Lawyers, other representatives, expert(s), tribunal’s secretary

Partial Final Award

I, THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into between the above-named parties and dated October 27, 2010, and having been duly sworn, and having duly heard the proofs and allegations of the parties, do hereby, FIND and AWARD, as follows:

FINDINGS

[1].
THIS ARBITRATION is the latest chapter involving competitors in the distribution and management of digital and photo content to hotel and travel websites.
[2].
On October 27, 2010, VFM Leonardo, Inc. ("Claimant") and ICE Portal, Inc. ("Respondent") settled prior litigation involving claimed violations of the Federal and Florida Antitrust Acts, claims of tortious interference with advantageous business relationships, and deceptive and unfair practices. The settlement agreement between the parties expressly included a recognition of Respondent’s right to perform limited photo services for hotel and travel firms using one of Claimant’s proprietary programs.
[3].
Claimant’s business model involves the production and distribution of virtual video tours and photos for hotel websites and online travel sites, including Global Distribution Systems ("GDS"), owned by firms known as Sabre, Galileo (n/k/a Travelport), Pegasus and Amadeus. The business purpose is to enable users to view hotel rooms and facilities in advance of booking a room.
[4].
Claimant offered its services through agreements with hotels and hotel chains, including Genares Worldwide Reservation Service, Ltd. ("Genares") and Vantage Hospitality Group, Inc. ("Vantage"). All of these contracts were subject to terms and conditions governing the use of Claimant’s services such that each internet use required acceptance of the terms and conditions governing access to the videos/photos.
[5].
In addition to its fee for services agreements, Claimant also offered a free service to the travel industry, called VFM Light ("Light"). Upon approval by Claimant of use, the authorized user could access a limited number of photos of hotel rooms and facilities without charge. These agreements were also subject to restrictions of use and were terminable at will. Under the 2010 settlement agreement, hotels and hotel chains were allowed to access the Light service either through their own employees or by means of an outside marketing company, such as Respondent.1
[6].
Claimant’s reason for providing this service without charge was to attract users who would then upgrade to Claimant’s fee driven offerings. To further encourage this, the Light service was limited to only a few photos and it was designed to be difficult and slow to operate.
[7].
Although Claimant contends that Section 10(xix) of the settlement agreement was merely an "admission" by Respondent and therefore not binding on Claimant, fairly read, the agreement acknowledges Respondent’s right to provide such services to users of the Light service.
[8].
Respondent’s business plan included both the sale of services which were competitive with those of Claimant and, as to the Light service, offered users a means to operate the service quickly and efficiently.
[9].
In April, 2012, Claimant amended its terms and conditions of use of the Light service. The section governing the right to access the Light service was altered so that it read:

12. Limitation of Use of VScape by Third Parties

The free VScape Service provided to Your Hotel and Your Hotel Chain pursuant to these Terms of Service is intended for the exclusive use of Your Hotel Chain and Your Hotel. In particular, only employees of Your hotel and/or Your Hotel Chain may access VScape on behalf of Your Hotel or Hotel Chain. Your Hotel and Your Hotel Chain may not hire or provide access to its VScape account to a third party that is not an employee of Your Hotel or Your Hotel Chain to access VScape and upload or manage any Hotel Content on behalf of Your Hotel or Your Hotel Chain. Access to Your Hotel’s or Your Hotel Chain’s VScape account by a non-employee will result in a termination of the VScape Service and removal of all Your Hotel’s Content from distribution on the Vnetwork. (Emphasis added).

[10].
The change, designed to deny Respondent the ability to access the service as an authorized agent on behalf of a hotel client, was not as clear as it might have been since Claimant’s terms of use continued the prior definition of "Your Hotel Chain," which expressly included non-employees, such as Respondent. It stated:

(h) "Your Hotel Chain" means, if you represent a hotel chain (including a hotel brand and a hotel representation or marketing company) and are using the VScape Service on behalf of that hotel chain to upload, review, manage, edit and/or distribute Hotel Content relating to hotel properties belonging to such hotel chain, such hotel chain. (Emphasis added).

