Online Terms of Service (ToS) are the legal contract between a business and its users that set the terms and conditions the users of a website or app agree to follow in order to use the website or app. Although implementing ToS is not a legal requirement, the benefits of implementing a high quality ToS far outweigh the time and expense involved in creating one. Five such benefits include:
Users find countless ways in which to use, and misuse, a website or app. Effective ToS require users to agree not to engage in malicious and certain types of other prohibited behavior, and that doing so violates the ToS and is grounds for termination of the user’s account. The ToS will also require users to agree that the operator of the website or app will not be held liable for the actions of any other users that violate the ToS. Some examples of user behavior that are typically prohibited in ToS include a user: scraping data from a website, posting defamatory comments, harassing other users, posting or downloading content that infringes someone else’s intellectual property or impersonating customer service representatives in order to steal personal information.
The ToS give a company an opportunity to present disclaimers regarding the functionality of the website or app. Disclaimers are important, as a user may sue a company based on the user’s assumptions of what the website or app “should” provide. Without an appropriate disclaimer of warranties, a business could be liable for a user’s assumptions or misconceptions. The business could also be liable for implied warranties that arise under state law unless warranties are expressly disclaimed by the Company in its contract with the user. In the warranty disclaimer provision of the TOS, a company can disclaim both general warranties applicable to the business and products under state laws, as well as warranties more specific to the company’s products and services. For example, a ToS can clarify that the company makes no promises that the app or website will be error-free, completely accurate or available without interruption. Also, if the app or website contains medical information or financial information, the ToS can specify that the company is not providing medical or financial advice (medical and financial advice should be left to the doctors and financial advisors).
A website and/or app often contains significant intellectual property rights in the form of trademarks, logos, content, designs and code. In the ToS, a company can specify what portions of the website or app the company owns or is its confidential information and provide specific remedies for the company in the event that someone “misuses” the company’s intellectual property. In addition, the ToS can clarify the ownership of or licenses to of intellectual property (such as user-generated content) a user contributes to a site or app. The Digital Millennium Copyright Act (DMCA) provides a conditional safe harbor for internet services whose users may upload content that infringes a third party’s copyright. Companies should include in the ToS a DMCA compliant policy for taking down user content that has been flagged as infringing someone else’s IP rights (and terminating the account of repeat infringers) to avoid liability based on infringing user-generated content.
As a company grows and adapts, the company’s online service may change, as well. Effective ToS should require the user to agree that the company has the right to modify and/or terminate any portion of the company’s website or app at any time without liability. By reserving the right to modify or terminate any portion of the website, a company can prevent users from bringing legal claims against the company if user-beloved portions of the website or app are removed. Good ToS will also let a company terminate the accounts of troublesome users at any time and for any reason.
The ToS also allow a company to determine the governing law in the event of a dispute. Through the ToS, a company can specify which state’s law will be used, where a complaint may be brought and even whether arbitration is required. Declaring the governing law can be especially beneficial for small businesses that may not have the resources to respond effectively to lawsuits filed across the country or in jurisdictions known to regularly favor consumers (as opposed to businesses). In the ToS, a company can also include a class action waiver, which can help the company avoid costly class action lawsuits. Arbitration provisions have been the subject of heavy court scrutiny lately. So although courts have upheld the enforceability of arbitration provisions, the courts have also required that the arbitration be presented to the user clearly and conspicuously, and the user have a right to opt-out of arbitration.
As the five benefits illustrate, ToS are an essential component of a successful online or mobile business. Companies should be aware, however, that generic ToS, or ToS designed for a different website or app, will not sufficiently protect the company’s rights. Companies need to ensure that their ToS accurately reflects their business and how their users interact with that business. For example, ToS that do not address user-generated content will not protect a business based on crowdsourcing graphic designs. Likewise, ToS addressing crowdsourced graphic designs may not protect a business built around a dating app. The ToS must be relevant and accurate for the business. The best, and frequently fastest, way for a company to create effective ToS is to craft every provision of the ToS with the company’s online service in mind. A company that attempts to adapt existing ToS can actually find the process takes longer, results in ToS that do not adequately protect the company and costs more overall.