Hold the Phone! No Automatic Contract Changes Says 9th Circuit

The Ninth Circuit has ruled that online companies do not bind customers when the company changes the contract and fails to notify the customer of the change. The opinion is available here. The parties involved are an individual and an online phone service. The individual started with Company A and set up continual credit card payment. Company B acquired Company A and then changed the terms of the contract including adding in fees. The individual never noticed the changes because of the auto-payment feature and so the Court held that he was not bound by the changes. The Court ruled “[The plaintiff] had no occasion to visit Talk America’s website to pay his bills. Even if Douglas had visited the 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 consent before doing so.” The court also noted that the contract was unenforceable because “In California, a contract can be procedurally unconscionable if a service provider has overwhelming bargaining power and presents a “take-it-or-leave-it” contract to a customer—even if the customer has a meaningful choice as to service providers.”

My guess is that privacy advocates and others will try and use this case to argue against unilateral changes to Web policies such as terms of service and privacy policies. If so, the trick will be to persuade a court that a clear contract involving money is the same as a contract for visiting a Web site. Of course one can argue that the Web site visit involves an exchange of valuable information but it is also perhaps a new contract each time one visits. A clear opt-in each time one visits a site seems unlikely and would probably be ignored by people consenting without reading as is done today. In contrast, an email service should fall under this ruling even without the clear monetary exchange as should any service where one logs in. In those cases, one agrees to an exchange and uses the service in an automatic fashion based on the initial service terms. So if Yahoo! decided to mine email or Google chose to sell data from Gmail, they should be required to send notice to the consumer even for a free service. The lack of monetary exchange should not diminish the logic of changing the terms without the other party’s consent.