Douglas Decision Applies Settled Law Regarding Online Contract Changes
Posted by Randy Gainer
InDouglas v. United States District Court, No. 06-75424, 2007 WL 2069542, at *1-2 (9th Cir. July 18, 2007), the Court held that the terms of a revised online contract were ineffective when a user was not notified of changes when they were made.The Court statedthat the trials court’s decision finding the contract changes were effective “reflects fundamental misapplications of contract law and goes to the heart of petitioner’s claim. . . .” Id.
Although some observers seemed to believe the Douglas decision established new law, it applied long-settled principles, as others recognized. Principles regarding how online agreements may be amended are summarized in Raymond P. Nimmer & Holly K. Towle, Amending or Modifying the Terms, ¶ 8.10[7] The Law of Electronic Commercial Transactions (2007). Among those principles is that, under the common law of contracts, which generally governs service contracts, there must be an offer, acceptance, and consideration to amend a contract. Id. at *1-2. Douglas simply applied the offer and acceptance rule: a party cannot offer an amendment nor the other party accept the amendment without the offeror providing notice of the change.
Cases decided earlier answer many of the questions that some claimed were left unanswered by Douglas. Courts haveheld, for example, that, where online companies with continuing relationships with users provide notice of proposed amendments, provide consideration by continuing non-mandated services, and obtain users’ acceptance of the amendments by users’ continued use of the services after the amendments were effective, contract amendments are enforceable. See Cellco Partnership v. Hatch, 431 F.3d 1077, 1083 (8th Cir. 2005) (provision in online contract that permitted provider to unilaterally change contract terms not illusory; “such contracts are generally accepted as legal and binding”); Boomer v. AT&T Corp., 309 F.3d 404, 414-16 (7th Cir. 2002) (agreement that was mailed to customer and stated the customer agreed to its terms if he enrolled in, used, or paid for services, was binding; vendor had no legal obligation to continue providing those services and therefore provided consideration by continuing to provide the service; customer’s continued use of service constituted acceptance); Crawford v. Talk America, Inc., No. 05-CV-0180-DHR, 2005 WL 2465909, at * 3-5 (S.D. Ill. Oct. 6, 2005) (long distance service customer received letter notifying customer that the terms of her service were posted on the provider’s website or could be obtained by calling a customer service rep.; contract held binding); Briceño v. Sprint Spectrum L.P., 911 So.2d 176, 177-80 (Fla. Ct. App. 2005) (vendor’s standard practice was to include its terms and conditions in the packaging for its telephones; “Notice of Changes” were also posted on the front of each invoice that vendor mailed, informing customers that amendments to the original terms and conditions were posted on vendor’s website; terms and conditions held binding); Wornow v. Register.Com, 778 N.Y.S. 2.d 25, 26-27 (Supreme Ct., App. Div. 2004) (online contract amendments permitting automatic renewal of domain name registration held binding when plaintiff failed to provide accurate email address, which caused his failure to receive email notice of automatic renewals); Mathias v. America Online, Inc., No. 79427, 2002 WL 377159, at *1-4 (Ohio Ct. App. Feb. 28, 2002) (AOL’s terms of service reserved the right for AOL to change it fees and billing methods and stated continued use following the effective date would be deemed acceptance; AOL posted two notices of a change from hourly billing to flat rate billing on its website; change to terms of service upheld).
Douglas is only one recent case that applies the principles discussed in these cases. Another case that applies the rules is Brennan v. AT&T Corp., No. 04-CV-433-DRH, 2007 WL 2229002, at *1-5 (S.D. Ill. Aug. 2, 2007). In Brennan, the court agreed with the analysis in Boomer, supra, but refused to enforce AT&T’s customer service agreement because AT&T could not show that Mr. Brennan had accepted the CSA by enrolling in, using, or paying for the service, all methods of acceptance dictated by the CSA.
Online vendors should not be surprised when courts refuse to enforce online contract amendments if they try to make those changes without notifying their customers or if they cannot prove users accepted the proposed changes. Online vendors may, however, lawfully change their contracts for ongoing services if they notify the customers, can prove acceptance by the customers, and provide some sort of consideration for the changes – either by continuing to provide services, if the vendor could lawfully cancel them, or by providing some other form of consideration.
