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American Bar Association

ABA Section of Business Law


Business Law Today

Social Networking and the Law
Virtual Social Communities Are Creating Real Legal Issues
By Perry Viscounty, Jennifer Archie, Farnaz Alemi, and Jenny Allen
Millions frequent social networking platforms such as MySpace, Facebook, YouTube, and Second Life in their daily lives to play interactive games, chat, send messages, and post videos and pictures, among an infinitely expanding list of online interactive venues and options. This article addresses three pressing legal challenges that social networking Web site operators face in the development and maintenance of their Web sites: defining and establishing the terms of use for the online service, protecting intellectual property, and maximizing the statutory immunities available to site operators.

End-User License Agreements
The End-User License Agreement (EULA, often labeled the site Terms of Service or Terms of Use) sets forth the terms and conditions of Web site use and acts as a Web site's first line of defense to end-user-related claims. EULAs received national attention in a recent criminal trial involving Lori Drew, who was accused of creating a fictional MySpace account for the purpose of harassing her 13-year-old neighbor, Megan Meier, who allegedly committed suicide as a result of Ms. Drew's cyber-bullying. United States v. Drew, No. 08-CR-582 (C.D. Cal. Nov. 26, 2008). Specifically, Ms. Drew was charged with conspiring to violate the terms of MySpace's EULA, which prohibits both the creation of fictitious accounts with false information and the use of the Web site's services to harass other members. On November 26, 2008, Ms. Drew was convicted by a federal jury on three misdemeanor charges of computer fraud for accessing a computer without authorization.

The means of presenting the Terms of Use to the end user is a critical threshold consideration for social networking sites, requiring a balance of technical, legal, and unique business considerations. Technically, options for presenting the terms range widely, from merely displaying a hyperlink on the Web site without collecting any identifying information or consent, to a "clickwrap" agreement that requires users to provide full contact information on a registration page and to affirmatively click "I agree" only after being visually presented with all the terms of the agreement. There are many options in between these extremes. As a legal matter, courts may conclude that no binding agreement was ever formed, unless the site's registration process includes a step where the user has expressed a "manifestation of assent" to be bound by a conspicuously displayed agreement. Although legally quite effective, many online businesses conclude that a multistep formal clickwrap registration process is too intrusive and legalistic, thereby deterring potential users from following through with the registration process. Many sites thus opt for intermediate means of collecting assent, such as asking users to acknowledge that they have read the Terms of Use, which are available for review but not required to have been actually viewed. At the end of the day, the means of presenting the EULA and collecting evidence of consent is a decision that balances business and law, as efficiency of the registration process is weighed against the need to create a legally binding agreement.

Assuming the court concludes a contract was formed, it will look to the actual terms of the agreement to determine if the contract is enforceable in whole or in part. Many courts have ruled that EULAs are contracts of adhesion because subscribers are presented only the opportunity to accept or reject the terms in their entirety. In deciding whether to enforce such agreements, courts typically apply a heightened scrutiny to both the manner in which such an agreement is formed and the reasonableness of the substantive terms. A finding of adhesion thus begins another inquiry—whether a particular provision within the contract should be denied enforcement on grounds that it defeats the expectations of the weaker party or it is unduly oppressive or unconscionable. Courts may refuse to enforce a contract or a specific contractual provision if the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. To be unenforceable, a contract must be both procedurally and substantively unconscionable. Contracts of adhesion are per se procedurally unconscionable because they do not provide any meaningful opportunity for negotiation and leave the user with no reasonably available market alternatives. Substantive unconscionability focuses on whether the terms are unreasonable. Because a contract is largely an allocation of risks, a contractual provision is substantively suspect if it reallocates the risks in an objectively unreasonable or unexpected manner. EULA provisions commonly rejected by courts on grounds of unconscionability include mandatory arbitration provisions, forum clauses, and prohibitions on class actions. Recently, a court held the arbitration clause contained with the EULA for a social networking Web site, Second Life, to be invalid on the grounds that the provision was both procedurally and substantively unconscionable. Bragg v. Linden Research, No. 06-4925 (E.D. Pa. May 30, 2007). In light of this decision, social networking Web sites are behooved to take care in drafting their EULAs in order to avoid invalidation of their terms and ensure enforceability of the agreement.

