When Facebook bought Instagram in 2012 for $715 million, it got its hands on the four hundred million user base that was severely under-monetized. So what’s the first thing that Facebook decided to do? Why, of course, change the rules so that the user base would enjoy diminished rights and the Facebook-controlled Instagram could take greater commercial advantage of the activities that occur on the image-sharing site that it hosts.
To achieve this, Facebook’s law firms, one of which was rumored to be Charlie Munger’s firm of Munger, Tolles, and Olson, announced that it was changing its terms of service in December 2012 and if you didn’t like it, you had until January 19, 2013 to object by deactivating your account.
Among the changes to Instagram’s terms of service were the following:
- Instagram was granting itself the right to repurpose user posts for its own commercial purpose or any legal purpose that it desired without the need to grant notice or compensation to the user
- Instagram narrowed the scope of possible class-action lawsuits that it could be brought against it
- Instagram added mandatory arbitration clause language, so that you would have to settle disputes with an arbitrator that Instagram gets to select (hint: you don’t gain favor to become an Instagram arbitrator by establishing a track record of ruling against social media companies consistently)
- And Instagram limited the amount of money that an individual could recover in arbitration to $100.
A lot of people, when they click “accept” on a terms of service agreement to a site, don’t realize that they are actually entering into a contract. And if they do realize that they are entering into a contract, they don’t think it is especially binding because “everyone that nobody reads these things before clicking accept.”
While this is a common-sense observation, it is not a legally accurate observation. In nearly every state that I am aware of, the defense of “I didn’t read it” or “Nobody reads it” is not a ticket to escaping the consequences from a contract.
For example, the Missouri cases on this topic follow the 1908 rule from the St. Louis Court of Appeals which states that: “A party to a contract will not be allowed to destroy the value of his written contract by testifying that though he agreed to it he did not read it or know its contents.” Grisham v. National Life. Ins. Co., 130 Mo.App. 57. Other states that I have reviewed offer similar language. It is understandable why the law evolved this way, as great commercial mayhem would result if a party could simply say “Yeah, but I didn’t read that part, so you can’t hold me to it.” Agreements would become unenforceable.
This theory has been tested in the context of the Instagram terms of service specifically. Judge William Alsup, who is the U.S. Judge for the Northern District of California that heard this case, dismissed the class action lawsuit on jurisdictional grounds because so many of the people suing were from California and held that only the state courts could hear the case, but he added that Instagram was only legally required to clearly communicate its change-of-terms, but which it by posting a pop-up notification that “put users on notice that Instagram could change its policy at any time and that it was then the users’ responsibility to deactivate if they did not agree with the changes.”
This means that, so long as the terms embedded in a terms of service agreement are capable of being legally enforceable, then a website’s legal obligation is only to “clearly communicate” to you that the terms have changed for those changes to take effect. This groundwork is a hugely favorable starting point for the social media companies as the web develops because the common-sense observation that nobody reads terms of service does not offer you a shield while the companies enjoy the use of the sword when drafting the agreements.
If there are to be restraints on terms of service agreements, it will have to come from social pressure and media pushback that coerces change rather than a judge wielding a gavel to create consumer protections for online users.
For instance, Instagram has regularly tried to sneak in the phrase: “You acknowledge that we may not always identify paid services, sponsored content, or commercial communications as such.” It has been rolled back, rolled in, modified, re-modified, and adjusted repeatedly, but it is the magic phrase that Instagram has always tried to integrate into its terms of service amidst public pushback.
It is a heck of a term because it enables the door to covert social influence. It allows Instagram to broker a network as a middleman between advertisers and high-profile Instagram users in which, say, McDonald’s could pay $25,000 to a user with 5 million Instagram followers to post a picture on Instagram eating McNuggets, and Instagram could collect a $5,000 take for coordinating the connection between McDonald’s and the user. Meanwhile, an online viewer would be left with the impression that the user is eating those McNuggets of their own initiative rather than to secure a payoff.
If a user tags it “This is a sponsored advertisement”, the possibility for the advertiser to attract new customers is compromised. However, a strategy of hiding advertiser support also collides with FTC requirements to give notice when you are participating in a paid endorsement.
Instagram’s dilemma is a byproduct of creating a free business model in that users do not have to pay to participate in the service. Instagram could have avoided all of this if customers were willing to pay $20 per month to use Instagram, but that is not how the internet developed. And plus, if Instagram started charging users, a free alternative would quickly arise.
The informed consumer angle involves recognizing that terms of service are binding, and that when you participate on social media, your remedies are effectively compromised. If Instagram causes you a problem, you might have to spend thousands on an attorney with the upside of winning $100. Possible avenues for change might involve: (1) courts someday ruling mandatory arbitration clauses as unconscionable for violating an individual’s right to his day in court; or (2) an express warranty angle, in which statements from an Instagram CEO talking up user rights might act as a term that binds over the terms of service. I also think that the “touting” of products will need to be scrutinized closely, as the endorsement may be the result of the highest bidder rather than actual affinity for a particular brand. Either way, the takeaway is that those terms of service “blips” contain far more legal authority than you might intuitively think.
Notice to Comply with Missouri Law: All articles that I write are written for general information purposes only to help my audience learn more about items that I personally find of interest. The information that I present is not legal advice, and is not to be acted upon as such. It may not be current and may be subject to change without notice.