an unequivocal intent to disaffirm). If a minor dies within the statutory period, the minor's heirs or personal representatives may disaffirm the contract. See Cal. Fam. Code § 6710.

The Court concluded that Plaintiffs cannot disaffirm the forum-selection clause in Facebook's TOS, although Plaintiffs were minors when they entered the agreement containing the clause.

Settled law holds that a mandatory forum-selection clause is "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). With respect to the unreasonableness of a forum-selection clause,

The Supreme Court has construed this exception narrowly: forum selection and choice of law clauses are unreasonable (1) if their incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; (2) if the selected forum is so gravely difficult and inconvenient that the complaining party will for all practical purposes be deprived of its day in court; or (3) if enforcement of the clauses would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.

The Court turned then to the matter of the reasonableness of the forum-selection clause contained in Facebook's TOS. Facebook's TOS, including the forum-selection clause at issue, are contained in a so-called "browsewrap agreement." Browsewrap agreements typically "involve a situation where notice on a website conditions use of the site upon compliance with certain terms or conditions, which may be included on the same page as the notice or accessible via a hyperlink." Southwest Airlines v. BoardFirst, L.L.C., Civil Action No. 3:06-CV-0891-B, 2007 WL 4823761, at *4 (N.D.Tex. Sept. 12, 2007). Thus, a party gives his or her assent simply by using the website. See id. (citing Pollstar v. Gigmania, Ltd., 170 F.Supp.2d 974, 981 (E.D.Cal.2000)). Because no affirmative action is required by the website user to agree to the terms of a contract other than his or her use of the website, the determination of the validity of a browsewrap contract depends on whether the user has actual or constructive knowledge of a website's terms and conditions. See id. at *5 (citing Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 477 (Dec. 2006) ("Courts may be willing to overlook the utter absence of assent... when there are reasons to believe that the website user is aware of the website owner's terms.") (brackets omitted). Thus, absent a showing of actual knowledge of the terms by the webpage user, the validity of a browsewrap contract hinges on whether the website provided reasonable notice of the terms of the contract. In this instance, as noted, persons wishing to join facebook.com must attest that they have read Facebook's TOS, which are made available through a hyperlink. Also, Facebook's TOS are hyperlinked on every page accessed by a facebook.com user in underlined, blue text that contrasts with the white background of the hyperlink.

Second, the selected forum does not make it "so gravely difficult and inconvenient that [Plaintiffs] will for all practical purposes be deprived of [their] day in court." Bonny, 3 F.3d at 160. Plaintiffs' counsel, the Court is well aware, are sophisticated class-action attorneys who are accustomed to litigating throughout the United States. Anyhow, "additional expense does not necessarily invalidate a forum-selection clause[.]" Paper Express, 972 F.2d at 758. "Whatever inconvenience [Plaintiffs] would suffer by being forced to litigate in a court in [California] was foreseeable at the time that [they] agreed to" the forum-selection clause in Facebook's TOS. AAR Int'l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 526 (7th Cir.2001). The time for Plaintiffs to have considered whether the forum-selection clause in Facebook's TOS would terribly disadvantage them was when they agreed to the TOS.

