The “Terms of Use” Trap for Web Businesses

August 31st, 2007

Every web site of any substance has a “Terms of Use” policy, if for no other reason than to make sure that the site operator can restrictPhoto courtesy of illegal, offensive or otherwise undesirable activity. I doubt many people would have trouble with this.

But what happens when the operator needs to change the terms?

Boring Legal Stuff- the Abridged Version
The Ninth Circuit held last month that simply telling users the terms can be changed at any time may not be good enough. In Douglas v. Talk America, AOL sold its long distance phone business to Talk America. Talk America posted revised contract terms unilaterally, Douglas sued and the Ninth Circuit drily noted that “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”.

It’s the Notice, Stupid
Talk America charged a fee for its services, it changed the contract after AOL and Douglas had formed it and it declined to offer notice of the changes- putting the burden on users to check back (how often?) for changes (visible how?). It’s the last point that seemed to seal the deal for the Ninth Circuit. It is patently unreasonable to expect consumers to re-check every site where they hold accounts, and to compare use terms line-by-line for changes (assuming they retained a copy of the old terms against which to compare).

So Where Does that Leave Us?
Prof. Eric Goldman points to several alternatives, none particularly attractive, that businesses can use to avoid this problem. Of the three (“starting over”, notice of the change with implied right to terminate, and don’t change the terms at all except for new users), sending notice of changes seems like the most practical. I know I have gotten notices like this from eBay and other businesses.

More than likely most users won’t even read the notice, but the process is bound to produce a certain amount of anxiety, especially for companies that aren’t yet established. Spam filters make it harder to ensure that the notice gets full distribution as well, but 100% receipt is not mandatory either (no difference here from paper mailings from your bank). Still, there’s a certain circularity to it- once the contract has been formed there is no sure-fire, legally watertight way of changing it short of terminating every account on the site and starting fresh.

As a practitioner, my response to this is to draft terms of use extremely broadly, hoping that will help my clients to iterate without turning business and user-communications issues into legal ones. It’s no brilliant legal reasoning, but at least it lets companies focus on the bottom line- keeping users happy and the platform running smoothly.

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