A recent US district court decision in a lawsuit brought by Facebook and Instagram carries important lessons for counsel in the drafting and negotiation of survival clauses—clauses that purport to extend the operative effect of contractual obligations beyond the termination or expiration of the relationship.
Meta Platforms, the owner of both sites, brought a breach of contract action against Bright Data, alleging that Bright Data violated online terms of service and use by scraping (anonymized) user data and selling access to analysis of it. The terms of both sites prohibit the collection of user data via automated means and the selling of such data.
In adjudicating cross motions for summary judgment, the district court held that the Facebook and Instagram terms do not prohibit logged off public data scraping even during periods when the scraper has an account. More importantly, scraping after termination of such accounts, the court ruled, was likewise not prohibited—despite the existence of a survival clause that purported to extend the applicability of the anti-scraping clauses beyond termination of the user’s accounts.
The survival clause in question stated, “If you delete or we disable or delete your account, these Terms shall terminate as an agreement between you and us, but the following provisions will remain in place …,” listing sections among which included provisions prohibiting the automated collection and sale of user data.
The court cited caselaw for the proposition that perpetual obligations are disfavored. The court moreover accepted Bright Data’s characterization of the clause as being ambiguous. The survival clause operated to preserve breach claims brought post-termination for actions that violated the terms prior to termination, the court held, but did not with sufficient clarity operate to impose prohibitions on otherwise permissible conduct post-termination. Absent terms to the contrary, the purpose of the survival clause is to “address enforcement of claims arising from pre-termination conduct, not to create lifetime bans for conduct unrelated to parties’ contractual relationship.”
The lawyers of Redline have posed strategies and clauses to further the objective that Facebook and Instragram were pursuing. Engage the debate here.
If your client is in the business of providing value in exchange for payment, whether the consideration offered is goods, services, licenses to IP, data, expertise, or anything else, there are certain must-have clauses that your client’s agreement should carry in order to maximize payment leverage and enforceability.
In many cases, customers fail to pay, not because of a legitimate good faith dispute with the vendor or the value exchanged, but because they are insolvent, or suffering poor cash flow, or are prioritizing some vendors over others, or have simply regretted the deal made (ie classic buyer’s remorse) — or worse yet, are in the habit of routinely chiseling or slow-paying vendors.
The lawyers of Redline have put together checklists of clauses aimed squarely at such customers–provisions that will serve your client well in the scenario in which your client is not getting paid for no good reason.
Often one party to a contract is allowed to act only with the consent of the other party, “not to be unreasonably withheld.”
A common context in this regard is the right to assign an agreement. The language used is typically, “[Party A] may not assign this Agreement without the consent of [Party B], such consent not to be unreasonably withheld.”
So what happens if Party B unreasonably withholds consent? Does the refusal then automagically become consent, such that Party A is free to assign away?
In other words, is the “such consent” proviso a condition to the right to assign? Or is the refusal of consent a breach of contract on the part of Party B but otherwise provides no meaningful remedy for Party A? After all, what would the damages be for breach of the reasonableness obligation?
Redline is a dynamic collaboration environment for a select cadre of lawyers worldwide, and a powerful knowledge management platform.Watch the trailer Lawyers with Mojo or click here to learn more.
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The intended audience for this post is licensed and practicing lawyers, not laypersons seeking legal advice for their situation. If you are not a lawyer, hire one before using or relying on any information contained here. This post is: (1) informational only and not intended as advertising or as solicitation for legal services, (2) not intended to render legal advice to you, and (3) not a substitute for obtaining legal advice from a qualified attorney to assess your exact situation. The information here is subject to change and may not be applicable or correct in your jurisdiction.
Genius crowdsources song lyrics by soliciting individual contributors to post their interpretations of the words they hear in songs. Google rather blatantly copied Genius’ crowdsourced lyrics for display at the top of Google search results, as proven by Google’s replication of Genius-coded digital watermarks. Genius alleges violation of the Genius Terms of Service which plainly forbid that which Google did. Genuis claims a massive drop in ad revenue caused by a plummeting of the numbers of users visiting the Genius sites as a result of Google’s actions.
Genius brought breach of contract and unfair competition claims against Google in New York state court. Google sought removal to federal court, claiming that Genius’ claims are redressable only via copyright, and only US district courts have jurisdiction for copyright claims. The US District Court for the Eastern District of New York granted the motion to remove the case from state court, refused remand, and promptly dismissed the claims with prejudice, on grounds of copyright preemption.
