Contracts and the Law – Terms and Conditions Apply Podcast – Episode 3

Posted on December 4, 2019December 4, 2019 by ethandsmith

If Terms and Conditions agreements are effectively contracts we sign with large companies, what happens when there’s a dispute? How are these agreements seen through the eyes of the law?

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Transcript

In 2016, after playing 21 seasons in St. Louis, Missouri, the NFL’s Rams moved back to Los Angeles, California.

The Rams had been located in Los Angeles from 1946 to 1994, but when discussions about moving to St. Louis in the first place got off the ground, many legal hurdles stood in the way. There are countless considerations and technicalities involved when a National Football League team decides to change cities, and thus by the very nature of dealings with large businesses and municipalities, contracts enter the picture.

Contract law has been around for a long time. There is evidence that some ancient civilizations entered written agreements to negotiate terms, and contracts were prominent in Roman law, which is considered foundational to today’s civil and common law structures.

The Oxford English Dictionary defines a contract as, “A mutual agreement between two or more parties that something shall be done or forborne by one or both” and goes on to add that the word is often used to define “A business agreement for the supply of certain articles or the performance of specified work at a certain price, rate, or commission.” I chose the Oxford definition here, because it was under English law in the medieval era where many precedents of contract law were established. Some of the cases were mundane, like refusing to pay a negotiated price for crops or taking money from someone for a piece of land and then giving the land to someone else, but others could be more interesting, like when a ferryman overloaded his boat and was forced to throw a horse overboard.

Despite these outcomes, most of us are familiar with contracts in a legal sense. They outline terms of an agreement and are often negotiated between two parties.

And that’s where the owners of the Rams found themselves in 1995, entering contracts and agreements with the city of St. Louis, and fans who purchased personal seat licenses. Twenty-four years later, many of those contracts and agreements have come back to haunt them, as many lawsuits were filed against the team following its 2016 move. Those fans who bought the personal seat licenses? Those seats were supposed to be for 30 years, so the license holders brought a lawsuit against the Rams for the remaining years they no longer could benefit from. And while that suit was settled for $24 million in January, other suits are still pending.

According to the St. Louis Post-Dispatch, the most significant case alleges, “breach of contract, fraud, illegal enrichment and interference in business by the Rams and the NFL, causing significant public financial loss.” The Rams and the NFL attempted to enter the suit into arbitration, which is a form of settlement outside the court of law (more on that later). However, the Missouri Supreme Court ruled in September that the case must proceed to trial because the original terms of the contract in 1995 did not include the arbitration clause that the NFL added several years later.

Consider now what Terms & Conditions agreements actually are, in a legal sense- contracts between companies providing a service and people who use their services. In the case of the Rams, the team sat down with the city of St. Louis to agree on terms together for the team to relocate there in the mid-1990s. But you’ve probably noticed that when you are presented with a Terms & Conditions agreement before signing up for an online service, there’s no option to negotiate the terms. It’s take-it-or-leave-it. Oh, and if you do choose to take it, the company may change the terms at any point.

So, what would happen if you decided to take a large online company to court over misuse of your data? Do you have the right to have the case heard before a judge? Could you enter a class action lawsuit? As it turns out, most companies address these questions in their Terms and Conditions, which you’ve most likely agreed to already- and it’s important to take a look at the legal implications of such agreements, because when disputes surrounding Terms & Conditions enter the court of law, the deck may already be stacked against you.

Opening Roll

It stands to reason that a judge might consider an agreement between a city and a professional sports team to be different than a take it or leave it contract between an average user and a large online company. But are they significantly different in the eyes of the law, and what implications does that have on our everyday use of technology? For some answers, I sat down with these guys.

Chris and Jim introduce themselves

Chris and Jim are both professors at the University of Richmond School of Law, where they specialize in intellectual property law, copyright law, and computer law among other things. And before we can dive into the legal implications of Terms & Conditions agreements, it’s important to understand how we arrived at such ubiquitous and long Terms in the first place.

Chris and Jim audio

But in the early to mid 1990s, around the time the NFL’s Rams were considering their move to St. Louis from Los Angeles, things began to change in the world of Terms of Service.

Chris and Jim audio

The rise of the Internet also changed how Terms could be communicated and agreed to.

