E-Commerce Law

FAQ: Is an Internet Contract Enforceable?

In our practice, we frequently receive questions about the enforceability of so-called "Internet contracts" - agreements reached between parties over the Internet.  Generally speaking, an analysis of the enforceability of any contract is the same, whether the contract was formed by the parties over the Internet or by the execution of a written document. 

Though the Internet is fairly new, the enforceability of Internet contracts is governed by the well-established legal principles which apply to traditional written contracts.  To form an enforceable contract, two or more parties must mutually assent to the terms of the contract and the contract itself must be supported by some consideration.  Internet contracts generally fall into one of three categories, with each one being treated slightly differently by the courts.

E-Commerce Law Briefs: Week of April 20, 2009

The Wikipedia Foundation has demanded that the artists responsible for Wikipedia Art surrender the domain name wikipediaart.org.  "Last February, [the artists], working with several collaborators, created a Wikipedia article and invited the general public to add to it, following Wikipedia’s standards of credibility and verifiability. The work was intended to comment on the nature of art and Wikipedia. [However, Wikipedia editors shut down the project]  within fifteen hours for being insufficiently 'encyclopaedic.'"  The artists obtained the domain name wikipediaart.org and created a website to document the project which the Foundation seeks to shut down because it uses the "Wikipedia" trademark.

The United States District Court for the Northern District of Texas has applied traditional contract principles to find that Blockbuster Online's website Terms and Conditions are unenforceable.  "The crux of the Plaintiffs’ arguments were that since Blockbuster reserved the right to modify the Terms and Conditions at their “sole discretion” at “any time” to be effective immediately on their site, the contract was thus illusory.  The Court found the contract was illusory because Blockbuster had the power to unilaterally change the contract whenever they wanted to do so. The only 'limit' was the new terms would not be effective until posted online."

"Worldwide visitors to Twitter.com increased 95 percent in the month of March from 9.8 million to 19.1 million."

Google has upgraded a little-used feature that permits users to create profile pages with their name, photo, contact information, and other information.

"In February, a Texas jury awarded Orix Capital Markets, LLC $12.5 million in damages in a defamation case involving statements published on the . . . 'gripe site' Predatorix.com."

"Students have suffered another defeat in their legal fight against the company that runs a plagiarism-detection tool popular among professors.  A federal appeals court last week affirmed a lower court’s decision that the Turnitin service does not violate the copyright of students, even though it stores digital copies of their essays in the database that the company uses to check works for academic dishonesty."  The copyright infringment suit was brought by two Mclean, Virginia high school students after Turnitin was hired by their school to catch cheaters.

E-Commerce Law Briefs is a weekly feature appearing on E-Commerce Law. Each weekend, E-Commerce Law Briefs will provide a brief summary and commentary on recent legal news affecting e-commerce businesses.

E-Commerce Law Briefs: Week of February 23, 2009

"Facebook, angling to turn a recent user rebellion to its own advantage, called upon the users themselves . . .to help formulate what has been portrayed as a kind of "bill of rights" to govern the social-networking giant."

E-Commerce Law Briefs is a weekly feature appearing each Friday afternoon on E-Commerce Law. Each week, E-Commerce Law Briefs will provide a brief summary and commentary on recent legal news affecting e-commerce businesses.

E-Commerce Law Briefs: Week of February 16, 2009

Surgeons recently live-tweeted the removal of a cancerous tumor from a man's kidney.  We use Twitter (follow E-Commerce Law on Twitter here) fairly regularly but don't expect us to be live-tweeting any of our trials or negotiations any time soon.

"Guidance Software Inc. bills itself as the leading provider of technology that helps companies dig up old e-mails and other electronic documents that might be evidence in a lawsuit. Yet when Guidance itself had to face a judge, it was accused of bumbling its internal digital search.  Whether Guidance intentionally hid documents or just couldn't find them is a matter of dispute."

"After three days of pressure from angry users and the threat of a formal legal complaint by a coalition of consumer advocacy groups, [popular social networking site Facebook] reversed changes to its contract with users that had appeared to give it perpetual ownership of their contributions to the service."  Perhaps we should update our Website Terms of Use post to include a section on intellectual property issues.

E-Commerce Law Briefs is a weekly feature appearing each Friday afternoon on E-Commerce Law. Each week, E-Commerce Law Briefs will provide a brief summary and commentary on recent legal news affecting e-commerce businesses.

