Web Companies, Privacy Advocates Weigh In On Supreme Court Case

by Wendy Davis, Oct 21, 2011, 5:31 PM

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An upcoming U.S. Supreme Court case is drawing the attention of Web companies as well as consumer advocates, who say the ruling in the case could affect a broad swath of litigation about online privacy.

The case itself involves a dispute about the Real Estate Settlement Procedures Act -- a federal law that bans certain types of kickback schemes. But the lawsuit presents the same key question as dozens of pending lawsuits against Web companies -- whether consumers have the right to sue when they haven't suffered economic injury.

In the real estate dispute, home buyer Denise Edwards says she was affected by an illegal kickback arrangement, which required her to purchase title insurance through the company First American Financial. Edwards says she is entitled to sue under the Real Estate Settlement Act, which not only outlaws certain kickbacks for title insurance, but provides that consumers are entitled to recover triple the amount they paid.

But First American argues that Edwards should not be able to sue at all because she didn't overpay as a result of the alleged kickbacks. Edwards purchased her home in Ohio, where all title insurers are required by state law to charge the same amount.

The trial judge and the 9th Circuit Court of Appeals allowed Edwards' lawsuit to proceed, but First American appealed to the Supreme Court, which accepted the case over the summer. Yahoo, LinkedIn, Facebook and Zynga are now weighing in with a friend-of-the-court brief against Edwards. The Web companies argue that consumers like Edwards shouldn't be able to sue unless they have been harmed -- even if they can allege violations of a specific statute, such as laws aimed at ensuring the privacy of messages stored electronically, or of video rental records.

Yahoo and the others say that allowing consumers to sue when they haven't been injured will encourage them to act as “roving attorneys general.”

“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 argue in their brief, filed in August.

This week, the Electronic Privacy Information Center countered with its own friend-of-the-court brief, which argues that Congress has the ability to allow consumers to sue for privacy violations regardless of whether they can prove economic injury.

“Harms suffered as a result of privacy violations are often difficult to quantify,” EPIC argues. “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.”

The issue is critical for Web companies, which increasingly face privacy lawsuits by users. Facebook alone has been named in numerous potential class-action lawsuits by users who allege the social networking service has violated various privacy laws.

Internet companies that are sued for privacy violations typically argue that they should be dismissed because the consumers haven't adequately alleged injury. So far, some companies have had success with that argument.

For instance, data aggregator Spokeo recently convinced a federal judge to dismiss a lawsuit alleging that it violated federal fair credit laws by offering incorrect information about consumers. In that case, U.S. District Court Judge Otis Wright II in the Central District of California ruled that the consumer who brought suit, Thomas Robins of Virginia, didn't adequately allege that he had been injured by incorrect information on Spokeo.

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