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Internet lawsuit underscores the importance of properly structuring terms of use to protect trade secrets

November 8, 2012 0 Comments

Internet lawA recent decision out of the Eastern District of Pennsylvania illustrates the importance of not just drafting but also properly structuring a website terms of use to avoid trade secret theft. CollegeSource, Inc. v. AcademyOne, Inc., 2012 WL 5269213 (E.D. Pa. October 25, 2012).

In CollegeSource the plaintiff provided premium course catalog hosting services to colleges which catalogs defendants “scraped” off the the website in order to populate their own competing database.

The kicker: Plaintiff’s website included a terms of use which prohibited data scraping (thus doing so would be an actionable contract breach by defendant).

The problem: Plaintiff also happened to provide a service called “CataLink” which allowed colleges to directly link the documents on Plaintiff’s servers. Users who accessed the catalogs via CataLink were not exposed to Plaintiff’s terms of use. Indeed, this was the method Defendant use to scrape Plaintiff’s data without needing to “agree” to the anti-data-scraping provisions of the TOS.

Plaintiff sued for breach of contract, unjust enrichment (as an alternative to the contract breach claim) and for violation of the Computer Fraud and Abuse Act. Defendant moved for summary judgment, which led to some interesting decisions on all three points:

  • No breach of contract due to poorly structured terms of use: In short, since Plaintiff did not structure its TOS to appear via the CataLink service, Defendant successfully avoided obligating itself to any of Plaintiff’s terms.
  • No unjust enrichment under federal preemption doctrine: The general doctrine of federal preemption holds that federal law on “controlling” issues preempts state law on the same issues. In this case, the state cause of action for unjust enrichment (e.g., Defendant’s enrichment from wrongly scraping and selling the data) was preempted by federal copyright law. The court did not opine on whether Defendant’s use of the data constituted copyright infringement (this will be left for a later motion), but it is unlikely that catalog data would receive anything more than slight copyright protection.
  • No Computer Fraud and Abuse: This one is fairly simple since the documents “scraped” were otherwise public, there was no real “unauthorized access” within the meaning of the CFA.

The unjust enrichment ruling actually raises the most interesting question from a procedural point of view: If the copied material is in fact found not to be copyrightable, should the unjust enrichment claim have been preempted? Perhaps a question for the appellate courts.

In either case, this lawsuit screams one thing: Not only is it important to properly write a terms of use for strong trade secret and data protection, but properly structuring the TOS to appear in relevant website content (and therefore obligate all users to the terms) is equally important.

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