[11].
In August, 2013, Claimant further clarified the use restrictions by amending the definition of "Your Hotel Chain" in order to remove this ambiguity. As amended, the terms of use clearly barred any outside or non-hotel entity from access, restricting it to only the user’s own employees. Thus, Respondent was not permitted to access the Light service either in its capacity as a marketing company on behalf of a hotel client or in its own right.
[12].
The evidence is clear that Respondent was aware of the impact of its exclusion from access to the Light service. For example, prior to the change in terms of access, Respondent had managed Starwood Hotels’ ("Starwood") use of the Light service. In the Spring of 2012, Claimant notified Starwood that Claimant’s access on behalf of Starwood violated the modified terms of service. Starwood complied and advised Respondent that it would no longer be permitted to access the Light service on its behalf. Respondent accepted this restriction and ceased performing Light services for Starwood.
[13].
In addition, in the fall of 2012, counsel for Respondent wrote to most all of the GDS’s stating:

VFM Leonardo Inc. ("VFML") has recently modified terms applicable to the use of its Vscape Lite service, which provides hotels with basic access to the Vscape system in order to distribute photos to major travel intermediaries free of charge. Whereas previously, hotels and hotel chains were permitted to outsource the management of their content, including content distributed through VScape Lite, to competitors of VFML... the recently-modified terms and conditions preclude such third-party content management... (Emphasis added).

[14].
I find that by 2012, the modification of the terms of use of the Light service prevented Respondent from access to the Light service. Any access by Respondent was in violation of Claimant’s property rights. Any attempt by Respondent to claim a right of access to the Light service as a means of obtaining hotel and hotel chain clients was improper.

The Present Dispute

[15].
This arbitration involves the propriety of Respondent’s competition with Claimant in their efforts to reach agreements with the Genares and Vantage hotel chains. There is as well, a claim to recover US$6,000.00, representing the unpaid balance of fees and expenses incurred by Claimant in enforcing its rights against Genares and Vantage to bar Respondent from access to the Light site. Claimant also seeks injunctive relief to prevent future breaches by Respondent. A claim for unjust enrichment was voluntarily dismissed by Claimant prior to trial.
[16].
Claimant’s previous two-year fee for service contract with Genares was set to expire on September 30, 2013. For several months prior to that date the parties were negotiating for a new agreement at a substantial increase in price, characterized by Claimant as a means of standardizing its pricing to the ‘prevailing rate’ in the industry. What this meant to Genares was that its cost would have been over US$150,000.00 annually or more than three times the previous contract price.
[17].
Similarly, Claimant’s previous fee for service contract with Vantage expired on October 31, 2013. Several months prior to that date, the parties were in negotiation for a new agreement which would have increased the cost to Vantage to more than US$142,000.00 per year, more than four times the prior pricing. Although both Genares and Vantage had concerns over the quoted prices, each negotiation with Claimant had progressed to the point where final drafts were circulated for signature. Literally at the last minute, both Genares and Vantage refused to sign new agreements with Claimant. Instead they signed up with Respondent for services similar to those proposed by Claimant.
[18].
I find from the evidence that in its competition with Claimant for the Genares and Vantage contracts, Respondent represented it would continue to provide access and services on their behalf to Claimant’s Light service. This representation was false. Together with Respondent’s surreptitious means of accessing the Light service on behalf of Genares and Vantage through the use of anonymizers and false names until this was discovered by Claimant, it was improper and it was unfair competition for the Genares and Vantage contracts. Upon discovery that Respondent was accessing the Light service, Claimant took steps to block further use and collected US$10,000.00 in fees and costs from Genares and Vantage for their breach of the terms of use, leaving US$6,000.00 remaining unpaid.
[19].
There can be no argument that Respondent had the right to compete with Claimant for the new contracts. But this right did not include the use of false representations as to access to and management of the Light service on behalf of its customers as a means of winning these contracts, and it did not include the secret improper means used by Respondent to access Light in order to perform its new contracts with Genares and Vantage. I find that Respondent’s unfair and deceptive practices deprived Claimant of the benefit it would have otherwise have obtained from the Genares and Vantage contracts.
[20].
Respondent’s conduct amounted to tortious interference with Claimant’s contract negotiations. Claimant had an existing business relationship with Genares and Vantage which Respondent was aware of and improperly interfered with, without privilege or justification. Claimant suffered damage as a result of Respondent’s misconduct by losing the anticipated profits from the proposed agreements.
[21].
Claimant’s alternative claim for relief for loss of the contracts under Florida Deceptive and Unfair Trade Practices Act ("FDUPTA") is denied as being duplicative of the relief granted under the claim for tortious interference.
[22].
I also reject Claimant’s request for injunctive relief in order to prevent future misconduct since Claimant has a full and adequate remedy in damages if such misconduct does occur.
[23].
Consistent with these conclusions, I deny Respondent’s claim that Claimant tortiously interfered with Respondent’s contracts with Starwood, Genares and Vantage. Claimant’s actions in enforcing the terms of use of the Light service were privileged in order to protect its own economic rights. Similarly, Respondent’s claim that Claimant breached the non-disparagement clause in the 2012 settlement agreement fails because Claimant merely enforced its own business interests.
[24].
Finally, Claimant’s 2012 and 2013 changes to the Light service terms and conditions of use, which limited access only to employees of its users and which barred outside marketing companies from access, was proper and not in breach of Section 10(xix) of the settlement agreement. Claimant properly exercised its right to amend the terms of use of its Light service.

