The MediaFire vs. SkipScreen spat, which involves a download website's attempt to use a terms of use agreement to prevent a third-party software developer from distributing an ad-skipping plugin, highlights a weakness in business models that can succeed only if consumers are coerced by contract into doing something they really don't want to do. The business is only as good as the contract.
The download site, MediaFire, has an acceptable use policy that forbids users from (1) using automated tools to accomplish the download, (2) "interfer[ing] with the normal use" of the MediaFire website, (3) and "reformat[ting] or refram[ing] any portion of any web page," thereby bypassing the advertisements. Consumers don't want to watch display advertisements while waiting for a download to begin. Enter SkipScreen, a Firefox browser plugin that solves this annoyance on behalf of the user. SkipScreen "auto-clicks" toward the true download link, bypassing the wait time in which MediaFire displays advertising to the user.
So, MediaFire has a contract with its users that the users really don't want to follow. And it has no contract at all with SkipScreen's developers. (Though it might be able to assert a "robot contract" claim, Register.com v. Verio, 126 F. Supp. 2d 238 (S.D.N.Y. 2000), or a trespass claim, eBay Inc. v. Bidder's Edge, 100 F. Supp. 2d 1058, 1073 (N.D. Cal. 2000), or a Computer Fraud and Abuse Act claim, EF Cultural v. Explorica, 274 F.3d 577 (1st Cir. 2001). Or even a tortious interference with contract claim. Or a trademark claim. Unfortunately, the possibilities are limitless.) SkipScreen is fighting back with the Electronic Frontier Foundation's help, so now MediaFire will have to go to court to enforce its alleged right to require users to view its advertising, which they apparently don't want to do.
A similar case that produced a recent decision is MetroPCS Inc. v. Virgin Mobile USA LP, No. 08-cv-1658 (N.D. Tex., Sept. 25, 2009). I say that the case is similar because, like the SkipScreen dispute, it involves a business, Virgin Mobile, that is supporting its business model with a terms of use agreement that users do not really want to honor. And it involves a third-party, MetroPCS, that offers Virgin Mobile customers a ready means to avoid the agreement's restrictions.
Virgin Mobile sells cell phone handsets and network service for the handset. Virgin Mobile actually loses $50 on each handset sale, a loss that it can only recoup if the user purchases network service for the length of the service contract. A use agreement on the product packaging and in a terms of service booklet inside the packaging purports to bind the user to the Virgin Mobile network for the life of the service contract, along with other restrictions on how the handset may be used.
MetroPCS disrupts the Virgin Mobile business model by offering a service that re-programs Virgin Mobile handsets so that they can operate on the MetroPCS network. Virgin Mobile sued to stop MetroPCS from luring away its customers in this fashion, raising trademark (the re-programmed handsets still carried Virgin Mobile branding) and breach of contract claims. The court's Sept. 25 opinion, which is inconclusive regarding the trademark claims, features a fascinating discussion about whether MetroPCS is making a trademark "use" of the Virgin Mobile handset by re-programming it and whether consumers are confused about what is going on with their handset. The court cited the telecom industry's controversial practice of locking-in consumers to a particular device as evidence that a cell phone handset and cell phone service are, for trademark law purposes, an integrated product offering. Meaning that a change of networks might constitute an infringing trademark "use" of the handset. MetroPCS argued that a cell phone handset is like a television set, where the hardware and the service network (broadcast, cable, satellite) are distinct offerings that the consumer is free to choose among. Judging from the tenor of the court's discussion, it didn't look like the court was buying the television set analogy.
The court was unimpressed with Virgin Mobile's contract claims, however, and it rejected arguments that the terms set out on the product packaging and service booklet should be extended to parties that had no direct dealings with Virgin Mobile.
Just as in the MediaFire/SkipScreen dispute, Virgin Mobile seems to have created a business that requires coercing consumers into doing something they really don't want to do; namely, sticking with Virgin Mobile when there are less expensive network alternatives and the technological means to do something about it. Even if MediaFire and Virgin Mobile are entirely correct in their legal positions (and they may very well be), they are nevertheless swimming against the current of consumer expectations and desires. That seems like a very difficult business to sustain over the long term.
Over at IP/Internet/New Media Blog we touched on this with a post titled, "Not 'Whose Browser?' but 'Whose Terms?'" I have linked from our comments section to the post above.
When you write, above, "The business is only as good as the contract.", you hit on something very basic and too often over-looked: Good business practices on the net are not really so different from good practices off the net. Contracts that do not truly reflect a meeting of the minds as a result of arm's length bargaining are inherently risky propositions. Basing one's business on such risky propositions is like any other gamble.
Posted by: Robert Link | October 13, 2009 at 06:56 AM