Everyone who uses the Internet or has downloaded a mobile application knows about “terms and conditions” (“T&C”). What entrepreneurs may not know, however, is that these terms and conditions are an essential part of having a mobile or Internet presence. This post will discuss why T&C are important, and discuss important elements of every T&C agreement.
Why Terms and Conditions Matter
In general, terms and conditions are important because they notify users about what the user can and cannot do with a product. Legally, T&C are important because they bind users to a company’s legal policies. Think about how many terms and conditions the typical consumer has assented to throughout the course of the last year. By clicking “accept” or “yes, I agree” or even doing something as simple as downloading a program, one has formed a contract with the company offering the product or service. The consumer who accepts such terms and conditions is then bound by them.[i] Even if all one does is scroll through the terms and conditions of a website and click the “accept” button without looking at each clause, he or she is bound to follow the rules outlined on that webpage. How is this possible?
New York imposes a “duty to read” on all parties to a contract. Stated simply, the duty to read prohibits a person from canceling a legally binding contract because he or she failed to look at the terms of an agreement. Each person entering a contract must read the entire document because he or she will be bound by those terms.[ii] This means that, as long as a company’s terms and conditions are readily available and understandable, all users assenting to the use of that product have assented to the terms and conditions, and will be bound by the promises made within that agreement.
Therefore, to protect a company, entrepreneurs should draft company T&C, post them online, and make sure that any download or purchase of a company’s product references the T&C either by displaying the entire agreement or supplying a hyperlink to the T&C. Users can assent to these items by clicking “I accept” or downloading the product as long as the business articulates that downloading the product constitutes an acceptance of the T&C. New York courts will uphold these “Click-wrap” contracts as long as users have the opportunity to read the T&C and can unambiguously assent or decline.[iii]
Common Clauses of Terms and Conditions
These 10 items are not a complete list of clauses companies can put in their terms and conditions. Lawyers and other business professionals specialize in drafting conditions of a product as well as privacy policies. These services may be appropriate for new companies depending on the capital demands of running a business. Always seek professional advice when drafting the terms of terms and conditions because these items will protect the company as a binding contract. What follows is some of the basic elements of a simple set of terms and agreements.
1. Promise of Agreement
“By downloading this product you agree to the following terms and conditions.”
This language offers an example of some language that can be used in an agreement statement. Entrepreneurs may use different language, but the purpose of the sentence is the same. It must be clear that the action outlined in the T&C constitutes an acceptance of the agreement.
2. Description of Service and the Agreement
Most T&C agreements start out by explaining to the user he or she is reading a company T&C. The section following that description explains the product. By explaining the company policy and product, entrepreneurs can be sure that consumers will understand that the T&C apply to the product they are downloading or purchasing.
3. Prohibited Activities/Termination
Usually businesses include a description of product uses that would prompt a company to terminate a consumer’s contract with its product. If users are not on notice that certain actions can result in their disqualification to use a product, it could be a breach of contract to take it away. The company’s procedure to terminate a product subscription should be articulated in this section.
4. Privacy Statement
This section lists all the ways in which a company will not be subject to damages that result from claims against the company because of its product or services, others using the product/service, or the inability to use a product/service. Some companies articulate a monetary ceiling for liability if a user is successful against the company in court; most ceilings are around $1.00. These provisions are generally upheld in New York as long as they are not the result of willful acts or gross negligence, and as long as the result does not disrupt public policy protecting consumers.
Indemnification means to hold someone harmless, and to reimburse him/her/the entity the cost of defending a claim arising out of a user’s use of the service or product. This is an important part of a company’s T&C.
- Litigation or Arbitration
A company can designate whether claims against it can be brought in court or resolved through arbitration. Arbitration is like court except it is a private forum for dispute resolution. Like a court proceeding, arbitration has a “judge” often called an arbitrator and both sides can be represented by attorneys or appear pro se (i.e. representing one’s self). (Sometimes a panel of arbitrators will resolve a particular dispute.) Each arbitrator enforces a set of procedural rules regarding evidence, depositions, witness calling, and pleadings. At the end of arbitration, the arbitrator gives a ruling and it is binding on all parties. Business owners can obligate users to arbitrate claims instead of going to court in their T&C. Whether arbitration or litigation is right for your company depends on your needs as a business.
This clause binds both parties to using a particular state’s laws when litigating. This clause supersedes a legal concept called “conflict of laws.” The conflict of laws doctrine permits one state to apply another state’s substantive rules about a legal issue in a claim in court. For example, if a claim is brought in Massachusetts against a New York company and the company has a choice of law provision in its T&C mandating that all claims will be governed by New York Law, Massachusetts should apply New York law in that claim. A company may choose to select a body of laws that is beneficial to it, or that it makes sense to apply to a given dispute. Sometimes, a contract’s choice of law clause will not be upheld if it is against public policy to honor it.
Similar to the Choice of Law provision, terms and conditions can often control where a claim may be brought.
Most T&C will claim the product or service is provided “as is.” This is just a representation that there are no warranties or guarantees tied to the use or download of the product/service. Disclaimers are included so users cannot claim a breach of contract to use a product because there are bugs that need to be fixed or kinks in the product/service abilities.
7. Intellectual Property
Almost always, products or services offered by a company will touch intellectual property law. Whether this section claims that that use of the product is a license to use the software or that items connected to the product are trademarked or copyrighted, intellectual property rights are explained in this clause. This section also states the procedure users must follow if they believe their intellectual property rights have been violated by the company or other users.
8. Agreement Updates
From time to time, companies will update their T&C, usually because a new product/service has been developed or the product itself has evolved. If that is the case, the terms and conditions should express how contract updates will be relayed to users. This is important because it will put users on notice that the terms and conditions they originally accept may be amended, and how to find out about such a change.
This is a standard contract clause. It explains that if any part of the contract is found to be illegal and void, that clause will be treated as separate from all other clauses. The contract continues to exists, but the voided term is dropped as if it was not part of the contract to begin with.
10. Complete Agreement
This is another standard contract clause. It states that the agreement supersedes all prior understandings regarding the T&C between both parties. This has the effect of binding users to all updates whether the new T&C were read or not.
BLOG DISCLAIMER: This blog is provided for general informational purposes only. It should not be construed as legal advice and is not intended to be a substitute for legal counsel. Persons requiring legal advice should retain a properly licensed lawyer. No attorney-client relationship will be formed based on use of this site and any comments or posts to this blog will not be privileged or confidential
[i] There are always contractual defenses that may be able to free an Internet user of an agreement, but this post does not go into those defenses. Retain a lawyer if you are looking to rescind an agreement.
[iii] Serrano v. Cablevision Sys. Corp., 863 F.Supp.2d 157, 164–65 (E.D.N.Y. 2012).