Changes in the Enforceability of Online Licenses and Contracts

As many of you know, my law practice deals in large part with contracts involving technology and intellectual property. Not surprisingly given the day and age in which we live, a number of these contracts are in the form of so called “click-through” or “click-to-assent” contracts in which a would-be licensee (in the case of software) or user (in the case of a service) is presented with a set of contractual terms on their computer and required to “click” a button displayed on their screen before being able to download, access, install or use the software or service in question. While it has long been established (and even longer taken for granted by those in the technology industry) that contracts are not legally unenforceable simply because they are implemented to using a click-through format rather than a more traditional signature format (or even more traditional wax seal format), the law continues to evolve around the boundaries within which these contracts are in fact enforceable.

One area of particular activity has involved notice. Contract law generally requires that a contracting party be given some level of notice of the terms of the contract before they can be bound by those terms. It is at least in part for this reason that when a party initially signs a contract, the contract typically includes a copy of all language included in the contract — whether in the body of the contract or in an exhibit, schedule or other attached document. Of course, some contracts are structured to reference separate terms not actually attached to the contract (e.g., conditions, policies, etc.) and purport to make those terms a legally binding part of the contract. In my practice, I have seen it become quite common for click-through contracts to be drafted in this manner, with the references to additional terms made via a link to a separate web page containing those terms.

A related issue for click-through contracts drafted in this way involves the level of notice required to modify the contract (including the linked-to terms). Many click-through contracts purport to allow modification without an actual “click” by other party to the contract — for example, simply by continuing to use the software or services in question after a modification has been posted to the web page liked to by the original contract. This situation has raised a number of questions regarding the extent to which changes to the linked-to terms are themselves actually binding upon the licensee/subscriber under the original contract, despite what the terms of the original contract may purport. The 9th Circuit Court of Appeals (which covers California, Washington and Oregon) recently opined on this question in the somewhat oddly titled case Douglas v. U.S. District Court for the Central District of California. In its decision, the 9th Circuit indicated that a proposed modification of the terms of a services contract, which was posted to a company’s web site, was not enforceable against an existing customer who was not provided with notice of the modification. In particular, the court said that the parties to a contract have “no obligation to check the terms [on the web site] on a periodic basis to learn whether they have been changed by the other side” and indicated that requiring the parties to do so would be tantamount to allowing one party to a contract to change the terms of the deal without the consent of the other party to that change.

The opinion of the 9th Circuit is not binding legal precedent in all areas (including my home state of Colorado). And, while it is too early to tell whether the other Circuits will move to follow the 9th Circuit, this case is of note for any company that employs click-through contracts to license their software or provide access to their services for at least two reasons. First, it underscores the fact that the law surrounding the enforceability of click-through contracts is still evolving and can vary (sometimes significantly) from jurisdiction to jurisdiction and state to state. Contracts often specify a chosen jurisdiction or state law under which the contact is to be interpreted, and this decision once again emphasizes the importance of paying careful consideration to this language in any click-through contract. Second, and more substantively, this case appears to place the burden squarely on the vendor/provider to provide reasonable notice of any changes to a click-through contracts (or any of the terms referenced by that contract), rather than on the customer to actively monitor the vendor’s web site for any such changes. This case (and any others that follow in its wake) provide important guidance to any company attempting to implement a modification to its existing click-through contracts, particularly if those contracts are structured in the same manner as the contract in this case. Of course, given that this is likely not the last we will hear on this issue, this case also provides strong justification for the periodic review and update of online contracts and contracting practices to ensure continued compliance as the law in this area continues to evolve. Stay tuned.
For those interested, you can read the case, ruling here: Douglas v. U.S. District Court for the Central District of California.

Advertisements

2 Responses

  1. Jason,

    Thanks for the posting this case and write up. I am very interested in this area of the law as it seems that we still have a lot to settle in the “click-through” arena.

    I don’t know if you allow for discourse regarding legal issues on this site, but I figured you might. As such I’ve written a small hypothetical which I am mulling over currently.

    I am curious as to what your thoughts surrounding the following scenario. A vendor requires its resellers to register online to be authorized resellers. The online agreement requires the reseller to accept “reseller guidelines” which are not physically a part of the agreement. The guidelines are available on via a weblink but only after the vendor accepts the resellers application. I know the issue is also regarding proper notice, but the question is whether notice of the existence additional terms, which can be reviewed after the contract is formed , can be enough to make them enforceable. Given that the reseller has notice that the terms are to be included, that the vendor intends for the guidelines to be a part of the contract , and of the location where the terms can be found, it seems like it would work. Your thoughts?

  2. Hi Jason,

    Thank you for your insightful post. I don’t know if this is the best way to contact you or not, but I would really enjoy discussing click-through agreements with you as it seems you have a pretty up-to-date understanding of them. I wonder just how far one can take the Click-through concept.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: