Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Facebook developer agreement barred claims under California Unfair Competition Law, (Feb 7, 2014)

By Edward L. Puzzo, J.D.

A choice of law provision in Facebook’s developer Terms of Service agreement, designating Delaware law as governing all disputes, was enforceable and barred claims brought under California’s Unfair Competition Law, the federal district court in San Jose, California has ruled (Facebook, Inc. v. Profile Technology, Ltd., February 5, 2014, Grewal, P.).

Background. In 2007, Christopher Claydon registered with Facebook as an application developer. In 2008, he sought and was given permission by Facebook to “crawl” its website to gather data. Later, Claydon and his company Profile Technology created a website using the data they had gathered from Facebook. Facebook then brought a lawsuit against Clydon and Profile, seeking the destruction of user data that defendants had collected from Facebook, based on the fact that defendants were using stale data. Facebook now seeks to dismiss defendants’ resultant counterclaims, which included allegations of unlawful business practices under the California Unfair Competition Law.

Choice of law. The threshold question in this dispute, the court stated, was which jurisdiction’s laws governed. Under a provision of Facebook’s developer Terms of Service agreement, the law of Delaware was to be applied to any dispute arising under the agreement. Defendants countered that California’s choice of law statute nevertheless barred the application of that provision.

The court explained that California courts have a strong policy of enforcing arm’s-length contractual choice-of-law provisions unless the chosen state has no substantial relationship to the parties, or if application of that state’s laws would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the issue at hand.

Facebook is incorporated in Delaware and, under California law, there is a substantial relationship between a party and a given state if the party is incorporated there. Thus, defendants could only successfully bar the contractual choice-of-law provision if they could show that Delaware’s laws violated a fundamental policy of California. Despite their conclusory statements to that effect, defendants failed to identify which of California’s fundamental policies would be violated by the application of Delaware law, the court stated. In fact, the argument that California’s Unfair Competition Law is a fundamental policy that must be applied in order to protect its citizens was inapplicable here, since the defendants were not California citizens. Therefore, the court ruled, the choice of law provision in Facebook’s developer Terms of Service was enforceable. On these grounds alone, the court ruled, defendants’ claims under California’s Unfair Competition Law had to be dismissed without leave to amend.

The case is Civil Action No. 5:13-cv-0459-PSG

Attorneys: Timothy L. Alger (Perkins Coie LLP) for Facebook Inc. and Facebook Ireland Ltd. Ira P. Rothken (Rothken Law Firm, LLP) for Profile Technology, Ltd.

Companies: Facebook Inc.; Facebook Ireland Ltd.; Profile Technology, Ltd.

Cases: StateUnfairTradePractices CaliforniaNews