by Martin Medeiros and Tichelle Sorensen
1.0 Introduction
The rule on online contracts has been fairly stable in the last five years and can be summed up inadequately but simply: the more dear the right being alienated, the greater the “overt act” required to memorialize a meeting of the minds to bind the parties to contract. These laws spring from basic contract laws including what evidence constitutes the objective manifestation of the parties assent and its sufficiency, the concept of warranty and, most recently, the shrink-wrap cases of the 1980’s and 1990’s.
Recent decisions support the contractual cause of action, such as a terms of use dispute, does not bar other causes of actions, when the act simultaneously violates both contract and another area of law such that may arguably also be part of the contract, such as copyright law.[1] In pending litigation, unfair trade practice is another area that may exist beyond the “terms of use” even when the terms attempt to deal with this area of law and waives rights.
Depending on the website, terms of use apply to various parties in different ways by choice. For example, you may not want to be bound to perform for a passive visitor to your website but will want to be bound for a customer. Coming up with a range of parties who the Terms of Use must address is the mark of a sophisticated web operator. There are at least four classes of parties that are typically addressed in terms of use. A classification as follows will help the analysis:
- Visitor. Many websites recognize the passive user to the website. This is the public portion of the website. Generally, you want minimal if any, contractual liability.
- Consumer. This second user is one who transacts business with the company to consume the goods or services being offered. This may include advertisers, customers, subscribers or members. This group is allocated rights from the seller to soften the principal of caveat emptor.
- Right Holder. The right holder is a party who typically alleges infringement, unfair competition or tortuous content. The safe harbor provisions and takedown and notice is an important part of any website that has a dialog with its community in a public way, such as via Blogs and posts.
- Regulator. The regulator is a party who, with the force of law or its equivalent, has a right to control or have access to content on the website, or even confidential content not on the website. It may be a public or private standards-setting organization or law enforcement. Increasingly, website operators must look to their regulators to see what is required of them.
2.0 The Laws
2.1 Good Drafting and Review Required Periodically: The Venue Example
We tend to focus on the substance of the transaction: the good or service and terms of the contract that deal with payment. Prior to treating each class of website user, a word on basic contract drafting of the clauses referred to as “boiler plate” by clients and in need of little attention. This is erroneous. These are perhaps, the most important parts of the terms of use as they are so frequently litigated. Periodic review and updates must be made to client’s terms of use for two principal reasons: (1) changes in law; (2) clarification in the laws. Consider, for example the venue and forum selection clause.
Venue and forum selection are not the same. Courts often confuse these two because they deal with geography. One case highlights the distinction. The Alexander v. Superior Court case in California[2] court addressed the difference between a venue selection clause and a forum selection clause: “The cases sometimes do not distinguish between the two types of clauses, perhaps because they both relate in some way to the geographical location in which trial will be held. But the terms have different meanings. Forum means ‘[a] court or other judicial body; a place of jurisdiction.’ [3]Venue is ‘[t]he county or other territory’ in which a case may be heard, i.e., the place from which the jury will be selected.[4] The lesson here is that venue and forum, often the first to be addressed in a forum non-conveniens filing. Too often, these are grouped together.
2.2 Visitors: Notice of Terms: Timing
Visitors are subject to terms of use only if they know they exist. Called by some “browser wrap” the issue is notice. Here we see the timing of the assent must happen before assent is given. Timing was an essential issue in the seminal Spect v. Netscape Communications [5] case where both the download button and the less conspicuous end user license appeared together and one could click on the download and then click on the license and the “I agree” button after acceptance is the form a download. Netscape erroneously argued the passive Visitor license would protect them. Had the license been as conspicuous as the download itself and thus proper notice had been given to the Visitor, the case may have gone the other way. The best practices involve getting Visitors a place to know where they can find out the terms of use for the site. In our recent survey[6], most terms of use typically at the foot of the home page.
Many commercial websites intend the Visitors to become Consumers, this may be in a retail capacity, such as an e-commerce site, or as a service subscriber, such as a software as a service or database subscription. Consumers generally must pass through a conspicuous “licensing gate” before enjoying the benefits of functional content.
The over act best practice is well established for these clickwrap licenses. The “I do not agree” should be pre-selected requiring the Consumer to click on the box to select “I agree” prior to enjoying the benefit of the bargain, such as a download or access to data or images.
