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.

Making terms of use enforceable

A fundamental principle of contract law is that forming a contract requires a meeting of the minds. This principle is particularly relevant in the context of contracts in an online environment. There are essentially two types of contracts found on the internet. One type is a clickwrap agreement which requires the user to click in an “I accept” box, or take some other affirmative action, to accept the terms of use. The other type is a “browse wrap” contract, whose terms of use are found on the website, but does not require any affirmative action on the part of the user.

Generally speaking, courts have found clickwrap agreements enforceable, because the internet user may not take advantage of goods and services being offered without taking some affirmative step to accept the terms of the online contract. However, courts continue to struggle with browse wrap agreements which do not require such affirmative action.

In a recent case, a New York federal district court judge found that an online provider’s terms of use were not enforceable as a contract because the user had no actual notice of the terms of use, and the user had no constructive notice of the terms of use.

Typically, these cases are founded on issues of the enforceability of an arbitration or forum selection clause. Obviously, if the terms of use are not enforceable, the internet provider of goods and services may be required to arbitrate or litigate in a distant forum at greater expense to the internet provider.
Using browse wrap terms of use instead of clickwrap terms of use make for a better consumer experience, but the risk is significantly greater that a court will find that the terms of use are not enforceable.

If enforceability is a concern, either clickwrap the terms of use or structure the website so that the user has actual knowledge of the terms of use, clearly notifying that the user should not use or take advantage of the website, or any of the offerings of the website, without first reading and accepting the website’s

Social media sites and terms of service: What may I do with the content?

Facebook’s terms of service give Facebook the unlimited right to use any photos, videos, and other intellectual property content posted on the site.  Facebook acknowledges that ownership of the content is retained by the user, but the ownership rights are subject to the license granted by the user to Facebook.  Twitter similarly acknowledges that ownership of content remains with the user, but also claims an unlimited license to use the content.

It’s quite tempting to use content posted by friends and others on social media sites.  Whether the use is personal or commercial, or for public or private use, some content is simply very good, and users may want to use the content for a variety of purposes.  The rights granted to Facebook, Twitter, and other social media sites are very broad, and sharing takes place freely, but the sharing rights are not unlimited.

In a case decided earlier this year in the United States District Court of the Southern District of New York, the court decided what rights third parties had to photos posted on Twitter.  Daniel Morel, a photojournalist, was in Haiti at the time of the devastating earthquake in January 2010.  He took several photographs of the scene after the earthquake, and posted them on Twitter through his TwitPic account.  Shortly after Morel posted his photos on Twitter, they were reposted to the account of Lisandro Suero.  Through a series of events, some of the photos were downloaded by Agence France Presse (“AFP”), a French news agency that maintains and online photo database, and some of the photos were licensed by AFP to Getty Images through a reciprocal license agreement to display images.

AFP brought the action against Morel seeking a declaration that its acts did not constitute copyright infringement.  Morel filed a counterclaim against AFP, Getty Images, and the Washington Post seeking a determination that they each willfully infringed his copyright in the photos.

One of the arguments made by AFP was that it was not liable for copyright infringement, because Morel granted it a license to use the photos by posting the photos on Twitter.   AFP acknowledged that the act of posting photos online did not eliminate  Morel’s copyright in the photos, but argued that it had a license to use the photos through the Twitter terms of service.  Alternatively, AFP argued it was a third party beneficiary of the Twitter terms of service.  The court was not persuaded by either of these arguments.

The court acknowledged that Twitter encouraged and permitted broad reuse of content, but also found that Twitter did not grant an express license to AFP to use the photos for purposes other than reposting.  The Twitter terms of service provide that the user, by posting content, grants to Twitter a worldwide, non-exclusive, royalty-free license to use content in any and all media or distribution methods.  The terms of service further provide that Twitter may make content available to other companies, organizations, or individuals who partner with Twitter.  But the court found that the terms of service did not give AFP the rights of use it claimed in the litigation.

Photos and other content on social media sites generally may be reposted.  The current Twitter terms of service provide that “this license is you authorizing us to make your Tweets available to the rest of the world and to let others do the same.”  Facebook’s terms of service are similar. However, the rights granted are not unlimited, and specifically do not include the right to download and license photos posted on Twitter or Facebook to third parties.

There are two potential ways to have permission to repost or otherwise use a photo or other content posted on a social media site.  One is to contact the owner of the copyright and obtain permission directly from the owner.  The second way is to fall within the terms of the terms of service of the social media site.  Before relying on the site’s terms of service, however, it should be clear that the use falls within the scope of the license granted in the terms of service, and that the person using the content is an intended licensee or beneficiary under the terms of service.

As Agence France Presse learned the hard way, using without permission another’s content posted on a social media site is still copyright infringement.

The right to amend online contracts

Managing online contracts can be challenging. Circumstances change, technologies change, and business methods change. As a result, service providers, sellers and distributors of products find it beneficial to include a provision in an online contract that allows for changes to the contract. However, unlike the traditional paper contract which require amendments to be in writing and signed, there are significant benefits to online providers to be able to make changes unilaterally.

Unfortunately, including a clause in an online contract that allows the online provider to make changes to the contract unilaterally, and in the sole discretion of the online provider, can be problematic. In a case decided on April 15, 2009 in the United States District Court for the Northern District of Texas, Harris v. Blockbuster, the court found that an online contract that allowed one party to unilaterally change any part of the contract at any time was not supported by consideration, and therefore was illusory and unenforceable.

When providing online contracts, if the online provider wants to be able to make changes without having to have the express consent of each potential user of the website, at a minimum, the contract should provide that no amendment to the contract will be enforceable until the passage of a reasonable time after the notice of the change is posted and the amendment should not be applicable to certain provisions of the contract, such as an arbitration clause, until the user has had an opportunity to exercise its rights under that provision prior to the amendment.