The Supreme Court of Canada sent a strong signal to two of the biggest internet companies this past week, first in Douez v. Facebook, then in Google Inc. v. Equustek only five days later. Both of these cases may have far-reaching consequences, and it seems unlikely to be a coincidence that they were published so closely together.
Douez v. Facebook
Douez arises out of a proposed class-action against Facebook over its “Sponsored Stories” advertising program, which was in place from 2011 to 2014. Sponsored Stories turn Facebook user activities into advertisements that appear on other users’ Facebook pages. For example, if a user checks in at a restaurant or “likes” an advertiser’s page, this may appear in their friend’s news feed as a sort of product endorsement.
A class-action was filed in 2012 against Facebook in British Columbia, one of four provinces that creates a statutory tort for invasion of privacy. The lawsuit alleges that Facebook has misappropriated the personality of class members in violation of s. 3(2) of the Privacy Act, which states that:
"It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose."
This decision is about whether a forum selection clause in Facebook's Terms of Service, which states that all claims and disputes are to be resolved in a California Court, should be enforced to dismiss the class action. These types of clauses have been enforced in electronic consumer agreements since 1999, when an Ontario court dismissed a class-action lawsuit against Microsoft by enforcing a clause in the Microsoft Network Member Agreement requiring disputes to be resolved in the state of Washington.
However, in a 4–3 decision, the Supreme Court has decided that it is time to reign in forum selection clauses in consumer “clickwrap” agreements. And by doing so, it introduces a lot of uncertainty about when forum selection clauses will be enforced.
A couple of key factors were highlighted in deciding not to enforce the clause. First, the decision refers extensively to the “the quasi-constitutional privacy rights” implicated in the underlying cause of action. The majority of the court believes that privacy rights are especially important, and we now know that forum selection clauses are less likely to be enforced in privacy cases. However, we have no idea how this analysis applies to other causes of action, such as defamation or negligent misrepresentation.
Another important factor is the “extensive reach” of Facebook, for which there are, in the court’s words, “few comparable alternatives.” The court notes that approximately 40 percent of the province (about 1.8 million people) are Facebook users, and without explicitly saying it, suggests that British Columbians may feel as if they have no choice but to join the site. This only increases the inequality of bargaining power, making the forum selection clause that much more unfair.
Again, the court offers no guidance on the extent to which the relative size and market share of a company will contribute to a refusal to enforce a forum selection clause. For example, it is unclear whether such a clause would be enforced if a privacy claim were brought against a much smaller website.
The class action against Facebook will now proceed in British Columbia. It seems likely that this case will settle for what is a nominal amount of damages for each class member, as did a similar case in California in 2013. Some may believe that is a fair result in the circumstances.
However, the Supreme Court has upended the law on forum selection clauses, offering little guidance on the limits on their enforceability. The bottom line is that forum selection clauses will always be viewed with suspicion when they appear in consumer agreements, making it virtually impossible for businesses to predict when they can be relied upon.
Google Inc. v. Equustek
Google Inc. v. Equustek is a highly anticipated intellectual property decision, also coincidentally originating in British Columbia.
Equustek is a British Columbia technology company that has obtained several court orders aimed at stopping the defendant company (Google is a third party to the original case) from selling counterfeit goods under the plaintiff’s name. Initially operating out of British Columbia, the defendant left Canada and continued selling counterfeit goods in defiance of the orders, using websites accessible by searching Google and other search engines. Google was willing to assist Equustek by de-indexing the defendant’s websites from searches Google.ca but refused to de-index the sites from searches on Google made outside of Canada. This posed a significant problem for Equustek because most of its sales are to purchasers outside of Canada.
In a 7–2 decision, the Supreme Court agreed that Equustek should be granted a worldwide interlocutory injunction against Google, because “it is the only practical way” to stop the defendant from continuing to sell counterfeit products in defiance of court orders. This decision is obviously a significant concern for Google because it increases the prospect that the company will be drawn into disputes in every jurisdiction around the world, whether having to do with intellectual property or other matters. Further, the injunction requires Google to invest ongoing resources to maintaining the injunction as the defendant continues to launch new websites that must be delisted.
Although Equustek is not a privacy case, it will likely become an important precedent for asserting the jurisdiction of Canadian law on privacy (and other) issues in the future. In fact, the British Columbia Court of Appeals' decision in this case was cited earlier this year by the Federal Court of Canada in support of its decision to apply the Personal Information Protection and Electronic Documents Act to a Romanian-based company in A.T. v. Globe24h.com.
No escaping Canadian law
Douez and Equustek provide a clear signal that Canadian courts are not to shy away from asserting jurisdiction over the internet. Companies that do business in Canada should expect that Canadian law will be applied and enforced, regardless of whether they have any physical presence here, and, in some cases, irrespective of explicit contractual clauses to the contrary.
photo credit: Ian Muttoo Happy Canada Day! via photopin(license)