Are Your Terms of Service Strong Enough to Protect You?

A recent ruling by the U.S. Federal court in Nevada could mean bad news for many e-commerce and online companies.

Back in January, hackers got ahold of over 20 million customers’ email addresses, passwords, phone number, and home addresses from online footwear and clothing retailer, Zappos. Some of those customers decided to sue Zappos, who apparently believed that their terms of service would protect them. No such luck! The court just ruled that agreement completely invalid.

In order to ensure this doesn’t happen to you, we recommend the following proactive steps when it comes to your web terms:

1. Enforceability

If like most companies with a web presence your business relies on web terms to limit liability and to inform end users of the scope and limits of your products and services, it’s important to note now that recent US case law has cast further doubt on the enforceability of web terms, which are not highlighted to end users through a click-accept process.  This means that if your privacy policy and terms of use are currently set out as links on your website, even if you consider these links to be prominently displayed, the courts are leaning towards the conclusion that those terms are not binding or enforceable against your users.

To increase the likelihood of enforceability we recommend you do the following:

• Implement a click accept procedure at the first opportunity past casual browsing of the site (e.g. when a user opens an account, provides personal information, buying products or ordering services, requesting feedback, or signs up for further information or to participate in contests).
• Scroll-through format rather than links is preferable
• Extend this measure to both your privacy policy and terms of use so both documents must be click-accepted rather than relying on cross-references between the documents.

2. Unilateral Clauses

The ability to make changes to standard form agreements is a common clause in web agreements. However, this type of clause may not hold up in court based on recent rulings that challenged its validity. This means that if your current privacy policy or terms of use allows you to make changes to your documentation without notice to end users and puts the onus on the end user to check for changes, you should remove this clause and consider implementing a procedure where substantive changes to your web terms are highlighted by email to your users or notified to them when they next log in to their accounts with a requirement that they click accept the new terms before proceeding further.

Need further assistance with Intellectual Property Commercialization and Licensing, please contact Michael Morgan (mmorgan at lwlaw.com ) or Gisèle Salazar (gsalazar at lwlaw.com).

Note: the above is a general guideline only and not intended to be interpreted as specific legal advice.