As a social networking Web site matures, its business and the ever-changing legal environment are likely to prompt revisions to the standard posted EULA terms. Whether and how such modified terms can be enforced against prior registrants is another common area of concern. Subsequent changes to the EULA may be unenforceable against users, absent reservation to modify the terms of the agreement. Accordingly, the agreement should include unambiguous language that places the obligation on the user to stay abreast of changes, and specifying that continuing use of the social network constitutes assent to any new terms. These precautionary measures are designed to prevent users from pleading ignorance (and procedural unconscionability) when Web site operators attempt to enforce an amended EULA against a user.

Every social networking site will have to consider some issues unique to its individual business model. In short, indiscriminate copying and pasting EULAs from other sites is a poor drafting choice and can lead to liability.

Copyright Violations
Social networking Web sites can be hotbeds for copyright violations. The owner of a copyright has the exclusive right to do and authorize any of the following: reproduce the work, prepare derivative works, distribute copies of the work, perform the work publicly, and display the work publicly. In the event that any one of a copyright owner's rights is infringed, the law provides for criminal sanctions and civil liability against the direct infringer. Traditionally, the law also provides that a copyright owner may be able to recover civil damages from social networks hosting an infringing work—in lieu of the direct infringer—under the theories of "contributory infringement" or "vicarious liability." Recognizing the need to address modern copyright issues, Congress enacted the Digital Millennium Copyright Act (DMCA) in 1998. The DMCA provides a safe harbor to "service providers" (e.g., social networks), protecting them from secondary criminal and civil liability. Under the DMCA, social networks will be held harmless so long as three conditions are met: (1) lack of actual knowledge of infringement, or lack of awareness of facts or circumstances from which infringing activity is apparent; (2) lack of financial benefit directly attributable to the infringement, where the service provider has the right and ability to control such activity; and (3) expeditious takedown of infringing material after notice has been appropriately given.

Viacom and YouTube are currently litigating over the appropriate application of these provisions to social networking Web sites. In early 2007, Viacom brought a lawsuit against YouTube in the U.S. District Court for the Southern District of New York for copyright infringement, seeking damages of $1 billion. Viacom claims that a large portion of the videos displayed on YouTube are copyrighted materials. Of particular concern to Viacom—parent of MTV and Comedy Central, among other media outlets—is the public performance, display, and reproduction of approximately 150,000 allegedly infringing video clips on the YouTube Web site. Specifically, Viacom has alleged that YouTube has knowingly engaged in, promoted, and induced infringement for the purpose of profiting from the illegal conduct of others. In determining the outcome of this case, the court will decide on the application of secondary liability for copyright infringement and the protections of the DMCA as they apply to social networking Web sites.

Copyright law in the social networking context remains in flux because courts are facing difficult issues arising out of rapidly advancing and evolving technology. The ease with which Internet users are able to distribute copyrighted information has dramatically increased the prevalence of copyright infringement. Copyright law is being stretched to its limits in order to determine how best to protect copyright holders as well as Internet Web sites that merely host information. Thus, until a resolution is reached, a Web site operator should take extra precautions to ensure protection under the safe harbor provisions of the DMCA. To accomplish this end, social network operators should draft a EULA that accomplishes dual purposes: (1) prevent direct infringement of users and (2) take appropriate measures upon discovery of infringement. To prevent direct infringement, operators should warn users of possible civil and criminal consequences of uploading copyrighted material. If individual users are found to repeatedly violate copyright policies, the EULA should warn that users will be prevented from future use of the social network. The EULA also should name an agent charged with the responsibility of receiving notice and initiating the prompt takedown of infringing material pursuant to the DMCA. Lastly, it is best that social networks refrain from placing any profit-generating advertisements in the same place where copyright violations occur. Drafting an EULA with this two-prong approach in mind will be helpful in crafting an agreement that will provide a solid defense to copyright infringement attacks under secondary liability theories.

Trademark Violations
A trademark encompasses virtually anything—word, number, name, nickname, phrase, symbol, device, logo, color, sound, scent, or design—that is used by a company to identify its goods or services, and to distinguish them from goods or services manufactured by others. The owner of a trademark may generally exclude subsequent users from using that mark or a confusingly similar mark for the same or related products or services. If another company uses a confusingly similar mark on the same or related products or services, the trademark owner can file a claim for trademark infringement, which requires a showing that there is a "likelihood of confusion" between his trademark and the allegedly infringing mark. An owner of a "famous" trademark also has the ability to protect against the use of his mark on any product or service that dilutes its distinctive quality either through blurring or tarnishment of the mark. This is called trademark dilution.

