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A fight over baffling online contracts is heading for the courts
Jul 2nd 2016 | New York
IF A prize were to be awarded for the world s clunkiest prose, the paragraphs
of indecipherable text that make up terms of use agreements would surely win.
These legal thickets are designed to protect companies from litigious online
shoppers and users of web services. Some firms require agreement, as when users
are asked to click a box before creating an Apple ID. Other sites explain their
policies without seeking customers explicit consent. Few consumers read these
terms, let alone understand them. Because they involve no negotiation between
customer and company, firms often insert language conferring broad protections
to lower their risk of liability. But in a new twist, legal disclaimers
designed to limit lawsuits are now unleashing litigation.
A surge of lawsuits in America claims that companies online agreements violate
consumers rights. Consumers are banding together in class actions against
targets including Apple, Avis, Bed Bath & Beyond, Toys R Us and Facebook. The
cases have a tinge of the bizarre, citing a law passed before companies even
had websites. And the lawsuits accuse companies of illegally limiting lawsuits,
a convoluted argument even by the standards of American jurisprudence.
Nevertheless, the litigation could have broad implications for the firms
involved and for future class actions.
The suits seek to exploit the Truth-in-Consumer Contract, Warranty and Notice
Act, enacted in New Jersey 35 years ago. This was intended to prevent companies
that do business in the state from using contracts, notices or signs to limit
consumer rights protected by law.
Trial lawyers only recently began to use the TCCWNA to target online
agreements. All firms that seek to represent consumers are constantly mining
different data fields for potential ways consumer rights are being violated,
explains Gary Lynch, of Carlson Lynch Sweet Kilpela & Carpenter, a law firm.
James Bogan of Kilpatrick Townsend & Stockton, which has defended companies in
class actions, describes the use of the TCCWNA as very creative . But
class-action lawyers such as Mr Lynch may have struck gold.
The lawsuits vary, but generally include allegations that online terms violate
consumers rights to seek damages as protected by New Jersey law and fail to
explain which provisions cover New Jersey. Unusually in American law,
plaintiffs need not show injury or loss in order to sue but merely prove
violation of the TCCWNA. Moreover, the lawsuits are aimed not only at firms
headquartered in New Jersey but all manner of companies that merely do business
in the state. Gavin Rooney of Lowenstein Sandler, another law firm, counts
about 40 TCCWNA cases in the recent surge. What is more, the TCCWNA entitles
each successful plaintiff to at least $100 in damages, plus fees to lawyers and
so on. If a website has millions of visitors, the costs to a company could be
staggering.
Whether the lawsuits will succeed is unclear. Whatever the outcome of
individual claims, the barrage of litigation will probably prompt firms to
adjust their online terms. Don t overreach Mr Rooney advises clients. For
example, a company might no longer add words to terms-of-use agreements that
seek to limit liability from gross negligence or fraud.
That would be good news for consumers. But changes to terms of use do not
always serve their interests. A growing number of firms, emboldened by
favourable Supreme Court rulings, have adopted clauses that limit class-action
suits. Consumers are instead restricted to resolving disputes individually, in
arbitration. The TCCWNA cases may inspire more firms to add such caveats. That
might limit frivolous suits. But consumers with grave complaints would be
unable to sue, either. In the end lawsuits over restrictive contracts may make
them more restrictive still.