2.2 Consumers
Consumer enjoy some of the most robust legislation. The principal issue concerns unfair acts that affect commerce in violation of Section 5(a) of the Federal Trade Commission Act.[7] Consumers too are subject to terms of use if they have notice of and provide an overt act of agreement.
Recent cases require common sense in dealing with how one interacts with the marketplace. A company should avoid the missive “go to my website” if the transaction is closed in person or telephonically.[8]
The tile to much content is not sold and is, in fact, licensed to web site Visitors and Consumers. Because the end user licenses are generally enforceable.[9] care must be take to inform this group by careful drafting. Although the scope of this article is beyond drafting actual terms, a number of preferences were revealed, a review of the legal framework on Consumer issues tend to focus on data security and privacy matters online.
2.2.1 Privacy
While the consumer laws promulgated by the Federal Trade Commission and the various states apply to the substance of the terms of use, most that deal with online issues deal with privacy. These laws include issues bout age appropriateness of sharing information as in the Children Online Privacy Protection Act (COPPA) of 1998[10], security breaches and safe guards of financial information[11], records maintenance for government contractors[12]; medical records[13] and many others that are specific to the type of information gathered.[14]. The European Union set the high-mark for consumer and privacy issues by the first comprehensive directive[15].
COPPA law involves, among other things, the collection of personal information for children under 13. This act requires a number of elements for those who operate such sites to post privacy polices; provide parental notice ; require parental consent regarding third party sales; prevent further solicitation, and safeguard the information from third parties.
There is a safe harbor for compliance and a number of commercial firms have been approved by the Federal Trade Commission, which oversees enforcement of unfair or deceptive trade practices[16], as to the states attorneys general in civil actions. Privacy is becoming and expansive area of the law involving liability at all levels, including on the international levels. Practitioners require the tools[17] and experience to mange this growing forest of regulations.
2.2.2 Classes of Consumers
Different services often involve different terms. Many websites are disaggregating the generally applicable terms of use to the specifically address the service they are offering or sub service, or different software. The number of independent contracts are increasing.
2.3 Third Parties
The websites that seem to be currently favored by the search engines involve those that contain a dialog between the good, service or information provided and the community of users. This dialog can be in many forms such as Blogs, discussion groups, social networking exchanges of all types. The issue is that the web site operator can inadvertently allow infringement. A few examples of how these rights may impact a website are in order.
2.3.1 OCILLA
The Online Copyright Infringement Liability Limitation Act (OCILLA), codified at 17 U.S.C. § 512 as a portion of the Digital Millennium Copyright Act attempts to keep the free dialog open yet protect the rights of those who have copywritten materials. OCILLA provides a process for website operators to avoid liability by the so-called “notice and takedown provisions.” Most cites have provisions similar to the following to comply with the OCILLA and its safe harbors such as:
COPYRIGHT POLICY AND DESIGNATED AGENT
If you believe that your work was copied or posted on our Website in a way that constitutes copyright infringement, please contact our designated agent with the following information: (i) an electronic or physical signature of the person authorized to act on behalf of the owner of the copyright interest; (ii) a description of the copyrighted work that you claim has been infringed; (iii) a description of where the material that you claim is infringing is located on the Website; (iv) your address, telephone number, and email address; (v) a written statement by you that you have a good faith belief that the disputed use is not authorized by the copyright owner, its agent, or the law; (vi) a statement by you, made under penalty of perjury, that the above information in your notice is accurate and that you are the copyright owner or authorized to act on the copyright owner’s behalf. Swider Medeiros Haver’s designated agent for notice of claims of copyright infringement can be reached as follows: Martin Medeiros, Swider Medeiros Haver LLP, 1420 American Bank Building,
621 SW Morrison Street, Portland, OR 972052.3.2 Communications Decency Act
Section 230(c)(1) of the Communications Decency Act (CDA) provides immunity from liability for providers and users of an "interactive computer service" who publish information provided by others
While the law is far from settled, the CDA has been upheld in cases of: Courts across the country have upheld Section 230 immunity in a variety of factual contexts and on numerous legal theories, including posting defamatory information, private information, false information, pornographic information, and discriminatory housing ads.