Due to the nature of content generated by social networking Web sites, it is difficult, if not impossible, for a social networking Web site to weed out infringing trademark usage by users. Similar to secondary liability for copyright infringement, social networks may be open to attack under the theory that the network is allowing its users to engage in trademark infringement and dilution on the network. However, the Lanham Act provides a safe harbor for social networking Web sites—so long as the social network is an "innocent infringer." To qualify as an innocent infringer, the social network must establish that (1) it did not actively induce nor participate in the infringement and (2) it did not have specific knowledge of its users' infringement.

The innocent infringer defense was examined by a federal district court in California when eBay was sued by a trademark owner, who claimed that eBay was allowing users to display pictures and sell pirated copies of his movie through the Web site. Hendrickson v. eBay, Inc., 165 F. Supp. 2d 1082 (C.D. Cal. 2001). The court held that eBay qualified as an innocent infringer because it did not actively induce or participate in infringement and it did not have specific knowledge of its users' infringement. Perhaps more significantly, the court refused to place an affirmative duty on eBay to monitor and remove future infringing advertisements on its Web site.

Practically, the significance of the eBay decision is that it shifts the burden of finding infringing marks posted on social networking Web sites to the owner of the trademark. This interpretation has the effect of creating a trademark safe harbor for social networking Web sites that largely follows the procedures of the DMCA. Like the DMCA, it is important to realize that the innocent infringer defense does not absolve a Web site from all secondary trademark liability. It remains critical to include provisions in the EULA that track the safe harbor provisions of the Lanham Act. EULAs should contain language that prohibits the unlawful use of trademarks on the Web site and reserves the right of the Web site to block repeat offenders. It is also recommended that the Web site describe specific notice and takedown procedures.

Defamation
Defamation is the publication of a false statement about another that causes harm to reputation. The ability of users on social networking Web sites to blog, comment, and message provides plenty of opportunities to publish false statements that damage the reputation of their targets. Users may be directly liable for the comments they post, but absent statutory immunities, social networking Web sites could be held liable for publishing those defamatory comments. Fortunately, federal law broadly protects Web sites that merely distribute (as contrasted with authoring) information created by a third party from liability for defamation. The issue confronted by social networking Web sites is determining where they fall within the publisher-distributor spectrum.

Early case law found Internet service providers (e.g., social networks) to be more analogous to publishers than distributors, thus holding them liable under the same standards as the author himself. Congress responded with the Communications Decency Act (CDA), which provides a safe harbor from defamation claims to social networking Web sites so long as (1) the defendant is a provider or user of an interactive computer service, (2) the asserted claim treats the defendant as a publisher or speaker of information, and (3) the challenged communication is information provided by another information content provider. For a social network to shelter itself under the CDA, it is critical to avoid being classified as an "independent content provider."

Surveying recent court decisions, CDA immunity has extended even to those exercising significant editorial control over Web site content. However, the case law is fairly sparse and fact-specific, making it difficult to articulate a clear standard differentiating the roles of editor and publisher. As a general matter, providers typically will not lose their immunity if they merely exercise some control over the posting of information by others, such as enforcement of rules as to appropriate content or minor editing. Nor will they lose immunity by merely facilitating expression of information by individual members. However, it is unclear whether a social networking Web site would have CDA immunity if it influences Web site content by posing particular questions for individual members' response. See, e.g., Fair Housing Council v. Roommates.com LLC, 521 F.3d 1157 (9th Cir. 2007), aff'd en banc, 2008 (9th Cir. Apr. 3, 2008) (finding that Roommates.com was an information content provider under the CDA because it posted users' responses to questions that the Web site developed, which encouraged users to state discriminatory preferences).

Many Web sites provide mechanisms for users to redress defamatory statements (e.g., giving users the ability to delete comments), while not affirmatively assuming the responsibility of controlling content. The best advice for social networks regarding CDA immunity is to seek the counsel of an attorney in order to define the appropriate parameters for editorial conduct based on the specific nature of their businesses.

Tread Wary
Social networking is the today and the tomorrow of the Internet. By allowing users to generate content published on social networks, the Internet is both creating new legal issues as well as putting a new spin on old issues. The legal considerations discussed here represent some of the most prevalent legal issues facing today's social networking Web sites. With billions of dollars at stake, there is great value in discovering your own company's social networking tools and adopting policies and procedures that help protect it from plausible attacks.

Viscounty and Archie are partners at Latham & Watkins LLP. Their e-mails are perry.viscounty@lw.com and jennifer.archie@lw.com. Alemi and Allen are associates at the firm. Their e-mails are farnaz.alemi@lw.com and jenny.allen@lw.com. The authors would like to thank associate Scott Akamine for contributing to this article.

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