Craigslist’s Liquidated Damages Clause – Are Actual Damages Too Difficult To Calculate?

By Myanna Dellinger

Craigslist has decided to crack down on companies that use data from its websites to generate ads on competing websites. 

Technically, this can be and is done by various software programs (“spiders, “crawlers,” “scrapers” and the like) that look through craigslist and automatically cull information that can be reposted outside the Craigslist sites. 

Craigslists’ terms of use clearly state that “[b]y accessing our servers, websites, or content therefrom, you agree to these terms of use” and that “[r]obots, spiders, scripts, scrapers, crawlers, etc. are prohibited ….  You agree not to collect users’ personal and/or contact information (‘PI’).”  Further, users are asked to pay Craigslist “for breaching or inducing others to breach the ‘USE’ section, not as a penalty, but as a reasonable estimate of our damages (actual damages are often hard to calculate): $0.10 per server request, $1 per post, email, flag, or account created, $1 per item of PI collected, and $1000 per software distribution, capped at $25,000 per day.”

Previously, a question may have been raised as regards whether this type of “click-through” acceptance would be valid or not.  However, as noted in another blog, online contracts are, modernly, not only valid, but also carry more force when the site requires a user to affirmatively click on an “I accept”-style button rather than when a site simply features the terms of use someplace on a website without any further action to be taken by the user as regards the contractual terms.

Courts broadly uphold liquidated damages clauses as long as they are not punitive in nature.   Some of the factors that play into this rule is whether actual damages would be difficult to calculate after the breach occurs and whether they are unreasonably large. 

In the Craigslist case, an issue may be whether actual damages would be difficult to calculate.  Craiglist’s statement in its terms of use that its liquidated damages are “not a penalty, but [] a reasonable estimate of our damages” is, of course, highly boot-strapping and thus won’t be given much, if any, weight in court.  But are damages easy to calculate in cases such as this?  For example, PadMapper is an apartment-finder site that allegedly uses data collected from Craigslist and similar sites.  But even if this can be proved (which would be easy if, for example, a user only posted his/her information to one site), what about the damages to Craigslist?  Since the company typically does not charge at least private users for posting “for rent” or “for sale” ads, and since its users arguably often cross-post listings anyway, how would Craiglist be able to trace damages for collecting “its” data to a specific, ultimate amount of damages?  Isn’t doing so in fact simply too speculative?  If so, liquidated damages seem to be in order.

With today’s many links to links to links, cross postings and machines retrieving data and using it for various purposes (not only commercial ones), contractual damages calculations may be too difficult and, for a court of law, too timeconsuming to be worth the judicial hassle.  Liquidated damages are known to, among other things, present greater judicial efficiencies, which is very relevant in these kinds of cases.  Perhaps Contracts Law needs to move towards an even broader recognition of such clauses and not be so concerned with the potential punitive aspect, at least as regards the “difficulty in calculation” aspect of the rule.  After all, damages also serve a deterrent function.  Sophisticated businesses operating programs specifically designed to retrieve data from other companies’ websites should – and logically must, in 2014 – be said to be on notice that they may be violating contractual agreements if they in effect just lift data from others without paying for it and without getting a specific permission to do so.

And what about consumer rights?  If a person for some reason only wants his or her information posted on one particular site, why should it be possible for other companies to override that decision and post the information on other sites as well? 

One thing is unavoidable technological change.  Quite another is violating reasonable consumer and corporate expectations.  Some measure of “stick” seems to be in order here.