[Infowarrior] - EULA: Ninth Circuit Says Company Can't Change Contract Terms Without Notice

[Richard Forno]

Ninth Circuit Says Company Can't Change Contract Terms Without Notice

http://pubcit.typepad.com/clpblog/2007/07/courts-says-aol.html

It may seem obvious to any first-year law student that one party to a
contract can't change the terms of that contract without notifying the
other. But the Ninth Circuit in Douglas v. US District Court ex rel Talk
America, No. 06-75424 (9th Cir. July 18, 2007), had to remind the district
court of this basic principle. In Douglas, Talk America had posted revised
contract terms on its website, which included a mandatory arbitration clause
for its customers. When Douglas, a Talk America customer, filed a class
action lawsuit against the company, the company moved to compel arbitration
based on the revised contract, and the district court granted the motion.
Douglas petitioned the Ninth Circuit for mandamus. In granting the petition,
the Ninth Circuit held that "[p]arties 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." The district court's decision, according to the Ninth
Circuit, "reflect[ed] fundamental misapplications of contract law."

An unfortunately large number of companies try to get around this principle
of contract law by requiring their customers to agree in advance that they
will periodically review their contracts on the company's website for
possible changes. One example is the service agreement that Network
Solutions requires customers to agree to before signing up for its
domain-registration and web-hosting services. When pasted into Microsoft
Word, the agreement is 102 pages of single-spaced legalese. On page 8 is
this provision:

    Except as otherwise provided in this Agreement, you agree, during the
term of this Agreement, that we may: (1) revise the terms and conditions of
this Agreement; and/or (2) change part of the services provided under this
Agreement at any time. Any such revision or change will be binding and
effective 30 days after posting of the revised Agreement or change to the
service(s) on Network Solutions Web sites, or upon notification to you by
e-mail or United States mail. You agree to periodically review our Web
sites, including the current version of this Agreement available on our Web
sites, to be aware of any such revisions. . . . By continuing to use Network
Solutions services after any revision to this Agreement or change in
service(s), you agree to abide by and be bound by any such revisions or
changes.

The Ninth Circuit's decision does not seem to resolve the question whether
parties can agree in advance to bind themselves to unilateral changes to the
contract without notice, as Network Solutions requires. But in a contract of
adhesion like this, it is difficult to believe that a court would enforce
this term. The Ninth Circuit in Douglas noted how cumbersome such a
requirement would be, forcing customers to "check the contract every day for
possible changes" and "compare every word of the posted contract with [the]
existing contract in order to detect whether it had changed." With a
102-page contract, that could be tricky.

More analysis of the Douglas decision by Eric Goldman on his Technology &
Marketing Law Blog is here.