Copying Another Website's Terms of Use Can Lead to Trouble

Public Knowledge has highlighted a number of instances (most notably, instances involving Twitter and Adobe) in which e-commerce companies have failed to undertake the analysis and thoughtful drafting required to develop customized Terms of Use and, instead, used generalized terms or simply "borrowed" the Terms of Use posted at another company's website.  Unfortunately, it's a trend we've observed for some time. 

Federal Court Upholds YouTube Terms of Use

On April 15, 2008, the United States District Court for the Western District of Washington dismissed a lawsuit filed by a YouTube user in the wrong venue.  In Bowen v. YouTube, Inc., 2008 WL 1757578 (W.D. Wash. 2008), the Court enforced YouTube's Terms of Use which require that all suits arising from YouTube's website be brought in San Mateo County, California.  In support of the ruling, the Court noted that

[while] new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract . . . when a benefit is offered subject to stated conditions and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes an acceptance of the terms, which accordingly become binding on the offeree.

Id. at *2 (quoting Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004).

This case further demonstrates the importance of including an enforceable choice of law provision in a website's terms of use.

Forum Selection Clause in Website Terms of Use Held Enforceable

In Krause v. Chippas, 2007 WL 4563471 (N.D. Tex. 2007), the United States District Court for the Northern District of Texas has transferred the case in reliance upon a forum selection clause found in the FuturesCom.com Service and Usage Agreement.

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

Common Issues Facing E-Commerce Businesses

Issue # 3: Website Terms of Use

From a legal standpoint, the most important page of any website may be its Terms of Use page, which describes the terms and conditions which govern the relationship between the user of the website and its publisher.  Properly drafted Terms of Use can be an invaluable tool in protecting e-commerce businesses from frivolous lawsuits and crippling legal exposure.

Though the Terms of Use used by many websites are similar they are not a "one-size fits all" solution. Each e-commerce business has a unique relationship with its customers which must be reflected in its Terms of Use.  Moreover, Internet contract law differs from jurisdiction to jurisdiction and changes over time, as more courts are called upon to interpret and enforce these agreements.

In addition to terms and conditions addressing the specific website content at issue, most Terms of Use contain clauses addressing one or more of the following issues:

• Choice of Forum. Choice of Forum provisions permit the parties to a contract to select, with certain limitations, the jurisdiction in which any disputes pertaining to their relationship are resolved. In many instances, a website’s Terms of Use purports to require any legal action pertaining to the website to be brought in the jurisdiction in which the publisher is located, which may be quite inconvenient for a distant user of the site.

• Choice of Law. Choice of Law provisions permit the parties to a contract to select, with certain limitations, which jurisdiction’s laws will be applicable to their relationship. Generally, a website’s Terms of Use will apply the law of: (1) the jurisdiction whose laws are most favorable to the publisher; (2) the jurisdiction in which the publisher is physically located; or (3) the jurisdiction whose laws are most familiar to the attorney who drafted the contract.

• Limitation of Liability. These provisions permit one or both parties to place certain limitations on their liability for breaching the agreement of the parties. Properly written, Limitation of Liability provisions can cap a party’s legal exposure for certain conduct.

• Indemnification. Indemnification provisions permit a party to shift the burden associated with an anticipated loss to the other party. In many instances, a website’s Terms of Use require the user of a website to indemnify the website’s publisher against any losses associated with the use of the website’s content.

• Attorneys’ Fees and Costs. In the American judicial system, a party is generally required to pay his or her own legal fees and expenses, win or lose. However, parties to a contract may, with certain limitations, require that a party who loses in a legal action brought pursuant to the agreement pay the attorneys’ fees and costs incurred by the prevailing party.

As in the drafting of any other written contract, businesses should seek competent advice from a properly licensed attorney. The failure to do so may result in Terms of Use that provide no protection to the e-commerce business or, worst yet, may create legal exposure where none previously existed.

For general information on Internet contracts, see Internet Contracts on Squidoo.

Previous Posts in this Series

Issue # 1:  Protection of Domain Names

Issue # 2:  Protection of Original Website Content

Update (5/15/2006):  Digg this post

"Common Issues Faced by E-Commerce Businesses" is a seven-part series appearing each Tuesday afternoon on E-Commerce Law. Readers are reminded that all of the information on this site is provided for informational purposes only and is not intended to be a substitute for legal counsel. No one should act or refrain from acting on the basis of any content included on this site but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney.

Technorati Tags:  terms of use, internet contracts

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