Chris and Jim audio

This communication of terms has huge implications on how they are interpreted by courts of law if disputes arise. Recall that when the Missouri Supreme Court ruled that the case against the Rams could proceed to trial, it was because the updated arbitration clause from the NFL’s new contracts was determined not to apply to the original agreement signed by the owners of the Rams in 1995. A small change in the terms could have a huge impact on many people pending the outcome of the case.

But let’s dive into the delivery of digital software, because understanding the origins of the agreements surrounding a non-physical good might help us grasp why we have such long and cumbersome terms and conditions across all major web platforms today.

In the mid-1990s, software licensing terms were a big deal. especially once CD-ROM technology became widely adopted. Remember that until the CD-ROM, which holds 700MB, file transfers between computers were limited to floppy disks, which held only 1.44 MB. An example of this was when a company called ProCD, Inc. decided to make use of the large storage available on a CD, and orchestrated a simple, but potentially profitable business idea. They compiled publicly-available telephone directory information into a digital database and offered customers a copy of the database which they could purchase on a CD.

In 1996, a man named Matthew Zeidenberg purchased a copy of this telephone database and proceeded to re-sell all of the information from the CD at lower prices, cutting ProCD out of the equation. Once this was discovered, ProCD filed a lawsuit against Zeidenberg, because, and this is important, the telephone directory database CD also included a license agreement, which was available in text form on the CD, but also required users to review and agree to the terms before each use of the database.

The 7^th Circuit US Court of Appeals ruled in June 1996 that Zeidenberg was in violation of the license agreement because he had the opportunity to review the license despite not being able to access it until he had opened the disc and used the program. These types of licenses were common, and are referred to as “shrink-wrap” licenses, since reviewing most of them required you to remove the shrink wrap on a physical disk.

This was an important decision in the court of law, because it established the precedent that consumers could reject shrink wrap licenses by returning the product entirely, and that the opportunity to do so allowed companies to continue the practice of including license agreements that couldn’t be reviewed until installing the software.

Jim Gibson is very familiar with these boilerplate or shrink wrap licenses. In 2013, he published an article in Richmond Law Magazine summarizing the findings of a study he performed.

Chris and Jim audio

The availability of terms doesn’t always mean that users are going to take the time to read them. Additionally, as Jim and Chris pointed out, even though the terms from the study were the same length as Harry Potter and the Sorcerer’s Stone, they would be much more difficult to read.

Earlier this year, journalist Kevin Litman-Navarro published an editorial in the New York Times, in which his team read and quantified the readability of over 150 privacy policies across the web. It comes as no surprise that all 150 of the policies ranked higher in difficulty than the first Harry Potter novel, with most ranking more difficult than Dickens’ Great Expectations and Stephen Hawking’s A Brief History of Time. I encourage you to follow the link in the show notes to view the entire piece, as it presents these data visually, including an example of how the readability of Google’s privacy policy has changed over time and how the majority of the policies they read rank at a college reading level or higher.

But this brings us to consider what is actually in these terms of service agreements. In the previous episode, we discussed how most agreements include descriptions of data collection practices and data use practices. However, if you’ve ever actually scrolled through one of these agreements, you’ll notice many items, but I think it’s important to walk through these sections so we can better understand the general types of information presented as well as the legal implications of the document.

As an example, I’ve chosen the Terms and Conditions agreement for the website of The Washington Post, which incidentally is owned by the CEO of Amazon, Jeff Bezos. Based on the T&C agreements I’ve spent time reading, this one is a good example of how most terms read.

First and foremost, the Terms declare that “these terms are a legal contract between you and WP Company LLC” and that “if you do not agree to the Terms, do not access or use the Services.” You’ll find language like this in most agreements.

The first section header is General. This establishes that they may change the terms at any time, and that by continuing to use the site, you agree to the changes.

Next is Compliance with Applicable Laws, which includes an agreement that you will not use the services for any unlawful purposes.

The third header is Privacy. No surprise here, it simply provides a link to redirect you to the separate Privacy Policy document. In that document, you would encounter language similar to the excerpts from BH Media’s policy that I outlined in the previous episode.

Section four lists guidelines for discussion and submissions. Here is where you give the website a “royalty-free, irrevocable, perpetual, worldwide, exclusive, and fully sublicensable license to use reproduce, modify, adapt, publish, translate, create derivative works from…” and it goes on, but you get the idea. Anything you share on the website is licensed so that the company may use it for almost any purpose.

