Contractual provisions giving a website operator the unilateral right to change its end user terms of service are ubiquitous and appear in the online terms of many major social media sites and other websites, including Facebook, Twitter, Instagram and Google. Although amendments to terms of service quite often cause consumers to complain, litigation regarding such changes is relatively rare. A recent decision from the U.S. District Court in the Northern District of Ohio, however, challenges the enforceability of unilateral amendments to online terms of service in at least some circumstances.
In Discount Drug Mart, Inc. v. Devos, Ltd. d/b/a Guaranteed Returns, Discount Drug Mart, a distributor of pharmaceuticals, sued Guaranteed Returns, a company that processes pharmaceutical product returns, for Guaranteed Returns’ failure to remit credits due under a written distribution agreement between the parties. Guaranteed Returns pointed to the forum selection clause on its website, which it argued required the parties to bring suit in either Nassau or Suffolk County in the State of New York. This provision appeared in Guaranteed Returns’ online “standard terms and conditions,” which Guaranteed Returns claimed were incorporated into the parties’ written distribution agreement.
The court held otherwise, citing the Sixth Circuit case Int’l Ass’n of Machinists and Aerospace Workers v. ISP Chemicals, Inc. and stating that “[i]ncorporation by reference is proper where the underlying contract makes clear reference to a separate document, the identity of the separate document may be ascertained, and incorporation of the document will not result in surprise or hardship.” The court also pointed out that Guaranteed Returns’ purported right to change its standard terms and conditions unilaterally could result in Discount Drug Mart being subject to surprise or hardship. Further, the court noted that there was no evidence that the forum selection clause had been included in the standard terms and conditions at the time the distribution agreement was signed (and Guaranteed Returns did nothing to try to prove this fact). Thus, the court concluded that the standard terms and conditions were not properly incorporated into the distribution agreement (although the court ended up finding in favor of Guaranteed Returns on other grounds).
It is difficult to say what, if any, precedential force Discount Drug Mart will have. Putting aside the facts that the case was brought in the Northern District of Ohio and was ultimately dismissed on grounds unrelated to this holding, the underlying background of the case was nuanced. First, although the court stated in dicta that “one party to a contract may not modify an agreement without the assent of the other party,” a statement that could be interpreted to mean that unilateral amendment of contracts is never permitted, the holding itself was limited to situations in which terms and conditions are incorporated by reference. That said, even this limited holding may be relevant to many website operators in the social media world, as the larger social media sites often use a network of contracts that reference each other (for example, Facebook’s “Platform Policies” requires developers to agree to the company’s “Statement of Rights and Responsibilities,” which are “requirements for anybody who uses Facebook” and which can be unilaterally modified by Facebook).
Discount Drug Mart is not the first decision to challenge a company’s right to unilaterally modify its online terms and conditions. In the 2007 case Douglas v. Talk America, the Ninth Circuit Court of Appeals held that Talk America could not enforce an arbitration clause against an individual who had initially accepted the applicable terms of service prior to Talk America’s unilateral addition of the arbitration clause. Although Talk America posted the amended terms online, the court noted that the individual’s assent to the new terms could only be inferred “after [the individual] received proper notice of the proposed changes.” Discount Drug Mart seems consistent with this decision to the extent that the case suggests that failure to provide adequate notice to end users of changes to online terms may invalidate such changes.
Discount Drug Mart does not necessarily provide any clear guidelines that online service providers must follow for their online terms to be valid and enforceable. Because the court based its holdings on specific factual circumstances and provided little insight into its reasoning, it is unclear at this point whether other courts will follow this opinion and impose limitations on companies’ rights to unilaterally change their online terms of service under different circumstances. However, given the legal precedent on the subject, it will likely behoove companies that incorporate their online terms into other documents to consider re-evaluating their amendment and notification practices to minimize any chance of subjecting end users to “surprise or hardship.”