“Great Fun” : Enforceability of Online Terms

by Field Law
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“Great Fun” is a service offered by a company called Trilegiant. Trilegiant offers certain discounts to Great Fun members based on a monthly membership fee. Problem is, some members didn’t realize they were members until they saw the membership fee on their credit card statement. In Schnabel v. Trilegiant Corporation & Affinion, Inc., Court of Appeals, 2nd Circuit (September 2012), the court considered whether terms could be considered enforceable if the terms were sent by email after the formation of the online contract.

In this case, there were online terms in the sign-up page, but for a variety of reasons, Trilegiant couldn’t rely on these terms, and was obliged to argue that the emailed terms were binding. Trilegiant asserted that the members assented to an arbitration clause by signing up, and receiving the emailed terms at a later date, and then failing to cancel their membership during the “free trial period”. The Second Ciruit Court of Appeals took a dim view of this approach. In the U.S., a consumer may receive “actual notice” of the online terms, or “inquiry notice”. “Inquiry notice” occurs when the consumer has actual notice of circumstances where a prudent person would be on guard to the existence of terms. It’s a stretch, but can still result in enforceable terms. The court concluded that neither “actual notice” nor “inquiry notice” were provided by means of the emailed terms. The court concluded:

“We do not think that an unsolicited email from an online consumer business puts recipients on inquiry notice of the terms enclosed in that email and those terms’ relationship to a service in which the recipients had already enrolled, and that a failure to act affirmatively to cancel the membership will, alone, constitute assent.”

Lessons for business? Get advice on your online terms and sign-up process for any online contracting: including cloud-computing contracts, software-as-a-service, online products sales, license agreements and terms-of-use.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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