Communications Advisory Bulletin
Ninth Circuit Issues Short Decision on Online
Contracts with Potentially Far-Reaching Implications
By Ronald
G. London and Kraig
L. Marini Baker
[July 2007]
The recent decision in Douglas v. Talk America, Inc.
may substantially impact the way a myriad of online businesses manage
their contractual relations with customers. In its ruling, the Ninth
Circuit held that vendors may not enforce contract revisions where
a customer’s sole notice of the revisions is that the revisions
were posted on the Internet. The appeals court noted the issue of
“enforcing new contractual terms when a customer is only given
notice…by having the contract posted on the internet raises
new and important problems,” and the Ninth Circuit became
the first federal appeals court to weigh in on the enforceability
of such contract modifications.
The case arose when a former AOL long-distance subscriber who became
a Talk America customer (when Talk America acquired AOL’s
long-distance business) filed a consumer protection class action
after Talk America added new terms to the long-distance contract
that included, among other things, provisions imposing additional
charges, mandating arbitration of disputes, and requiring application
of New York law. Talk America sought to avoid the class action lawsuit
by compelling arbitration as called for by the new provisions, but
the Ninth Circuit held that it was a “fundamental misapplication
of contract law” to find the plaintiff bound by the terms
of the revised contract when he was not notified of the changes.
The opinion against Talk America noted that the plaintiff could
have become aware of the new terms only if he had visited the company’s
website and examined the contract for possible changes, and that
even had he visited the website, he would have had no reason to
look at the contract posted there. The court held “[p]arties
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.”
In this regard, “a party can’t unilaterally change the
terms of a contract; it must obtain the other party’s consent
before doing so.” The court went on to hold that even if “continued
use of Talk America’s service could be considered assent,
such assent can only be inferred after…proper notice of the
proposed changes.” The court distinguished previous cases
in which customers had received notice of modified contracts by
mail.
The ruling in Douglas v. Talk America suggests that companies
entering contracts with their customers by posting the provisions
online and requiring acceptance of the terms must do more than simply
post contractual changes online if they want the new terms to bind
customers. The decision looked favorably on providing notice by
mail, and other types of notice, such as email, may be acceptable.
For more information, please contact:
This advisory is a publication of the Communications Group of Davis
Wright Tremaine LLP. Our purpose in publishing this advisory is
to inform our clients and friends of recent developments in the
communications industry. It is not intended, nor should it be used,
as a substitute for specific legal advice as legal counsel may be
given only in response to inquiries regarding particular situations.
Attorney advertising. Prior results do not guarantee a similar outcome.
Thank you.
Copyright
© 2007, Davis Wright Tremaine LLP.
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