In Shimali, & c. v. The Real Estate Group of New York, Inc., et al., the plaintiff alleged that the defendant, a competitor, published defamatory UGC about the plaintiff, intentionally highlighted the UGC by moving it to a separate post, and then added its own defamatory comments and an illustration related to the original UGC. According to the New York Court of Appeals, the plaintiff did not become a content provider simply by re-posting and providing a forum for further commentary, for that is “well-within a ‘publisher’s traditional editorial functions.’”  Similarly, encouraging negative commentary did not make the web operator a content provider because creating “an open forum for third-parties to post content – including negative commentary – is at the core of what Section 230 protects,” although the court indicated the outcome might be different had the defendant required negative comments as a condition of use. The court found that the plaintiff did author the additional comments and illustration accompanying the UGC post, but determined such content was not defamatory as a matter of law.

Despite a split 4-3 decision in the case and a strong dissenting opinion, the court believed it was following “national consensus” by interpreting the CDA to immunize web operators from liability for UGC “wherever such liability depends on characterizing the provider as ‘publisher or speaker’ of objectionable material” and to bar suits “seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions – such as deciding whether to publish, withdraw, postpone or alter content.”

So what does this mean for web operators who not only welcome but intentionally highlight posts that may be derogatory and potentially defamatory? It seems that as long as posting a negative comment is not a condition of use and the web operator does not have a hand in authoring or materially developing he content, web operators are immune from liability under the CDA, even if they take editorial liberties in publicizing the negative content. At least in New York. We’ll have to see if that is in fact the “national consensus” elsewhere.

Numerous lawsuits against Groupon raise the question of the applicability of state and federal gift certificate/gift card laws to non-traditional gift certificates/cards, such as pre-paid vouchers like Groupon vouchers.

There are at least 9 cases pending against Groupon, and the key issue is whether the Groupon voucher is a gift certificate/gift card – which might vary by state/federal statutory definition. If the Groupon voucher is determined to be a gift certificate/gift card, then Groupon may be in violation of the applicable law’s prohibition or restriction on expiration dates.

Interestingly, these lawsuits are being filed even though Groupon has a policy that once the Groupon voucher expires, the retailer must honor the Groupon voucher for the value paid, as required by applicable law (for instance, Illinois law prohibits expiration of gift certificates for 5 years). For example, on June 1, 2011 you bought a Groupon voucher for $5.00 that gives admission to an Illinois museum anytime until August 31, 2011. The normal museum admission fee is $15. If you go to the museum after August 31, 2011, but before June 1, 2016, the museum could deny your entry to the museum with the voucher, but under the Groupon policy, the museum should deduct $5 from the regular admission fee (thus you tender your Groupon certificate plus $10 to gain entry to the museum). Essentially, the Groupon policy is meant to permit the “bargain” to expire, but ensure that you do not lose the original amount you paid. If the establishment refuses to honor the purchase price, Groupon’s current policy is that it will refund the purchase price to you directly.

In addition, Groupon currently has a customer-friendly refund policy that states that Groupon will refund your purchase price if you are unsatisfied with your Groupon experience for any reason.

And yet, in the face of all these Groupon policies, the lawsuits continue.

In light of the lack of clarity on the applicability of many of the gift certificate/gift card laws to pre-paid vouchers, until case law or statutory updates clarifiy the definition of gift certificates or gift cards, we advise against using expiration dates that would violate the applicable laws for gift certificates and gift cards.

February 8, 2011 — “Simply stated: labels matter.” So reasoned the California Supreme Court in a recent opinion that will undoubtedly result in an increase in the number of unfair competition and false advertising suits in California.

The Court held that consumers who purchase a product in reliance on a false claim have standing to sue the manufacturer under California’s unfair competition and false advertising laws, even if the product was not defective, overpriced or of inferior quality.  Kwikset Corporation v. Superior Court of Orange County, No. S171845 (Cal. Sup. Ct. Jan. 27, 2011). 

The case is an important interpretation of Proposition 64, which was approved by the California electorate in 2004 in an attempt to rein in such litigation.  Prop. 64 tightened the standing requirements for private individuals under both the state’s unfair competition and false advertising laws.  Where previously private suits could be brought by “any person acting for the interests of itself, its members or the general public” – basically, acting as a private attorney general – Prop. 64 limits standing to individuals who have suffered an injury in fact and lost money or property as a result of the defendant’s unfair business practices or false advertising.

