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Monday, October 15, 2007

Court Upholds Written Contract that Incorporates Terms Posted on Company's Website

Written by: Kenneth Sperl and Mehmet Munur

On September 10, a Federal District Court in Alabama held that contract terms a service provider posted on a website and then clearly mentioned in business negotiations were enforceable.

Conexant, a semiconductor provider for the broadband industry, entered into a contract with Conference America, a Voice over Internet Protocol (VOIP) services provider, for large volume conference call services. Eventually, Conexant established 1778 accounts at discount rates with Conference America in 1999. Conference America terminated its agreement on June 24, 2005 with a letter to Conexant clearly stating that the prices for the services provided after July 10, 2005 would be subject to the standard terms and conditions on Conference America’s website terms. After receiving this letter, Conexant continued to use Conference America’s services. On July 31, 2005, Conexant finally terminated all of its accounts with Conference America with a letter stating that it had not reviewed the website terms; therefore, terms of the 1999 agreement were in effect. Nevertheless, Conference America billed Conexant $195,979.79 for services from July 10 to July 31st and early termination fees of $74.95 per account under the website terms and conditions. Conexant refused to pay the fees and this lawsuit followed.

Though both parties agreed that this was a simple contract dispute, the issue was which terms controlled the parties’ conduct. Conexant argued that the 1999 agreement without the early termination fees applied. The court noted that “Conexant ignored the website at its own risk in view of Conference America’s repeated stance that all future services would be at rates specified on the website.” The court ruled that an enforceable contract under the website terms and conditions had formed, using both unilateral contract and bilateral contract theories.

“Conexant also argue[d] that it did not agree to be bound by the terms of the website because it did not click the ‘I agree’ button as required by the preamble paragraph on the website.” The court dismissed Conexant’s clickwrap agreement because the preamble paragraph applied to new customers and not to Conexant, who had established 1778 accounts with Conference America. “Moreover, Conference America referred to the website pricing repeatedly as a condition of its performing services after termination. By requesting those services, Conexant agreed to be bound by the terms. As a sophisticated business, its failure to read the ‘fine print’ is a poor excuse, and a legally insufficient one.” Conexant insisted on the services without looking to see what Conference America intended to charge when it could have easily examined the terms with legal counsel. The court further noted that Conference America did not have an obligation to clearly state the price for the service outside of the website.

It is difficult to justify this result with Affinity Internet Inc., v. Consolidated Credit Counseling Services, 920 So. 2d 1286, 1287 (Fla. Ct. App. 2006), where the court ruled that an arbitration clause in a business to business contract was unenforceable. There, the court noted that a “mere reference to another document is not sufficient to incorporate that other document into a contract.” It would seem that the main difference between the two facts scenarios was Conexant’s willingness to take the benefits but not the burdens that followed the contract.

The case is Conference America, Inc. v. Conexant Systems, Inc., NO. 2:05-CV-01088-WKW, 2007 U.S. Dist. LEXIS 66867 (M.D. Alabama, Sept. 10, 2007).

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