Section five deals with copyright. Here you’ll find information on what is copyrighted by the company, how to request reprints of copyrighted material, and the process by which you can submit a claim in case your copyrighted material has been inappropriately used by the website.

Section six is Trade and Service Mark Rights, which is brief and says that the logos and slogans, etc. are trademarks of the Washington Post.

Section seven is a bit of a longer section titled, Prohibited Conduct. It outlines how you as the user are not allowed to use the services to infringe upon others’ rights, attempt to reverse-engineer their software, violate their network security, and other things, but most interestingly, you can’t “engage in unauthorized scraping or spidering or harvesting of personal information.” Leave that to the website.

Sections Eight and Nine outline registration, security, and charges for services. All fairly self-explanatory, so nothing surprising here.

Ten states that The Post isn’t responsible for the privacy practices of third-party websites which are linked on their website.

We’re getting close to the end here, so if you haven’t dozed off or started using this section of the podcast as a sleep aid at night, hang in there. Sections 11 and 12 are everyone’s favorite sections, because they’re the ones that appear in all capital letters. Suddenly it seems as if the document is yelling at you.

These sections are the Disclaimer of Warranties and the Limitation of Liability. This is where the Post offloads almost all responsibility for anything that could go wrong by your use of their services. This includes no liability for personal damages arising from your use, but also prohibits you from blaming them if your computer contracts a virus while on their website.

These sections are very common across most Terms and Conditions agreements. But just going through and giving short summaries of each section becomes a slog. Oh, and we aren’t even done. There are four more sections of the Post’s Terms: Indemnification, which prevents you from holding The Post liable in the event you violate the terms and bring harm to yourself, Governing Law, which states that the terms are subject to the laws of the United States, Termination, which gives them the right to terminate the agreement for any reason at any time, and Miscellaneous, which accounts for any additional terms that you might be subject to.

So here’s the question. How much of that actually matters to the individual user? Do you care about any of these clauses and their potential impact on your use of a news website? Probably not.

Chris and Jim audio

That was Chris Cotropia and Jim Gibson again, and they’re right. The reason most of us choose not to take the time to explore the Terms & Conditions is because the contents are completely irrelevant to our use. Think about navigating to the Washington Post’s website to read a news story. You’re focused on reading the breaking news, so you aren’t concerned about what happens if your computer gets a virus from the site or if the site is collecting your personal data.

So what then happens if these issues do arise? What happens if they make it all the way to a court of law? In a moment, Chris and Jim discuss how these agreements are viewed in the eyes of the law, we’ll talk about why most disputes with large companies never make it to a courtroom in the first place, and we’ll hear from someone about why businesses choose to include certain language in the Terms. Right after this.

Ad Break

So far in this series, we’ve mostly considered how Terms & Conditions agreements affect the users who agree to them. But what about the companies who are drafting them? What kinds of considerations need to be made, and do they differ based on the type of business. To help answer this question, I reached out to Austin Chandler, a recent law and MBA graduate of the University of Richmond.

Austin had the opportunity to draft Terms and a Privacy Policy for a company his mother started while he was in law school. Here’s what he had to say about the most important pieces of drafting the Privacy Policy:

Austin Chandler audio

We’ve talked about the implications of such clauses as they relate to large Internet advertising, but privacy considerations are also important for small and medium sized businesses. Any website which offers the ability to register for an account is collecting personal data. Austin had to consider this for his mother’s website, since it sells products. Users would be entering personal information in order to purchase products.

The other main consideration has to do with something I mentioned briefly before the ad break.

Austin Chandler audio

You’ll recall that in the Washington Post’s Terms, these issues are addressed directly. They retain a royalty-free perpetual worldwide and a whole lot of other adjectives-worth of license to anything you share or submit to their site.

There is a theme here I want you to notice. Since these agreements are written solely at the discretion of the companies offering the services, they can add anything they want to the terms. Recall that Section 2 of the Washington Post’s terms state that you will comply with all applicable laws when interfacing with their services.

That brings us back to the legal definition of a contract. Generally, contracts are agreed upon in order to outline the terms of an arrangement in the case that something goes wrong. If something does happen and a court of law must get involved, the contract may serve as a record of how any disputes may be resolved.

