Contract – Communications Decency Act – Immunity – Unfair and Deceptive Trade Practices – Summary Judgment – Class Action

Hill v. StubHub, Inc. (Lawyers Weekly No. 11-15-0258, 23 pp.) (Judge Ben F. Tennille, J.) On cross motions for summary judgment. N.C. Bus. Ct. Click here for the full text of the opinion.

Holdings: StubHub’s business model and practices are such that it is a content provider within the meaning of the Communications Decency Act and is stripped of any immunity there under.

Its activities, especially its buyer’s fees, were in violation of G.S. § 14-344 at the times complained of in the plaintiffs’ complaint. Charging prices and fees in excess of those statutorily permitted is an unfair and deceptive trade practice. The facts clearly establish that StubHub’s actions were “in and affecting commerce” as required by G.S. § 75-1.1.

StubHub’s motion for summary judgment is denied. The plaintiffs’ motion for summary judgment is granted with respect to the individual claim that StubHub’s conduct violated G.S. § 75-1.1 and that StubHub is not entitled to immunity under § 230 of the CDA.

Facts

StubHub operates a website, which it calls a “ticket marketplace,” that enables third parties to buy and sell tickets to live entertainment events, including sporting events. StubHub does not generally own the tickets sold on its website.

To utilize the website, a buyer or seller must register for a user account. The registration process requires the user to read and agree to StubHub’s user agreement by checking the “Agree” box. StubHub provides notice that ticket scalping is illegal in North Carolina.

Justin Holohan, a resident of Massachusetts, registered as a StubHub user and agreed to the terms of the user agreement. Holohan listed four tickets to the Miley Cyrus as Hannah Montana concert at the Greensboro Coliseum for sale at a price of $149 per ticket. That price exceeded the face value of the tickets by $93 per ticket.

Lisa Hill was unsuccessful in obtaining tickets to the concert from the Greensboro Coliseum website. She then went to the StubHub website, where she found four tickets listed for $149, those being the same tickets listed for sale by Holohan. She used her husband’s credit card, authorizing StubHub to charge the account for the full amount at the StubHub website. In addition to the $596 price of the four tickets, she paid a service fee of $59.60 (10-percent of the value of the four tickets) and a shipping and handling charge of $11.95.

When Hill purchased tickets, G.S. § 14-344 provided that any person, firm or corporation was “allowed to add a reasonable service fee to the face value of the tickets sold” but the service fee could not exceed $3 unless the promoter or operator of the event and the ticket sales agency agreed in writing and the pre-established amount per ticket was made known to the public by writing or printing it on the tickets.

Hill on behalf of a class brought claims against StubHub for unfair and deceptive trade practices. StubHub claimed immunity under § 230 of the Communications Decency Act.

Both parties moved for summary judgment.

Analysis

A review of the cases below leads this court to conclude that an Internet service provider crosses the line and becomes liable for content on its website when the ISP materially contributes to and/or specifically encourages the offending content.

To “materially contribute” in this context means to influence the offending content in a way that promotes the violation of law that is represented by the offending content. To “specifically encourage” means to elicit and make aggressive use of the offending content in the business of the internet service provider.

Intent to violate the law is not required. Conscious disregard by an ISP of known and persistent violations of law by content providers may impact the courts’ determinations of the service provider’s claim to immunity, especially where the ISP profits from the violations.

Holohan testified that he used the fixed price method on the website, typing in $149 in the blank. StubHub did not set the price for him. Holohan had no part in setting the buyer’s fee and shipping charges. StubHub did that.

StubHub focuses on high-demand events which are generally sold-out events. Unlike Craigslist, eBay or other sales websites, sellers are limited to those events selected by StubHub. StubHub screens out low-demand listings. It actively monitors its inventory for each selected event. Its business model is thus focused at the outset on sales of tickets to events with a high probability of garnering premium prices above the face value of the event ticket.

StubHub created a category of sellers it has identified as “LargeSellers.” As defined by StubHub, LargeSellers are those who “‘take a large interest in tickets spanning over multiple events and genres for whom StubHub provides extended privileges and incentives above those provided to its regular users.” They control large blocks of tickets, a control which gives them an advantage in setting premium prices for sold out events. They are in the business of scalping tickets.

StubHub provides account managers to assist LargeSellers. They provide assistance with pricing. LargeSellers are given an additional day to list their tickets (a service unavailable to the average customer), the privilege of last-minute transactions, cash-back incentives for achieving certain benchmarks and reduced rates. LargeSellers are entitled to a reduction in the normal 15 percent service fee charged to sellers if they achieve certain benchmarks. StubHub entices LargeSellers to use its website.

StubHub influences the pricing of the LargeSellers. StubHub has technology that allows it to upload data from LargeSellers’ software. Called “autobulk,” this technology gives StubHub the ability to monitor the pricing of its LargeSellers. It uses features by which LargeSellers can automatically have their prices increased to cover the seller service fee charged by StubHub, effectively passing the service fee on to the buyer who is already paying a 10 percent buyer’s fee.