While not universal in applicability by statutory carve-outs[18], many fact-patterns have upheld the immunizing provisions of the CDA. Cases applying Section 230 of the CDA include: simple negligence[19]; website operators distribution of defamatory statements.[20] social networking sites regarding failure to prevent age verification[21] to prevent sexual assault[22]; match –making site from fraudulent profile[23]Employer tort claim immunity where employers computers were used for threatening messages[24]; immunity for defamatory statement distributions via a list serve[25];; securities market manipulation related to stock misquotes[26]; Internet Service Provider immunity upheld for contractor’s reporting even though ISP moderated site postings and had broad contractual rights to edit content[27]; government allowed immunity for library access to offending materials[28]
The carve-outs have had recent emphasis at the federal appeal level. In Perfect 10, Inc. v CCBill LLC[29], the Court of Appeals ruled that the exception for intellectual property law applies only to federal intellectual property law, reversing a district court ruling that the exception applies to state right of publicity claims.
Immunity under §230 has been denied, most recently regarding discriminatory housing matching services.[30] In Fair Housing Council of San Fernando Valley v. Roommates.com, LLC the court found that the manner of how the service elicited information by questions, check boxes and other preferences lead to more than a passive provider of a platform. Care must be taken by various “slam sites” or “consumer reporting” sites that illicit content from providers that may not be the best format for getting litigation free traffic and require greater scrutiny.[31] Careful attention must be made to drafting these terms of use.
2.4 Regulators
In dealing with regulators, the larger institutions must have a process for handling requests, such as subpoenas, or notices of copyright infringement. Compliance with the various safe harbors is a critical step that often includes location for notice and the process one can expect. Smaller institutions should refer inquiries to their general counsel or legal counsel. Counsel must instruct the institution to inform all employees and contractors of the process to follow should a request come in.
Requests for information from law enforcement seem to have increased in frequency and the principal issue for clients is not to reveal information unless the statutory process has been followed. State and federal investigators generally follow the letter of the law but frequently do not, or ask for the information without going through a judicial process. Clients who “don’t want trouble” with authorities and open their books to authorities often breach contract terms drafted by their counsel that require presentation of a court order before information can be revealed. So now the Visitor or Consumer has a breach of contract action.
3.0 The Survey
Usage in trade is sometimes the best information that can be gleaned on what is happening on the internet. The following, presented in “Frequently Asked Question” format is the result of our survey.
3.1 What is the difference between “Terms of Service” and “Terms of Use”?
Usually, “Service” indicates a site where something beyond information is offered.
3.2 I have a very basic website - is it necessary to post terms for my website?
Every website should include some basic terms to deal with the Visitors and, if applicable, Consumers, Regulators and Third Party Right Holders.
3.3 What specific Terms do I need to include?
This depends on what you are posting or offering. Much of this is a result of regulatory and case law. Such as those that deal with the tracking of versions of terms of use. Most website Terms address the following basic categories of information:
> class=Section1
- Introductory information and site overview – this can assist in determining intent of parties and scope of the universe of potential contractual relationships.
- The date of the last update – version control of what terms apply when.
- Privacy Policy (sometimes a separate link.) – becoming more regulated and complex and need of special attention.
- Account specific terms (such as payment of fees and technical support.)
- Intellectual property notices, and policies for compliance with the Digital Millennium Copyright Act.
- Licensing information and conditions.
- Warranty information and any service or product guarantees.
- Disclaimers and limitations of liability.
- General and technical rules and regulations for use of the site content and, if applicable, services.
- Legal terms, such as governing law.
4.0 Conclusion
Terms of use are ultimately a question of good contractual drafting and catering the “overt act” commensurate with the right being acquired or alienated. The constant waves or law reaching the shores of client’s websites will continue and a dynamic and periodic assessment of the terms is required.
> class=Section2
However, the content of each website should be carefully evaluated for compliance with specific legal requirements and risk.
Is necessary to read the Terms for every site?
Terms are usually framed as a contract between the company operating the website and the user, so it is always recommended. Additionally, there are circumstances where reviewing the Terms is especially important, including the following (1) any time you are relying on the information obtained from the site to be accurate; (2) if you are posting content, or using any content posted on the site; (3) if you are accessing any services or tools available on the site; (4) when any of your personal information or is collected by the site; and (5) whenever you are paying for the services or products offered on the site.
What if a site does not have Terms posted?
