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Online Terms and Amendments: Are They Really Enforceable?

Increasingly, many technology vendors are seeking to incorporate contractual terms reached through hyperlinks into their contractual agreements and the right to unilaterally amend such terms by posting any changes online. The following paragraph is illustrative of this issue:

Terms of Use. The licensing of the Software under this License Agreement is subject to the additional terms of use (“Terms”) available on Licensor’s website or by clicking the following link:

In a small number of situations, online terms or an online amendment may be appropriate allowing the parties to amend and easily distribute changes to the governing agreement. For example, a cloud provider may need to post changes to its acceptable use policy (AUP) as it would be impractical to execute a written amendment with every customer every time the terms of the AUP changed.

The incorporation of Web-based terms which in turn may be unilaterally amended creates a significant risk for the other party, usually the customer, as the other party must continually monitor the website for changes to the contractual provisions to ensure compliance with such provisions. Unless it is notified of any changes by the other party, a party may never realize that the terms of its agreement have been modified. As such, a prudent party should seek to reject language allowing one party to unilaterally modify the terms initially agreed to by the parties.

Validity of Online Terms and Amendments

The use of a website or hyperlink to incorporate general terms and conditions is generally valid. See One Beacon Ins. Co. v. Crowley Marine Services, 648 F.3d 258 (5th Cir. 2011) (incorporation of terms posted on the Internet valid). See also Harold H. Higgins Realty, Inc. v. FNC, Inc., 575 F. Supp.2d 696 (D. Md. 2008) (unilateral modification of Web-based service contract upheld as prior agreements permitted modification at any time and provided modifications would be effective after they had been posted for 30 days) and Patco Construction, Inc. v. Peoples United Bank, 2011 WL 2174507 (opinion of magistrate judge) (D. Me. May 27, 2011) upheld by the district court, 2011 WL 3420588 (D. Me. Aug. 4, 2011) (party bound by online amendment where parties’ agreement provided the agreement may be amended at any time effective upon publication).

For an online amendment to be valid, the affected party must agree to be bound by such changes. Joe Douglas v. U.S. Dist. Ct., 495 F.3d 1062 (9th Cir. 2007) (customer not bound by online modification where customer had not agreed to modification of agreement through posting of revised terms online).

To be valid, the underlying agreement’s integration clause should provide that any online terms are incorporated by reference and specifically reference the terms to be incorporated. See Affinity Internet, Inc. v. Consolidated Credit Counseling Svcs., Inc., 920 So.2d 1286, 1288 (Fla. Ct. App. 2006) (refusing to enforce arbitration clause in online terms and conditions because written contract stated only that it was “subject to” the online terms and did not state that the online terms were incorporated by reference in the written contract). The underlying agreement should also set forth the complete Web address where the terms and conditions may be viewed, Feldman v. United Parcel Service, Inc., 2008 WL 800989 (S.D.N.Y. Mar. 24, 2008) and clearly and conspicuously provide that it is governed by and subject to the terms and conditions set forth on the referenced website. To avoid claims of invalidity, a prudent party seeking to incorporate Web-based terms should capitalize the language referencing the Web-based terms. See Manasher v. NECC Telecom, 2007 WL 2713845 (E.D. Mich. 2007). Finally, if it a party desires the right to amend the terms posted on the website, the underlying agreement should clearly reflect this intent.

One practical challenge for both parties is to confirm which version of the agreement the parties agreed to as the referenced website may no longer reflect the terms previously agreed to by the parties. The party seeking to enforce the agreement should archive all versions of the website along with the time periods the archived terms were displayed on the website as well as any periods of time during which terms were not accessible on the Web. See Fu Da Int’l. Ltd. v. Kohl’s Dep’t. Stores, Inc., 2009 WL 151727 (S.D.N.Y. Jan. 21, 2009).

Online Terms Under UCITA and the UCC

In mass-market licenses, UCITA requires that the licensee be given a right to terminate the license upon a change. Md. Com. Law. Code Ann. § 22-304 (“Continuing Contractual Terms”). In non-mass-market computer information contracts, Md. Com. Law. Code Ann. § 22-304 (b) provides “If a contract provides that terms may be changed as to future performances by compliance with a described procedure, a change proposed in good faith pursuant to that procedure becomes part of the contract if the procedure: (1) Reasonably notifies the other party of the change; and . . . .” Thus, in those states that have adopted UCITA (Maryland and Virginia), a party may be bound by a clause posted on the Web provided it is notified of the change.

The use of online terms and conditions to amend an agreement raises the possibility of a “battle of the forms” under Section 2-207 of the UCC. The posting of unilateral online terms and conditions that propose to amend the agreement between the parties clouds the issue of which documents control, as the fundamental issue is whether the online terms and conditions are incorporated into the documents governing the parties’ relationship. Thus, a trier of fact must evaluate the online terms and conditions along with the parties’ sales documents (i.e., purchase orders, invoices, and other sales documents) to determine the terms of the agreement between the parties.

Limiting Risk and Practical Solutions

Depending on the customer’s negotiating leverage, a customer may be able to negotiate some protections into the agreement to limit its risk from future modifications of any online terms. Set forth below are several potential negotiating positions a prudent customer should seek to incorporate.

· Notice of all Changes Required. The vendor should be required to notify the customer in the event of any changes to the online terms. See language to this effect in the following bullet point.

· Termination for Convenience. At a minimum, a prudent customer should seek to insert language to the effect that if the vendor’s changes would have a material negative impact on the customer, the customer may terminate the agreement for convenience without penalty. Model language to this effect follows:

We reserve our right to amend or supplement this Agreement at any time, at our discretion. When we do so, we will do our best to provide you notice and point out what is different or new. If at any time you do not agree to the terms of this Agreement or any of the terms of any applicable Vendor Contract, please discontinue use of the respective service immediately and close your account. Your continued use of your Vendor Account, the use of (the “Site”), the Vendor Hosting and any affiliated Vendor’s services that redirect or link to this Agreement constitutes your agreement to be bound by the terms of this Agreement and any other applicable Vendor Contract. Notice of any change will be considered given and effective on the date that we update the Site with the change. Please periodically review this Agreement to ensure you are aware of any changes.

· No Modifications for X Years. Alternatively, a party may seek to have the vendor agree that the terms of the agreement will not change for x years from the date of the agreement’s execution.

· Only Specific Terms May Be Modified. Another alternative is to specifically identify those terms which may be modified through an online amendment and prohibit any other modifications. Model language to this effect follows:

Any other provision to the contrary notwithstanding, Customer shall not be bound by any changes made by Vendor to the Terms and Conditions located at after the date of Customer’s signature on this Agreement. The foregoing sentence shall not apply to changes made by Vendor to its Acceptable Use Policy and Customer shall continue to be bound by such modifications as otherwise set forth in the Agreement.

· Require Amendments to be in Writing and Executed by A Specific Individual. The agreement should provide that any amendment must (i) be in writing, (ii) executed by an authorized executive officer of both parties, and (iii) refer explicitly to the agreement and the particular sections being amended. A party may want to identify by name the single person who has the authority to execute all agreements. See, e.g., National Auto Lenders, Inc. v. SysLOCATE, Inc., 686 F. Supp.2d 1318 (S.D. Fla. 2010) (licensee not bound by employee acceptance of license terms as licensee had previously notified licensor that only licensor’s executives could accept contractual terms.) Some companies (e.g., Oracle and Siemens) specifically provide that all agreements must bear two signatures, one being a member of the legal department, to defeat any ill-advised agreement or an unknown amendment to an agreement.

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