A Federal court ruled last week that online contracts cannot be unilaterally changed – that is changed by one party without the consent of the other party. This ruling affects potentially thousands of contract agreements across the Internet, as many companies are used to telling their customers “changes to our terms of service will be posted on the website, and it is your responsibility to check to see how we have changed your terms.”
The ruling, which came last week out of the 9th District court, was in the matter of Joseph Douglas versus Talk America, which purchased the service to which Joe Douglas was subscribed from America Online (AOL).
Explains the Court’s opinion: “Joe Douglas contracted for long distance telephone service with America Online. Talk America subsequently acquired this business from AOL and continued to provide telephone service to AOL’s former customers. Talk America then added four provisions to the service contract: (1) additional service charges; (2) a class action waiver; (3) an arbitration clause; and (4) a choice-of-law provision pointing to New York law. Talk America posted the revised contract on its website but, according to Douglas, it never notified him that the contract had changed. Unaware of the new terms, Douglas continued using Talk America’s services for four years.”
Because Douglas had his Talk America services auto-billed to his credit card, he didn’t discover the new, additional charges for a period of time – resulting in Talk America receiving the higher payments for quite some time, and a lot more money from Douglas than he’d thought they were getting – without Douglas ever realizing that was what they were doing, let along agreeing to it.
Douglas filed a class action suit which was..hey… in violation of Talk America’s new service contract. Talk America successfully forced Douglas into arbitration, which he apparently lost, and then he appealed. Eventually, the whole legal ball of wax made it up to the 9th District Federal appeals court, which held that:
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“Even if Douglas had visited [Talk America’s] website, he would have had no reason to look at the contract posted there. Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract; it must obtain the other party’s concent before doing so.” [Emphasis ours.]
So, there you have it. The next time you sign up for an online service, and they tell you that it’s your responsibility to check the site for updates to your agreement with them, point them to old Douglas v. Talk America.
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Credit cards and banks have used implied consent for years. They send you notice of the change and say that if you remain a customer after X date, you’re consenting to the change.
So does this mean that the only change in behavior required of online services is notification, or will the whole passive consent thing that on and offline companies use now (implied consent via not taking action to cancel or protest) be thrown out? Hmmmm?