Online Contracts and Online Offers

Last month the Ninth Circuit issued a per curium opinion in Douglas v. United States District Court for the Central District of California ex rel Talk America Inc. that is getting some attention from those who counsel online information and service providers. Any opinion of the Ninth Circuit relating to the enforceability of online agreements is worthy of some review. The courts have not done enough to evaluate web-based contracting mechanisms. But, after consideration, this opinion offers little guidance on the mechanics of contracting (i.e., assent/acceptance) over web-based services.

In the case, Joe Douglas contracted with Talk America (assignee of AOL) for long distance telephone service. The opinion does not state whether the original contract was entered into online or on paper, nor does it tell us the service terms of the contract or what the contract said, if anything, about its amendment. After Douglas had used the service for some time, Talk America posted, among other terms, an arbitration provision on one of its webpages. Talk America did not call those terms to Douglas's attention, and he did not see them during the next four years; during which time he continued to use the phone service without ever going to Talk America's website. Douglas brought a consumer class action lawsuit against Talk America, and, predictably, Talk America argued that its service agreement with Douglas, by virtue of its posted arbitration provision, required the case to be arbitrated. The District Court agreed and ordered arbitration.

The Ninth Circuit disagreed with the lower court. According to the Court of Appeals, "a party cannot unilaterally change the terms of a contract; it must obtain the other party's consent before doing so." Because Douglas was not even given notice of the changed terms, he could not have given the required assent to them. This is a completely unsuprising conclusion given the facts as stated.

The case does not move the law of contracting mechanics much and, in my opinion, does not provide generalizable conclusions interesting to a software lawyer giving advice to a web-based service provider. For example, it does not help us understand a more common situation in which changed terms of service are posted on a web portal page that must be passed through in order to acess information or services found on the other side of that portal page. Nor does it help us understand how to handle contracting over the provision of information or services when the provider makes no promises to a visitor that such provision will continue for any period of time after his visit. This case is about a telephone service that as far as I can tell, has very little to do with the web.

Websites that offer free information and services on an as-available basis should include terms of service that are not posed as contracts at all. But, if posed as an agreement, the terms should read as offers that must be accepted separately each time a user visits the site. Thus, on any given day, when new terms are posted by a provider, an offer, not a contract, is updated. Such online terms of service can be worded to make clear that a visitor's use is governed by the terms found on the site during such use, and need not even address a mechanism for revising any existing contract. Terms should be reasonably and conspicuously presented to website visitors and should be actively or passively agreed to upon each and every visit, through a click-thru or browse-wrap mechanism, respectively. If they are, then contract law says that they may be unilaterally revised by the website owner at any time.