Damages

[25].
Claimant’s damage expert calculated lost profits by using assumptions of additional costs incurred in performing its work under the Genares and Vantage contracts as if they were obtained by Claimant.
[26].
Under the most conservative approach, the expert assumed the same percentage of expenses to income that Claimant experienced under its earlier agreements with Genares and Vantage. He concluded Claimant’s lost profits were US$94,000.00 for the two years. Alternatively, he calculated lost profits as if there were no additional costs incurred in generating the income projected under those contracts, resulting in US$530,000.00 in lost profits for the two year period.
[27].
The approach which assumed there would be incremental costs equivalent to the percentages incurred under the prior contract is in my view more reasonable and realistic. I therefore find that Respondent is liable to Claimant for lost profits of US$94,000.00 from the loss of the Genares and Vantage agreements.
[28].
Claimant is also entitled to recover US$6,000.00 from Respondent representing the costs and fees which it incurred in enforcing its rights under the Light service against Genares and Vantage which remain unpaid.

Award

[29].
For the reasons set forth above, I hereby Award as follows:

A. Claimant is entitled to recover US$94,000.00 from Respondent as damages for tortious interference with Claimant’s business relationship with Genares and Vantage.

B. Claimant is entitled to recover US$6,000.00 from Respondent representing costs of enforcing its Light service rights.

C. Claimant is not entitled to recover damages from Respondent under the Federal and Florida Antitrust Acts.

D. Claimant is not entitled to recover damages from Respondent for violation of the FDUPTA statute.

E. Claimant is not entitled to injunctive relief against Respondent to prevent further violations.

F. Respondent’s Counterclaim is denied and Respondent is not entitled to recover damages against Claimant.

G. Claimant is entitled to recover costs as the prevailing party.

H. Except for the issue of the costs of the arbitration (including, but not limited to, the legal fees for the representation) for which I hereby reserve jurisdiction, this Partial Final Award is in full and complete settlement and satisfaction of any and all issues submitted by the parties, and any claim not specifically addressed herein is nonetheless deemed denied.

[30].
I hereby certify that, for the purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Partial Final Award was made in Miami, Florida, United States of America.
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