Internet marketing has become so popular that e-commerce retail sales in the United States are on pace to double between 2009 and 2018, with sales amounting to US$127.3 billion in just the second quarter of 2018, according to an August 2018 update from the U.S. Census Bureau.
The transaction value of e-commerce service industry contracts reached $600 billion in 2016. Despite the rush to digital commerce, the rules for business transactions are still the same, whether they are concluded on paper or electronically.
Essentially, that means legally valid sales agreements need to demonstrate clearly that both vendors and consumers are aware of — and consent to — the terms of the agreements. It is especially important for vendors to ward off expensive class action suits by including contract terms that prohibit such suits and instead rely on arbitration to resolve any issues with consumers.
Yet recent federal court cases indicate that poorly presented Internet contracts can result in the nullification of arbitration provisions and class action prohibitions — thus giving consumers greater leverage in legal disputes with vendors. Usually the breakdown occurs when vendors mismanage either the display or the content of their websites — and sometimes both.
Website Messages Must be Conspicuous
The most recent example is a June case in which the U.S. Court of Appeals for the First Circuit issued a decision. The case stemmed from complaints that Uber Technologies wrongly added the cost of local tolls in and around Boston to customers’ bills. In Cullinane v. Uber, a federal district court initially ruled in favor of Uber and dismissed the complaint.
However, such is the state of differing perspectives on applicable laws, that the appellate court overturned the district court and ruled against the company.
Uber failed to convince the appeals court that the website sales agreement properly displayed both an arbitration clause and a prohibition against litigation, because the notice was not “conspicuous” enough to be legally valid. Absent adequate notice to the customer, there could be no agreement between the parties over terms and conditions, the court said in denying Uber’s motion to compel arbitration.
The case provided insight into the importance to vendors of arbitration clauses as a way to fend off class action suits.
Compared to litigation, arbitration is a “speedy, fair, inexpensive, and less adversarial” process, the U.S. Chamber of Commerce said in an amicus brief in the Uber case. Members of the organization “have structured millions of contractual relationships — including enormous numbers of on-line contracts — around arbitration agreements.”
Similar suits dealing with the issue include a second case against Uber with a different plaintiff and over a different issue, as well as separate cases involving Amazon and Barnes & Noble.
In each case, courts have gotten into the weeds of website design, finding flaws in styles, the choice of colors, the size of printing fonts, and the use of hyperlinks.
For example, in Cullinane v. Uber, the appellate court noted that the website connection to the contract terms “did not have the common appearance of a hyperlink” because it was framed in a gray box in white bold text, rather than the normal blue underline style. Other screens on the site utilized similar highlight features causing the court to conclude that if “everything on the screen is written with conspicuous features, then nothing is conspicuous.”
Uber’s petition for a rehearing of the case was denied by the appeals court in a July 23, 2018, ruling. The company had no comment on the litigation, Uber spokesperson Alix Anfang told the E-Commerce Times.
Pulling the Trigger on Consent
Of equal importance with presentation is the vendor’s choice of using active or passive mechanisms to obtain customer consent to the terms and conditions of agreements.
In Nicosia v. Amazon, the U.S. Court of Appeals for the Second Circuit overturned a district court decision favoring the company, and instead ruled in favor of the consumer plaintiffs.
The Second Circuit described two major types of customer consent mechanisms. The first, called a “clickwrap” procedure, involves the use of an “I accept” button, which forces customers to “expressly and unambiguously manifest assent,” according to the court.
A more passive alternative is a “browserwrap,” which “involves terms and conditions posted via a hyperlink” and does not request an express showing of consent. “In a seeming effort to streamline customer purchases, Amazon chose not to employ a clickwrap mechanism,” the court noted in the August 2016 ruling.
Ultimately, the court based its decision not on the consent mechanism per se, but on Amazon’s failure to display its terms adequately. The result was that “reasonable minds could disagree” on the adequacy of the company’s notice to consumers.
Amazon declined to comment for this story, spokesperson Cecilia Fan told the E-Commerce Times.
The significant variance among federal courts on the validity of Internet contracts may be caused more by different judicial perceptions than by differing laws covering “conspicuous” or “reasonably communicated and accepted” terms.
While these cases have been brought in federal courts, there is no federal standard for what constitutes adequate notice. Thus, for procedural reasons associated with the Federal Arbitration Act, federal judges have relied on applicable contracting law in different states, including California, Massachusetts, Washington and New York.
“I do not yet see a majority of courts moving toward a single legal standard, especially not one that is adapted to today’s technology,” said Liz Kramer, a partner at Stinson, Leonard, Street.
The U.S. Appeals Court for the Second Circuit reached opposite results in recent cases “despite pretty similar circumstances,” she told the E-Commerce Times. One problem “is that state law applies, and the states are not consistent on what makes terms conspicuous enough to form part of the contract.”
“Different courts define the standard in different ways, but they all boil down to the principle that the arbitration clause — and the links to the clause — must be clearly presented to the consumer in order for there to be a meeting of the minds — in other words, an acceptance — of the arbitration clause,” said Mark Levin, a partner at Ballard Spahr.
“It is not so much the standard that is unsettled, but the application of the standard to the facts, since each website is unique and there are a multitude of factors, both in content and visual display, to consider in determining whether the consumer accepted the clause,” he told the E-Commerce Times.
“Even if there was a U. S. Supreme Court decision, or legislation that defined a single standard, there would still be a need to apply that standard to unique facts in virtually every case,” Levin said.
Web Designers Should Seek Legal Help
While vendors strive to create ever more attractive and compelling websites, designers and marketing staffs need to address the basic nuts and bolts of contract communications, said Levin.
