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Updating and Retroactivity in Online Contracts

Learn about the role of online contracts in defining long-term, highly interactive relationships between businesses and consumers. Discover the importance of data collection and the need for flexibility in updating terms of use and privacy policies.

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Updating and Retroactivity in Online Contracts

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  1. Updating and Retroactivity in Online Contracts Richard Warner

  2. A New Relationship • Contracts play a key—and unnoticed—role, in defining a new business-consumer relationship. • The new relationship • Consumer/business contract that is • Long-term • Highly interactive • Involves data collection and analysis.

  3. Long Term, High Interaction • When you buy a toaster or a hair dryer, how often do you have contact with the manufacturer? • How often do you interact with Google, Amazon, Facebook? • Online contracts define a long term, ongoing relationship.

  4. Data Collection • Most businesses with an online presence collect and analyze data. The reason: the data is worth a lot of money. • “Statistically, the more data-driven a firm is, the more productive it is — even controlling for a wide range of possible confounding factors. And the differences are not small. One standard deviation higher on the DDD [data driven decision] scale is associated with a 4%– 6% increase in productivity. DDD also is correlated with higher return on assets, return on equity, asset utilization, and market value, and the relationship seems to be causal.” • Foster and Fawcett, Data Science for Business: What you need to know about data mining and data-analytic thinking

  5. Amazon As An Example • Amazon collects massive amounts of information • In a long-term, high interaction relationship, • In which it needs flexibility • because of rapid technological and economic change. • So it needs to update its terms of use and privacy policies.

  6. LinkedIn Example • LinkedIn: 16 privacy policy changes,10/23/15. • https://www.linkedin.com/legal/pop/pop-privacy-policy-summary. • “information we receive through address book imports may include phone numbers.” • “advertising partners may associate personal information collected by the advertiser directly from you with our cookies and similar technologies.” • “we use member information for research and development.”

  7. The Standard Practice • “1.1 If you choose to use NYTimes.com . . . you will be agreeing to abide by all of the terms and conditions of these Terms of Service between you and The New York Times Company. • 1.2 We may change, add or remove portions of these Terms of Service at any time, which shall become effective immediately upon posting . . . by continuing to use this Site, you agree to any changes.”

  8. One More Example: MDY v. Blizzard • Blizzard makes and distributes the multiplayer game, World of Warcraft. • The game has levels. As you pass through successive levels, you get more powerful. • MDY made and distributed Glider, a program that automated playing the first levels of the game. • Players complained using Glider was cheating. • MDY modified its terms of use to prohibit the use of Glider.

  9. The New Provision • “You agree that you will not ... (ii) create or use cheats, bots, “mods,” and/or hacks, or any other third-party software designed to modify the World of Warcraft experience; or (iii) use any third-party software that intercepts, “mines,” or otherwise collects information from or through the Program or Service.”

  10. The Doctrinal Objection • Douglas v. Talk America • A business cannot unilaterally change the terms of its contract. • A revised contract is merely an offer. It does not bind unless it is accepted. • An offeree cannot accept to an offer unless he or she knows it exists. • Parties to a contract have no obligation to check the terms on a periodic basis.

  11. Assume You Are the Lawyer for a Business • You need to write a retroactively updatable contract to give your business the flexibility it needs. • How do you do that in a way consistent with Douglas v. Talk America? • By putting the right to make unilateral changes in the offer.

  12. Perdue v. Crocker National Bank • When the plaintiffs opened their accounts, the bank rules set a certain charge for NSF checks. • The plaintiffs complaint asserts that “Defendants have at various times unilaterally increased the NSF charge.” • How do they have the contractual right to do so?

  13. The Offer • “In extremely small (6 point) type, the signature card states that the undersigned depositors “agree with Crocker National Bank and with each other that ... this account and all deposits therein shall be ... subject to all applicable laws, to the Bank’s present and future rules, regulations, practices and charges.”

  14. Limits • There must be some limits on the terms a business can introduce in a retroactively updatable agreement. • Otherwise there is no agreement. • When one party has the discretionary power to change terms, there is “duty imposed on one having the discretionary power to affect the rights of the other party to exercise that power in a manner consistent with the covenant of good faith and fair dealing.” • Perdue v. Crocker National Bank (1985).

  15. Good Faith, Reasonable Expectations • So we are back to Steven. • Trust in good faith = trust that reasonable expectations will not be violated.

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