Late last year, the United States District Court of
Nevada handed down a ruling that has significant consequences for companies
engaged in commerce on the internet. In re Zappos, Inc., 2012 U.S.
Dist. LEXIS 141803 (D. Nev. Sept. 27, 2012) [an enhanced version of this opinion is available to lexis.com subscribers]. In the case, customers of online
retailer Zappos.com sued the company seeking damages resulting from a security
breach in which a hacker accessed Zappos' customer information in 2012. Zappos
attempted to invoke the arbitration provision contained in its website's Terms
enforceable agreement to arbitrate.
right to change this Site and these terms and conditions at any time.
ACCESSING, BROWSING OR OTHERWISE USING THE SITE INDICATES YOUR AGREEMENT TO ALL
THE TERMS AND CONDITIONS IN THIS AGREEMENT, SO PLEASE READ THIS AGREEMENT
CAREFULLY BEFORE PROCEEDING." The court's reasoning was based on two
issues that this language presented. First, users had not actually agreed
inconspicuous and the website did not direct users to view or indicate their
assent to the agreement. Second, the language gave Zappos the
unrestricted, unilateral right to amend the agreement without consent or notice
rendered the agreement illusory. For instance, if Zappos had decided it
did not want to adhere to the arbitration provision, it could have simply
was not an enforceable contract.
There are two main lessons that any company with an
online presence should note.
Use Clickthrough Agreements
Zappos' website were of the sort that courts categorize as "browsewrap"
agreements. Browsewrap agreements ostensibly bind website users to the
agreement by virtue of the fact that the agreement is accessible somewhere on
the website, usually via a link. Clickthrough agreements require website users
to affirmatively indicate their acceptance of the agreement by, for example,
clicking a button labeled "I Accept."
While the courts haven't condemned browsewrap agreements
entirely, if you found yourself in a litigation situation, you would have to
either produce evidence that the customer had actual knowledge of the terms or
demonstrate that your site provides "reasonable notice" of the terms, either of
which might be difficult to do. On Zappos' website, the link to the Terms of
Use was located on every page on the site between the middle and bottom of the
page, below the fold. The court described the link as being the same size,
font, and color as other insignificant links and users were not prompted to
inconspicuous and users were not directed to them, the plaintiff customers had
Simply avoiding browsewrap agreements eliminates this
problem. Website users should have to click on a button to indicate that they
have read and accepted the terms. It is easy enough to require new users to do
this when they create individual accounts. Those who already have accounts can
indicate their assent by clicking on an appropriate button at the point of
their next purchase or other transaction. If you have customers who use your
website, but you don't have an opportunity to elicit their consent to the
terms, you may want to consult your lawyer to come up with a way to enable your
customers to review and accept the revisions.
Do Not Reserve the Unilateral Right to Amend
at any time without consent. Zappos' unrestricted, unilateral right to amend
therefore unenforceable, especially because Zappos was not required to give
notice or obtain the users' consent to any amendment. While some court
decisions highlight only the failure to give notice of an amendment as being key,
at least one court has found an agreement illusory when the defendant reserved
the right to amend the agreement at any time by giving notice to the customer -
despite the obligation of notice. It is clear, then, that simply promising to
provide notice of any amendment is insufficient; user consent must be obtained
in some fashion. In addition, if your business model makes it appropriate, you
may wish to consider including some mechanism to allow users to propose
amendments that would be effective only with your consent. Your attorney can
help you craft language to enable you to revise your terms of service as your
industry and your business needs change and grow.
Read more articles by Alexander Davie at Strictly Business, a
business law blog for entrepreneurs, emerging companies, and the investment
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