AngiePen (angiepen) wrote,

Online Contracts -- This Potentially Affects Everyone

The Ninth Circuit Court of Appeals has decided that a company which does business online CAN NOT unilaterally make changes to the contract between the company and its customers (this is often the Terms of Service) without notifiying its customers before the change goes into effect. This is a huge change in how business is done online and "how things just are" for all of us and any company we do business with, or even a site like LiveJournal which has a TOS which applies to people who don't actually give them any money.

According to this article by Linda Rosencrance, posted on on 27 July, Joe Douglas originally signed a service contract for phone service with AOL. AOL was purchased by Talk America, which kept up the phone service but changed the contract by posting the new, amended version on its web site. Changes included "an increase in prices, an arbitration clause and a class-action suit waiver." Lovely. Raise the prices and change the rules so your customers can't sue you over it, all in one fell swoop.

Joe Douglas didn't notice any difference for four years; he pays his bills automatically through his credit card and didn't noticed the rate increase at first. Once he did notice, he sued. The court agreed to a request from Talk America that the issue be forced to go to arbitration, but Douglas appealed and won. "The court said that because a contract was an agreement between two parties, one of the parties couldn't change it unless the other party agreed to the change." What an amazing concept -- I'll bet there are a lot of primarily-online companies scrambling to figure out what to do in light of this particular piece of horrific news.

Talk America argued that since the new contract was on the Web site, where Douglas paid his bills, he should have seen the changes. However, Douglas said he didn't pay his bills online; the monthly bills were automatically charged to his credit card. But even if he had paid his bills online, the appeals court shot down Talk America's argument.

"Even if Douglas had visited Talk America's Web site to pay his bills, he would have had no reason to look at the contract posted there," the court said. "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side."

The appellate court also said that the original court shouldn't have sent the suit to arbitration, since Douglas hadn't agreed to the arbitration clause. Which makes perfect sense to me, especially since the question of whether or not he should be bound by an amended contract he hadn't known about was the whole point of his lawsuit -- talk about begging the question.

And because this decision was made by a California court, it affects SixApart and LiveJournal. Unless and until the decision is overturned, we don't have to worry about 6A sneaking any surprises into the TOS while our back is turned. Which isn't something I would've been at all concerned with until recently. :/ But it affects just about every TOS or contract I've ever read online; most of them have a "We may amend this at our whim simply by posting the new version here where you'll never bother to read it" clause, all of which are now illegal and invalid. Cheers for the good guys -- it's great to see the courts actually understanding how things work online and making a good decision.

Tags: issues

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