A recent decision by U.S. District Court for the Northern District of Illinois addresses a very timely and novel question: can a website provider enforce the equivalent of a covenant not compete through an online clickwrap agreement? In TopstepTrader, LLC v. OneUp Trader, LLC, Case No. 17 C 4412 (N.D. Illinois June 28, 2017), the U.S. District Court for the Northern District of Illinois rejected one website provider’s effort to do just that, reasoning that the provider was attempting to use its website’s terms and conditions to improperly restrict competition under Illinois non-compete law. The opinion, which can be found here, may prove to be a significant one as courts wrestle with the enforceability of online terms of condition that may limit competition or the use of information publicly available through those websites. (A shout out to Evan Brown’s Internet Cases for first reporting on this case).
Background: TopstepTrader (TST) provides what it describes as a renowned scouting and recruiting program to attract, vet and fund prospective traders. According to its complaint, one of its accountholders, OneUp Trader, had implanted its people into TST’s training programs to gather business intelligence and to study TST’s business platform and IP, so that OneUp could then use and copy those materials on to OneUp’s own website.
One of the terms and conditions of TST’s online agreement forbid accountholders from “[u]sing the Sites or Services to gain competitive intelligence about TopstepTrader or the Sites or Services to compete with TopstepTrader or its affiliates.” TST claimed that those same terms were included in its present online agreement.
The Court’s Reasoning: Although he noted that he might have rejected the injunction on other grounds, Judge Leinenweber simply applied Illinois’ non-compete law to the online agreement at issue. He concluded that the provision was “likely against Illinois’ public policy because it contained no temporal or geographic limitations.” To the extent that TST claimed OneUp was improperly using TST’s content from TST’s public-facing website, Judge Leinenweber found that such use “amounts to no more than publicly available information for which one did not need to agree to any contract to access.” Finally, Judge Leinenweber held the irreparable injury necessary for an injunction was lacking because “the harm from the competition in question was enabled by the very information [TST] puts into the marketplace.”
Takeaways: Judge Leinenweber’s opinion is noteworthy in three key respects. First, it signals that online agreements and their terms and conditions will be subject to the same reasonableness analysis applied to written restrictive covenants. However, as readers of this blog know all too well, the law governing restrictive covenants varies from state to state and what is reasonable in Ohio may not be reasonable in California. Consequently, to the extent that online providers want to enforce similar provisions against accountholders, they may need to gear up for the battles over choice of law and forum that are common in trade secret and non-compete cases.
Second, this decision has implications for the Computer Fraud and Abuse Act, 18 U.S.C. §1030, which has been used in the past by employers as a proxy for trade secret claims. As readers of this blog will recall, prior to the enactment of the Defend Trade Secrets Act, employers sometimes used the CFAA as a jurisdictional hook to secure a federal forum; those employers would argue that the employee’s trade secret misappropriation violated the employer’s computer use/service policies and agreements, and therefore qualified as the requisite improper “accessing” of a protected computer without authorization. This rationale–the violation of a policy or agreement as a violation of the CFAA–has been taken to its next logical step, as website providers have argued that violations of their online agreements and terms and conditions qualify as violations of the CFAA because an account holder exceeded authorized access by violating those terms. A high profile case in San Francisco, hiQ v. LinkedIn, is now grappling with this very issue under the CFAA (for those interested in reading more, I recommend Reuters’ Alison Frankel and Jason Shinn’s Michigan Employment Law Blog’s fine posts covering that case).
Finally, although the opinion did not do so explicitly, its analysis is line with the underlying rationale that justifies an enforceable restrictive covenant — namely, the protection of a legitimate business interest. From the face of the opinion, TST did not provide anything of value in exchange for the online non-compete, such as access to a coveted client relationship or access to confidential information, facts which are generally recognized as necessary for justifying a restrictive covenant or restraint of trade. Nor was there any evidence of a trusted or fiduciary relationship between TST and OneUp that could support a covenant not to compete. At their core, restrictive covenants are designed to protect valuable business commodities that were made available to a trusted employee or partner to develop, promote or protect. The absence of that relationship and the those facts may have further influenced the Court to deny the injunction in this case.