Overstock.com : A Website's Terms and Conditions Might NOT Be Enforceable?

According to the Eastern District of New York, it depends on the facts. A federal judge was recently asked to look at the issue of whether website Terms and Conditions could be binding on a customer who purchased from the website Overstock.com. The customer initiated a class action suit against Overstock.com because she was charged a $30 restocking fee for returning the items she had purchased from the website. The restocking fee was clearly set forth in the Terms and Conditions, which were available on the website. The Terms and Conditions also stated that “Entering this Site will constitute your acceptance of these Terms and Conditions.” In addition, the Terms and Conditions contained a “choice of law clause,” by which the parties agreed to be subject to arbitration in Utah.

The federal judge refused to dismiss the case and determined that the case could proceed in New York because Overstock.com did not demonstrate that customers had notice of the Terms and Conditions, or that a reasonable user of the website would have had notice of the Terms and Conditions.

Why wouldn’t this be a binding contract?

It is a basic tenant of contract law that in order to be binding, a contract requires a “meeting of the minds” and “a manifestation of mutual assent." The Judge determined that because of the following factors, the customer, or any other user of the website, would not be on notice of Overstock.com's Terms and Conditions:
• The link to the Terms and Conditions was at the bottom of the page;
• The user was not required to scroll past the link to complete a transaction on the website; and
• The user was not required to take any affirmative action to agree to the Terms and Conditions (i.e. a “browsewrap” agreement was used).

Because of the way the Terms and Conditions were presented on the website, actual or constructive notice prior to using the site was necessary. Overstock.com was unable to prove to the Court that its customers received actual or constructive notice. Therefore, none of its Terms and Conditions will be binding on its customers and its request to move the case to Utah was denied.

Having Terms and Conditions on your website will give you protection if they are used properly. However, if your website does not give customers proper notice of the Terms and Conditions, you may find out that your terms are unenforceable. In Overstock.com’s case, it may end up costing the company a significant amount of money because their customers are now claiming breach of contract and fraud for being charged the restocking fee.

Why Should I Register A Trademark?

Trademarks and service marks can consist of names, logos, phrases, colors, sounds, packaging, and even building designs which designate the source of the goods or services provided. Trademarks can not merely describe the good or service sold. For example, if you sell pens, you can not have a trademark for the name “Pen Company”. The protection provided by a trademark gives you the right to limit the use of marks that are likely to confuse customers as to the source of the goods or services. This means that someone can not use a mark that is similar to your mark if the items sold are also similar. Trademarks are created by use of the mark, and not by registration. This means that you must be using the mark in the sale of goods or services in order to claim rights to that mark. The first to use the mark has superior rights to the mark. There are advantages for registered marks, and you may get superior rights by filing for registration before you use of the mark.

The legal advantages of registration are as follows:

• Constructive notice to the public of your claim of ownership of the mark;
• A legal presumption of your ownership of the mark and your exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration;
• Triple damages for intentional infringement and attorney fees for clear intentional violations;
• The ability to bring an action concerning the mark in federal court;
• Possibly superior rights to a domain name or similar domain names; and
• The mark can become incontestable (i.e. no one can challenge your right to the mark) after it is registered for 5 years.

The business advantages are as follows:

• People associate a registration with value in a mark;
• People respond better to a demand letter to stop using the mark when the mark is registered;
• It deters people from using your mark or something similar; and
• It can help with marketing (people recognize the ® symbol, and it makes the goods or services associated with the registered mark seem special or better than a competitors goods or services not using a registered mark).

Legal Protection For Your Website

Most businesses now use websites to advertise and sell products and services via the Internet. Typically websites use various types of intellectual property (i.e. pictures, content, names, logos, and links) to make the website appealing to its users. You have probably seen, or maybe your site has, terms and conditions of use and privacy policies to govern the use of the website and the intellectual property that encompasses the website. Developing your website and selling over the Internet can create liability for your business.

It is important to review the terms of your website agreements and your website content for several reasons:

• Information, trademarks, and copyrighted material are assets of your company and should be protected from unauthorized use.
• If items are used on the website that were not created by the owner of the website, unauthorized use can create liability. For example, if pictures are used, you should be aware of the origin of those pictures and have a license to use them. (Internet scams are popping up that involve making photos available on the web and then demanding large sums of money for anyone that uses them without a license.)
• If you sell items based on your Internet advertising, the terms set forth on your website should address the terms of the sale (e.g. return policies, warranties, etc). Differing terms may be required for transactions with individuals within your state or out of your home state or country.
• The terms of use of the website should match your type of business and take into account the unique aspects that your business has to offer. Also, the “electronic signature” should bind the user to those terms.
• If the website collects information about its users, there may be requirements to protect such information under federal, state, and foreign laws.
• If you have a privacy policy, it must match your proceedures for protecting such information.
• You may want to disclaim and / or limit your liability, particularly for content posted by users or unrelated companies, which you may have limited or no control over.
• Websites and e-mails are advertising vehicles for your goods and services, and federal and state advertising rules apply to marketing goods and services over the Internet.

These are just some of the issues to consider when developing and operting your website. No two businesses are exactly the same. Just because another business sells the same or similar items as your business, does not mean the agreements, such as terms and conditions or a privacy policy, will work for your business. Care needs to be taken to make sure that the terms and conditions you place on your website match the way you operate your business. In addition, you may have special circumstances that a "standard form" agreement does not cover. A privacy policy can create liability if it does not match your actual use. Therefore, the terms should be reviewed carefully.

We can review your website to identify the important issues discussed above. Before reviewing your website, we request very specific information through our Website Questionnaire about your business so that we can address how these items relate to your specific operations and type of business. Our Website Questionnaire will also assist you in thinking about issues that you may not have addressed in your website development or agreements which could leave your company open to liability to your customers or government regulation.

Welcome / About this Blog

This blog has been created as a resource and for comment on legal issues surrounding the use of the Internet for selling and adverting goods and services. The world of ecommerce moves at an rapid pace and the laws governing advertising and transactions over the Internet are continually created, molded, and interpreted. I intend this to be a place where the average reader/ user can get direct and easy to understand answers to common questions regarding selling and buying over the Internet and related intellectual property and business questions.

Please check back often.

Thanks.