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STRATEGIES FOR MODIFYING ELECTRONIC AGREEMENTS
AND POLICIES
Kristie D. PrinzThe Prinz Law OfficeLos Gatos, California
(p) 408.374.2512, (f) [email protected]
www.prinzlawoffice.com
THREE CATEGORIES OF ENFORCEMENT ACTIVITY OR CASE LAW
Cases or actions involving a modification to web site terms and conditions;
Cases or actions involving changes to other electronic and non-electronic agreements (i.e. service agreement and employee handbook);
Cases or actions involving modifications to a company privacy policy.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
1. AOL Settlement with 44 state attorney generals—Signed “Assurance of Voluntary Compliance” on May 28, 1998
Charges in matter included that AOL made automatic changes to users’ service plans and monthly fees without notice, and made unauthorized charges to users’ credit cards and/or bank accounts for services and goods.
AOL agreed in settlement to notify subscribers of changes in fees or contracts with 30 days prior notice, to disclose phone charges used when dialing service, and to provide secure procedures to guard against unauthorized charges.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
2. In re Juno Online Services, Inc.May 7, 2002 settlement of enforcement action by Attorney General of the State of New York, Internet Bureau
Juno posted on its web site a new service agreement that:
1. Permitted Juno to download software onto its subscribers’ computers.
2. Permitted Juno to replace the screensaver on subscribers’ computers and subjected subscribers to possible requirement of continuous operation of their computers.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
2. In re Juno Online Services, Inc.Other terms on the new services agreement:• Burdened subscribers with all of the costs
and any liability associated with the service agreement.
• Permitted Juno to have unfettered access to subscribers’ computers at Juno’s discretion.
• The new terms were effective immediately.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
Finding in Juno:
New York Attorney General found that the attempt to amend the agreement violated state statutes prohibiting deceptive business practices, false advertising, and repeated, fraudulent, unconscionable, and/or illegal business activities.
The new terms were unenforceable because subscribers received unconscionably insufficient notice in order to decide whether to assent to the changes or find an alternative service.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
3. Comb v. Paypal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002).
Paypal customers have to agree to online user agreement in order to open an account.
Paypal posted new user agreement that: informed customers the agreement formed a
binding contract. contained arbitration clause, requiring
customers to settle all disputes by binding arbitration in Santa Clara County, CA.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
3. Comb v. Paypal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002).
Customers filed class-action suit in a federal court in San Jose, California alleging that Paypal had violated the law by its handling of customer funds.
Paypal argued that: Customers could not file a case in federal court
because they were bound to submit disputes to binding arbitration.
All customers—whether they had entered into the new user agreement initially or the old user agreement—were bound to the new user terms, since the earlier version stated that users would bound by any subsequent revisions.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
Holding in Paypal:
Court held that the user agreement and arbitration clause were substantively unconscionable under CA law and that arbitration could not be compelled.
Court found: The user agreement was an adhesion contract and that it was
subject to change by Paypal without prior notice through the posting of a revised agreement on the Paypal website.
There was no mutuality—in a dispute, Pay Pal at its sole discretion could act unilaterally to take certain actions to maintain control of the disputed funds until customer was found to be entitled to them.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
4. BellSouth Communications System, L.L.C. v. West, No. 1030861, 2004 Ala. LEXIS 326, at *1 (Ala. Dec. 3, 2004).
BellSouth service agreement provided: BellSouth could unilaterally modify agreement terms
and price by posting updated versions of the agreement or otherwise providing notice of the amendments.
All revisions to the service agreement would be effective immediately upon posting without prior notice.
The amended agreement would supercede all prior versions of the agreement.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
4. BellSouth Communications System, L.L.C. v. West, No. 1030861, 2004 Ala. LEXIS 326, at *1 (Ala. Dec. 3, 2004).
Class action suite filed against BellSouth by customers for overcharging.
BellSouth filed a motion to compel arbitration alleging that the dispute must be submitted to arbitration.
The arbitration term had been added to the initial services agreement, and the revised agreement was posted on the website.
Plaintiffs argued that they were not bound to arbitration because they had never agreed to the inclusion of an arbitration clause in the agreement.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
Holding in BellSouth:
Court affirmed the decision of a lower court denying the motion to compel arbitration.
Fact-specific analysis: No showing regarding the date of the revision; No showing that service was used after the revised
agreement was posted on the web site; Claims relate to charges for service predating the
posting; and Court seems to suggest that the unilateral modification
was not in itself problematic, but that the posting may have been faulty.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
5. Campbell v. General Dynamics Government Systems Corp., No. 03-11848-NG (D. Mass. June 3, 2004).
New policy was enacted to require mandatory arbitration for all workplace disputes, including employment discrimination and harassment claims;
Notice provided to employees by email that included links to the policies posted on the company’s internal website; and
Campbell filed discrimination claim against General Dynamics, and company filed motion to compel arbitration.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
Campbell Holding:
Court refused to compel arbitration.
Court found that sending a mass email message, without more, fails to meet the minimum level of notice required to notify employees of a policy that substantially affected their legal rights.
FIVE CASES AND ACTIONS ADDRESSING THE MODIFICATION
OF ELECTRONIC CONTRACTS
Campbell Court suggested that if other procedures had been in place, this might have been adequate to meet level of notice:
Requiring employees to signify by return email that email was read;
Requiring employees to note “I accept” in return email; Requiring employees to respond by email that they had
read the attachments and understood their implications; and/or
Calling a meeting announcing the policy and requiring each employee who attended to sign a sign-in sheet to monitor who attended.
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For questions or copies of the presentation, contact:
Kristie D. Prinz, Attorney-At-LawThe Prinz Law OfficeLos Gatos, California (p) 408.374.2512, (f) [email protected]
Copyright 2005 The Prinz Law Office.
