How Do You Amend Your Terms of Use? Hint: Don’t Hide the Ball.

I’ve just caught up to a 9th Circuit case on the adequacy of notification of changes to website terms of use, for purposes of binding users. I’m a bit embarrassed as it’s a few months old, but in my defense the holding is rather buried and its implications probably weren’t clear to the folks doing the indexing.

The case, *Douglas v. U.S. District Court*, 495 F.3d 1062 (9th Cir. 2007), involved a change to terms of use for an AOL subsidiary providing long-distance telephone services. The subsidiary was acquired by Talk America, which changed the existing terms of use to add a number of new clauses, including a new arbitration provision and a waiver of the right to class actions. The plaintiff, a California resident, filed a class action on a number of claims arising from the change in terms. The defendant moved to compel arbitration based on the new arbitration provision. The District Court granted arbitration and the plaintiff appealed.

On appeal the 9th Circuit held the arbitration clause was not enforceable, as a matter of:

(1) General contract law, because Talk American did not provide adequate notice of the changes to the plaintiff: “Nor would a party know when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how. Douglas would have had to check the contract every day for possible changes. Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed.”

(2) California law, under which “a contract can be procedurally unconscionable [i.e., unenforceable] if service provider has overwhelming bargaining power and presents a “take-it-or-leave-it” contract to a customer — even if the customer has a meaningful choice as to service providers.”

I won’t say that this is necessarily a dramatic change to existing law, because “existing law” in this area hasn’t exactly been clear. The case doesn’t analyze existing caselaw on “clickwrap” or “shrinkwrap” agreements, although this is clearly what it deals with. It doesn’t discuss the possible distinctions between consumer transactions, which apparently were at stake here, and B2B or other sophisticated party transactions.

What I would say is that this is a caution-and-warning for management of terms of use, privacy notices, website licensing and the like: If you don’t push out amendments, they may not be binding in court. Have a look at how you manage these changes. (What, you don’t already?)

I would also say that this indicates the importance of jurisdictional issues: Don’t assume there are “general principles” which apply to your online agreements (whether you call them terms of use, privacy notices, licenses or whatever); assume rather that the laws of the most Draconian jurisdiction where you do business apply. (Again, you don’t”)

And finally, beware of court opinions coming out of left field. This was an important decision, which evidently hadn’t been adequately briefed on electronic commerce issues, and bubbled up out of arbitration caselaw. Those who like sausages, perhaps, shouldn’t watch the laws being made . . .

And my guess is that due to the *apparently* narrow nature of the holding (re arbitration) this isn’t a candidate for S.Ct. review.

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