The Necessity Of Notice: Increasing Emphasis Placed On Providing Customers With Notice Of Modifications To Online Contracts

Summary

Recent federal court decisions have held that companies cannot bind customers to new contract terms by posting the changes on a Web site. Instead, a company must provide notice to the customers that the terms of a contract have changed. While the courts have not given specific guidance, notice that identifies the applicable contract accompanied by a summary of the modifications is likely sufficient. Further, the cases indicate that it is best if the Web site enables costumers to accept the revised contract.

Full Article

A company cannot unilaterally change the terms of a service contract by posting a revised contract online without providing notice to customers. Douglas v. U.S. Dist. Court, 495 F.3d 1062 (9th Cir. 2007). The court came to this conclusion after evaluating changes made by Talk America Inc. to its existing service contract with customers. The changes included an additional service charge, a class action waiver, an arbitration clause, and a choice-of-law provision. Talk America, Inc. did not notify customers of the changes and, instead, merely posted the revised contract on its Web site. Douglas, the named plaintiff, filed a class action suit upon discovering the additional service charges resulting from the added provisions.

The court explained that simply because Douglas had authorized Talk America, Inc. to automatically bill his credit card, Talk America Inc. could not assume a revised contract posted on the Web site was enforceable against Douglas without providing him with notice. The court indicated that customers do not assent to a modified contract merely by continuing to use the company's services. The court also stated that a party to a contract has no obligation to check the terms of a contract to verify that they have not changed because such monitoring of the terms is too burdensome on customers. Notably, the court explained that implicit acceptance can only occur after the customer receives notice of the changes. Thus, under this holding, a customer who receives an e-mail specifying changes to a contract who does not object to the new terms may be bound to the modified contract.

The U.S. Court of Appeals for the Ninth Circuit distinguished this case from the two prior decisions of Crawford v. Talk America, Inc., No. 05-CV-0180-DRH, 2005 WL 2465909 (S.D. Ill. Oct. 6, 2005), and Bischoff v. DirecTV, Inc., 180 F. Supp. 2d 1097 (C.D. Cal. 2002). The courts in Crawford and Bischoff held that the customers were...