As we’ve seen, in the digital age, things go wrong all the time. The Cambridge Analytica incident we discussed in the first episode of this show is just one example where millions of people were affected by a data breach. One of the other worst data breaches involved the credit bureau Equifax, which in 2017 reported that the personal information of over 146 million customers, including birth dates and social security numbers was compromised.

So how do courts view Terms & Conditions agreements whenever legal action is taken? This is an important topic to consider if a dispute were to arise between you and a company you have entered into an agreement with. Jim Gibson says the law has some catching up to do.

Jim Audio

Another potential area of impact is in how established law affects the interpretation of private agreements such as Terms & Conditions agreements.

Chris audio

That’s Chris Cotropia again, and the concept he just described is troubling. In theory, companies could include clauses in their Terms which would prevent established laws from governing the outcomes of any lawsuits if cases made it to court. But that’s a big if.

There’s another very common concept that is included in many service agreements, and not just for Web-based companies. They’re called forced or mandatory arbitration agreements, and they’re present in everything from cell phone service agreements to car loans to bank account and credit card terms. And they’re a large part of why cases in which companies violate their responsibilities to consumers often never make it to a courtroom.

Arbitration describes a process where, outside of the normal legal system, two parties may reach a settlement around a certain dispute. The two parties would present their cases to an impartial arbitrator, who would come to a decision and relay said decision. This decision may be binding, where the parties are then forced to abide by the decision, or non-binding, where one or both parties involved may still seek a resolution in court if desired.

Chris and Jim audio

In the United States, the rules for arbitration were first established in the Federal Arbitration Act of 1925. However, as Jim mentioned, companies are allowed to prohibit class action lawsuits as a result of AT&T Mobility LLC v. Concepcion, where in 2011 in a 5-4 decision, the Supreme Court ruled that the Arbitration Act of 1925 preempted other laws which guaranteed consumers the right to a class action lawsuit.

If you’re wondering why this is important, consider this example: You accidentally overdraft your checking account, and your bank charges you a hefty fee. You recall the fee was supposed to be $10 lower than what is showing on your statement, so you have reason to believe your bank increased the fee without notifying you. However, you have very little incentive to file a lawsuit against the bank for just $10. But if the bank has been charging this same fee to many other consumers, they have probably reaped a significant sum. This is a case where it would make more sense for consumers to enter a class action suit against the bank to stop the increased fee altogether. Then everyone benefits by having the lower fees, but a single consumer doesn’t have to absorb the legal fees of a lawsuit.

Class action lawsuits are often very lucrative for the law firms involved, but ultimately net individuals very little. Take, for example, the lawsuit resulting from the Equifax data breach I mentioned earlier. Equifax was ordered by the Federal Trade Commission to pay $700 million to settle the breach lawsuit, but affected persons were offered free credit monitoring for 4 years or a cash payment of $125. As someone who was affected by this breach, I’m still waiting on my $125. I’ll be sure to let you know if it ever arrives.

Small settlements like these are often used to argue for arbitration, as a 2015 Consumer Financial Protection Bureau report found that consumers were awarded an average of $5389 after arbitration vs. $32 for class action suits. However, as MarketWatch reported in 2017, these numbers can be misleading since arbitration settlements overwhelmingly favor large companies. Regardless, it seems that mandatory arbitration is here to stay for the time being, as the Supreme Court issued another ruling favoring arbitration clauses in Epic Systems Corp v. Lewis in 2018.

All of this goes to show that the legal implications of what’s buried in the Terms & Conditions could have impacts on your life that most of us are oblivious to. To be fair, the likelihood is very small, but in cases where items of value such as your identity or money are involved, it’s generally a good idea to at least be familiar with the terms you’ve agreed to. When it comes to the agreements we enter with digital companies, determining the value of the information you provide to a service might make us reconsider skipping over the Terms & Conditions.

Earlier, Chris and Jim mentioned two ways that digital Terms & Conditions agreements benefit companies:

Chris and Jim audio

Disseminating a product to thousands or potentially millions of users can be a giant liability. Companies use their agreements with consumers to remove many of these risks if misuse of the product occurs. Nowhere is this better illustrated than in the End User License Agreement for Apple’s iTunes. In subsection g, the terms state, “You also agree that you will not use these products for any purposes prohibited by United States law, including, without limitation, the development, design, manufacture, or production of nuclear, missile, or chemical or biological weapons.” Just the idea of using iTunes to develop weapons of mass destruction seems completely absurd, but clearly someone at Apple wanted to be sure that liability was removed. It’s more common that Apple’s communication services may be misused in these ways.

