Advertising Law Alerts

January 17th, 2013

Court Invalidates Zappos’ Browsewrap Agreement

In early 2012, Zappos, a division of Amazon, was the victim of an enormous customer data breach affecting 24 million records. Class action attorneys filed cases against the online shoe retailer citing multiple breaches of contract and privacy violations. Zappos' Terms of Use (TOU) contained an arbitration provision, which may have saved the company from the plague of the class action bar, but it didn't. In what may become a trend, a federal district court in Nevada found the TOU invalid for two reasons.

First, the Zappos TOU was never explicitly agreed to by the consumers.  Generally speaking, there are two types of TOU found on the internet, clickwrap and browsewrap. A browsewrap agreement is a link at the bottom of a webpage or application containing a TOU. The user agrees to the browsewrap agreement merely by browsing the site, without having actually read the agreement or accepting the terms of it in any way. In the Zappos case, the court held this type of TOU unenforceable because the user never actually indicates consent. The alternative would have been for each Zappos user to click "I accept" to the TOU when creating an account or when making a purchase. This would have been a better indicator of consent than is available via a browsewrap agreement.

Second, the Zappos TOU contained a very common provision that stated Zappos could modify the TOU at any time. The court took this to an extreme and stated that this power included removing or modifying the arbitration clause. In traditional contract law, a contract that is unilaterally amendable is not an enforceable contract: if one party can change the contract at any time, then what does it really mean and how can a court enforce it? The court did not take into account that this type of provision is nearly ubiquitous on the internet.

One solution for these problems is simple and may have saved Zappos substantial resources defending class action litigations. First, we recommend that clients consider making any TOU on a monetized website or application a clickwrap agreement, not a browsewrap agreement. User consent is most easily obtained during account registration and purchases. Second, consider removing any language in a TOU permitting you to modify the terms of the TOU at any time. Instead, keep track of the user base and have them periodically accept (e.g. for new users, application patches, or purchases) the new TOU whenever you modify it.

As a best practice, a website or application should review its Privacy Policies and TOU at least annually for compliance with updates in the law as well as changing technology.

For more information on the Zappos decision, or any other advertising or marketing law issues, please contact Greg Boyd at (212) 826 5581 or gboyd@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.