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Terms of use - Ticking all the boxes

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.