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Are Your Website Terms and Conditions Useless?

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Author: Richard A. Chapo, Esq.

Do you give visitors to your site the ability to view the terms and conditions by clicking a link at the bottom of the site? If so, you might be startled to learn this approach is consistently being ruled invalid by courts in California and across the country.

Contract

Terms and conditions act as a contract between a website and visitors using the site. A contract is important because it establishes actions a user can and cannot undertake. For instance, language can be included to prevent visitors from copying content off your site, trying to hack the host to upload malware and a number of other nefarious acts.

The age old question is how do you form a contract on the web? Most contracts in the brick and mortar world are formed with a signature or action such as a payment. Is it enough for websites to state “your continued use of this site constitutes acceptance of these terms”? A recent case involving Zappos.com reveals the answer.

Zappos.com

Zappos.com is, of course, a large online fashion retailer. The company is noted for its exceptional customer service, which makes it both very popular and a target for hackers. In January of 2012, Zappos was hacked with the personal information of millions of customers allegedly copied.

Lawyers soon started circling the company and a massive class action lawsuit was filed. Zappos argued the lawsuit should be dismissed. It claimed a clause in the terms and conditions for the site required all disputes to be heard as arbitration matters instead. This would have effectively ended the class action lawsuit, so plaintiff attorneys argued the terms were not binding since there was no proof the users ever agreed to the terms.

Zappos approach to its terms and conditions will sound familiar. The company created a page for the terms, which included language stating anyone who used the site automatically agreed to the terms. It then published a small link at the bottom of its site directing users to the terms. In short, Zappos went with an approach used by millions of sites and, frankly, probably yours.

The problem with the “link at the bottom of the template” approach is best explained by Judge James who decided the case:

“A court cannot compel a party to arbitrate where that party has not previously agreed to arbitrate. The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance… A party cannot assent to terms of which it has no knowledge…a highly inconspicuous hyperlink buried among a sea of links does not provide such notice. Because plaintiffs did not assent to the terms, no contract exists.

[In re: Zappos, p.14 – Zappos terms and conditions case]

Put in plain English, the visitor must affirmatively indicate their acceptance of the terms in some way to create a contract. For most sites, this means requiring the visitor to “check the box” indicating their acceptance. If you have purchased a domain from Go Daddy, for example, the company requires such a step during the checkout process. Why Zappos did not is rather baffling and the failure to do so is now exposing the company to millions of dollars in liability claims.

Why Important

Why is any of this important? The terms of a website are used to create a favorable legal landscape for your business, one that often can terminate lawsuits before they even begin. Let’s look at a quick example.

The great thing about the web is a business can reach a huge audience for a minor cost. Your business in San Diego can get in front of a target audience of potential clients in Chicago, for example, by simply paying a few dollars for listings on Google Adwords. Ah, but what if a dispute arises over $20,000 the person in Chicago paid you for services? What is to keep you from being sued in Chicago and being forced to travel there to defend yourself? The answer can be found in your terms and conditions.

Any lawyer worth their salt will include a choice of forum clause in the terms of a website. This clause defines where any lawsuit will be heard should a dispute arise. In our example, San Diego would be designated as that location. Is it likely the unhappy individual in Chicago is going to fly all the way to San Diego to pursue a lawsuit? Between the cost of an attorney, flying, accommodations and other incidentals, the math is unlikely to work out in their favor even if they win the lawsuit.

This, of course, is only the case if the terms and conditions are binding upon that party.

Solutions

How can an online business bind visitors to the terms and conditions of a website? It depends on the website. For sites where the visitor must interact affirmatively [become a member, buy a product, etc.], the best approach is to use a well thought out clickwrap agreement.

A clickwrap agreement requires the visitor to click a box indicating they have read and accepted the terms and conditions. This constitutes an affirmative action, which forms the contract if the process is handled correctly.  It is also what Zappos should have done.

What if customers are not required to interact with the site? What if we are simply talking about a blog? In such a situation, the best approach is to seek out a methodology that will provide “constructive notice” on the site. How this is done is highly dependent upon the website in question, to wit, there is no blanket solution. If you are in such a situation, it is highly recommended you consult with your legal counsel on the best approach.

The merits of the constructive notice approach are questionable at this time, but at least this approach provides a basis for arguing for the enforcement of the terms. Simply slapping a link on the bottom of your blog does not.

In Closing

The Internet evolves quickly. The law does not. One should always be careful to guard against doing something online just because other websites are doing it, particularly large websites who often act contrary to the law. Zappos is a perfect example of this. The company was sitting on a time bomb and it finally exploded. Make sure the terms and conditions for your site aren’t ticking as well.

About The Author

Richard A. Chapo, Esq., is an internet law attorney providing legal services to businesses online via his website at SoCalInternetLawyer.com. His practice is focused on assisting online businesses in maximizing growth while minimizing the risk of doing business online by keeping clients in compliance with the latest standards for Terms & Conditions, privacy policies, user generated content management, copyright infringement, DMCA and COPPA as well as cutting edge issues such as California mobile app privacy laws recently enacted.

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This post was written by Profit Wise Accounting