Effective Terms of Use Agreements

by Michael T. Smith | Inside Counsel

To reduce the risk of transacting business online, virtually all website owners place language on their sites that includes, among other things, forum selection and choice of law clauses, limitations on damages and alternative dispute resolution requirements such as mediation or arbitration. This protective language often is presented in the context of “Terms of Use,” an “End User License Agreement,” or “Terms of Service.” Regardless of what the agreement is called, to effectively reduce their risk, website owners need to make certain that a valid agreement exists with the website users.

A court recently addressed the enforceability of a website’s Terms of Use when Zappos.com Inc. tried to require arbitration of a class action consumer dispute. The plaintiffs, who were Zappos.com customers, claimed their personal information was hacked from the Zappos site. Individual plaintiffs sued in federal district courts across the country seeking relief under state and federal statutory and common law for damages resulting from the security breach. Zappos filed a motion to compel arbitration pursuant to its website Terms of Use. The Terms of Use further stated that: “We [Zappos] reserve the right to change this Site and these terms and conditions at any time,” and “ACCESSING, BROWSING OR OTHERWISE USING THE SITE INDICATES YOUR AGREEMENT TO ALL THE TERMS AND CONDITIONS IN THIS AGREEMENT, SO PLEASE READ THIS AGREEMENT CAREFULLY BEFORE PROCEEDING.”

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