Sign Up
Stay current with GH&R Newsletters. Click here to sign up.
E-Commerce News
"Safe Auction" Claim Not Immune Under CDA; Proposed ValueClick Settlement is Record Setter
May 13, 2008
"Safe Auction" Claim Not Immune Under CDAA California based federal trial court recently ruled that eBay cannot invoke the immunity provided by Section 230 of the Communications Decency Act to ward off claims that eBay failed to provide a safe auction, despite its affirmative guarantee to do so.
According to the court, eBay's statement made it a content provider under the CDA, and therefore, ineligible for CDA protection.
Michelle Mazur, the plaintiff in the case, participated in eBay's "live auction" program, through which eBay users bid on merchandise at auction houses in real time through the Internet.
Before the start of the live auction, Mazur was presented with eBay's description of the program, and was required to agree to eBay's terms and conditions.
eBay's description of the program states that "Bidding on eBay Live Auctions is very safe. All live auctions are run by reputable international auction houses, which are carefully screened by eBay before being authorized to sell to you."
After accepting the terms, Mazur entered the live auction site of co-defendant Hot Jewelry Auctions. Dissatisfied with the HJA auction experience, Mazur filed suit, claiming that HJA was entertaining shill bids, among other bad acts.
Mazur claimed that eBay’s promise of a "safe" auction constituted fraudulent misrepresentation. eBay moved to dismiss, arguing, among other things, that it was immune from liability under CDA § 230.
§ 230 of the CDA states that "[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."
The court held that eBay was initially eligible for CDA immunity because eBay was an "interactive computer service" provider. But eBay's guarantee – that third party sites were safe – was not "provided by another information content provider." Rather, it was provided by eBay itself.
The court found it significant that: "eBay unequivocally stated, of its own volition, that live auctions were 'safe.' " This unequivocal statement distinguished this case from a previous action where the court granted eBay immunity under the CDA for alleged harm caused by user ratings and endorsements. Although eBay created and published these ratings and endorsements, they were fueled by third-party user input. The same was not true here--there was no outside influence to eBay's claims of site safety.
eBay also argued that its statements would have been true but for HJA's bad acts. eBay argued that, because it had no control over HJA's actions, CDA immunity should apply.
In making this argument, eBay cited a previous case where an adult networking site made an affirmative representation on its site that all of its users were over 18. When it turned out that some were not, the court granted the site CDA immunity.
In that case, however, immunity was based largely on the court's understanding that the statement was only a retelling of facts submitted by users. All prospective users had to check a box warranting that they were over 18. Additionally, the site provided an explicit disclaimer stating that it had no way of verifying the actual age of its users.
In the case before it, though, the court found that eBay was not regurgitating facts or safety statistics provided by HJA, and it offered no disclaimer.
eBay may have been better off in this case had it said nothing. The lesson? Silence is golden, even though you can't buy it on eBay.
Proposed ValueClick Settlement is Record Setter
Online advertiser ValueClick, Inc. would pay $2.9 million and refrain from offering "free" products to consumers without disclosing the costs and obligations required, if a federal court in California accepts a proposed settlement between ValueClick and the Federal Trade Commission.
The 2.9 million represents "a record" recovery in this area.
According to the FTC, ValueClick (and its subsidiaries Hi-Speed Media and E-Babylon) used deceptive e-mails, banner ads, and pop-ups to encourage consumers to visit their Web sites. The advertisements offered "free" gifts, including laptops, iPods, and high-value gift cards.
But in operation, once a consumer visits the Web sites to obtain the "free" products, he or she is required to "complete" or "participate in" several third-party promotions to qualify for the promised free merchandise – at the consumer's expense. In some cases, for example, consumers needed to apply and qualify for credit cards or automobile loans.
The advertisements didn’t disclose clearly and conspicuously that consumers would incur costs and obligations to obtain the "free" products.
The FTC alleged this conduct violated FTC Act § 5 and the CAN-SPAM Act by using deceptively labeled e-mail offering free gifts but failing to disclose that consumers must expend substantial sums of money to obtain the promised "free" merchandise.
To make matters worse, ValueClick and its subsidiaries allegedly misrepresented that they secure customers' sensitive financial information consistent with industry standards. But the FTC noted that a number of the defendants' Web sites "were vulnerable to SQL injection, a commonly known form of hacker attack, contrary to claims that the companies implemented reasonable security measures."
Pursuant to the proposed settlement, future ads and promotional Web pages must disclose clearly and conspicuously the financial obligations associated with qualifying for "free" merchandise. The Web sites must provide a list of the obligations that consumers must incur to qualify for a free product--including applying for credit cards, purchasing products, or obtaining car loans.
ValueClick and the subsidiaries also must refrain from making misrepresentations about the use of encryption or other electronic measures to protect consumers' information. In addition, the companies would be required to establish and maintain a comprehensive security program, and they would have to obtain independent third-party assessments of their programs, for 20 years.
The FTC announced that the 2.9 million civil penalty is "the largest settlement in a case based on the CAN-SPAM Act" since the act's enactment in 2003.
The ValueClick is a reminder that under the CAN-SPAM Act, sites offering "freebies" may get hung up in the strings they attach to those offers!
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.