[Post by Venkat Balasubramani]

PhoneDog v. Kravitz, No. C 11-03474 MEJ (N.D. Cal.) (Amended Complaint) (Motion to Dismiss) (PhoneDog Opposition) (Kravitz’s Reply)

In November, the court allowed PhoneDog’s claims against Kravitz for conversion and trade secrets to proceed. In its initial order, the court rejected PhoneDog’s interference with economic advantage claim because it was muddled and didn’t clearly specify what economic relationship PhoneDog alleged Kravitz allegedly interfered with.

PhoneDog filed an amended complaint, clarifying its economic interference arguments (or trying to at least). Kravitz moved to dismiss the amended claims. (I’ve linked to the pleadings above.) PhoneDog claims that it had an economic relationship with the followers of Kravitz’s Twitter account, so Kravitz taking the account disrupted this relationship. PhoneDog also claims this affected its relationship with “existing and prospective advertisers” on PhoneDog’s website. Finally, PhoneDog argues that Kravitz interfered with its economic relationship with CNBC and Fox News by continuing to contribute to programs on these channels after he left PhoneDog. Regardless of how the court rules on the economic interference claims, the conversion and trade secrets claims will continue (for now).

For what it’s worth, although I don’t know the precise contours of economic interference claims under California law, PhoneDog’s claims look tenuous — especially the one about the disruption of economic relationship between PhoneDog and the followers of Kravitz’s Twitter account. In the usual scenario, there’s no real economic relationship between an account and followers. People follow because they are interested in information. It’s not like anyone is charging their followers — i.e., typically there’s no money changing hands between an account and followers. (I assume some sort of direct economic relationship (or expectation) is required to bring a claim, but the court’s order isn’t overly specific on this point.)

Another thing to consider is that the account/follower relationship is dynamic. If people don’t like what they hear from an account or they don’t like a change in voice, they can unfollow — instantly and at no cost. The core of the economic value, if any, is in the ongoing content and the voice. PhoneDog also argued Kravitz continuing to use the Twitter account was a disruption of its relationship with advertisers, but I’m skeptical that PhoneDog will be able to show that advertisers on its website cared about the Twitter follower numbers. It may be true that traffic to the website diminished and, as a result, PhoneDog generated less revenues from advertising, but that shouldn’t amount to Kravitz’s interference with PhoneDog’s relationship with its advertisers.

After the court initially ruled on Kravitz’s motion to dismiss, another court (in Pennsylvania) issued its order in the LinkedIn case, where the court held that an employer may be able to maintain a claim for misappropriation of LinkedIn contacts based on the “misappropriation of idea” theory of misappropriation. That order didn’t cleanly resolve the claims over ownership of the LinkedIn account, but it does take a pretty dim view of the economic interference claim based on Dr. Eagle’s continued use of her LinkedIn account. (“Edcomm failed to point to “one potential contract that would . . . have materialized” absent Eagle’s alleged interference.”) As WSJ’s Law Blog notes, Kravitz filed a copy of this ruling as supplemental authority and requested the court to take judicial notice of it.

Interestingly, in Eagle, the court notes that a password can’t be a trade secret because it’s not something that a competitor can derive economic value from. This should be equally applicable to PhoneDog’s argument that Kravitz misappropriated trade secrets by continuing to use the Twitter account. A Twitter account shouldn’t be a trade secret. But the court already allowed the claim to go forward, and Kravitz is going to have to raise this in a summary judgment motion.

I previously expressed some skepticism about PhoneDog’s case, but I’m even more skeptical now. I also question whether it was really in PhoneDog’s interest to sue Kravitz over this. Was it really worth PhoneDog’s expenditure of energy and fees to try to get back the Twitter account? Also, public sympathies have mostly tilted towards Kravitz. Kravitz has experienced a media bonanza as a result of this lawsuit and has gotten (mostly favorable) press coverage in a variety of different outlets, including the New York Times. Kravitz continues to Tweet, and he has taken a few opportunities to poke PhoneDog over its claim that each follower was worth $2.50 per month. His Twitter bio even says “People are not property. Love over gold.” People overall seem sympathetic to Kravitz’s side of the story. Someone even set up a “Save Noah” website and Twitter account. The net result of PhoneDog’s lawsuit so far is a personal branding bump for Kravitz.

I’m not seeing a clear parth to victory for PhoneDog here (and more likely I’m guessing the case settles), but in the unlikely event PhoneDog wins control over the Twitter account, it will be interesting to see if the followers unfollow the account en masse.

[Post by Venkat Balasubramani]

I’ve posted on the FTC endorsement guidelines, which broadly require disclosure of relationships, and incentives provided to those who endorse products or companies. (See “FTC Cracks Down on Misleading Online Endorsements by Affiliates.”) The FTC recently closed an investigation on Hyundai, whose marketing agency gave bloggers gift certificates as an incentive to “incline links to Hyundai videos in their posts and/or to comment on . . . forthcoming Super Bowl ads.” You can access a copy of the FTC’s closing letter here [.pdf].

