The best things in life aren’t free (for long, at least)…

The recent controversy surrounding Instagram’s changes to its Terms of Service in late December, 2012, which came into effect late last week reiterates the importance for even early-stage companies to carefully and properly draft their terms of service, as changing them once you have become a success story is far from easy, and can cause you great damage.

Instagram, Facebook’s $715M 2012 acquisition updated its Terms of Service to reserve the right to sell user’s photos to advertisers without their permission, and without compensation. Ensuing public uproar and bad publicity (e.g. the#Quitstagram protest), along with its first class action lawsuit (before the U.S. District Court, Northern District of California, is Lucy Funes, individually and on behalf of all others similarly situated vs. Instagram Inc., 12-cv-6482), made Instagram partially back off its plan to sell user photos without compensation, at least for now. However, Instagram kept language that permitted it to place ads in conjunction with user content, and stating “we may not always identify paid services, sponsored content, or commercial communications as such”.

The updated Terms of Service also included a mandatory arbitration clause, forcing users to waive their rights to participate in class action lawsuits except under very limited circumstances. This is a clear example of 20-20 hindsight gained from Facebook’s recent Sponsored Stories class action settlement. Unfortunately for Instagram, the mandatory arbitration clause won’t apply to claims asserted prior to the update. The lawsuit alleges that customers who do not agree with Instagram’s Terms of Service can cancel their profile, but in doing so, forfeit rights to photos they had previously shared on the service. Customers should be used to this principle, commonplace with Facebook, Twitter and Youtube, and the obvious clichés come to mind, “If you aren’t paying for the product, you are the product”, “You get what you pay for”, and “The best things in life aren’t free”.

#startup #entrepreneurlaw #facebook #termsofservice