Twitter’s New Liquidated Damages Clause

Protecting our users’ data and our system resources is important to us. You further agree that, to the extent permitted by applicable law, if you violate the Terms, or you induce or facilitate others to do so, in addition to all other legal remedies available to us, you will be jointly and severally liable to us for liquidated damages as follows for requesting, viewing, or accessing more than 1,000,000 posts (including reply posts, video posts, image posts, and any other posts) in any 24-hour period – $15,000 USD per 1,000,000 posts. You agree that these amounts are (i) a reasonable estimate of our damages; (ii) not a penalty; and (iii) not otherwise limiting of our ability to recover from you or others under any legal or equitable theory or claim, including but not limited to statutory damages and/or equitable relief. You further agree that repeated violations of these Terms will irreparably harm and entitle us to injunctive and/or other equitable relief, in addition to monetary damages.

There is a lot going on here, both legally and in terms of the back-story behind this provision. 

Calling something a liquidated damages provision does not mean that it is enforceable. Courts will look at the provision and determine on their own whether it is an unenforceable penalty clause. Stating in more detail that the counterparty agrees that the clause is not a penalty should not really change anything. Even in negotiated agreements, courts undertake their own assessment of whether a provision is a penalty. One thing the court might consider is sub-point iii, which provides that Twitter can recover damages on top of liquidated damages. That undercuts the advantage of a liquidated damages provision — saving litigation costs by stipulating to damages in advance — and thus suggests that this clause, notwithstanding its insistence to the contrary, is in fact a penalty.

Mike Masnick, writing on Techdirt, provides the best explanation I have seen of what motivated the new liquidated damages provision. Elon Musk may be trying to set up a suit against AI companies, including his recent nemesis OpenAI, that scrape massive amounts of information from websites like Twitter. Mr. Masnick provides an additional reason why the provision might be unenforceable, at least in part.  Section 40.12 of the European Union’s Data Security Act requires platforms like Twitter to provide access to their data:

Providers of very large online platforms or of very large online search engines shall give access without undue delay to data, including, where technically possible, to real-time data, provided that the data is publicly accessible in their online interface by researchers, including those affiliated to not for profit bodies, organisations and associations, who comply with the conditions set out in paragraph 8, points (b), (c), (d) and (e), and who use the data solely for performing research that contributes to the detection, identification and understanding of systemic risks in the Union pursuant to Article 34(1).

Mr. Masnick thinks the liquidated damages provision might be an attempt by Musk to poke the EU regulatory bear, but it is also possible that Musk (or his attorneys) understand that there has to be a regulatory carve-out from the rule. In that case, the real target of the provision would be private scrapers.

Thanks to Mitu Gulati for sharing news of this controversy with me and for sharing with me this interesting discussion of developments in liquidated damages law by Glenn West.