Terms of service: not everything that is written is automatically valid

As a follow-up to my last post (from 4 years ago!), here’s the result of the eBay lawsuit, where two users were suing eBay for cancelling their auction, which had reached $98,000.

The ruling is from december last year (which goes to show how long it takes for a case to go to trial these days) and offers a really interesting look at how Quebec law approaches Terms of Services.

The case is pretty simple: plaintiffs put a pair of limited edition Nike shoes on eBay, the auction reached $98,000 when eBay cancelled it. Plaintiffs re-posted the ad, but the bidding only reached $1,500, so they cancelled the sale and sued eBay for damages.

To justify cancelling the auction, eBay claimed multiple Terms of Service (TOS) violations by the plaintiffs, none of which were accepted by the court, so we won’t discuss them here.

eBay’s last defense was that their TOS had a clause allowing them to suspend service, as well as a limitation of liability clause, that would prevent them from being liable for damages in this case.

We note here that the judge does not just go ahead and apply the clause, but rather, takes the time to examine its validity. This is because the contract between the plaintiffs and eBay (the TOS) was a “contract of adhesion” as well as a “consumer contract”. In these types of contracts, abusive clauses are forbidden and courts will not apply them.

“A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable.[…]” (1379, Civil Code of Quebec)

“A consumer contract is a contract whose field of application is delimited by legislation respecting consumer protection whereby one of the parties, being a natural person, the consumer, acquires, leases, borrows or obtains in any other manner, for personal, family or domestic purposes, property or services from the other party, who offers such property or services as part of an enterprise which he carries on.[…]” (1384, Civil Code of Quebec)

The Court found that the wording of the service suspension clause was too broad, allowing eBay to cancel service withought justification. The Court therefore deemed this clause abusive and refused to apply it.

Now, if eBay is not allowed to cancel a sale without justification, they may still cancel it if the action is justified by a serious reason. This is based on general contracts rules:

“The contractor or the provider of services may not resiliate the contract unilaterally except for a serious reason, and never at an inopportune moment; otherwise, he is bound to make reparation for injury caused to the client as a result of the resiliation.

Where the contractor or the provider of services resiliates the contract, he is bound to do all that is immediately necessary to prevent any loss.” (2126, Civil Code of Quebec)

The Court analyzed the various reasons brought up by eBay to justify the termination, but concluded that none of them were valid. Moreover, the Court also points out the lack of notice before the cancellation (the law says “never at an inopportune moment”). Therefore, eBay is liable for damages.

How does the court award damages?

Plaintiffs are asking for $98,000, which is the last bid, whereas eBay claims the shoes are only worth about $1,200.

The “loss of a future gain” may be compensated if the gain was certain or probable.

In this case, the court accepted the $98,000 valuation, which represented the last bid, rejecting eBay’s various claims that the buyers may not have honored their bids, as well as the claims that the shoes were worth between $170 and $3,200 based on other transactions.

However, just because the shoes could have been sold for $98,000 does not mean this is the amount that will be compensated. Various amounts may be deducted, and whether the Court will allow these deductions depends on the proof presented at trial.

For example, eBay claimed that the top bidder may have pulled out of the deal, but did not have proof to back that claim.

On the other hand, the judge did allow a 10% deduction, which represents the fee that would have been paid to eBay. The actual amount the plaintiffs would have received is therefore $88,200 (98,000 – 9,800).

Another issue is that plaintiffs must seek to minimize their own damages. In this case, plaintiffs should have sold the shoes for $1,500, and since they can still sell the shoes, the judge deducted the $1,500 from the damamges, for a final amount of $86,700 (98,000 – 9,800 – 1,500).

* * *

As an aside, I’d like to point out, regarding that last deduction, that many amounts were mentioned in the judgment:
– eBay valued the shoes at $1,200
– eBay sales of the same shoes went between $170 and $3,200
– plaintiffs’ second ad reached $1,500

The judge could have picked any of these numbers, and it is up to the parties to present arguments on the best number to pick.

eBay valued the shoes at $1,200, which is actually less than the value granted by the judge in the end. Tactically, this seemed strange to me, as a higher valuation would’ve given more deduction, but made sense when I thought about it: there’s no knowing which way the judge would lean, and eBay was hoping all along to only reimburse the market value of the shoes. In this context, it makes sense to hedge their bets and put forward a reasonable, middle-ground amount.

I also noticed that the judge did not deduct the 10% eBay fee on the $1,500 like it was done for the $98,000, possibly because nobody asked for it.

Quebec Court Invalidates Jurisdiction Clause in Ebay TOS

Two Quebec students with what is probably the most badass names recently won a small victory in Quebec Courts.

In Mofo Moko c. Ebay Canada Ltd. (French, but worth reading in its entirety), Plaintiffs are suing Ebay for loss of profit, or loss of opportunity, after Ebay’s untimely cancellation of their auction, which was nearing $50,000.

Plaintiffs filed their lawsuit in Montreal, which was promptly opposed by Ebay on the grounds that their user agreement specifies any litigation must be carried out in California.

The Court, however, points out that the User Agreement is 6 and a half pages when printed, written in a hardly understandable language.

The Agreement specifies that the law applicable to the contract is the law of Ontario and applicable Federal laws, meaning any lawsuit will have to be not only in California, but based on Canadian and Ontarian laws.

The Court concluded that the intention behind such a condition was to discourage lawsuits, and is excessive, unreasonable, and abusive, and, when found in a “contrat d’adhésion”, is null and void.

The present ruling only concerns Ebay’s Motion to Dismiss, which they lost. It will be interesting to see if the main suit ever gets carried to term.

