By Thomas O'Toole
Several cases relevant to online contracting have been decided recently, and I think we've done a pretty good job covering them as they came in. Here are a handful worth mentioning again, all in one place.
Adware Vendor's EULA Holds Up in Court
In People v. Direct Revenue LLC, No. 401325/06 (N.Y. Sup.Ct., N.Y. Cty., March 12, 2008), a New York trial court dismissed the entirety of the state attorney general's deceptive and illegal business practices case against Direct Revenue, a distributor of software (a downloadable "adware" client) that displays pop-up advertising on Web browsers. The attorney general sought billions of dollars in penalties against Direct Revenue, seeking to assert the rights of millions of unidentified consumers across the country who installed the Direct Revenue adware client.
The state's undoing was Direct Revenue's end-user license agreement, a click contract, and Direct Revenue's agreement with its distributors, which called for fair and lawful distribution of the Direct Revenue adware client.
Twenty-nine transactions with Direct Revenue or its distributors were alleged. As for those transactions where the attorney general's investigator dealt directly with Direct Revenue, the installation of the adware client was preceded by a license agreement that explained how the adware client operated and how to uninstall it; the agreement also explained the limitations on Direct Revenue's liability. In each case, the investigator clicked "Yes" on a button, indicating assent to the agreement.
As for those installations that were initiated by Direct Revenue's third-party distributors, there were problems with some (for example, the license agreement and uninstall instructions were not always displayed prior to installation). However, the court held that Direct Revenue was protected by its Standard Distribution Agreement, a document that directed the third-party distributors to obtain legally valid affirmative consent and make all legally necessary disclosures prior to installation of the adware client.
Having turned back claims based on the 29 transactions engaged in by state investigators, the court said there was no basis to entertain the attorney general's claims on behalf of all other individuals who allegedly downloaded the Direct Revenue adware client. Finally, it held, disgorgement of profits would not be an appropriate remedy in this case, since Direct Revenue distributed its adware client for free and it took nothing of value from the consumers who downloaded it.
Human Intervention Complicates E-Contracting
Three cases demonstrate how the online contracting process can be undermined by the failure to have key contract terms available online for review at the time the consumer is asked to indicate assent. In all of these cases, the company offering the contract terms decided that it would be helpful to involve human beings in the contracting process. This was a poor decision in every instance.
Key Terms Not Available at Purchase Time
Trujillo v. Apple Computer Inc., and AT&T Mobility LLC, No. 07 C 4946 (N.D. Ill., April 18, 2008), involved a proposed class action lawsuit against Apple and AT&T Mobility over the lawfulness of Apple's battery replacement costs. AT&T Mobility filed a motion to compel arbitration of the plaintiff's claim against it individually, based on a clause forbidding class arbitration contained in the AT&T Mobility service agreement that the plaintiff. The plaintiff argued that the arbitration clause was, among other things, procedurally unconscionable.
Most people are familiar with the process of purchasing an iPhone. The phone is first purchased from Apple; in this case, the plaintiff purchased his iPhone at an Apple store in Illinois. At the time of purchase an iPhone is useless as a telephone until the purchaser obtains telephone service from Apple's exclusive provider, AT&T Mobility. The arbitration clause at issue here appears at the end of AT&T Mobility's service agreement.
The court declared: "The Court believes, based on its review of Illinois case law, that the availability of the AT&T Mobility service agreement to [the plaintiff] prior to his purchase of the iPhone may be a critical factor in determining the issue of procedural unconscionability."
AT&T Mobility responded with two arguments. First, the service agreement was available at the Apple store where the plaintiff purchased the iPhone. This contention was supported by an affidavit from an AT&T Mobility attorney. Second, the service agreement was available on the Internet, so again the plaintiff had access to it prior to purchasing the iPhone.
Neither argument persuaded the court. An AT&T Mobility attorney could not possibly have personal knowledge about the habit and practice of Apple stores regarding the display of the service agreement, the court said. Further, it wrote, AT&T Mobility failed to cite any Illinois cases "supporting the proposition that if an agreement is available prior to the customer's purchase of a product only if the customer goes and looks for it elsewhere (including on-line), that is sufficent under Razor v. Hyundai Motor Am., 854 N.E.2d 607 (Ill. 2006)."
