Website “Terms of Service” Provisions Reigned In By Federal Courts

Zappos Terms Of Service Ruled Invalid – Business Insider.

As reported by Business Insider, a recently handed down decision in a case against Zappos stemming from January 2012 hack of Zappos customer databases now makes it clear that Courts taking much harder look at the enforceability of Terms of Service provisions posted by websites.

Specifically, the Court in the Zappos case found the mandatory arbitration provision contained in Zappos’ ToS to be unenforceable, at least in part because it did not require a user to review and explicitly accept the terms of the ToS. Zappos, like many websites these days, made use of a “browerwrap” ToS, which provide that a vistor of the site automatically accepts the terms of the agreement simply by using the site. The Court found that such a provision did not demonstrate a “meeting of the minds” between Zappos and users of its web site, and thus the ToS did not constitute an enforceable contract.

Ironically, a growing body of case law suggests that if Zappos were to have created a “click-wrap” agreement, that is one that required the user to scroll through the agreement and click a button specifically indicating agreement with the terms of the ToS, that the Court would have found the ToS to be enforceable.

The takeaway here for companies engaged in business on the web: courts are casting increasing scrutiny on the enforceability of Terms of Service agreements associated with such web-based commerce. Understanding what is enforceable and what is not may (and modifying ToS agreements where necessary) may be a key business decision, with costly repercussions if the agreements turns out to be unenforceable.

Have you reviewed your ToS lately? If not, now is the time!