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Pearl Cohen Secures New York Victory On Unread Terms of Use

Publications / Jan 22, 2019

Pearl Cohen’s New York-based trial team: Veronica Mullally Muñoz, Daniel J. Melman and Miriam Tyrell

Tyrell secured victory on all counts against all defendants in federal court in Manhattan last week.

On January 17th, an eight-person jury returned a unanimous verdict of $4.5 million damages for breach of contract and misappropriation. After the verdict was read, United States District Judge Sidney Stein immediately indicated he would enter a permanent injunction against all defendants. The case is Broker Genius, Inc, v. Drew Gainor and Seat Scouts, Inc. and the jury’s verdict vindicates Broker Genius’ CEO, Shmuel “Sam” Sherman, as the innovator who provided revolutionary dynamic autopricing technology to ticket brokers.

At issue was the enforcement of the terms of use to protect Broker Genius’ software as a service (“SaaS”) product from a “customer” like Drew Gainor who signed up to use the product with a view to copying it. Pearl Cohen has achieved repeated successes for Broker Genius and, at trial, secured its third victory in the case against defendant Drew Gainor and Seat Scouts, Inc. Having first obtained a preliminary injunction to get Gainor’s copycat product off the market pending a final jury verdict on the merits, Pearl Cohen subsequently secured an order of contempt after Gainor and Seat Scouts relaunched the same product under a different name.

At trial, Gainor claimed he had neither agreed to, nor read, the terms of use and had not copied Broker Genius’ AutoPricer V3 product. We all agree to terms of use when we click through that small box on entering a new website – few of us ever stop to read them – but then few of us intend to poach the technology we just got access to.

But Terms of Use can stand as the last defense in the arsenal of a web-based company to protect its software product against a customer who would copy it. It is particularly difficult, if not impossible, to secure US patent protection on such products, and in many cases in this space trade secrets have not been sufficiently secured to support a claim. The Broker Genius court victory highlights the importance of having an effective terms of use contract with users of your website who gain access to use and view your technology. It also highlights problems that were hard fought and overcome in this case but which might be avoided with better-crafted Terms of Use.

The take away is: companies should not rely on untested boilerplate Terms of Use – they are not “one size fits all.” The time to think about the effectiveness of Terms of Use, and how they are implemented, is before you need to rely on them as the company’s only weapon against the theft of your technology.