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2 Costly Mistakes For SaaS Sites To Avoid With Online Contracting

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Old 11-10-2009, 03:32 PM
bholus10 bholus10 is offline
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Default 2 Costly Mistakes For SaaS Sites To Avoid With Online Contracting

The law of online contracting has become fairly well settled. This is good news for SaaS sites with online agreements such as Membership Agreements, Subscription Agreements, Content License Agreements, and the like.

Online contracting with click-wrapped agreements -- where the user indicates agreement by clicking on I ACCEPT -- will usually result in an enforceable contract if 5 simple rules are followed:

* conspicuous presentation during registration process;

* reasonable notice of the existence of contract terms;

* unambiguous manifestation of assent;

* opportunity to review contract terms, and

* opportunity to print agreement.

The above rules for online contracting are a relatively simple recipe for success.

Recent cases suggest that if your SaaS site adds human intervention to the online contracting process, rather than enhancing the enforceability of contracts, the exact opposite is likely to occur -- an unenforceable contract... and as a result, your SaaS site will not protected from liability with contractual disclaimers and limitations of liability.

The Feldman Case

In the case of Feldman v. United Parcel Service, Inc., No. 06 Civ.2490 (S.D.N.Y., March 24, 2008), Feldman used a kiosk inside a UPS retail outlet to contract for the shipment of a diamond ring which was later lost in shipment. The ring was valued at $57,000, but UPS' shipping contract clearly prohibited the shipment of items valued in excess of $50,000 in its Tariff Agreement.

The kiosk presented a Terms of Service link that pointed to a pop-up window which advised that:

* the UPS Tariff Agreement governed all shipments, and

* the Tariff Agreement could be obtained from an on-premises UPS agent, or from the UPS website (the URL of the home page was given, but there was no link specifically to the Tariff Agreement).

Feldman took up the matter with a UPS counter agent who agreed to ship the ring, despite knowledge that the ring was valued in excess of $50,000.

After the ring was lost, Feldman sued UPS for the value of the diamond ring. UPS moved for summary judgment (dismissal of the suit as a matter of law).

The Reynolds Case

In the case of Reynolds v. Credit Solutions Inc., No. 07-AR-1516 (N.D. Ala., Feb. 26, 2008), Reynolds purchased Credit Solutions' debt settlement services online with the assistance of a Credit Solutions agent. The transaction was initiated by a telephone call during which the agent advised Reynolds that the contract could be completed online.

Reynolds contracted online, and the telephone call continued during the online contracting process.

Credit Solutions' recording of the call indicated clearly that the Credit Solutions agent hurried Reynolds through the online contracting process. Reynolds clicked on the YES - I CONSENT" ****on after only about 30 seconds to review the 8-page agreement.

Reynolds later sued alleging failure to provide the services contracted for, and Credit Solutions moved to dismiss the suit as a matter of law, or in the alternative, to compel arbitration.


Both Feldman and Reynolds prevailed in their actions and successfully defeated the contracts at issue -- both online agreements were held to be unenforceable.

In the Feldman case, the court ruled in favor of Feldman stating: ""[t]hese facts, if proved, implicate a substantial face-to-face communication, suggesting that the surrounding circumstances might have prevented the plaintiff from having adequate notice of the terms of the Tariff."

In the Reynolds case, although the case was decided on other grounds, the court expressed concern over the contracting process, as follows:

"However, the court notes, as an aside, that someone who reads with the speed of a Jesse Owens in the 100 yard dash could not read the contract displayed on Picard's (plaintiff's) computer screen in 30 seconds particularly with Englert (defendant's agent) salivating on the other end of the line."

The lessons learned can be boiled down to this: human intervention in an online contracting process is generally a bad idea. It opens the door to issues that a customer can use to defeat the contract.

I'm sure that the defendants in the 2 cases discussed above assumed incorrectly that human intervention would enhance the online contracting process, but for the reasons indicated, the result was just the opposite.

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Old 11-10-2009, 03:32 PM
bholus10 bholus10 is offline
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However, if you do add human intervention to your online contracting process, follow these 2 tips:

* be sure that the purchaser has adequate notice of the contract terms, and specifically that human intervention did not interfere with providing this notice, and

* be sure that the purchaser has adequate time to read and review the contract terms, and to that end, you might consider adding a phrase to the I ACCEPT language similar to: "By Clicking on I ACCEPT, I have had ample opportunity to review, and have in fact reviewed, the contract terms".

This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.
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