Case Analysis
In People v. Direct Revenue, the New York Attorney General in 2008 attempted to prevent Direct Revenue from distributing software that served pop-up advertising software on consumers’ computers. Direct Revenue did not charge fees to consumers; instead, it charges fees to the companies whose products it advertises. One line of attack by the New York Attorney General focused on Direct Revenue’s “click-wrapped” (where the user clicks on “I accept”) end-user license agreement (EULA) and Direct Revenue’s alleged deceptive and illegal practices. The court granted Direct Revenue’s motion to dismiss the claims, noting that sufficient disclosure was given in the EULA and the required elements for an enforceable agreement were followed. New York then focused on the customer agreements of Direct Revenue’s resellers, in an attempt to hold Direct Revenue liable. The result was the same as with the EULA—Direct Revenue was not held liable.
New York conceded that Direct Revenue’s resellers were independent contractors, rather than agents. Generally, a principal is not liable for acts of an independent contractor due to the lack of control over how the contractor’s work is performed. In addition, the court noted that Direct Revenue’s software-distribution agreement required its distributors to obtain consumer consent consistent with the EULA and prohibited distributors from excluding themselves as agents of Direct Revenue. New York argued that Direct Revenue should be liable because its servers interacted with the consumers’ computers in the software-installation process. The court pointed out that participation in installation was insufficient liability, in the absence of participation in deceptive conduct which induced the installation. Finally, New York argued that Direct Revenue should be held liable for the actions of its resellers, on the ground that Direct Revenue ratified the conduct of its resellers. The court ruled that mere knowledge of consumer complaints was insufficient to impose liability on Direct Revenue, in light of the fact that when Direct Revenue had actual knowledge of reseller misconduct, it took steps to remedy the problem.
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