Small Claims Sunday #4

Lots of new decisions this week, but not a lot of interesting ones, so I’ve only picked 4.

Legault c. Opris (insurance, car repairs)
Plaintiff is suing for damages from the repairs (or lack thereof) to his vehicle, and cost of car rental during the time of the repairs. Plaintiff brought the vehicle to Defendant’s garage for repairs after an accident. Plaintiff’s insurance company sent an agent to the garage to assess damages, after which the agent issued a check to Defendant to cover repair costs. The car was only given back to Plaintiff over a month later, with some repairs omitted. Defendant claims the insurance company signed off on the repairs, so Plaintiff should complain to his insurer.
Result: The judge rejected the damages regarding rental of a car during the repairs. The document used to prove the costs has been drafted by a friend of Plaintiff. However, testimony showed the car had been lent to Plaintiff in exchange of services rendered. Moreover, the receipt said taxes were included, thought the friend had no authorisation to levy taxes. The Court concluded the deal was against tax laws, and Courts will not honour such agreements.
As for the damages regarding repairs, Plantiff should have sued his insurer, as it was the insurance company who had the obligation to return the car in the state it was before the accident.

Arama c. Azoulay (copyright violation)
Plaintiff is asking for $5000 over damages after Defendant used a photo taken by Plaintiff, without compensation or attribution. Plaintiff had posted a low-resolution version of the photo to a website. Defendant used the photo on the cover of his book. Plaintiff attended the book’s launching and confronted Defendant. He claims having found the image on a website, with no source or attribution. He claims having used the image in good faith. He also demands $999 from Plaintiff for spoiling his book launch.
Result: The usage of the image infringes on Plaintiff’s copyright, and causes her prejudice as she is a professional photographer. The Court grants Plaintiff $2000 in damages.
On the other hand, The Court rejected the $999 counter-suit since Plaintiff’s behaviour was caused by Defendant’s infringement.
Note: the court didn’t consider being rude as illegal or, at least in this case, as warranting damages. We also note that the Court does sometimes “arbitrarily” set damages. In this case, we can’t tell if Plaintiff testified on the cost of a license for her pictures. One could imagine the defendant could have reduced his damages if he could prove Plaintiff usually licences her images at a lower rate.

Dumont c. Dépanneur Yun Wang (damages to car due to gas quality)
Plaintiff is asking for $1 240,73 over damages to his car caused by the poor quality of gas bought at Defendant’s gas station. Plaintiff filled up his car at defendant’s gas station, then notices his motor emitting smoke later that day. He decides to bring his car to the garage the next week, but the car does not even start. However, after replacing the diesel by new fuel, the car starts normally, and Plaintiff has not had a problem since.
Result: Claim is rejected. Plaintiff never formally notified Defendants as required by law (CCQ 1595, 1738). Moreover, Plaintiff has not proven that the gas was tainted or unfit for use (nobody kept a sample for analysis), and defendant never got any complaint from anyone else.

St-Pierre c. Bell Mobilité cellulaire inc. (damages from change in cell phone plan)
Plaintiff is suing Bell for $4950 worth of damages after Defendant made changes to Plaintiff’s cell phone plan. Plaintiff was a long term customer of Defendant’s. In 2010, Defendant offered Plaintiff a new cell phone should he sign up for a 3-year contract. Shortly thereafter, Plaintiff saw some of his services cut, and his voicemail erased. Defendant also charged him for more service fees. Being a consultant, Plaintiff claims the changes affected his business.
Result: The Court awarded Plaintiff $2000 for partial damages. Plaintiff claimed expenses to produce new supplies with a different phone number, but had no invoice to prove them. However, since Defendant was at fault for not disclosing the changes in their service plans, and Plaintiff did suffer damages, the Court decided on the amount of $2000.

SCC invalidates Viagra patent, reiterates basic patent principle

The Supreme Court of Canada has just released a decision today in which it voids Pfizer’s patent for viagra.

The SCC restated the basic principle of the patent system:

The patent system is based on a “bargain”, or quid pro quo: the inventor is granted exclusive rights in a new and useful invention for a limited period in exchange for disclosure of the invention so that society can benefit from this knowledge. This is the basic policy rationale underlying the Act. […]

The issues in this case must be considered in light of the quid pro quo: Is the public getting what it ought to be getting in exchange for exclusive monopoly rights?

The Court ruled that Pfizer did not meet the disclosure requirement. The Viagra patent lists different classes of compounds, and the wording of the patent did not specify which compound was useful to treat erectile dysfunction.

Although Patent ’446 includes the statement that “one of the especially preferred compounds induces penile erection in impotent males” (A.R., vol. X, at p. 173), the specification does not indicate that sildenafil is the effective compound, that Claim 7 contains the compound that works, or that the remaining compounds in the patent had been found not to be effective in treating ED. The claims were structured as “cascading claims”, with Claim 1 involving over 260 quintillion compounds, Claims 2 to 5 concerning progressively smaller groups of compounds, and Claims 6 and 7 each relating to an individual compound.

Pfizer defended itself by claiming that anybody just had to test the 2 final compounds and they’d figure it out. The SCC didn’t buy that and voided the patent.

[…]the public’s right to proper disclosure was denied in this case, since the claims ended with two individually claimed compounds, thereby obscuring the true invention. The disclosure failed to state in clear terms what the invention was. Pfizer gained a benefit from the Act — exclusive monopoly rights — while withholding disclosure in spite of its disclosure obligations under the Act. As a matter of policy and sound statutory interpretation, patentees cannot be allowed to “game” the system in this way. This, in my view, is the key issue in this appeal. It must be resolved against Pfizer.

The Viagra patent is set to expire in 2014, so the generic producers get at about a 2-year head start in the market.