Terms Of Use For Zappos Disregarded By Court

The web evolves quickly while the courts tend to lag behind as judges seek to establish legal guidelines for the virtual world. An example of this different pace is found in a recent ruling by a federal court judge in Nevada resulting in the terms of use for Zappos being disregarded in an underlying dispute. The decision draws into question whether a standard method for implementing terms of use on a site, the browsewrap agreement, is no longer sufficient.

Data Breach

Zappos is one of the great online retail success stories of the last decade. This success has made the site a target for nefarious groups from time-to-time. In January 2012, the company announced it had suffered a data security breach and reported the personal information of as many as 24 million customers may have been exposed to third parties.

In short, a disaster for the company and consumers.

Stampeding Lawyers

A different form of predator then attacked the company – class action lawsuit attorneys. The lawyers filed numerous lawsuits on behalf of consumers against the company, lawsuits with the potential to generate quality attorneys’ fees, of course.

Zappos attempted to fight back by invoking the terms of use on its site. Specifically, the company argued arbitration was the proper venue for the resolution of the litigation. The basis for this argument was an arbitration clause in the terms of use for the Zappos site.

Zappos approach to its terms is one commonly used on the web. The lawyers for the company created a stand alone page and then accessed via a link in the footer of the site. This approach is known in the legal field as a browsewrap agreement because a site visitor is not required to access or affirmatively accept the agreement. Instead, the site takes the legal position the person accepts the terms by continuing to browse the site.

The class action attorneys in the Zappos case argued the browsewrap agreement used by Zappos was not binding on consumers. They argued that simply posting terms on a site is insufficient to form a contract because the users never give an affirmative signal that they are accepting the terms.

The judge in the case agreed.

Acceptance

A contract is formed when there is an acceptance of the terms by both parties. The question has long been whether browsewrap agreements are enforceable against individuals visiting a site if they do not require any indication of acceptance by those visitors?

Many sites attempt to get around this issue by including specific language in the terms. The language reads something along the lines of, “If you continue to use this site, such use shall be an indication you agree to and accept these terms.” Is this enough?

The problem with this passive approach is contract law bars one party from accepting for another. Think of the chaos if this was not the case. I could write up a contract requiring you to sell your home to me within 30 days and accept it for you. It would be madness.

In the Zappos case, the judge ruled the terms of use were not binding on the users of the site because there was no evidence of acceptance of those terms. In short, putting a link to the terms on the bottom of a site template simply is not enough to create a contract. The judge then noted since the terms were not binding on the consumers, the arbitration clause in said terms was irrelevant. Zappos will undoubtedly appeal this decision, but it currently faces a situation where not only is the arbitration clause not binding on the parties suing it, but none of the language in its terms is binding!

Continuing Trend

The ruling by the judge in the Zappos case is not out of line with other recent court decisions. The trend is towards requiring sites to obtain an affirmative acceptance of their terms and conditions by consumers before judges will apply the language of those terms to any dispute.

Contact me today for a free review of the terms of your site to determine if any changes are required to comply with recent court decisions and trends.

Richard A. Chapo, Esq.

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