It is common today for a vendor to post its terms of service or terms of sale on its website. It is less common for individual consumers to take the trouble to view those terms posted at the time of contracting. Still less likely are customers to notice changes in website terms after the business relationship has commenced. Given that it is unlikely that an actual "meeting of the minds" occurs merely because vendors change their posted terms, when are such web-posted changes in terms of service or sale enforceable against the consumer?

This issue squarely arose in two recent cases. The determining factor in each case was the adequacy of the notice provided of the existence and significance of the new web-posted terms. These cases suggest that vendors should review their practices to ensure that the contractual terms upon which they seek to rely are adequately presented to consumers.

The basic law governing the enforceability of online terms is fairly well-established. Cases such as Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001), aff'd 306 F. 3d 17 (2d Cir. 2002),, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004), and ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) and their progeny generally have held that "shrink-wrap" or "click-wrap" terms are enforceable if the customer has actual or constructive knowledge of them. The question raised in the recent cases concerned the legal effect of modifications to a website's terms of use made without directly notifying its customers of the change.

Ninth Circuit - Mere Posting Not Notice

In Douglas v. Talk America, Inc., 495 F.3d 1062 (9th Cir. 2007) (per curiam), plaintiff sought to bring a class action lawsuit against a long distance telephone company challenging several new provisions that were posted in a revised contract on the carrier's website but, allegedly, without other prior notice to the plaintiff. One of the new terms was an arbitration clause, which defendant had successfully invoked to secure dismissal of the lawsuit in the district court. The case went to the Ninth Circuit on writ of mandamus.

As the Ninth Circuit recognized, this issue could affect the relationships of numerous service providers with millions of customers: "This is the first time any federal court of appeals has considered whether to enforce a modified contract with a customer where the customer claims that the only notice of the changed terms consisted of posting the revised contract on the provider's website." The Ninth Circuit held the revised contract unenforceable due to lack of notice.

First, the court found that the plaintiff, who paid his bill automatically by credit card, had no occasion to visit the carrier's website to find the revised terms, nor was there any evidence that defendant had otherwise notified him that the terms were changed or in what manner. Second, the court, noting that a party cannot unilaterally change a contract, held that the plaintiff's continued use of the service after the changes cannot be deemed to be "consent" if the plaintiff was never informed of the changes. An "offeree cannot actually assent to an offer unless he knows of its existence." The court distinguished other cases in which the service provider had taken steps to notify customers by mail of changed terms. Accordingly, the Court of Appeals ruled that the district court had committed "clear error," granted the writ of mandamus and vacated the arbitration order.

Different Result Where Actual Knowledge Shown

In contrast, Southwest Airlines was more successful in a recent effort to enforce modified terms. In Southwest Airlines Co. v. BoardFirst LLC, No. 3:06cv0891 (N.D. Tex. Sept. 12, 2007), the air carrier sought to shut down a company that used Southwest's website in providing a "check-in" service for Southwest customers to ensure priority seating under the carrier's "open-seating" policy. Southwest claimed that the defendant's actions violated the Terms and Conditions of its website, which throughout the relevant time allowed use of its site only for "personal, noncommercial purposes." Additionally, in February 2006, Southwest had amended the Terms and Conditions on its website specifically to prohibit third parties (such as the defendant) from using the site to obtain boarding passes for customers. Moreover, Southwest sent cease and desist letters to the defendant in December 2005 and in February 2006, apprising the defendant that its operations violated the website's Terms of Use. When the defendant continued to operate, Southwest sued for breach of contract.

The court held the Terms of Use enforceable, finding that the defendant had actual knowledge its activity was prohibited by Southwest since at least the first cease-and-desist letter. The court also found the defendant in breach of the Terms of Use and issued an injunction against its ongoing operations. In Southwest Airlines, the modification to the Terms of Use appeared to clarify and elaborate on a restriction previously contained therein. However, the court found the dispositive factor to be the actual knowledge of the restriction given to defendant by the airline.

Although these cases applied laws of different states, they both cast doubt on the enforceability of unilateral changes in website Terms of Use and Privacy Policies. This is particularly so where the party to be bound has neither actual nor constructive notice of the change.

Accordingly, website owners may be well advised to review their procedures for making changes to their Terms of Use to ensure that legally sufficient notice is provided as to terms they wish to enforce. Websites that merely caution the consumer to "check back" for changes in terms and that continued use indicates assent to the new terms may find that any changes they impose unilaterally may not be enforceable.