It’s this idea that led to the standoff between Apple and the FBI in 2016 following the terrorist attack at a San Bernardino, California health department facility. The FBI needed to obtain access to a locked iPhone they believed was associated with the attack, and upon Apple’s refusal, issued an order under- and this isn’t a joke- the All Writs Act of 1789, signed into law by George Washington. Anyhow, Apple’s CEO Tim Cook refused, and eventually the FBI was able to obtain the passcode another way, but privacy precedents aside, Apple’s iPhones are so ubiquitous, it was only a matter of time before such a high-profile incident occurred- and it’s likely Apple wouldn’t have had much to worry about given that all iPhone users accept liability for misuse of the product.

Then there’s the idea of Terms being easily disseminated. Earlier, we observed that the agreement from the Washington Post stated in one of the very first sections that they reserve the right to change the terms at any time. This language is common across most agreements. Landscapes are constantly changing when it comes to how products and services are used. Chances are, you’ve received an email or letter in the mail notifying you of a major change to the terms. Take note of these. Generally, if the company is taking the time and resources to notify you, it could mean something major is changing.

Earlier this year, Chase Credit Card customers received a notice that Chase was implementing a forced arbitration agreement into its terms of use for many of its most popular cards. The notification came in the form of an email generally, and buried deep within the changes to the terms, there was a way to opt out of the agreement. All users had to do was physically mail a typed or written signed statement to a P.O. Box address listed. Needless to say, the number of customers who opted out was probably near zero.

Like most Terms & Conditions agreements, we’ve covered many dense topics in this episode, and while we’re nowhere close to the 8 hours and 18 minutes it would take you to listen to the first Harry Potter audiobook, I want to summarize and reflect for a moment.

We’ve seen that Terms & Conditions agreements are legal documents- contracts between you and the company providing a service or product. Often these agreements are viewed by courts of law as preemptive to laws that would normally govern interactions between consumers and companies. This means that the agreements in the Terms would apply before any other laws under which you might be protected. In some cases, this could be very beneficial to companies while diminishing the rights of consumers.

However, it’s likely that if large companies didn’t have these agreements to mitigate their risk of distributing their products to such a large user base, many modern products wouldn’t exist at all. Needless to say, there are many things to consider when it comes to the state of Terms & Conditions in a digital age.

And if you’ve paid attention to the news at all, you’ll know that more and more people are starting to consider the costs associated with these agreements. As you heard in Episode 1, Congress held hearings following the Facebook Cambridge Analytica incident, and since then, the CEOs of Google and Twitter have also been in front of Congressional committees.

But what has this accomplished, and is government intervention really the best or only way to deal with the growing issues wrapped up in boilerplate Terms & Conditions agreements? That’s next time on Terms & Conditions Apply.

Outro

Terms & Conditions Apply is written and produced by Ethan D. Smith. Special thanks to my guests in this episode. First, to Austin Chandler for sharing his experiences drafting agreements for small companies. Austin had plenty more to say, but an audio recording error left a large majority of the interview unusable. However, I can’t say enough about how much his ideas and thoughts contributed to the structure of this episode. Austin also introduced me to Chris Cotropia and Jim Gibson, so I also have him to thank for that. And speaking of them, if you’d like to learn more about Chris and Jim’s work at the University of Richmond, you can find links to their faculty profiles and publications in the show notes. Finally, a special thanks to Joseph Scoggins, who connected me with Austin in the first place.

The theme music is “Let That Sink In,” composed by Lee Rosevere and used under a Creative Commons Attribution 4.0 License. Other tracks were composed by Kevin MacLeod and used under the same license. The music you hear now is, “Royale,” performed by Josh Lippi and the Overtimers.

For references and further reading, be sure to check out the show notes or visit this episode’s blog post on termsconditionsapply.com.

If you enjoy the show, I’d love to hear from you. Reach out on Twitter @TermsCondPod, or visit the show’s website to send a note. If you don’t want to miss an episode, be sure to subscribe via your favorite listening app.

Show Notes:

If Terms and Conditions agreements are effectively contracts we sign with large companies, what happens when there’s a dispute? How are these agreements seen through the eyes of the law?

Contracts and the Law – Terms and Conditions Apply Podcast – Episode 3

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Opening Roll

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