Will Your Website Terms of Use Hold up in Court?

Online retailers and website owners should think twice before assuming that their website’s Terms of Use policy constitutes an enforceable agreement between themselves and their users.

Whether such terms will hold up in court may rest on whether they’re interpreted as a “browsewrap” agreement.  Unlike a “clickwrap” agreement, in which users must expressly agree to terms by clicking an “I Accept” button, “browsewrap” agreements require no affirmative action on the part of the user.   M\any website owners give little thought to their terms of use policies, and simply cut and paste their agreements from other websites.  Website visitors are rarely (if ever) required to confirm their agreement to a terms of use policy.

This distinction was recently examined by a Nevada federal court in a case brought against online retailer Zappos.  Several customers sued Zappos after hackers successfully accessed certain information they provided when purchasing goods on two Zappos-owned websites.  Because its website’s terms of use policy required such disputes to be arbitrated outside of court, Zappos moved to compel arbitration.  The court denied the motion, even though federal court policy overwhelmingly favors that disputes be arbitrated, rather than litigated.

The court reached this decision based on its interpretation of contract law principles; specifically the requirement of offer and acceptance.  In order for a valid contract to exist, one party must offer something, and that offer must be manifestly accepted by the other party.  In this case, the court viewed the website terms of use as a contract between Zappos and its website users, and determined that the acceptance requirement was not met.   The websites failed to effectively notify users that the agreements existed, and they required no action on the part of the user to agree to be bound.  Without a manifestation of agreement  on the part of the user, in the eyes of the court there could be no acceptance of the terms of use policy, and therefore no contract.  In addition to finding the agreement lacked acceptance, the court also found it was illusory, due to the fact that Zappos reserved the right to change its terms of use at any time, without notice.  Another principle of contract law states that when an agreement can be changed by one party at any time without the other party agreeing to the change, a contract is unenforceable.

Clearly, this court’s decision has broad implications for online retailers and website owners, all of whom would be wise to consult with legal counsel when drafting terms of use agreements for their sites.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

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