Columns Archive

Net Contract Fights Should Avoid Courts

link to html archive

E-commerce success depends not only on government policies such as jurisdiction and taxation, but even more critically on an underlying issue — will courts enforce electronic contracts consummated on-line, typically by consumers clicking an "I agree" icon on a Web page? On that question, courts appear split.

Three recent cases illustrate the differing perspectives. The first case involved an attempted class-action lawsuit brought by a disgruntled Verizon high-speed Internet subscriber in a District of Columbia court. The subscriber was a D.C. resident who, after experiencing delays in service and slower speeds than advertised, decided to sue.

Verizon responded to the suit by asking the D.C. court to dismiss the case on the grounds that its service contract, which all subscribers entered into electronically, required that disputes be resolved in the State of Virginia. The selection of Virginia was no accident — it is one of only two U.S. states that lacks a class-action procedure similar to that found in D.C.

The D.C. Court of Appeal sided with Verizon and dismissed the case. It ruled all subscribers received adequate notice about the agreement and that it was not unreasonable to enforce the clause.

The case is strikingly similar to an Ontario case from earlier this year involving an attempted class-action suit against Rogers Cable by a group of equally unhappy high-speed Internet subscribers. The Rogers contract included a clause that mandated that all disputes be decided by arbitration rather than the courts. An Ontario court upheld that contract, even though the clause was not in the original subscriber agreement but added in an amendment on the company's Web site. The court ruled posting contract amendments on-line could constitute sufficient notice.

In stark contrast to the D.C. and Ontario decisions, a federal court in California recently reached the opposite conclusion when it examined the electronic agreement used by PayPal, an on-line payment service. The case involved yet another attempted class action, this time by angry PayPal users who argued that the company engaged in a series of unfair consumer practices. Much like Rogers, PayPal sought to dismiss the suit on the grounds that its agreement contained a clause that required that all disputes be resolved by arbitration in California.

Unlike the Verizon and Rogers cases, the court in this case refused to enforce the arbitration clause. The court first expressed reservations about whether there was sufficient evidence that users had agreed to the PayPal electronic contract, and then it left little doubt that it viewed the arbitration clause as completely one-sided, with all the power resting with the company. Moreover, the court was very troubled that the clause required the arbitration occur in California, noting the average PayPal transaction value was only $55 (U.S.), effectively eliminating dispute resolution for most customers who live outside the state and who would be unwilling to go to the expense of travelling to California.

The Verizon and Rogers cases, along with an earlier Canadian case involving an attempted class-action suit against Microsoft, emphasize the importance of contractual certainty. Indeed, some of those cases refer specifically to the need to enforce e-commerce contracts in order for the medium to succeed.

The PayPal case along with two other U.S. cases involving disputes with America Online stress the need for consumer protection to extend on-line in the same manner as it does off-line, even at the expense of contractual certainty.

Bridging these perspectives may require staying out of the courtroom. While more easily said than done, this can be achieved through alternative dispute resolution mechanisms that consumers can access regardless of location, along with contractual clauses that provide legal certainty while leaving adequate protections intact.

Comments are closed.