The devil is in the detail

Always read the fine print – and make sure users do too.

Don't find yourself in Zappos’ shoes. If you’re an online business, it’s time to take another look at your website’s terms and conditions. Sometimes the most boring page on your site can be the most important.

Unauthorised access to customer data and other security breaches seem to be a regular occurrence these days, but a recent decision by a US court in relation to shoe retailer Zappos’ data loss raises some interesting issues for online businesses.

In January 2012, Zappos discovered a security breach that resulted in someone having unauthorised access to customer names, addresses, phone numbers, and encrypted account passwords. Zappos was sued over the data loss and tried to rely on a provision in its terms of use that required disputes to go to arbitration.

The Zappos website, like many others, used what lawyers sometimes call a ‘browsewrap’ agreement. The terms of use were posted on the site, but it was up to customers to seek them out and read them. A ‘clickwrap’ agreement, on the other hand, requires users to confirm they have read the terms before they use the service or order products.

Yes, most of us lie, and click ‘I agree’ or ‘I have read the terms’ without ever actually taking the time to do so. However, courts are usually happy to enforce clickwrap agreements because users have at least had some warning that the terms exist.
If you choose not to look at them, that’s up to you.

Without an active step on the part of the user, the argument tends to be about whether the terms were prominent enough that the user should have been aware of them. Given that most website terms tend to be linked in the tiniest font at the very bottom of a page, it’s often hard to argue that a customer should have known they were there. That’s certainly the problem that Zappos faced, with the court concluding that customers didn’t have reasonable notice of the terms of use. The court said, ‘the Terms of Use is inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use. No reasonable user would have reason to click on the Terms of Use’.

The court also took issue with Zappos claiming that it had the ability to change the terms at any time, although this part of the decision only related to the arbitration clause.

It’s a timely reminder that you should make sure your terms of service are suitable for your business, and not just copied and pasted from somewhere else. If you are making changes to your terms, it’s a good idea to notify existing customers of the changes.

And if you’re looking to bind your customers to an agreement, it’s essential that you get them to check or uncheck a box confirming that they’ve seen the terms before they open an account or place an order, or you may find yourself in the same situation as Zappos.

Sacha Judd is a partner at Buddle Findlay and specialises in mergers and acquisitions.