The court decided to give AT&T Mobility another opportunity to present additional evidence indicating that the service agreement was available to the plaintiff prior to purchasing the iPhone. (An additional, albeit smaller, problem for AT&T Mobility here was the lack of evidence indicating whether the purchaser was informed about the consequences of rejecting the service agreement after having purchased the iPhone. This too is relevant to the procedural unconscionability question, it said.)
Note: Along the way, this court said that Hill v. Gateway 2000 Inc, 105 F.3d 1147 (7th Cir. 1997), an important contracting decision that interpreted Illinois law to permit the seller to add contract terms in shipping materials after the sale, had been cast into doubt by the Illinois Supreme Court's subsequent decision in Razor.
Plaintiff Rushed Through Contracting Process
In Reynolds v. Credit Solutions Inc., No. 07-AR-1516 (N.D. Ala., Feb. 26, 2008), the court -- although it ultimately decided the case on other grounds -- declared that "there should be something wrong with binding a person with her click to a lengthy electronically-displayed proposal after barely enough time to scroll to the clicking point, much less the time without which the read and comprehend it."
The plaintiff claimed that her clicked "signature" on an online contract was procured through fraud because the Credit Solutions agent, who was speaking to her on the telephone while she reviewed the contract on her computer screen, should have told her that the document was a contract. The Credit Solutions agent recorded the telephone call, which was introduced into evidence. The recording indicated that just 30 seconds elapsed between the time the 8-page PDF-formatted agreement was displayed on the plaintiff's computer screen and the time she clicked her assent to it. The agreement warned of the necessity to "read through this document carefully," but that message seemed to be undermined by the Credit Solutions agent's exhortation to scroll to the bottom and click where indicated. According to the court:
As far as the court can tell, [the plaintiff] was not limited to a set amount of time within which to read the contract. However, the court notes, as an aside, that someone who reads with the speed of a Jesse Owens in the 100 yard dash could not read the contract displayed on [the plaintiff's] computer screen in 30 seconds, particularly with [defendant's agent] salivating on the other send of the line.
The court's concerns about the contracting process here were not dispositive, however; it ultimately ruled that an arbitrator rather than the court must decide whether this contract was void due to fraud.
Key Terms Not Available, Human Contradicts Contract Terms
Feldman v. United Parcel Service Inc., No. 06 Civ. 2490 (S.D.N.Y., March 24, 2008), involved a challenge to the part of the UPS shipping contract that forbids the shipment of items exceeding $50,000 in value. If a person ships an item valued at more than $50,000, then UPS is not responsible for loss or damage during shipment. UPS clearly sets out this limitation in the "Articles of Unusual Value" provision, Item 460 on page 8 of the UPS Tariff Agreement. The plaintiff in Feldman shipped a diamond ring valued at $57,000, which was lost during shipment.
The Seventh Circuit, in Treiber & Straub Inc. v. United Parcel Service Inc., No. 05-3743 (7th Cir., Jan. 9, 2007), enforced the UPS ban on shipping articles of unusual value. In Treiber, however, the UPS terms and conditions and the "Articles of Unusual Value" provision it referenced were available online for review by the plaintiff. Also, the plaintiff clicked twice to indicate assent to the terms.
Feldman was different. In Feldman, the plaintiff used a UPS I-Ship kiosk within a UPS physical facility. A message on the kiosk screen advised the plaintiff: "Review everything carefully and then click Print to print your shipping request." Below the Print button was a "Terms of Service" hyperlink. When clicked upon, the hyperlink displayed a pop-up window indicating that shipments are subject to the UPS Tariff Agreement. The pop-up window also indicated that the tariff agreement was available at www.ups.com or from a UPS associate on the premises. There was no hyperlink to the tariff agreement -- just a mention of the UPS Web site.
