Online Terms of Use: An Update


Online Terms of Use: An Update

On June 10, 2019, we discussed an Illinois federal court decision enforcing an online consumer arbitration agreement. There are now decisions from federal courts in New York and California that touch on related issues, and offer important guidance for online terms and conditions.

Bass v. Facebook: Are Limitations on Damages and Liability Enforceable?

Online terms that seek to limit damages and even causes of action are fairly common in contracts between businesses, and are generally enforceable because of the presumed sophistication of the parties and the fact that they likely resulted from a negotiation process.

However, enforcing such provisions in consumer contracts presents thorny questions.

It is not unusual for judges and arbitrators to scour consumer contracts to determine whether they are “unconscionable,” i.e., too unfair, either in what they provide (whether they are too harsh or one-sided) or how they are presented (whether the consumer is put on adequate notice of the existence of the terms, their importance, and their binding nature).

Judges are also are far more willing to interpret consumer online terms forcefully against the drafter (you), underscoring the need to be clear, plain spoken, and unambiguous. It’s also worth noting that onerous consumer contract terms — both in terms of the substance of their provisions and their overall length — can predispose judges and arbitrators against a retailer.

And, so, when crafting online terms, it is critical to ask, for each provision: Do we really need this? And: Is this provision worth potentially putting an arbitration agreement at risk of either non-enforcement or a prolonged and costly legal fight?

In Bass v. Facebook, Inc., the court focused on two issues.

First, it looked at the question of whether the limitation clauses were unduly harsh or one-sided, and therefore oppressive and unenforceable because they purported to bar claims for breach of contract. It concluded — with some reluctance — the limitations were enforceable, looking both at how clearly they were presented to the consumer and at the terms themselves.

It is crucial in online terms, the court explained, which generally are not the result of a negotiation process, that provisions not be overly one-sided. The terms should not be buried and any processes and procedures be fair, including those related to arbitration. “The ultimate issue,” the court wrote in Bass, “is whether, in view of all of the relevant circumstances, the contract is so unfair that enforcement must be withheld.”

Bass v. Facebook, Inc., 18-cv-05982

Second, while the Court dismissed the breach of contract claims and the breach of confidence claims on the basis of Facebook’s limitation of liability clause, not so the plaintiff’s negligence claims. Why?

The limitation of liability clause did not specifically include the word “negligence.” “Any agreement insulating one from his own negligence must specifically so provide,” the court wrote, and “is strictly construed against the party asserting the exemption, especially where he is the author of the agreement.”

Nicosia v., Inc.: Are Amended Online Terms Enforceable?

The twist in this case is that the account under which a product was purchased began as an “Amazon Mom” account with “conditions of use” that lacked an arbitration clause. Sometime later, Amazon added an arbitration clause to its Amazon Prime Terms and Conditions which stated in part that:

“Any dispute or claim relating in any way to your visit to or to products or services sold or distributed by Amazon or through will be resolved by binding arbitration, rather than in court, except that you may assert claims in small claims court if you qualify.”

In Amazon, there was no dispute that the arbitration requirement was added prior to the purchase, and so the issue was whether or not the circumstances of the purchase established the arbitration requirement as part of the contract between Amazon and its customer.\

For online sellers, making sure that changed terms are enforceable is an important question — particularly, as here, where you seek to add a significant new restriction. The key issue is whether you’ve clearly notified the consumer of the changed terms, and made them part of the agreement you are seeking to enforce. In the eyes of one New York federal judge, Amazon met this burden.

The court found that the changed terms applied because, among other things, during the purchase and sign-up processes, the consumer had to click a “Continue” button that stated: “By clicking the Continue button, you acknowledge that you agree to the Amazon Mom Terms and Conditions [with a link].” Those terms and conditions expressly stated that the amended Amazon Prime Terms and Conditions applied to the purchase.

Although this is simply the opinion of one judge in one court, Nicosia points the way to increasing the odds that changes to your terms and conditions will be enforced, based on the common sense idea that, the more you call out the change and the binding nature of the new terms prior to the purchase, the greater the chance that the changes will stick.

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