Hulu privacy class action deferred; Online industry awaits Supreme Court decision on class actions

The federal court decision in a putative class-action lawsuit accusing online-video provider Hulu of wrongfully disclosing subscribers' viewing data was deferred pending a U.S. Supreme Court decision in a seemingly unrelated case that has some of the nation's largest online companies on edge.

The fate of the closely watched privacy class action against Hulu largely hinges on how the justices rule in a dispute about the federal Real Estate Settlement Procedures Act of 1974 (RESPA; Pub.L. 93-533), which bans certain types of kickback schemes and allows consumers to seek triple the amount they paid in inflated fees.

Among the legal issues before the high court in First American Financial Corp. v. Edwards, No. 10-708, is whether consumers have standing--under Article III, Section II of the United States Constitution--to sue in federal court when they haven't actually suffered economic injury.

The nation's technology companies have taken a keen interest in the case, and it's no wonder they have.

Noted legal scholar and legal-reforms crusader Theodore Frank, founder of the Washington-based nonprofit Center for Class Action Fairness, this morning summed up the Edwards case to FierceOnlineVideo this way: "A ruling for the respondents would keep the status quo in place, transferring substantial wealth from businesses and consumers to lawyers."

So, if the justices hold that plaintiffs must prove harm before they can sue, it would likely weaken the bevy of other lingering privacy-related, no-harm lawsuits pending against online companies..

In a jointly filed amicus brief to the justices, Yahoo Inc. (Nasdaq: YHOO), LinkedIn (Nasdaq: LNKD), Facebook (Nasdaq: FB) and Zynga (Nasdaq: ZNGA) argued that consumers should only have standing to sue if they've been harmed.

"Permitting a lawsuit to proceed where the plaintiff has suffered no concrete, particularized, individual injury gives plaintiffs and their attorneys license to use the class action mechanism to attempt to 'enforce' claimed widespread violations of law," the companies wrote in arguing against Edwards.

Meanwhile, the Electronic Privacy Information Center (EPIC), in a friend-of-the-court brief, argued that the legislative branch may confer standing by statute, allowing consumers to sue over privacy violations regardless of whether they can prove economic loss.

"Harms suffered as a result of privacy violations are often difficult to quantify," the EPIC brief stated. "The growing public concern about the misuse of personal data, make it especially important that Congress retain the power to respond to changing technology and new business practices by updating privacy laws to address new challenges."

In an analysis of the case, Winston & Strawn LLP litigation attorneys Stephen Smerek and Micol Sordina noted that in recent Supreme Court decisions on Article III standing, the justices have been split 5-4.

"These recent opinions interpreting the proper application of Article III standing suggest that the present case will likely result in another 5-4 majority decision," they wrote, suggesting Associate Justice Anthony Kennedy may, in the Edwards decision, "occupy his familiar position" as the court's swing vote.

"Which way the decision will swing appears less clear," Smerek and Sordina wrote in a Westlaw Journal Class Action commentary.

In a separate take, Bricker & Eckler attorneys Anne Marie Sferra and Sommer Sheely said the decision in Edwards "will likely have a significant impact" on dozens of other federal and state statutory schemes that allow aggrieved parties to sue for damages over alleged statute violations, irrespective of actual harm.

"[T]his case may impact a variety of theories that have been used to certify no-harm classes, including products liability cases, medical monitoring cases, and data security breach cases, to name a few," Sferra and Sheely wrote in a client note.

Hulu, based in Los Angeles, is a joint venture of Comcast (NYSE: CMCSA), The Walt Disney Co. (NYSE: DIS) and News Corp. (Nasdaq: NWS).

In the litigation against Hulu, plaintiffs argue they meet requirements of the standing doctrine in-part because, among other legal points, class members' economic losses potentially include purchases of new computer hardware and operating systems.

Attorneys for Hulu have asked a federal magistrate judge in San Francisco to dismiss the privacy case for lack of standing. The court won't consider Hulu's motion until the Supreme Court issues its ruling in Edwards v. First American Corporation.

Since the outcome in Edwards could determine the fate of the lawsuit against Hulu, Magistrate Judge Laurel Beeler of the U.S. District Court for the Northern District of California has deferred ruling on Hulu's motion to dismiss.

"The court's decision in Edwards likely will alter the standing analysis," Beeler wrote in an order that also tossed several plaintiffs' claims, including alleged violations of the Computer Fraud and Abuse Act.

The lawsuit was brought by six Hulu subscribers. In their first amended complaint plaintiffs allege Hulu "coordinated" with Kissmetrics' analytics service to store tracking identifiers in Hulu users' Internet browser caches.

By using ETag technology, which allows for tracking independently of HTTP cookies, Kissmetrics was able to track Hulu users even after subscribers deleted their cookies, thus making tracking more resistant to users' cyber-privacy efforts.

Additionally, plaintiffs allege Hulu unlawfully shared plaintiffs' content-viewing habits with third parties, including market research firm Scorecard Research, the online advertising network DoubleClick, Facebook, Google Analytics and QuantCast, an online ad-network and web-analytics company.

In their amended complaint, plaintiffs allege Hulu's now-discontinued consumer-tracking methods ran roughshod over the federal Video Privacy Protection Act (VPPA; Pub.L. 100-618), which bars service providers from sharing video rental information without written consent or a search warrant. 

"Hulu's online privacy policy is misleading in that it does not disclose its use of aggressive, rogue exploits of plaintiffs' and class members' computer software to engage in widespread tracking and information sharing," the amended complaint reads.

VPPA, aimed at preventing wrongful disclosure of video rentals or sales records, was signed into law by President Ronald Reagan in 1988, after the Washington (D.C.) City Paper published a list of video rentals by Robert Bork, a controversial and ill-fated Reagan nominee to the U.S. Supreme Court.

VPPA allows for penalties of up to $2,500 in actual damages for instances in which a service provider discloses a customer's rental information outside the ordinary course of business.

Hulu's former tracking methods drew attention from a July 2011 University of California at Berkeley research paper that indicated Hulu was reinstantiating user-deleted HTTP cookies. 

Using Kissmetrics, Hulu was able to respawn all persistent storage on a user's computer including HTTP, HTM5, Cache, and Etag cookies, according to the U.C. Berkeley paper, Flash Cookies and Privacy II: Now with HTML5 and ETag Respawning

In the underlying case, homebuyer Denise Edwards sued in federal court over claims she was harmed by an illegal kickback scheme that required her title insurance to be purchased through First American Financial. 

She sued successfully in U.S. District Court for the Central District of California. The U.S. Court of Appeals for the Ninth Circuit, in July 2010, affirmed the trial court's ruling that Edwards had standing under Article III to pursue the nationwide class-action litigation, which sought monetary damages.

"Because the statutory text does not limit liability to instances in which a plaintiff is overcharged, we hold that Plaintiff has established an injury sufficient to satisfy Article III. The legislative history of RESPA supports our holding," Judge Susan Graber wrote for the three-judge panel in Edwards v. First American Corporation, 610 F.3d 514 (9th Cir. 2010).

For its part, First American Financial Corp. (NYSE: FAF) argued Edwards lacks standing to sue over the alleged kickback scheme because she was not charged inflated title insurance fees because of the alleged kickback and exclusivity agreement.

The putative class action against Hulu is: Joseph Garvey et al. v. Kissmetrics and Hulu LLC, No. 3:11-cv-03764-LB, N.D. Cal. (San Francisco).

For more:
 - read the EPIC amicus brief (.pdf)
 - read the Facebook et al amicus brief (.pdf)
 - read the Winston & Strawn commentary
 - read the Bricker & Eckler analysis

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