How many of you have ever read the terms and conditions on websites that you frequent? I often say that drafting online agreements is some of the loneliest work a lawyer can do. Usually, even the webmaster stops reading after a few paragraphs.
A "South Park" episode made a joke out of the fact that very few people read online terms and conditions before agreeing to them. In that episode, as a result of some terms buried in the iTunes terms and conditions, Apple takes certain liberties with Kyle Broflovski. Kyle has his lips sewn to the anus of an Asian man, and his anus, in turn, sewn to the lips of a woman. The episode rises to a comedic crescendo as cuttlefish passes from the digestive tract of the Asian man through Kyle and into the woman and then exits as power for the HumancentiPad.
Recently, the District of Nevada did its part to help us avoid such a fate in In re Zappos.com, Inc., Customer Security Breach Litigation. The opinion lacks any of "South Park"’s theatrics and humor, but should be of far more interest to any readers who do any business online. Since most readers of this article are in the adult industry, that means every one of you should be concerned about this recent order. The order may render arbitration clauses contained within many online terms of service unenforceable. See In Re Zappos.com, Inc., Customer Security Breach Litigation, 3:12-cv-00325, Sept. 27, 2012.
The court’s order arose from a series of cases pertaining to a security breach that occurred on Zappos.com. The site’s terms of use contained a clause that required users to resolve any disputes through confidential arbitration in Las Vegas for any disputes. Additionally, much like many online terms, the first paragraph reserved the right to unilaterally amend the agreement, stating:
“We reserve the right to change this Site and these terms and conditions at any time. Accessing, browsing or otherwise using the site indicates your agreement to all the terms and conditions in this agreement, so please read this agreement carefully before proceeding.”
The court held that this provision of the terms of service made all the rest of the terms unenforceable – including the all-important dispute resolution clause. Other courts have dubbed similar website terms of use, that do not require an affirmative to agree to them, “browserap” agreements.
Unlike “clickwrap” agreements, which require users to expressly assent to the agreement’s terms by clicking a button, browsewrap agreements do not require any affirmative act proving that the user actually agreed to the terms. Without evidence of an agreement to be bound by the terms, courts determine the validity of terms of use by analyzing whether the user has constructive knowledge of them. That is, did the user know about them, or should the user have known about them. Particularly, the terms of use’s enforceability relies on whether the website provides users reasonable notice of the contract’s terms.
Zappos’ terms were not sufficiently visible on the site to provide users adequate notice. There was an inconspicuous hyperlink toward the bottom of each page. The link was indistinguishable from other links on the site. Zappos neither prompted nor required its users to read the terms of use when users created an account, logged into an existing account, or made a purchase. Thus, the court had no way to determine that the users had ever clicked on the terms to view them in order to agree to them.
Like most states, Nevada requires that contracts must have an offer, acceptance of that offer, a meeting of the minds as to the contract’s terms, and consideration. However, based on the browsewrap agreement before the court, the court could not find that Zappos’ users ever agreed to (or even read) these terms. Therefore, Zappos’ users had entered into a contract with the site. The Nevada court’s decision revisited other court decisions resolving this issue identically nationwide, invalidating provisions in many other online terms of service because the browsewrap agreement was not sufficient to put users on notice of the bargain they putatively entered by using the site.
Secondly, the court found that Zappos’ terms of use created an “illusory” contract – the appearance of an agreement where, in fact, none existed. Because Zappos’ terms of service allowed the online retailer to unilaterally change any part of the terms of use at any time – changing the purpose and nature of the agreement – the court held that this was no contract at all. As Zappos could rescind the promise to arbitrate at its leisure, the court held the arbitration clause was unenforceable. Specifically, the court was concerned that “the agreement allows Zappos to hold its customers and users to the promise to arbitrate while reserving its own escape hatch.”
Essentially, an agreement that binds only one party, while giving the other party the unrestricted right to terminate the agreement, is no agreement at all. Thus, the logic in this case reaches far beyond Nevada.
Based on the Zappos decision and the nationwide applicability of its core holdings, any online business should review their terms and conditions. In particular, relying on a mere “browsewrap” agreement – rather than a clickwrap one – is begging for a court to invalidate those terms. Similarly, terms that provide the unilateral right to amend key portions of the terms of use may be unenforceable. If your terms have not been updated in a year or more, or they contain provisions like those described above, contact your attorney and have them re-worked.
The author is the managing partner of Randazza Legal Group with offices in Las Vegas, Phoenix and Miami.
(c) Randazza Legal Group 2012.