The court found enough problems with this contracting process to preclude summary judgment in favor of UPS. Among them:
- No evidence in the record that the kiosk was connected to the Internet, so the tariff may not have been available to the plaintiff.
- Clicking on a button that says "Print" does not necessarily connote agreement or assent to a contract.
- No evidence in the record that the UPS counter associate actually had the tariff agreement available.
Finally, the human factor. The plaintiff testified that he sought the assistance of the UPS counter associate and that he told her the item he was shipping was worth $57,000. According to the plaintiff, the counter associate attempted to insure the package for $57,000 but was blocked by the UPS computer. "According to plaintiff, [the counter associate] then agreed to ship the diamond ring at his request," the court wrote. "These facts, if proved, implicate a substantial face-to-face communication, suggesting that the surrounding circumstances might have prevented the plaintiff from having adequate notice of the terms of the Tariff."
Lessons Learned
Contract Terms Should Be Available for Review. In Trujillo, and Feldman, the defendants made an insufficient effort to ensure that key contract terms were available to the consumer.
In Trujillo, AT&T Mobility's terms could have been in the box containing the iPhone. The sales slip could have contained a place for the consumer to sign, indicating receipt of and assent to the terms.
In Feldman, the I-Ship kiosk could have been connected to the Internet and the UPS Tariff Agreement available via a hyperlink displayed on the kiosk screen.
Clickable Buttons/Links Should Clearly Signal Assent. At this point there is a large body of case law upholding online contracts created with the click of an "I Agree" button. Counsel ought to have a darn good reason why anything other than "I Agree" is displayed on that button.
In Feldman, for example, the decision by UPS to display "Print" on the button -- which was its only means of proving assent to a lengthy, one-sided, non-negotiated deal -- needlessly gave the plaintiff an opportunity to challenge the validity of the contract. UPS appears to know better too: the assent button in the Web contract challenged in Treiber displayed "I Agree" and that contract was upheld.]
In Reynolds, the plaintiff claimed she did not know that the online document was a contract and that her click signaled assent to it. From what I could tell from the court's opinion, the plaintiff clicked on a checkbox next to the statement, "Click here to sign." Here again, indicia of assent could have been firmed up by the defendant, taking at least some of the steam out of her claim that she did not know that her click signaled assent to a contract.
Humans Are Not Helpful. All of the cases discussed above introduced human beings into the online contracting process. Big mistake.
In Trujillo, AT&T Mobility decided it was good enough to have its service agreement available in the Apple store. This decision created a huge can of worms. Where was the service agreement? Were there any in the store that day? What sort of training does Apple do to ensure that the availability of the AT&T Mobility service agreement is made known to each and every iPhone purchaser? Even if Apple/AT&T Mobility has all this nailed down, they are still left with a triable issue.
In Reynolds, few courts would have invalidated the agreement clicked by the plaintiff were it not for the presence of the Credit Solutions agent on the telephone with the plaintiff. The decision contract in this fashion created a record indicating just how long the plaintiff spent looking at the agreement, and it opened the door to the claim that the plaintiff was rushed through the contracting process or otherwise misled about the significance of her actions.
Finally, in Feldman, UPS's decision to involve a counter associate in the contracting process created extrinsic evidence about the contract process where none needed to exist. UPS may have believed that directing the shipper to a counter associate for a copy of the tariff agreement would have strengthened its case, but in fact it create a host of triable fact questions and, as happened here, gave the counter associate an opportunity to undermine the position UPS took in the contract. If UPS prohibits the shipping of items valued greater than $50,000 why did the counter associate take my package?
Just Asking for Trouble. Based on the evidence of the cases discussed above, a good argument could be made that an online contract should never depend on terms being available at a physical location or depend on assistance from a human being. Crossing the dividing line between the online world and the physical world just seems to be asking for trouble. Moreover, since courts rarely object to online contracts because they are too long or too densely written, and consumers are used to taking products and services subject to lengthy terms (which they never read anyhow), why don't businesses put all important contract terms in one place, online, available in advance of the sale? They wouldn't be losing sales, and they'd certainly be saving on attorneys' fees.
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