Lessons from the PayPal Honey Scandal: Cookie Stuffing, Class Actions, and Waiver Contracts

[Vishwaroop Chaterjee is a second year law student at Rajiv Gandhi National University of Law, Punjab]

Background

The world of Youtube was taken aback as it was brought to attention that the popular browser extension “PayPal Honey” was engaging in the act of digital fraud called cookie stuffing with over 1000 youtubers being its victim. Cookie stuffing can be explained by understanding the concept of affiliate marketing in which creators get paid a commision for promoting products by requesting viewers to use their affiliated amazon links (or any other e-commerce/website link). Allegations against Honey amount to having a model where they overtake the last click advantage of the creator and its affiliate links, taking away the creator's revenue. According to the reports, Honey takes the original creator's affiliate link and replaces it with its own. Essentially, the commission is deprived from the creator and pocketed for Honey itself.

The widespread exposure of such a scam demonstrates our law makers' lack of knowledge on technology laws and data protection. The analysis of the technology industry also requires regular updates and insights that are consistent with the legal industry. Without focused and efficient, and most critically, ever-changing digital laws and policies, there will be pandemonium, such as the Honey fraud on YouTube. In respect to everything, these allegations eventually led to a class action lawsuit being filed by the EagleTeam LLP & other creators. The lawsuit only represents the creators and not the consumers as honey as no waiver clause in its contract. However, class action lawsuits are rising against the tech companies in the recent past and an intricate analysis is required for this case.

In this article, the analysis will pertain to firstly, whether the no waiver contract between and the consumers is valid or not and secondly, the issues rising out of class action lawsuits against tech companies and how to combat them.

The Lawsuit Against Paypal Honey

The case goes beyond cookie stuffing and also incorporates contractual fraud allegations as Honey marketed itself as the most advantageous coupon finder by eliminating the need to manually apply each coupon to see which one saves you the most money and seamlessly applies it when you are checking out.

However, in reality it was concealing the best coupon choices and prioritising partner stores to find coupons with lesser discounts. While, the company's rewards scheme overrules the original affiliate connection or any better deals According to the youtuber Metalag’s Investigative video in which an example of Honey's 'exploitation' was cited as the browser extension rewards consumers with $0.89 for a transaction while diverting a $35.60 commission owing to the advertiser to itself .

The lawsuit concurs that last-click attribution is a common practice that assigns a sale to the most recent affiliate at payment. The plaintiffs allege Honey's use of that usual method is "deceitful and clandestine," enticing users into clicking worthless pop-ups that insert its code for converting the creator's affiliate link into its own. Essentially overtaking the last click without the consent of the user or the creator. Moreover, at the checkout option Honey would use a pop up and refer to Paypal despite on being any other application. Crediting the sale to Paypal rather than the original platform. This diversion of the traffic to paypal also violates the California Competition Act as per the lawsuit.

Understanding Cookie Stuffing in legal Context

The legal case study to understand is perhaps the case of Ebay V. Digital Point Solution in which the Plaintiff eBay claimed that defendants Kessler’s Flying Circus and Digital Point Solutions, Inc. carried out a large-scale "cookie stuffing" scheme. They allegedly used software or code to redirect users to eBay's website without users clicking on eBay ads on affiliate sites. Under Advertiser Service Agreements with Commission Junction, affiliates earn commissions when actions occur on eBay’s site within a certain period. eBay accuses the defendants of fraud, claiming their actions led to unauthorized access to eBay's computers, data corruption, and overpaid commissions that the defendants were not entitled to. The accused were found guilty to few but not all cookie fraud charges which resulted in fines and federal prison sentence.

While the ebay case sets up a precedent for cookie stuffing crimes for the liability against corporations however it still remains unclear the rights of the consumer especially in cases of waiver contracts. Such as in the present casse, Honey makes the consumer agree to a no waiver contract which means no lawsuit can be brought against them as a result of non performance of any stipulation while using their product. Instead of litigation, the no waiver contracts are directed to indivual arbitration. This further complicates the procedure in the current case as American Jurisprudence has upheld the validity of such waiver contracts.

The Legal Analysis And Suggestion

The US law recognises the validity of no waiver contracts in legal proceedings. This can be seen in the case of AT&T Mobility LLC v. Concepcion. In the mentioned case the US supreme court held agreements which appear to be reasonably appropriate on face are in consonance with the Federal Arbitration Act 1925. The same rule has been upheld by the case of Epic Systems Corp. v. Lewis that individual arbitration will take precedence over class action litigation if the same had been a contractual clause.

The first suggestion here to the consumer is to approach litigation by invoking the California Consumer Financial Protection Law (CCFPL) as in the case of Scott v. Cingular Wireless where individual arbitration proceedings were held to be a power imbalance as each consumer may not be able to afford attorney fees in special cases where Consumer rights where violated at large. Furthermore, the ruling held class action waivers which prevent accessing rights secured by consumer laws are invalid. This judgement is considered a rare occurrence where litigation took precedence over individual arbitration.

As in the present case, the allegations against honey amount to fraud where it refused to produce the best available coupon despite being marketed as such. The consumers shall file a class action lawsuit under CCFPL and avoid the demerits of individual arbitration such as cost of attorneys and as class-action lawsuits handled by large firms while individual attorneys may lack the collective strength required to effectively challenge large tech corporations.

Secondly, Class action lawsuits are rarely upheld in technology law related cases as in the cases of Gurminder Singh V. Google where the plaintiff fails to qualify as the putative class and individual arbitration is preferred as the laws that govern such proceedings are outdated and do not encapsulate the tech giant's omnipresent power imbalance and the impact it can have on various individuals at large. Thus, having individual proceedings will only delay justice. For example, the Federal Arbitration Act was formed in 1925 and does not have any legal mechanisms to combat the tech giants. This precedent is also set in the UK where the case of Lloyd V. Google also said it would be essential to assess the extent of the illegal processing in each individual case, and damages could not be sought on a "uniform per capita" basis without evidence of each individual circumstance.

Hence, the second suggestion is to make amendments to relevant laws related to class action lawsuits and data privacy lawsuits to accommodate the ever evolving digital landscape. The amendments shall be aligned to the legal principles of “same interest” test which refers to that plaintiffs must have a substantially similar legal claim against the tech giant arising from the same set of facts, allowing them to be considered as a "class" with a common interest in the outcome of the case.

Conclusion

The Honey scam, which is said to be among the biggest in YouTube history, highlights the growing problems caused by cookie stuffing and digital frauds in an increasingly technology-driven economy. Content creators and consumers are both vulnerable to deceptive practices, while outdated legal frameworks struggle to keep up with changing digital threats. Cases such as EBay v. Digital Point Solutions and Lloyd v. Google highlight the need for strong legal mechanisms to combat fraud and protect both consumers and creators.

To combat such fraud, amendments to the laws governing class action lawsuits and arbitration proceedings are necessary. These changes should prioritize collective consumer rights and address the complexities of the technology industry. Furthermore, stronger regulatory oversight, transparency in digital marketing practices, and accountability for parent companies such as PayPal are required. The interests of creators, consumers, and advertisers can all be better served by fostering a more equitable and secure digital ecosystem.