E-Commerce Information

By: Daniel A. Pepper

For some mysterious historical reason, the contract between the operator of a website and its customers long ago became known as the “terms and conditions” of the site—and back in those days (the Wild, Wild West of the 1990s), a good many operators of websites just copied the terms and conditions verbatim from another site that had terms and conditions looking fancy enough to garner the assumption that they were written by a lawyer who knew something about the subject. That led to a number of very amusing results, including totally irrelevant provisions—provisions that worked against the interests of the site, and so on. This practice is akin to following someone who also is lost.

The “terms and conditions” clause is, in essence, a contract. However, formation of a contract requires both an offer and an acceptance. Terms and conditions are really part and parcel of an offer of the services offered by your website. In order for there to be a contract, the customer must do something to communicate acceptance of all of the component parts of an offer. Just because you have terms and conditions posted doesn’t mean they have been accepted. That is the first point you should take from this article.

Case in point: Some years ago, Netscape tried to enforce the component of its terms and conditions requiring arbitration (more about that later) against a customer. It lost (Specht v. Netscape Communications Corp., 150 F.Supp.2d 585, S.D.N.Y., 2001). Apparently, there was no requirement in one of Netscape’s upgrades that the customer make any manifestation of acceptance of the terms and conditions, usually accomplished by clicking an “I accept” button adjacent to them. This is called a “click-wrap agreement,” a term that arose from those so-called “shrink-wrap agreements” on computer software—you know, the ones where it reads on the wrapper of the disc on which the program is recorded that “by breaking this seal, the customer agrees to...” The best click-wrap agreements are the ones in which the default setting reads “I do not agree,” so the customer must change the selection to the “I agree” button, and then click. This obviates customer claims that the buttons were confusing or that the “I agree” button was accidentally pushed.

Perhaps the most important components of terms and conditions have to do with dispute resolution. Let’s say you operate a website in New York and have a disgruntled customer in Montana—or worse, in Paris, France. The customer in one of those far-flung places can claim that, since you took advantage of the stream of commerce in that jurisdiction by selling your services within it, then you are subjecting yourself to being sued there in the event of a dispute. Think about it: If the customer in Montana defrauded the New York webmaster, the New York webmaster could sue the customer in Montana, and in fact would be required to utilize the court system of Montana to collect any money. Turnabout is fair play, and the customer also can sue you in Montana. However, courts consistently have held that the parties to a contract can agree in advance to the place (venue) where disputes arising from it are resolved, so long as the venue has some interest in the dispute (e.g. one of the parties lives there or the contract is to be performed there). This is called a “choice of forum” clause, perhaps the most important term or condition—and the second point you should take from this article.

Another oft-utilized contractual provision involves how (as opposed to where) disputes are resolved. Terms of a contract, and terms and conditions, can provide that disputes will be resolved by arbitration—this is the third point. Here is how arbitration works: If a suit arises from a contract containing a typical arbitration provision, then a party that is sued can demand arbitration, and the judge will suspend the court action pending resolution by arbitration.

An arbitrator is a third party who acts somewhat like a “rent-a-judge”; many arbitrators, in fact, are retired judges. Now, why would you want to be required to pay for something that the state will essentially give to you for free? Because each side is required to post half the arbitrator’s fee in advance—and this is not just $100 or $200 in court filing fees; it is more like thousands of dollars, because arbitrators aren’t cheap. Therefore, if some customer has an inconsequential beef about his Web service, he has to put up some serious money! Plus, he has no right to a jury.

The fourth important point involves “attorneys’ fees” clauses, which may sound like a good idea but require serious second thought. Be realistic: You are much more likely than your customers to screw something up, and an “attorneys’ fees” clause instantly raises the stakes in any dispute. Think about it: Somebody in some department screws up and double bills a customer for $200. An attorney looks at this and figures he can just file suit for the $200 plus his or her fees (granted, some states do not allow attorneys in small claims court), so if you use an attorneys’ fees clause, you are asking to get sued. The general rule in the U.S. (the so-called “American Rule”) is that each party to a dispute bears the cost of its own attorneys’ fees, absent a statute (and there are enough of those as it is) or a contractual provision. Most of the reasons nobody files suits for small amounts of money is that attorneys are so expensive. Why volunteer to pay the opponent’s bill?

Finally, perhaps one of the best reasons not to just copy terms and conditions from another website and post them on your own is that you are subjecting yourself to a claim for copyright infringement—and that’s just one more hassle you and your company can do without. Daniel A. Pepper is the founder of Pepper Law Group, LLC, a law firm based in Somerville, New Jersey which provides strategic advice and sophisticated legal services to businesses, entrepreneurs, and entertainers in the areas of technology law, intellectual property, Internet law, entertainment law, business formation and general business counsel, and privacy and security law.

Dan is a member of the State Bars of New Jersey and Pennsylvania, the District Courts for the District of New Jersey and Western Pennsylvania, the American Bar Association, the American Corporate Counsel Association, the Internet & Computer Law Committee of the New Jersey State Bar Association, the Somerset County Business Partnership, the Philadelphia Volunteer Lawyers for the Arts, and the Free Speech Coalition. Dan has received a BV peer-review rating by Martindale-Hubbell, which is an indication of an exemplary reputation and well-established practice. He is also a member of the National Academy of Television Arts & Sciences and the Licensing Executives Society. He received his Bachelor of Arts degree from Rutgers University, and his Juris Doctor degree from the Duquesne University School of Law. More information on the firm can be found at http://www.informationlaw.com or by telephone at 908.698.0330.