• by Wendy Davis  @wendyndavis, December 26, 2012

An Instagram user has filed a potential class-action lawsuit against the company for announcing new terms of service.

California resident Lucy Funes alleges in a complaint filed in federal court in San Francisco that the Facebook-owned company is "taking its customers' property rights" with the new terms. Among other changes, the new terms limit users' ability to bring future lawsuits against Instagram.

Funes says the only way for users to reject Instagram's new conditions is by canceling their accounts -- which means they allegedly "forfeit all right to retrieve the property" they had uploaded. "In short," she alleges, "Instagram declares that 'possession is nine-tenths of the law and if you don't like it, you can't stop us.'"

Funes argues that Instagram's new terms amount to a breach of its contract with users. She is seeking an injunction banning it from following through with its proposed changes.

A Facebook spokesperson said the company believes the lawsuit is without merit, and that it intends to fight it vigorously.

Last week, Instagram sparked a user revolt by posting new terms of service that appeared to give the company the right to license users' photos to advertisers. But several days later, company co-founder Kevin Systrom backtracked. He said in a Dec. 20 blog post that the company has no plans to roll out any new ad products that would require it to license users' photos. On that date, the company also posted new terms of service -- for the second time that week. Those terms will take effect on Jan. 19.

While the updated terms no longer include the controversial language about licensing photos to advertisers, they still differ in some ways from the original user agreement. For instance, users must now agree that most types of disputes will be resolved in arbitration, and they waive their right to bring class-action complaints.

Those types of arbitration clauses have become more common since last year, when the Supreme Court upheld AT&T's mandatory arbitration provision. In recent months, Microsoft, Netflix, eBay and Paypal have revised their terms of service to provide that consumers have no right to bring class-actions.

The new terms also cap certain kinds of damages at $100. That shift could be significant because a California law that gives people the right to control the commercial use of their names and images provides for damages of $750. Parent company Facebook recently agreed to settle a class-action lawsuit accusing it of violating that law with the Sponsored Stories program, which told users which of their friends liked particular advertisers.

Should Instagram draw on users' names or photos of themselves in Sponsored Stories ads in the future, the new terms could limit its potential liability.

The high-profile case is drawing headlines this week, but legal experts say the lawsuit doesn't appear likely to succeed. "This is a crazy lawsuit," Santa Clara University law professor Eric Goldman says in an email to Online Media Daily.

Goldman points out two significant hurdles. First, the case is premature because the terms haven't gone into effect yet. Second, Funes could have a hard time showing that she's been injured by the new conditions. But without some sort of harm, Funes lacks "standing" to proceed in federal court.

Lawyer Venkat Balasubramani adds in a blog post that users can always "exercise self-help and leave the network before the new terms apply." He calls the case "a classic example of lawsuits against social networks gone completely amok."