NYLJ “‘Agree’ To Disagree: SDNY Examines the Limits ofTerms of Service Agreements”

We’ve all done it: checked the box and confirmed that we are bound by a company’s “Terms of Service" without so much as glancing at them. These days, “Agree to Continue” is a part of the required ritual, not only for software and online services, but for hardware as well. Before you use your new iPhone, draft a Word document, call an Uber, or even order a pizza, you will have agreed, sight unseen, to a set of standardized terms drafted by a company’s lawyers. For most people, the choice is simple. Most users do not have the time or inclination to read through dozens of pages of legalese before reviewing the morning’s tweets, and if millions of users are agreeing to these terms, how bad can they be? If a company’s Terms of Service become too onerous, or stray too far from accepted industry norms, the company will likely be called out by a sophisticated user or industry watchdog.

This system has functioned with surprising efficiency during a period of explosive growth, and at this point nearly all e-commerce depends on users agreements to contracts virtually no one has ever read. Courts are well aware of that dynamic, and many have commented on it, but have largely upheld these kinds of agreements based on traditional contract law principles. The “click” of agreement, or the ongoing use of the product or service, functions as the user’s agreement to the Terms of Service, regardless of whether the user knows precisely what the Terms say. Contracting parties are assumed to have reviewed and agreed to all terms of their agreement.

One result of this setup is that the legal framework governing the relationship between the consumer and the company is not necessarily what the consumer would expect it to be. Many of the laws that might otherwise govern that relationship are replaced by the Terms of Service. For example, many Terms of Service agreements include arbitration clauses and prohibitions on class or collective actions. Users who might otherwise have a legal right to be a part of a class action in court must give up that right if they want to use those products or services. In some ways (knowingly or unknowingly) they are agreeing to give up some of the protection than the law would otherwise provide, because the company demands that concession in exchange for the use of its product.

For the most part, courts have been willing to enforce that bargain—certainly in areas such as arbitration and collective action. But at a certain point, the state has an interest in protecting its citizens that has some value of its own. Can companies override statutory schemes by contract? Can they disclaim liability for fraudulent marketing practices through corrective disclosure in their Terms of Service? Or is some stricter standard to be applied? To a great extent, the answer may depend on the statutory scheme under which the claim is brought. Fishon v. Peloton Interactive, a recent decision out of the Southern District of New York, took up those questions and is worth a closer look. 2020 WL 5654755 (S.D.N.Y. Nov. 9, 2020).

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This article first appeared in the New York Law Journal on January 25, 2020. Stephen M. Kramarsky, a member of Dewey Pegno & Kramarsky, focuses on complex commercial and intellectual property litigation. Jack Millson, an associate at the firm, provided substantial assistance with the preparation of this article.

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