December 11, 2018

Binding Your Customers to Your Terms of Service

When you sell a product or a service to a customer over the internet, you enter a contract with them. They get your product, and you get paid.

But what happens if the consumer gets hurt using your product? What are the consequences if they become ill after applying your product to their skin? What happens if they claim that you lied to them about what your product can do, or what it contains?

And finally, what if an angry customer sues you, not just for a refund, but in a class action suit, representing the thousands or tens of thousands of other customers who bought the same product?

Fortunately, merchants can gain a lot of control over their relationship with customers by binding them to comprehensive written contracts that protect the merchant.

Terms of Service & Terms and Conditions Contracts

Terms of Service or Terms and Conditions are contracts that provide great benefits to merchants. For instance, Terms of Service can require consumers to arbitrate disputes instead of filing lawsuits in court. Even better, in arbitration, merchants can prohibit class action suits altogether. Terms of Service can dictate which law applies, and that arbitration or lawsuits should be filed in a city and state convenient for the merchant, not for the consumer.

Terms of Service can also limit damages that consumers might claim later, and require consumers to talk to customer service prior to filing a legal complaint. Merchants can also set clear rules regarding returns and refunds in Terms of Service.

Merchants should beware, though, that if the Terms of Service are not presented to consumers correctly, the Terms won’t be binding later in any court action.

Under general contract law, a breach of contract claim requires a valid contract (with mutual assent to terms). A valid breach of contract claim also requires a breach of the terms, causation, and resulting damages.

The focus of this article is only on creating the contract, that is, the mutual assent to the Terms of Service.

The issue of whether Terms of Service create a binding contract is often fact dependent and is still widely litigated. While online contracts can be formed in different ways, Terms of Service have been historically categorized as either “clickwrap” or “browsewrap” agreements.

Benefits of Clickwrap Agreements

A clickwrap agreement requires the user to consent to terms by clicking a box or taking some similar affirmative action. These types of agreements typically create binding contracts. While not as definitive, merchants can obtain consent to Terms of Service by placing language closely to and above a button used to proceed to the next screen, with language like, “By clicking ‘Continue’ you agree to our terms of service.”

Without a checkbox, the reference to the actual word or words in the button is key, because clicking the button would then constitute an affirmative act in response to the instructions.

Regardless of whether a checkbox is used, the reference to the Terms of Service at the point of consent needs to include easy access to the Terms of Service. This access is usually provided by merely hyperlinking the words, “Terms of Service,” to a separate HTML page containing the entire Terms of Service. Pop-Ups and scrolling boxes may also be used, so long as they are in very close proximity to the language used to obtain agreement of the consumer.

Benefits and Drawbacks of Browsewrap Agreements

A browsewrap agreement usually involves simply posting the terms of service on a website, making the terms available to visitors. Contract formation is dependent on whether there is actual or constructive knowledge of the terms (i.e., reasonable notice of the terms) and assent. Hence, a browsewrap agreement is much riskier for merchants, because it is very difficult to show that users were on notice of terms, which are often linked in the footer of the web page.

It may be easier to show that sophisticated users, especially business users, were on notice of browsewrap terms if they were engaging in conduct not envisioned by the website owners as conventional user conduct, like scraping content or otherwise using automated processes to engage with the website. But, in most situations, browsewrap agreements are very difficult to enforce.

Binding customers to terms of service on a website is usually a straightforward endeavor. Done correctly, binding contracts can save a company tens or even hundreds of thousands of dollars in legal fees or potential damages.

I strongly recommend that your company obtain legal advice and implement the above best practices. Please contact us for more insights on the best way to protect your company from litigation with clickwrap and browsewrap agreements.

I look forward to assisting you.

Karl Kronenberg, Partner

415-955-1155, Ext. 114

1 See e.g., Meyer v. Uber Techs., Inc., 868 F.3d 66, 80 (2d Cir. 2017).
2 See generally Specht v. Netscape Comms. Corp., 306 F.3d 17 (2d Cir. 2002); Trudeau v. Google LLC, No. 18-CV-00947-BLF, 2018 WL 4846796, at *1 (N.D. Cal. Oct. 3, 2018).
3 See CouponCabin LLC v., Inc., No. 2:14-CV-39-TLS, 2017 WL 83337, at *4 (N.D. Ind. Jan. 10, 2017); Lopez v. Terra's Kitchen, LLC, 331 F. Supp. 3d 1092 (S.D. Cal. 2018); Alan Ross Mach. Corp. v. Machinio Corp., No. 17-CV-3569, 2018 WL 3344364, at *5 (N.D. Ill. July 9, 2018); Cvent, Inc. v. Eventbrite, Inc., 739 F. Supp. 2d 927, 930-37 (E.D. Va. 2010).

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    This entry was posted on Tuesday, December 11, 2018 and is filed under General News & Firm Announcements, Internet Law News.

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