Finally, enforcing the forum-selection clause would not contravene any strong public policy of the State of Illinois. In general, the public policy of Illinois is gleaned from its statutes, judicial decisions, constitution, and the practices of its government officials.See American Home Assurance Co. v. Stone, 61 F.3d 1321, 1324-25 (7th Cir.1995)(citing Zeigler v. Illinois Trust & Sav. Bank, 245 Ill. 180, 91 N.E. 1041, 1046 (1910));O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill.2d 333, 130 Ill.Dec. 401, 537 N.E.2d 730, 734 (1989); McClure Eng'g Assocs., Inc. v. Reuben H. Donnelley Corp.,95 Ill.2d 68, 69 Ill.Dec. 183, 447 N.E.2d 400, 402 (1983); Smith v. Board of Educ. of Oswego Cmty. High Sch. Dist., 405 Ill. 143, 89 N.E.2d 893, 896 (1950); Hyatte v. Quinn, 239 Ill. App.3d 893, 180 Ill.Dec. 427, 607 N.E.2d 321, 324 (1993). The enforcement of forum-selection clauses offends no public policy of Illinois. SeeRoberts & Schaefer Co. v. Merit Contracting, Inc., 99 F.3d 248, 252 (7th Cir.1996)(citing Calanca v. D & S Mfg. Co., 157 Ill.App.3d 85, 109 Ill.Dec. 400, 510 N.E.2d 21, 23 (1987)) ("Under Illinois law, a forum selection clause is enforceable except in exceptional circumstances."); Vencor, Inc. v. Webb, 33 F.3d 840, 844-45 (7th Cir.1994) ("Webb argues 903*903 that this non-competition agreement is contrary to the fundamental public policy of the state of Illinois, and thus Illinois law must govern this dispute. We disagree. Here, both parties elected to have the agreement governed by Kentucky law, and we discern no reason why an Illinois court would find the agreement to be contrary to Illinois public policy."); Cummins v. Bickel & Brewer, No. 00 C 3703, 2001 WL 204797, at *3 (N.D.Ill. Mar. 1, 2001) ("Under Illinois law, a choice of law clause is prima facie valid and should be enforced unless the opposing party shows that enforcement would contravene the strong public policy of the State.");Compass Envtl., Inc. v. Polu Kai Servs., L.L.C., 379 Ill.App.3d 549, 318 Ill.Dec. 26, 882 N.E.2d 1149, 1156 (2008) (citing Calanca, 109 Ill. Dec. 400, 510 N.E.2d at 23) (the party opposing enforcement a forum-selection clause must demonstrate that "trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court."). In this case, there is no reason to believe that the policies underpinning the state laws invoked by Plaintiffs would not be served as well by a California court as they would be by this Court. Enforcing the forum-selection clause in Facebook's TOS would cause no offense to Illinois public policy, and the Court finds that the forum-selection clause is reasonable and enforceable.

The United States Court of Appeals for the Seventh Circuit routinely affirms the dismissal of lawsuits under Rule 12(b)(3) of the Federal Rules of Civil Procedure due to forum-selection clauses. However, most such decisions involve clauses that designate an arbitral forum, a state-court forum, or a foreign forum. See, e.g., Kochert v. Adagen Med. Int'l, Inc., 491 F.3d 674, 676 (7th Cir.2007) (the forum-selection clause at issue designated "the State Court of Fulton County, Georgia") (italics omitted); Abbott Labs., 476 F.3d at 422 (the forum-selection clause at issue designated Japan); Continental Cas. Co. v. American Nat'l Ins. Co., 417 F.3d 727, 733 (7th Cir. 2005) (the forum-selection clause at issue designated an arbitral forum);American Patriot Ins. Agency, Inc. v. Mutual Risk Mgmt., Ltd., 364 F.3d 884, 886 (7th Cir. 2004) (the forum-selection clause at issue designated Bermuda); Paper Express,972 F.2d at 754-55 (the forum-selection clause at issue designated Germany). These decisions seem sensible to the Court: where the alternative forum designated by a forum-selection clause is not a federal court, a case cannot be transferred under 28 U.S.C. § 1404 or, assuming that venue were not otherwise proper under 28 U.S.C. § 1391 or some other federal venue statute, 28 U.S.C. § 1406, and if dismissal were not an option, the forum-selection clause would be meaningless.

Plaintiffs offer no plausible reason why transfer would subject the judicial system to significant costs or "interfere with the orderly allocation of judicial business." Donovan, 916 F.2d at 376. The forum-selection clause in Facebook's TOS will be enforced by transferring this case to the Northern District of California under Section 1404(a).

Facebook's motion for transfer was GRANTED. Pursuant to 28 U.S.C. 906 § 1404(a), this action was TRANSFERRED to the United States District Court for the Northern District of California for all further proceedings. The following motions pending in this case will be carried with the case for resolution in the transferee court:Facebook's Motion to Dismiss for Failure to State a Claim; Facebook's Motion for Judicial Notice (Doc. 15); Plaintiffs' Motion to Certify Class (Doc. 51); Plaintiffs' Motion to Intervene (Doc. 90); and Plaintiffs' Motion for Protective Order. The Clerk of Court was directed to transmit the complete file in this case to the Clerk of the United States District Court for the Northern District of California and to close this Court's file in the case.

885 F.Supp.2d 894 (2012)

E.K.D., by her next friend Melissa K. DAWES, and C.M.D., by his next friend Jennifer E. Deyong, individually and on behalf of all others similarly situated, Plaintiffs,

v.

FACEBOOK, INC., Defendant.

Civil No. 11-461-GPM.

United States District Court, S.D. Illinois.

March 8, 2012.
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