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Client Alert - Court Rules That A Web Posting Is Ineffective To Change The Terms Of An Online Contract

An appellate court recently held for the first time that a business cannot unilaterally change its online contract terms with a customer solely with a posting to a website.  Rather, customers must be notified directly of the contract changes, i.e., by mail or e-mail, and, in some cases, the customers must expressly consent to the changes.  This decision could impact many service providers and online companies who have entered into contracts with their customers via a website.

In Douglas v. Talk America, Joe Douglas signed up for telephone service with AOL.  When Talk America later acquired AOL™s telephone business, it made several changes to the service contract, including increasing prices and adding an arbitration provision.  Talk America posted these contract changes on its website, but did not otherwise notify customers of the changes.  Douglas didn™t discover the changes for four years because the changes were automatically billed to his credit card.  When he learned of the increased charges, he brought a class action suit claiming the changes were ineffective.
 
Talk America argued the contract changes were binding because Douglas continued to pay his bills monthly after the changes and he could have reviewed the revised contract when he paid his bills online.  The Ninth Circuit appellate court, however, disagreed and held 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.  Nor would a party know when to check the website for possible changes to the contract terms without being notified that the contract has been changed and how.  Douglas would have had to check the contract every day for changes.  A party can™t unilaterally change the terms of a contract; it must obtain the other party™s consent before doing so.

As for the required consent, the court suggested that consent could be inferred if the customer continues to use the service after the contract has been changed, but only if the customer has been notified directly of the changes by, for instance, regular mail or email.  However, in some circumstances, such as with a change to an arbitration provision, which is given heightened scrutiny by some states, customers may have to expressly signify their consent to the changes.

The court did not address the situation where a customer contract included a provision which allowed the business to change the contract terms by a post to the business™ website. However, even if the contract does include such a provision, it would still be prudent for a business to provide direct notice of any contract changes to its customers.

Therefore, if you post your contract on your website, in order to effectively change the contract terms you should:  (1) provide notice to your customers via e-mail or regular mail (i.e., a special mailing or a written notice in a monthly statement); (2) provide a reasonable period of time before the changes become effective (i.e., 30 days from the date of the notice); and (3) for changes related to arbitration clauses or other dispute resolution procedures, take additional measures to obtain the customer™s express consent, such as specifically highlighting these changes and requiring some affirmative step to acknowledge the changes, such as by presenting the new terms or the revised contract to the customer and requiring the customer to click an œI agree button.