Ninth Circuit: Without Notice Customer Not Bound by Changes in Internet Contract

The United States Court of Appeals for the Ninth Circuit has issued an opinion in Douglas v. Talk America, Inc. which vacates an order compelling arbitration pursuant to an Internet contract. The plaintiff, Joe Douglas, contracted for long distance telephone service with America Online. This business was subsequently acquired by the defendant, Talk America, who added four provisions to Douglas’s existing service contract; one of these new provisions was an arbitration clause. Though Talk America posted the revised contract on its website, it never notified Douglas that the contract had changed. Unaware of the new contract provisions, Douglas continued to use Talk America’s services for four years.

When Douglas filed a class action lawsuit in the United States District Court for the Central District of California, Talk America moved to compel arbitration based on the modified contract. The district court granted the motion and Douglas sought review of that decision.

On review, the Ninth Circuit relied upon well-settled contract law principles. No express contract can be formed without the assent of the party to be bound. It follows, then, that a party cannot unilaterally change the terms of a contract; the consent of the other party is required. Talk America could not hold Douglas to a contractual provision of which he had no actual notice, even though the revised contract was posted on Talk America’s website.

This case reinforces the fact that traditional contract principles apply even to Internet contracts. To form an enforceable Internet contract, a website user must be required to take some affirmative action indicating his assent to the terms of the contract. Whenever the terms of the contract change, the website user should be notified of the change and be required to take an additional affirmative action indicating his assent to the revised terms. Otherwise, the party seeking to enforce the Internet contract may have difficulty demonstrating which version of the contract, if any, governs the rights and obligations of the parties.

See Ninth Circuit Strikes Down Contract Amendment Without Notice--Douglas v. Talk America and New provisions in online terms of service of no effect without notice to customer for additional commentary.

Update (9/3/2007):  Eric Goldman suggests that the ruling in this case may have been influenced by the Court's view that the agreement at issue was overly oppressive to users.

Technorati Tags:  Internet contracts, Talk America

Comments

[Michael Rice]

Thanks for your post on this case. I'm kind of baffled on what a "service provider" is or is not. Do you think it reaches as far as, say, Google? If not Google, then, a subscription website like Salesforce.com? What about Facebook?

[Jonathan Frieden]

I think the opinion is fairly broad and would cover all the sites you mentioned. There really is no good reason to distinguish those types of websites from the website addressed in Douglas.

However, it seems that a subscription or registration service, like Salesforce or Facebook, could easily address the issue by requiring a user to certify that s/he has read, and assents to, the most recent version of the applicable contract when s/he logs on.

Websites that do not require users to log on, like Google, might address the situation by placing a notice of contract changes on the site's home page with a notice that use of the site constitutes assent to the revised contract.

In short, the assent to a revised Internet contract can be demonstrated in the same way that an Internet contract is initially formed. Follow the link to Internet Contracts under Squidoo lenses for more information.