StubHub makes more on the buyers fee if the LargeSeller builds the seller service fee into the price. The use of the mark-up feature is voluntary with each LargeSeller. If a LargeSeller reaches its benchmarks so that its fee is reduced, StubHub automatically adjusts the pricing to reflect the reduced fee.

StubHub affects pricing in other ways through its LargeSellers. It encourages them to look for and purchase underpriced tickets on the website. It then encourages them to get the underpriced tickets off the market by waiving the buy-side fee. The policy thus encourages raising the price for all tickets.

By focusing on LargeSellers, who are in business to make a profit on re-sales, assisting them in pricing and generating a significant portion of its revenue from them, StubHub creates a pricing process that assures that the market price of a ticket will exceed the face value by at least 30 percent to 50 percent of its sales.

While StubHub never “sets” the price entered by a seller, it does seek to drive that price to a market level. To that extent, it is impacting the price content entered on its website – and doing so deliberately and to drive its profit. Its method of driving profit is a significant factor when determining its claim to immunity under the CDA.

StubHub studies pricing behavior in order to maximize its ticket sales. From its studies, it was able to devise pricing tools and services to foster competitive pricing on its website. It uses its website to influence pricing, seeking to drive prices to a level which StubHub believes will result in a sale at “market value.” That is not necessarily a price above face value, but certainly the targeted market value could be a premium price in excess of face value.

StubHub’s business model does not require scalping practices. It encourages them. It is designed to produce the highest volume of ticket sales at the prevailing market price for events which are sold out, and thus likely to generate market prices higher than the face value of the tickets irrespective of the fees involved on both sides.

Having engaged in detailed studies of pricing and pricing habits of its users and competitors, it strains credulity that StubHub had no information about the relation of market value to face value. It could not reasonably drive its customers’ prices to market value without that information. It does not provide information on the face value of tickets to buyers on its website. Further, it controls its website to prevent communication between buyers and sellers, thus facilitating its role as the arbiter of market price.

The buyer’s fee charged by StubHub directly contravenes the statute. If a StubHub employee stood in front of the Greensboro Coliseum before the Hannah Montana concert and offered to sell tickets (belonging to someone else) at face value, and if the buyer would pay a buyer’s fee that exceeded $3, that employee would have violated the statute and been subject to prosecution. That process is precisely what takes place on StubHub’s website. It is charging the buyer’s fee directly, collecting and retaining it. That transaction violates the statute if the fee is more than $3.

StubHub is involved in the process between the buyer and seller in numerous other ways. It controls payment and delivery, prohibiting contact between buyer and seller. It profits from its delivery charges. It serves as a guarantor to both the buyer and seller.

StubHub contracts with bands like the Dave Matthews Band to loan them the money to buy tickets to their own concerts at face value, which StubHub then resells for them. StubHub guarantees the face value will be received and pays any premium received to the band. It advises the band on the market value of the tickets for the tour and enters the tickets in its system. It occasionally sells tickets on its own, but those sales are too insubstantial to affect the market price. It operates kiosks where tickets can be picked up.

These activities standing alone do not make StubHub a content provider, but they demonstrate that StubHub is in total control of the transaction. The only thing it does not do is enter the actual price or make the final price decision for most sellers. It is the party conducting the transaction even though it is not setting the price.

StubHub did not set the price at which Hill purchased the tickets. It did not enter the price in the blank on its website. It used all the right disclaimers and warnings in its user agreement and on its website.

But its actions speak louder than its words. It provided, for its own profit, a means by which Holohan and other sellers, in particular LargeSellers, could scalp tickets in a manner which would have violated North Carolina law if done in person and not by use of the Internet. It directly participated in developing the pricing on its system.

If it did not know the face value of the tickets sold on its website – an assertion the court would find difficult to accept – it was consciously indifferent about and willfully blind to that information. At the least, StubHub encouraged illegal content. Phrased differently, the use of its website to scalp tickets in violation of North Carolina law was a predictable consequence of its business model.

StubHub encouraged, materially contributed to and made aggressive use of the pricing content on its website. It profited from tickets sold at prices higher than face value. It was consciously indifferent and willfully blind to the illegal prices being posted, knowing that the predictable consequences of its pricing model would be the generation of illegal prices. It is not entitled to immunity.

The Court concludes that: (1) StubHub is a content provider and is stripped of any immunity under the CDA, and (2) its activities, especially its buyer’s fees, were in violation of G.S. § 14-344 at the times complained of in the complaint irrespective of its immunity. Charging prices and fees in excess of those statutorily permitted is an unfair and deceptive trade practice.

The facts set out above clearly establish that StubHub’s actions were “in and affecting commerce” as required by G.S. § 75-1.1.

StubHub’s motion for summary judgment is denied. The plaintiffs’ motion for summary judgment is granted with respect to the individual claim that StubHub’s conduct violated G.S. § 75-1.1 and that StubHub is not entitled to immunity under § 230 of the CDA.

The court enters no ruling with respect to the class claims asserted, but finds that there is no just reason for delay of entry of judgment on the individual claims.

Affirmed in part, vacated in part and remanded.