In the Kwikset suit, plaintiff James Benson alleged that Kwikset falsely labeled locksets containing foreign-made components as “Made in the USA.”  The trial court entered judgment for Benson.  On appeal, the Fourth District Court of Appeal directed the trial court to enter a judgment dismissing the action, finding that Benson had failed to plead any loss of money or property as required by Proposition 64.  The Court of Appeal found that the plaintiff could not show economic injury because, while he had spent money on his purchase, he had received a fully functioning lockset in return and therefore received the benefit of his bargain. 

The Supreme Court reversed, finding that the economic injury required by Prop. 64 is not confined to products with objective, functional defects.  “The marketing industry is based on the premises that labels matter, that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source.”  The Court inferred that consumers who rely on a “Made in the USA” label in making a purchase value “what they actually received less than either the money they parted with or working locksets that were actually made in the United States.” Accordingly, the high court held that a consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy Prop. 64 standing requirements by alleging that he or she would not have bought the product but for the misrepresentation.

The Court also indicated that its ruling would not be limited to “Made in the USA” claims:  “Whether a particular food is kosher or halal may be of enormous consequence to an observant Jew or Muslim.  Whether a wine is from a particular locale may matter to the oenophile who values subtle regional differences.  Whether a diamond is conflict free may matter to the fiancée who wishes not to think of supporting bloodshed and human rights violations each time she looks at the ring on her finger.  And, whether food was harvested or a product manufactured by union workers may matter to still others.”

While the plaintiffs’ bar is certain to be pleased with the Supreme Court’s decision, businesses, and the California courts, should brace themselves for a spate of litigation in its wake.

(a) lottery is any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property…The Get Rich With Trump complaint alleges that because viewers are paying for a chance to win a prize, the promotion violates Georgia law.Section 16-12-20(4) of Georgia Code states:”Lottery” means any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize…

However, the statute goes on to state:

A lottery shall not mean … a promotion giveaway or contest which conforms with the qualifications of a lawful promotion specified in paragraph (16) of subsection (b) of Code Section 10-1-393…Section 10-1-393 (b) states:By way of illustration only and without limiting the scope of subsection (a) of this Code section, the following practices are declared unlawful:(16) Failure to comply with the following provisions concerning promotions:(c) A promotion shall be a violation of this paragraph if a person is required to pay any money including, but not limited to, payments for service fees, mailing fees, or handling fees payable to the sponsor or seller or furnish any consideration for the prize…in order to receive the prize

Legitimate consumer sales promotions generally contain two methods of entry. The first method is combined with the consumer’s purchase of a good or service. Included in that purchase is an entry into the game promotion. But, the amount paid by the consumer is strictly for the good or service, not for entry into the game. The second method of entry, known as the alternative free method of entry, allows the consumer to obtain an entry (or entries, in keeping with equal dignity to the purchase method) without making a purchase (and no good or service is received when the free method is utilized).The argument in cases such as The Lucky Case Game and Get Rich With Trump is that no good or service is purchased. Rather, the viewers are simply purchasing a chance to win a prize. Although there is a free method of entry for the chance to win the prize, this method does not negate the fact that some people are paying for their chance to enter and win, which constitutes illegal gambling.The defense to such charges is that viewers are in fact paying for a good or service when they text into the show… the good or service being the entertainment value or input value associated with the text. Such a defense might make sense in the Get Rich With Trump case where the text includes a vote for a contestant as well as an entry into the promotion. However, since the free entry method in the Win with Trump promotion included a vote as well as an entry into the promotion, the argument is weakened.What do these pending cases mean for promoters, and how do promoters seeking to keep up with current technology, when running a legitimate sales promotion, avoid the risks presented in these types of promotions? Since the cases are pending, and laws vary from state to state, there are no clear and definitive answers. But, some things to consider in avoiding the pitfalls encountered by the defendants in the Lucky Case Game and Get Rich With Trump include:

1. Do not include a premium text fee for test message entries. Arguably, the standard text message fee is akin to the fees one pays for standard telephone access, which does not go to the sponsor, and is therefore arguably not payment for a chance to enter the promotion.
2. Make sure the method of entry involving a payment includes a good or service in exchange for the payment, and that such good or service is not included in the free method of entry. But note, the payment should be reasonable for the value of the good or service. If the price for the good or service is increased above the customary price, then the entry arguably is not fee with the purchase.
3. The free method of entry in any promotion should be disclosed as frequently as the purchase method of entry, and such disclosure should be prominent.