The FTC provided two reasons for why it closed the investigation into Hyundai’s promotions.

1. Hyundai did not know in advance about the incentives, which were offered by an employee of Hyundai’s marketing agency.

2. Offering an incentive to post about or endorse a Hyundai product was contrary to the social media policies of both Hyundai and its marketing agency.

The FTC’s reliance on the social media policies of Hyundai and its marketing agency is interesting and yet another data point in favor of adopting a social media policy. The FTC’s press release provides some additional details as to its rationale and guidance for companies who use social media in their marketing efforts. The FTC recommends following the “3Ms” principle:

1. Mandate a disclosure policy that complies with the law;

2. Make sure people who work for you or with you know what the rules are; and

3. Monitor what they’re doing on your behalf.

Check out the FTC’s release, which provides guidance to companies who use social media in their marketing.

[Post by Venkat Balasubramani]

Laws governing SMS spam are stringent, and marketing via text messages is among the riskiest type of marketing.

If you obtain a list of phone numbers and send out text messages to these numbers, this can create liability under the Telephone Consumer Protection Act, which courts have held cover text messages, as well as phone calls. Unlike email marketing — where if you send out a non-misleading message with valid opt-out methods and honor those opt-outs you face limited risk — in the realm of text message marketing, the law is not so friendly to marketers.

Consent has to be unequivocal in order to preempt an argument that text spam violated the TCPA. Consider a recent lawsuit involving Citibank. The plaintiff first alleged that he included his cell phone number in a Citibank credit card application. He later revised his pleading to say that he contacted Citibank “by phone” to ask about the possibility of a credit card. Citibank sent him two messages. The first said:

Citibank Cards needs to talk with you regarding your recent application. Please call 866-365-8962. To Opt-Out reply STOP.

The plaintiff replied “STOP” and Citibank sent a confirmation message:

Per your request you will no longer receive text alerts from Citi Cards Credit Dept. If you have any questions call 866-365-8962.

Despite the text message clearly relating to a credit card application, and despite Citibank apparently honoring the plaintiff’s opt-out request, Citibank may still be on the hook. It’s unclear as to whether plaintiff will ultimately recover (Citibank may put forth evidence sufficient to show that plaintiff consented). Nevertheless, the fact that the court did not dismiss the lawsuit at the initial stage is a good indication of how risky text-based marketing can be.

The case is Ryabyshchuk v Citibank.

[Post by Venkat Balasubramani]

In the same way that people put things in emails without realizing that such information can be obtained in the course of a lawsuit or may otherwise come to light, people do the same thing with their posts to social networks. Facebook is a prime example, and another litigant recently found out that courts do not hesitate to allow an opponent to discover the details of their Facebook page.

Keith and Jessica Largent were involved in an accident in 2007. They sued the other drivers. During Ms. Largent’s deposition, defense counsel realized that Ms. Largent had a Facebook profile and she “used it regularly to play a game called FrontierVille.” Largent refused to turn over any information about the account, and defense counsel asked the court to force her to do so.

Largent argued that granting her opponent access to her Facebook account was akin to “asking her to turn over . . . her private photo albums and requesting to view her personal email,” and would cause embarrassment and annoyance. The court rejects these arguments, and forces Largent to turn over the account password.

In the course of the opinion, the court makes a statement that highlights a misconception about social networking and evidence:

Only the foolish or uninitiated could believe that Facebook is an online lockbox for your secrets.

This is true. In fact, if you had a diary where you wrote down your thoughts, this would probably be discoverable in litigation. The other side would have to make a “good faith” argument that what’s contained in the diary is relevant to the dispute, and given the type of information that most people commonly write in their diaries (their innermost thoughts), this should not be difficult.

Of course, if you had a diary, the other side may not find out about its existence in the first place, but this is much less of an issue when it comes to Facebook or another social networking profile. (Note: accessing Facebook through someone else’s user profile is a violation of Facebook’s terms of use, but that does not stop this particular judge from ordering the password turned over.)

More about the case from law.com (No Reasonable Expectation of Privacy on Facebook, Pa. Judge Says) and a link to the ruling here: Largent v. Reed, 2009-1823 (Pa. Ct. of Common Pleas; Nov. 8, 2011).

[Post by Venkat Balasubramani]

I did my first podcast, with Mike Reitz of the Supreme Court of Washington Blog (published by the Freedom Foundation): “Honk if you love free speech.”

I’ve never done a podcast before, and Mike was a great host. We talked about State v. Immelt, a case where the Washington State Supreme Court struck down a Snohomish County noise ordinance which prohibits horn honking except when the honking is done for public safety or as part of a public event.

Check out the podcast here. Also, check out the excellent Supreme Court of Washington blog. It’s a great resource for following the Washington State Supreme Court.

Of course, you can also follow Mike on Twitter.