Online terms of use can be enforceable, but be careful!

Forming contracts through online terms and conditions has become commonplace. If the truth were known, however, we would probably discover that most people don’t read online terms and conditions or license agreements before clicking on “I accept,” or some other form of acceptance of the contract terms. But, in many cases, notwithstanding that a user did not read the contract terms, these online terms are enforceable. For vendors and other online service providers, there is some additional guidance to help move the needle for online contract terms towards the enforceable end of the spectrum.

In a decision rendered by the United States Seventh Circuit Court of Appeals, an unlucky Gary Sgouros purchased a credit score online, only to learn that the purchased score was 100 points higher than the score pulled by an automobile dealership where he was trying to purchase a car. Delivery of an artificially high score did not help his negotiations with a dealership. As a result, he filed a lawsuit against the provider of the credit score. However, in the initial round of litigation, the court never reached a decision on whether Mr. Sgouros had a cause of action based on delivery of the incorrect score, because the court focused instead on an argument made by the credit score provider that an arbitration clause in the contract was enforceable, and the litigation should be dismissed.

Although the online registration process for acquiring a credit score was fairly involved, the service agreement, which included the arbitration provision, was in a window which displayed only the first two lines of the agreement. There was a slider scroll bar on the right side of the window, but nothing required Mr. Sgouros to take any affirmative action to specifically accept the terms of the service agreement during the registration process. At the bottom of the page there was a box with “I Accept & Continue to Step 3.”

The court found, as have many other courts, that fundamentally there is nothing “automatically offensive” about online agreements. Similarly, contracting parties are generally presumed to be aware of the terms of an agreement that the parties have signed, or accepted the terms in an affirmative manner. But the platform on which the agreement resides must give the user reasonable notice that a click or continued use of a website will manifest assent to an agreement.

In this case, the court focused on whether Mr. Sgouros was likely to see the terms of the service agreement and understand that he was accepting those terms by clicking. In particular, the court asked whether Mr. Sgouros was likely to see the arbitration clause, and if there was any clear indication that by clicking on the button at the bottom of the page, he was aware that he was accepting the terms of the service agreement in the window above the box on the page. The court addressed the issue of a scrollable agreement, and was clearly troubled by the presence of fundamental terms in a scrollable window, when only the first few words of the contract were visible. At least as troubling was the failure to mention the service agreement in extensive verbiage above the “I accept” button authorizing access to the user’s credit reports. This verbiage did not refer to the service agreement or scrollable window. Taking these facts together, the court was unwilling to find that the webpage was sufficient to give a user notice of the creation of a binding contract.

The bottom line is that having a well written terms of service agreement and requiring users to click “I accept” may still not create a binding agreement if the webpage as a whole does not give the user adequate notice that he will be bound by the terms of the service agreement. Acceptance of online terms and conditions may constitute assent to a contract, but the user must at least know what are the terms, and that the user’s behavior, whether clicking on a box or link, or continuing to use a website, constitutes acceptance of the terms and conditions.

The court made an interesting observation that given the nature of technology it is not hard to give a user reasonable notice use of a site, or clicking on and “I accept” button would create a binding contract. Website providers often try to skate around this issue, because they want the user experience to be as seamless as possible. But there is a price to be paid for failing to require users to take note of contract terms, and that price is the unenforceability of critical terms that protect the online provider.

Watch for employee registration of domain names using employer trademarks

According to one source (http://www.statisticbrain.com/employee-theft-statistics/), the annual amount of employee theft from US businesses is $50 billion, and seventy five percent of employees have stolen at least once from their employer. It’s no surprise that employers have security cameras in stores, and policies in place to reduce the amount of employee theft. What is surprising is that employers are not more careful with other assets.

Although perhaps not technically theft, there is a new employee risk
relating to employer assets in the online world. Some seemingly clever employees have chosen to register their employe
r’s trademarks as second level domain names to enhance the value of the domain names. With registration of the domain names in hand, the employee’s intent may be to sell the domain names back to the employer, offer them on the domain name market to someone seeking a high traffic domain name, or hold them for some misguided leverage against the employer in the future. Any of these  strategies should not be acceptable to an employer as a trademark owner, and appropriate action should be taken.

Trademarks, and the associated goodwill, are valuable assets of employers. Many employer trademarks have been in existence for years, and based on extensive use and effort, have become significant tools for consumer awareness, brand loyalty, and quality consistency. Misappropriation and misuse of trademarks can be very costly for employers, and can damage the valuable goodwill associated with the marks. Having employees compromise the value of the trademarks should be taken seriously.

Although employees owe a general duty of loyalty to their employers, it is not always clear whether the rules for employees registering domain names are different than for an independent third-party registering domain names that include the employers trademarks. Attempting to discipline an employee for using a trademark in a domain name may not be an easy case. Probably the best course of action is for employers to adopt broad policies relating to employee use of trademarks, specifically as they relate to domain names. Also, employers need to be vigilant in monitoring the use of their trademarks in domain names, and in any other way that might impact or compromise the integrity of the goodwill of the marks.