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Monday, October 29, 2007

Court Rules That Cease and Desist Letter Confirms Notice of Website Terms of Use

Written by: Dino Tsibouris and Mehmet Munur

A federal trial court in Texas held that cease and desist letters explaining infringing conduct created knowledge of website terms of use and further use of the website after this knowledge was a breach of contract. Therefore, a corporation wishing to stop another party from violating its website terms of use should consider sending a cease and desist letter before litigation to enhance their position in trial.

Southwest Airlines is a Dallas based airline carrier that subscribes to a first come, first served seating policy. Southwest divides the plane into three sections—A, B, and C— with class A being the most in demand. Southwest allows its customers to check in at www.southwest.com within 24 hours of the flight, which dramatically increases their chances being awarded the coveted A class.

On the other hand, BoardFirst assists customers with getting class A seating at Southwest flights. A Southwest ticket holder can supply BoardFirst with his name, flight information, credit card number, and make BoardFirst his agent to obtain class A seating for a fee of $5. Then, BoardFirst’s employees log onto the Southwest website at the appropriate time, obtain a pass, and allow customers to print their boarding pass at the airport. BoardFirst has been in operation since 2005 and serves less than 100 customers per day.

In court, Southwest argued that BoardFirst’s circumvention of Southwest’s first come, first served policy is a breach of contract. The terms of this contract were posted on Southwest’s website under a link titled “Terms and Conditions.” These terms specifically prohibited commercial use of the Southwest’s website—unless the user was an approved travel agent. Furthermore, Southwest specifically prohibited the services that BoardFirst provided, stating: “third parties may not use the Southwest web sites for the purpose of checking Customers in online or attempting to obtain for them a boarding pass in any certain boarding group.”

Clearly, if Southwest could prove that there was a contract between Southwest and BoardFirst, then it should be entitled to relief. In order for a contract to exist, parties must mutually agree to its terms, either through spoken or written terms or actions. Southwest’s website terms of use—in plain and very common terms—stated that “use of the Southwest web sites and our Company Information is subject to these terms and conditions, and by using our web site, you agree to these terms and conditions.” Therefore, Southwest argued that BoardFirst was aware of the website terms of use, and agreed to its conditions by using the website.

In similar circumstances, defendants have argued that they had no knowledge of these terms and that the small hyperlink at the bottom of the website gave insufficient notice. However, BoardFirst did not raise these arguments because Southwest sent two cease and desist letters before starting this lawsuit. The court held that a contract between BoardFirst and Southwest formed at least as early as when BoardFirst received the first cease and desist letter and then continued the use of Southwest’s website.

Southwest then had to prove breach of contract and damages to prevail in this lawsuit. The court held that BoardFirst breached this contract because the activities were specifically prohibited by the website terms of use. Southwest’s damages were difficult to calculate, but nevertheless tangible. Southwest argued that the customers that paid BoardFirst did not visit Southwest’s website, where they would have viewed advertisements and possibly made hotel or rental car reservations. The difficulty of proving these damages; however, allowed Southwest to get an injunction stopping BoardFirst’s breaching activities.

The case is interesting because the court correctly compared BoardFirst’s activities to landmark terms of use cases to come to the conclusion that BoardFirst’s activities formed a contract. While the case certainly reaches the correct conclusions, it does so a conservative fashion. One could argue—as Southwest did—that a contract between the parties existed long before the cease and desist letters, as early as BoardFirst’s first use of the Southwest website in early 2005. The court’s willingness to take the easy road to enforce the contract between the parties demonstrates at least one lesson. Corporations wishing to enforce their website terms of use are encouraged to send at least one cease and desist letter before litigation.

The case is Southwest Airlines Co., v. BoardFirst, L.L.C., No. 3: 06-CV-0891-B (N.D. Tex., Sept. 12, 2007).


Monday, October 22, 2007

Best Lawyers in America - 2008

Dino Tsibouris of Tsibouris & Associates, LLC was recently selected to be included in the 2008 edition of The Best Lawyers in America in the specialty of Information Technology Law. The Best Lawyers in America is a publication of the most respected attorneys in their fields, which has been known to be a very valuable referral list of attorneys in practice. Inclusion in Best Lawyers is determined by more than 1.8 million evaluations and votes cast by the top attorneys in the country. To read more about the selection process, click here.


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).