Dispute Over Children’s Data Dodges Arbitration

Advertising Law

A federal judge in California denied the motion of Viacom, Inc., to compel arbitration in a putative class action challenging the company’s use of children’s data for targeted advertising.

According to Amanda Rushing’s complaint, Viacom and related defendants track and sell children’s personally identifying information in violation of the Children’s Online Privacy Protection Act. She alleged that her daughter was under the age of 13 when she played the “Llama Spit Spit” game, and that while she was playing, the defendants tracked her behavior and sold her data for targeted ads.

Viacom responded to the suit with a motion to compel arbitration. Rushing agreed to the terms of the end user licensing agreement (EULA) when she downloaded the app for her daughter, the company told the court, including an agreement to arbitrate any disputes.

The plaintiff objected and U.S. District Court Judge James Donato denied the motion, ruling that Viacom failed to meet its burden to prove the existence of an agreement to arbitrate by a preponderance of the evidence.

“The EULA, which contains an arbitration clause, states that users agree to be legally bound by it ‘[b]y installing, accessing and using the Software,’” the court said. “While there is nothing wrong with setting up a contract this way—such that it is accepted by a user through conduct—plaintiffs could not have unambiguously manifested assent to the arbitration provision without reasonable notice of the EULA.”

Two possibilities existed for notice to the plaintiff: actual notice and constructive notice. Viacom could point to Rushing’s complaint only as evidence of actual notice, but this fell far short of the mark, Judge Donato said.

“[T]he undisputed state of the evidence is that the section of the app description in question became visible only when a user clicked on a hyperlink titled ‘more,’ and that it was not necessary for a user to click on that ‘more’ hyperlink to ‘get’ the app,” the court said. “In this circumstance, the mere fact that the complaint happens to quote from the same section of the app description that helps Viacom on this motion is not at all sufficient for Viacom to carry its burden of proving actual notice by a preponderance of the evidence.”

As for constructive notice, the company again failed to establish that “a reasonably prudent user” had notice of the terms of the contract.

“[T]he page of the app description that Viacom relies on – which references the EULA and its arbitration clause – was not visible to users unless they clicked on ‘more,’ and critically, there was no need for users to click on the ‘more’ button in order to start downloading the game,” Judge Donato wrote. “In situations like these where ‘users are unlikely to see’ the browsewrap agreement at issue, courts have ‘refused to enforce’ them.”

As a result, the court denied the motion to compel. “Arbitration is a matter of contract, and there can be no contract without an offer and an acceptance,” the court said. “A user cannot accept an offer through silence and inaction where she could not reasonably have known that an offer was ever made to her.”

To read the order in Rushing v. Viacom, Inc., click here.

Why it matters: For advertisers, the takeaway from the court’s order is clear: For an arbitration agreement to pass scrutiny, a company must be able to establish that the plaintiff had notice of the terms of the agreement and manifested assent. As Viacom was unable to demonstrate either actual or constructive notice, the court denied the motion to compel arbitration.

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