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The Terms of Use Agreement or Terms of Service (“TOU” or “TOS) and the Privacy Policy (“PP”) found on most websites govern the relationship between the website operator and all of its customers.  Although it may be tempting to copy and use online agreements posted on other websites to avoid the time and cost required to define your own agreement, this approach can be risky.  Your online agreements will define the legal relationship between your company and all of your online customers for years to come.  The failure to include a key provision, or the breach of a term that you may not have even realized was a part of these agreements, can create substantial liability since it will affect every online customer.  Although there is no comprehensive federal law that requires all companies to have a privacy policy, there are federal laws that require companies in certain industries have a privacy policy and there are laws in certain states, including California, that require websites that collect personal information from residents of their state to develop and post privacy policies which meet certain mandated disclosure requirements.

Online Agreements Can Save You Money

Each decision about your online agreements is important because it will affect every one of your users.  For example, it may seem like a good idea, particularly from a marketing/user interface perspective, to use an online agreement that your users are not required to take any action to accept (often referred to as a “browsewrap” agreement).  However, browsewrap agreements are much less likely to be enforceable than online “clickwrap” agreements that require users to affirmatively click an “I accept” button.  In one recent case, Zappos was sued by class-action lawyers representing Zappos’ customers after a security breach.  The Zappos TOU included a provision that required arbitration in order to avoid costly class action lawsuits, but the court found that Zappos’ TOU were not enforceable because Zappo’s had used a browsewrap agreement.

Contrast the Zappos outcome with the outcome in Hancock v. AT&T.  In that case, AT&T, the owners of U-verse, a telecommunications service that includes digital television, voice-over Internet protocol, and high-speed Internet, required customers who purchased the high speed Internet services to accept a clickwrap agreement which required arbitration of disputes.  Plaintiffs argued that no contract was formed because the clickwrap agreement did not give customers notice of, or a meaningful opportunity to agree to, their terms.  A federal Court of Appeals disagreed and found the clickwrap agreement was valid and enforceable.

Online Agreements Can Provide A Competitive Edge

Online agreements that are carefully drafted to address your company’s business model can prevent your competitors from engaging in certain types of competitive actions.

TOS can preclude competitive actions.  Games company Blizzard Entertainment included a provision in its TOU that made it a breach for users to use third party bots in online games they purchased from Blizzard.  When Ceiling Fan developed two bots that allowed users of Blizzard’s game to automate certain aspects of that game, Blizzard recovered $7 million from Ceiling Fan on the basis that sale of the bots was a “tortious interference” with the online agreement between Blizzard and its users.

TOS can require users to assign the copyright in content. Metropolitan Regional Information Systems, Inc. (“MRIS”) operates a multiple listing service that allows subscribers to upload their real estate listings, including photographs.  MRIS included an irrevocable assignment to MRIS of ownership of all images submitted to the website by subscribers.  MRIS successfully used this provision to prevent a competitive company from using images from the MRIS website.

Generate Terms of Use with Cooley GO Docs

Use our Terms of Use generator to familiarize yourself with key provisions and to get started on building the agreements you need for your company. Note that the generated TOU provides a sample set of legal terms for a simple information-only website. If you are offering actual products or services through your website, you will need a TOU or TOS catered to your business model and offering.

Last reviewed: December 4, 2021
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