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