As with any company, if you want to know policies that are not easily determined, look for a contact address and email the webmaster or site directly, requesting a copy of their Privacy Policy and Terms of Use.
[1] The SCO Group, Inc. v. Novell, Inc. No: 2:04CV139DAK (August 10, 2007)
U. S. District Court, District of Utah,2007 U.S. Dist. LEXIS 58854
2006 WL 2403578
[2]114 Cal.App.4th 723, 8 Cal.Rptr.3d 111 (2003).
[3] Black’s Law Dict. (7th ed.1999) p. 664, col. 2.
[4] Id. at 1553, col. 2
[5] 306F.3d 17 (2d Cir. 2002).
[6] Review of websites between September 2006 and June 2007 by Swider Medeiros Haver LLP. Results on file with author.
[7] 15 U.S.C. § 45(a).
[8] See, Speyer v. Avis Rent a Car System, Inc. 415 F.Supp.2d 1090, S.D.Cal.,2005.
October 19, 2005
[9] Davidson & Associates v. Jung, 422 F.3d 630 C.A.8 ( Mo.),2005.
[10] 15 U.S.C §§ 6501-6506 (“COPA”).
[11] Gramm-Leach-Bliley Act of 1999, 15 U.S.C. §§ 6801-6809.
[12] Privacy Act of 1974, 5 U.S.C. § 552a.
[13] Health Insurance Portability and Accountability Act 42 USC § 201 et seq.
[14] See, Video Privacy Act of 1988, 18 U.S. C. § 2710(b)(1); Driver’s Privacy Protection Act of 1994, 18 U.S. C. § 2710(b)(12); Cable Communications Policy Act of 1984, 47 U.S.C. § 551; Electric Communications Privacy Act of 1986, 18 U.S. C. § 2511(3)(a).
[15] Official Journal of the European Communities of 23 November 1995 No L. 281 p. 31.
[16] See, 15 U.S.C. §57a(a)(1)(B).
[17] Guide to Records Retention - The Lawyer’s Role, Thompson West, 2006; Proskauer on Privacy - A Guide to Privacy and Data Security Law in the Information Age; Christopher Wolf, Practicing Law Institute, 2006; http://www.smartmoney.com/cover/index.cfm?story=june2007.
[18] Excepts federal criminal liability and intellectual property law. See, 47 U.S.C. §§ 230(e)(1) and (e)(2).
[19] Doe v. America Online, 783 So.2d 1010, 1013-1017 (Fl. 2001), cert. denied, 122 S.Ct. 208 (2000).
[20] Barrett v. Rosenthal, 40 Cal. 4th 33 (2006).
[21] See, e.g., 18 USC §2257 Record-Keeping Requirements Compliance Statements for the Federal Labeling and Record-Keeping Law, regarding the requirements that all models and other persons appearing on the website are at least eighteen (18) years of age at the time such depictions were created; and disclaiming that the site contains no visual depictions of actual or simulated sexually explicit conduct as that term is defined by 18 USC §2256.
[22] Doe v. y Space, No. 1:06-cv-00983-SS (W.D. Tex. Feb. 13, 2007)
[23] Carafano v. Metrosplash.com, 339 F.3d 1119 (9th Cir. 2003).
[24] Delfino v. Agilent Technologies, 145 Cal. App. 4th 790 (2006)
[25] Batzel v. Smith, 333 F.3d 1018 (9th Cir. 2003).
[26] Ben Ezra, Weinstein & Co. v. America Online, 206 F.3d 980, 984-985 (10th Cir. 2000), cert. denied, 531 U.S. 824(2000).
[27] Blumenthal v. Drudge, 992 F. Supp. 44, 49-53 (D.D.C. 1998).
[28] Kathleen R. v. City of Livermore, 87 Cal.App.4th 684, 692 (2001).
[29] 481 F.3d 751 (9th Cir. Mar. 29, 2007; amended opinion issued May 31, 2007)
[30] In Fair Housing Council of San Fernando Valley v. Roommates.com, LLC 489 F.3d 921, C.A.9 ( Cal.),2007.
[31] See, MCW, Inc. v. Badbusinessbureau.com, L.L.C., 2004 WL 833595 N.D.Tex. and Hy Cite Corp. v. Badbusinessbureau.com, L.L.C. 297 F.Supp.2d 1154 W.D.Wis.,2004.