Summary: In an opinion arising from a hearing for a preliminary injunction, a US district court in California rejected a contractual term and concluded that the plaintiff failed to demonstrate irreparable harm–and, with a bit of an indirect warning: Contract terms do not limit the authority or role of courts. In the case of preliminary injunctions, the court makes the findings. And, they also pointed out that this is not new law. (However, we think that this is one of the first cases on TOUs–or EULAs.) We recently wrote about the FTC and EULAs/TOUs. Might become a more important topic–given that hundreds of millions of people are bound by them.
Call it the Inspection Management decision (it has not yet been named), but a software company sought a preliminary injunction against a competitor that had created an account, and contrary to the End User License Agreement (the EULA or a TOU), let others use his login, etc. The plaintiff went after the defendant on the basis of a breach of the EULA and, in particular, the “Equitable Relief” provision. This said:
“You agree that the information being provided by IMS,Inc. is confidential and derives its value, in part, from its confidential nonpublic nature. You further agree that in the event you breach this agreement, IMS,Inc., will suffer irreparable harm.”
This provision can be found in just about every EULA, every license and a very large portion of agreements. Well, what the court first cared about was that the plaintiff failed in it evidentiary burden about irreparable harm.
That alone would have been sufficient to decide this case. Then, they noted that the plaintiff relied on the contract language quoted above, which they considered just about “settled law.” That lineage of cases was prominent in the decision. Here is what they said:
Plaintiff cannot rely on the contractual provisions of the EULA to show irreparable harm. Instead, the court must make an independent determination of whether such harm is present. As the Second Circuit stated in Baker’s Aid. v. Hussmann Foodservice Co., 830 F.2d 13, 16 (2d Cir. 1987), “contractual language declaring money damages inadequate in the event of a breach does not control the question of whether preliminary injunctive relief is appropriate.” The Tenth Circuit expounded on this principle in Dominion Video Satellite, Inc. v. Echostar Satellite Corp.,supra.
So What?
So why did the court go farther than they had to? Obviously we do not know what the court thinks, but we do think the opinion has these ramifications.
- Courts do not like their authority or specified role limited, whether by contract or by legislation. Provisions that can be interpreted on their face to do so might be unfavorably scrutinized.
- Courts have not rendered many opinions on EULAs and this was an opportunity. As the saying goes “Watch this space.”
- Some courts in California are not really thrilled with the level of drafting in agreements. This provision is clearly treated as “boilerplate” when agreements are drafted.
So we are forewarned.
