Instagram Beats Attempt At Class Action Over Change In Terms Of Use

n Rodriguez v Instagram, CGC-13-532875 (San Francisco Sup. Ct. Feb 28, 2014), the Superior Court of California, County of San Francisco, rejected a proposed class action  lawsuit brought against Instagram LLC in connection with modifications to its original Terms of Use, instituted after the free photo-sharing platform was purchased by Facebook, Inc.  The lawsuit challenged Instagram’s ability to revise its Terms of Use to assert new rights over already-collected content. The ruling is a win for Instagram, and suggests that internet companies can take advantage of unilateral modification clauses in their existing terms of service contracts so long as they give users reasonable advance notice of material changes (and an opportunity to cancel their accounts before such changes take effect).

Background

Instagram is an online social networking service that enables its users to take pictures and videos, apply digital filters to them, and share them on a variety of social networking services, such as Facebook, Twitter, Tumblr and Flickr.  Instagram’s original Terms of Use (the “Original TOS”) included a provision stating: “We reserve the right to alter the Terms of Use at any time.  If the alterations constitute a material change to the Terms of Use, we will notify you via internet mail according to the preference expressed on your account.”  Pursuant to that provision, Instagram e-mailed its account-holders on December 17, 2012 and notified them that a revised version of its Terms of Use (the “Revised TOS”) would take effect on January 19, 2013.  Instagram additionally posted notifications on its public blog and in users’ news feeds , which appeared at the top of users’ screens whenever they logged into the Instagram mobile application.

The Revised TOS specified that users who accessed or used Instagram after January 19, 2013 would be bound by all of its terms.  New to the Revised TOS were provisions that (1) allowed Instagram to sublicense user-generated content and user information to third parties in connection with sponsored stories and native advertisements; (2) specified that photos, likes, comments, friendships and other data supplied by users could continue to appear on the service after they deactivated their accounts and (3) required users to submit all disputes to binding arbitration (and waive any right to bring or participate in a class action against Instagram or any of its affiliates) unless they “opted out” by following a specified procedure within thirty days after the Revised TOS took effect (or, for new users, within thirty days after joining Instagram).  To learn what that procedure was, a user had to scroll all the way through the Revised TOS.

 Rodriguez v Instagram

 Lucy Rodriguez, the putative plaintiff in the class action and an Instagram account-holder since 2010, originally filed suit in federal court on December 21, 2012 − before the Revised TOS took effect − and then continued to use Instagram. The federal suit was dismissed on procedural grounds, and Rodriguez subsequently re-filed in California state court. The complaint alleged that Instagram had breached the implied covenant of good faith and fair dealing applicable to the Original TOS and violated California’s unfair competition law (“UCL”) by using the Revised TOS to unilaterally expand its rights over content uploaded before December 17, 2012.  The court heard Instagram’s demurrer to the complaint on February 28, 2014, and dismissed both claims without leave to amend.

In siding with Instagram, the court rejected Rodriquez’s contention that Instagram had “unilaterally” done anything. “[R]ather,” Instagram “required Plaintiff to consent to sublicensing power, a liability waiver, and other terms, under a new agreement, if she wished to continue using Instagram’s service. She did not have to agree to these terms, but the Complaint makes clear that she did.”

In analyzing the breach of contract claim, the court found that Rodriguez could not maintain a claim for violation of the implied covenant of good faith and fair dealing in the Original TOS because she had unambiguously consented to the Revised TOS after full and fair opportunity to reject it by deleting her Instagram account.  The Original TOS therefore no longer governed her relationship with Instagram.

Rodriguez’s’s UCL claim fared no better, as the court found that there was nothing fraudulent or unfair about a company changing the terms on which it is willing to offer its services.  The court additionally emphasized that Rodriguez could not possibly have had a reasonable expectation of perpetual use of Instagram’s service under the Original TOS because Instagram expressly claimed the right to modify the terms on notice or terminate service for any reason without notice. Rendering another fatal blow to both of her claims was Rodriguez’s failure to demonstrate any economic injury.

The practical import of the ruling for other companies hoping to take advantage of unilateral modification clauses in their terms of service contracts is unclear, for two reasons.  First, in imposing the Revised TOS, Instagram not only followed the procedure set forth in the Original TOS (by e-mailing its account-holders to give them notice of a material change); it  went far beyond it by giving account-holders thirty days’ notice and by posting repeated reminders across various platforms.  It would be difficult to argue that this notice wasn’t effective.  Indeed, the Revised TOS sparked outcry among Instagram users and were a hot blog topic in the days following their announcement.  Second, Lucy Rodriquez undisputedlyhad notice of the content of the Revised TOS in plenty of time to deactivate her account and prevent the harm she complained of, given that she filed a federal lawsuit against Instagram nearly a month before the Revised TOS took effect.  Moreover, since Rodriguez properly opted out of the arbitration provision and class action waiver, she necessarily scrolled all the way through the revised terms, took an affirmative step in following the opt-out procedure, and continued to use the service.

In sum, this might have been a different case if Instagram had merely followed the letter of the modification clause in the Original TOS.  While it is unclear exactly how Rodriguez first became aware of the pending revisions, it’s easy to imagine a scenario in which a hypothetical Instagram user continued to use the service after January 19, 2013 having never read the e-mail notification.

 Takeaways

The take-away from the case is that internet companies should proceed carefully when introducing material changes to their terms of service contracts.  The opportunities to monetize user information and user generated content are vast, but as the Chairwoman of the Federal Trade Commission recently cautioned, “with big data comes big responsibility.”[1]

Companies must, at a minimum, (1) calibrate their notice-giving methods to the practical realities of the use of their services; and (2) make any changes subject to delayed effect for consideration by the user.

[1] FTC Chairwoman Edith Ramirez, Opening Remarks at the FTC Public Workshop: Internet of Things – Privacy and Security in a Connected World (Nov. 19, 2013).