Ninth Circuit Holds Modified Terms of Use Unenforceable

It’s not uncommon for companies to change or modify the terms under which they provide services to consumers. This is true whether the company is a traditional brick and mortar company or Internet based. When traditional companies make a change to service terms they usually send some type of written notice to the consumer. But for some reason this never caught on for Internet based companies. Often the Internet based Company would merely make changes to its terms of use (the contract which governs the consumers’ use of the relevant website and its services) and post the revised terms of use on its website. In most instances, unless the user reviewed the terms of use frequently and compared the current version to the version that was posted at the time the consumer became a user of the site, the user would be unaware of any changes.

Recently the Ninth Circuit addressed the enforceability of a modified terms of use when the company fails to provide notice to the consumer. In Douglas v. U.S, District Court, the plaintiff was a subscriber to AOL’s long distance telephone service. That service was subsequently taken over by Talk America. When Talk America took over AOL’s phone service it added for new provisions to the service’s terms of use: additional services charges; a waiver of the right to bring class actions; an arbitration clause; and a New York choice of law provision. Like so many Internet based service providers, Talk America did not affirmatively notify its users of the changes, but merely posted the revised provisions on line.

The Ninth Circuit held that merely posting the revised terms of use online is insufficient to bind previous users. While the plaintiff claimed that he had no reason to visit the Talk America website since AOL (and then Talk America) automatically charged his credit card for the services, the Ninth Circuit stated that even if he had visited the website he would no reason to look at the terms of use to determine if there had been any changes. “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.” Further, the Ninth Circuit noted that the plaintiff would not know when to check the website for possible changes to the contract terms without being notified that the contract has been changes and how.

The drafters of some terms of use have foreseen enforceability issues and included a provision which provides that continued use of the service constitutes the user’s acceptance of the revised terms. The Ninth Circuit qualified the scope of such language by providing that even if continued use could be considered assent, such assent can only be inferred after the user receives proper notice of the proposed changes. In this case, the Ninth Circuit concluded, proper notice had not been given.

Other then providing notice by mail, the Ninth Circuit did not give any additional insight into what forms of notice are acceptable. Would notice by email, SMS, MMS, text message, or postings on the Service be sufficient? It’s not clear, and the sufficiency would probably be based on numerous factors.

This ruling also brings up business issues that need to be considered when crafting the terms of use, such as what should a company do if a user objects or refuses to accept the revised terms of use? Unless the terms of use includes a termination provision granting the company the right to terminate at any time, or grants the company the right to terminate if the user refuses to accept the revised terms of use, the company may be obligated to continue to provide services under the original terms.