The Second Circuit Court of Appeals, in an unpublished opinion (ML Genius Holdings LLC v Google LLC, 2022), affirmed the ruling, and in the process called into question the enforceability of any contract governing the supply or exchange of data or information.
The appellate court did so on the basis of US Copyright Act statutory preemption, citing section 301 of the US Copyright Act. This statute mandates that any state law claim or cause of action which is “equivalent to any of the exclusive rights” of copyright is preempted and abolished. The appellate court held that the prohibition in the Genius ToS on the copying of song lyrics isn’t “qualitatively different” from a copyright claim, thus rendering the ToS completely unenforceable.
Under this reasoning, a claim for breach of a non-disclosure agreement would not be qualitatively different from a copyright claim, either. And if the information at issue is not copyrightable, there’s nothing that can be done to prevent or remedy the misuse of that information. In the words of Professor Rub: “It would be absurd for a court to say that a corporate nondisclosure agreement about sensitive financial data is void because the contract prevents the copying or reproduction of that data.”
Five other US circuit courts of appeal had held that a breach of contract claim is not preempted, due to the “extra element” of mutual consideration upholding the promised exchange. This required element of any breach of contract claim renders the claim not “equivalent” to a copyright claim.
Genius has petitioned the US Supreme Court to hear an appeal. Because of the circuit split, chances are decent that the Court will hear it.
In the meantime, avoid designating New York (or Connecticut or Vermont) law or courts in your confidentiality agreements. If the claim is based on the unauthorized use, reproduction or distribution of information, data, or works, the claim rises or falls exclusively as a matter of copyright. Contract law ceases to matter if the subject matter of the contract is content.
Further strategies and workaround clauses in this context can be found here at Redline.
Redline is a dynamic collaboration environment for a select cadre of lawyers worldwide, and a powerful knowledge management platform.Watch the trailer Lawyers with Mojo or click here to learn more.
The intended audience for this post is licensed and practicing lawyers, not laypersons seeking legal advice for their situation. If you are not a lawyer, hire one before using or relying on any information contained here. This post is: (1) informational only and not intended as advertising or as solicitation for legal services, (2) not intended to render legal advice to you, and (3) not a substitute for obtaining legal advice from a qualified attorney to assess your exact situation. The information here is subject to change and may not be applicable or correct in your jurisdiction.
Nearly all NDAs and confidentiality provisions exclude from the confidentiality and restricted use obligations information that is or becomes “public,” “publicly available,” or “publicly known.”
Contract drafting guru Ken Adams has given his imprimatur to the “is or becomes public” formulation. His preferred version of this exclusion is any information that is “already public when the Disclosing Party discloses it to the Recipient or becomes public (other than as a result of breach of this agreement by the Recipient) after the Disclosing Party discloses it to the Recipient.”
But is the “public” characterization the appropriate standard when it comes to the protection of trade secrets? The Uniform Trade Secrets Act defines a trade secret as any information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.”
The relevant standard is whether the information is known, not among the general public, but among those who can derive value or advantage from its use or disclosure—that is, competitors. This can be quite a narrow group indeed; much narrower than the “public.”
For example, in the recent case of Masimo Corp. v. True Wearables, Inc. (Fed. Cir. 2022), the Federal Circuit Court of Appeals affirmed the district court’s determination that an algorithm for determining optimizations for various medical devices was likely a protectable trade secret—notwithstanding that the algorithm had been the subject of a IEEE conference paper, cited 1200 times, and had been disclosed in statistics textbooks since the 1960s.
The fact that the trade secret has been revealed in some publication somewhere does not necessarily compel a finding that the information cannot maintain its status as a trade secret for a party in an entirely different field from the one to which the publication was addressed.
We need not decide the precise boundaries of the class of persons who could obtain economic value from the disclosure of the [algorithm]. In analogous cases, such persons have been described as those falling within the class of ‘business competitors or others to whom the information would have some economic value.’
Continuing a line of inquiry that demonstrates how most NDAs fail to adequately protect trade secrets (eg here, here, and here), the lawyers of Redline have proposed a new articulation of this confidentiality exception, along with redlined variations. Enter the fray here.
The intended audience for this post is licensed and practicing lawyers, not laypersons seeking legal advice for their situation. If you are not a lawyer, hire one before using or relying on any information contained here. This post is: (1) informational only and not intended as advertising or as solicitation for legal services, (2) not intended to render legal advice to you, and (3) not a substitute for obtaining legal advice from a qualified attorney to assess your exact situation. The information here is subject to change and may not be applicable or correct in your jurisdiction. The views and opinions expressed here are Sean’s alone and do not necessarily represent the positions of Sean’s present or former employers, law firms, or clients.
