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Companies may need to rethink changing customer contracts online

Is it enough to give users online notice?

By Linda Rosencrance
August 15, 2007 12:00 PM ET

Computerworld - A recent court ruling could prompt companies that do business online to think twice about how they notify customers of changes to their contracts.

A federal appeals court ruled recently that companies can't change their contracts with users and post those revisions online without notifying customers first.

However, the decision by the U.S. Court of Appeals for the Ninth Circuit didn't say how companies are supposed to inform customers of contract changes. Is it enough to inform consumers in the original online terms of service agreement that any changes will be posted online? Or is more notification necessary?

In the court case (download PDF), the plaintiff, Joe Douglas, signed a contract for telephone service with America Online Inc. The telephone service was later acquired by Talk America, which continued to provide the service to AOL's former customers. However, Talk America, which has since merged with Cavalier Telephone LLC in Richmond, Va., changed the contract AOL had with its customers and posted those changes on its Web site without first notifying its customers. Those changes included provisions to increase prices, add an arbitration clause and add a class-action suit waiver.

Douglas sued, but Talk America sought to settle the issue through arbitration, and the court agreed. Douglas fought the arbitration ruling, and the appeals court agreed, saying that Talk America could not arbitrarily revise its contract without notifying users first.

Although the decision is binding only in the nine Western states covered by the court, plus some U.S. territories, legal experts said it could have far-reaching effects for online companies.

The question of whether the parties to the contract -- the user and the company -- can agree at the outset that the company can amend its contracts with users by posting those changes online is a murky, but significant issue.

Many companies, including Google Inc., Inc. and Cavalier Telephone, have provisions in their online terms of service agreements with consumers that say if they revise their contracts they will post those changes online. If consumers continue to use those sites after the changes have been posted, they have consented to those changes.

Google, Amazon and Cavalier did not respond to requests for comment about their policies for this story.

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