Ticking all the boxes

IF A prize were to be awarded for the world’s clunkiest prose, the paragraphs of indecipherable text that make up “terms of use” agreements would surely win. These legal thickets are designed to protect companies from litigious online shoppers and users of web services. Some firms require agreement, as when users are asked to click a box before creating an Apple ID. Other sites explain their policies without seeking customers’ explicit consent. Few consumers read these terms, let alone understand them. Because they involve no negotiation between customer and company, firms often insert language conferring broad protections to lower their risk of liability. But in a new twist, legal disclaimers designed to limit lawsuits are now unleashing litigation.

A surge of lawsuits in America claims that companies’ online agreements violate consumers’ rights. Consumers are banding together in class actions against targets including Apple, Avis, Bed Bath & Beyond, Toys R Us and Facebook. The cases have a tinge of the bizarre, citing a law passed before companies even had websites. And the lawsuits accuse companies of illegally limiting lawsuits, a convoluted argument even by the standards of American jurisprudence. Nevertheless, the litigation could have broad implications for the firms involved and for future class actions.

The suits seek to exploit the Truth-in-Consumer Contract, Warranty and Notice Act, enacted in New Jersey 35 years ago. This was intended to prevent companies that do business in the state from using contracts, notices or signs to limit consumer rights protected by law.

Trial lawyers only recently began to use the TCCWNA to target online agreements. “All firms that seek to represent consumers are constantly mining different data fields for potential ways consumer rights are being violated,” explains Gary Lynch, of Carlson Lynch Sweet Kilpela & Carpenter, a law firm. James Bogan of Kilpatrick Townsend & Stockton, which has defended companies in class actions, describes the use of the TCCWNA as “very creative”. But class-action lawyers such as Mr Lynch may have struck gold.

The lawsuits vary, but generally include allegations that online terms violate consumers’ rights to seek damages as protected by New Jersey law and fail to explain which provisions cover New Jersey. Unusually in American law, plaintiffs need not show injury or loss in order to sue but merely prove violation of the TCCWNA. Moreover, the lawsuits are aimed not only at firms headquartered in New Jersey but all manner of companies that merely do business in the state. Gavin Rooney of Lowenstein Sandler, another law firm, counts about 40 TCCWNA cases in the recent surge. What is more, the TCCWNA entitles each successful plaintiff to at least $100 in damages, plus fees to lawyers and so on. If a website has millions of visitors, the costs to a company could be staggering.

Whether the lawsuits will succeed is unclear. Whatever the outcome of individual claims, the barrage of litigation will probably prompt firms to adjust their online terms. “Don’t overreach” Mr Rooney advises clients. For example, a company might no longer add words to terms-of-use agreements that seek to limit liability from gross negligence or fraud.

That would be good news for consumers. But changes to terms of use do not always serve their interests. A growing number of firms, emboldened by favourable Supreme Court rulings, have adopted clauses that limit class-action suits. Consumers are instead restricted to resolving disputes individually, in arbitration. The TCCWNA cases may inspire more firms to add such caveats. That might limit frivolous suits. But consumers with grave complaints would be unable to sue, either. In the end lawsuits over restrictive contracts may make them more restrictive still.