For electronic documents, vendors should “refer to the arbitration clause near the beginning of the terms and conditions, make sure the link to the clause is obvious and clear, minimize the number of mouse clicks it takes for the reader to get to the clause, and refer to the arbitration clause again at the end, close to an electronic signature or ‘I agree’ button,” he advised.
The easiest way for e-commerce vendors to avoid trouble is to skip any indirect notification procedure, suggested Stinson’s Kramer. Deliberate downplaying of key contract terms is an invitation to legal challenge.
“The best way to ensure that an arbitration agreement is enforceable with customers who agree online, or through an app, is to have them actually click ‘I agree’ after reviewing the terms and conditions,” she said.
“Great care should be taken in designing and structuring a website arbitration clause, since courts scrutinize every detail, cautioned Levin.
“This is definitely an area where businesses should enlist legal counsel to help with the design, substance and placement of the clause to help ensure that a court will enforce it,” he said. “If adequate attention is not paid to these issues at the outset, the business could end up in a debilitating class action lawsuit.”
AMAZON ERROR ALLOWED ALEXA USER TO EAVESDROP ON ANOTHER HOME
A user of Amazon’s Alexa voice assistant in Germany got access to more than a thousand recordings from another user because of “a human error” by the company.
The customer had asked to listen back to recordings of his own activities made by Alexa but he was also able to access 1,700 audio files from a stranger when Amazon sent him a link, German trade publication c’t reported.
“This unfortunate case was the result of a human error and an isolated single case,” an Amazon spokesman said.
The first customer had initially got no reply when he told Amazon about the access to the other recordings, the report said. The files were then deleted from the link provided by Amazon but he had already downloaded them on to his computer, added the report from c’t, part of German tech publisher Heise.
CRYPTOCURRENCY INDUSTRY FACES INSURANCE HURDLE TO MAINSTREAM AMBITIONS
Cryptocurrency exchanges and traders in Asia are struggling to insure themselves against the risk of hacks and theft, a factor they claim is deterring large fund managers from investing in a nascent market yet to be embraced by regulators.
Getting the buy-in from insurers would mark an important step in crypto industry efforts to show that it has solved the problem of storing digital assets safely following the reputational damage of a series of thefts, and allow it to attract investment from mainstream asset managers.
“Most institutionally minded crypto firms want to buy proper insurance, and in many cases, getting adequate insurance coverage is a regulatory or legal requirement,” said Henri Arslanian, PwC fintech and crypto leader for Asia.
“However, getting such coverage is almost impossible despite their best efforts.”
Many asset managers are interested in digital assets. A Greenwich Associates survey, published in September, said 72% of institutional investors who responded to the research firm believe crypto has a place in the future.
Last month, Mohamed El-Erian, Allianz’s chief economic adviser said that cryptocurrencies would gain wider acceptance as institutions began to invest in the space.
Most have held off investing so far however, citing regulatory uncertainty and a lack of faith in existing market infrastructure for storing and trading digital assets following a series of hacks, as well the plunge in prices.
The total market capitalisation of crypto currencies is currently estimated at approximately US$120bil (RM502bil) compared to over US$800bil (RM3.3tril) at its peak in January.
“Institutional investors who are interested in investing in crypto will have various requirements, including reliable custody and risk management arrangements,” said Hoi Tak Leung, a senior lawyer in Ashurst’s digital economy practice.
“Insufficient insurance coverage, particularly in a volatile industry such as crypto, will be a significant impediment to greater ‘institutionalisation’ of crypto investments.”
Regulatory uncertainty is another problem for large asset managers. While crypto currencies raise a number of concerns for regulators, including money laundering risks, few have set out clear frameworks for how cryptocurrencies should be traded, and by whom.
Insurance might allay some of the regulators’ concerns around cyber security. Hong Kong’s Securities and Futures Commission recently said it was exploring regulating crypto exchanges, and signalled that the vast majority of the virtual assets held by a regulated exchange would need insurance cover.
Keeping crypto assets secure involves storing a 64 character alphanumeric private key. If the key is lost, the assets are effectively lost too.
Assets can be stored online, in so-called hot wallets, which are convenient to trade though vulnerable to being hacked, or in ‘cold’ offline storage solutions, safe from hacks, but often inconvenient to access frequently.
Over US$800mil worth of crypto currencies were stolen in the first half of this year according to data from Autonomous NEXT, a financial research firm.
Some institutions have started working to solve this problem, and may provide fierce competition to the incumbent players.
This year, Fidelity, and a group including Japanese investment bank Nomura have launched platforms that will offer custody services for digital assets.
Despite the industry’s complaints, insurers say that they do offer cover. Risk advisor Aon, received some two dozen inquiries this year from exchanges and crypto vaults seeking insurance, according to Thomas Cain, regional director, commercial risk solutions, at Aon’s Asian financial services and professions group.
“It is not difficult to insure companies that hold large amounts of crypto assets, but given the newness of the asset class and the publicity some of the crypto breaches have received, applicants need to make an effort to distinguish themselves,” Cain said.
The industry also says it is getting closer to solving the custody problem.
“This year there have been a number of developments, and some providers have developed custody solutions suitable for institutional clients’ needs,” said Tony Gravanis, managing director investments at blockchain investment firm Kenetic Capital.
“Players at the top end of the market have also been able to get insurance,” he said.
But this is not the case for all.
One cryptocurrency broker, declining to be named because of the subject’s sensitivity, said insurers struggled to understand the new technology and its implications, and that even those who were prepared to provide insurance would only offer limited cover. “We’ve not yet found an insurer who will offer coverage of a meaningful enough size to make it worthwhile,” he said. – Reuters
PICHAI PUTS KIBOSH ON GOOGLE SEARCH ENGINE FOR CHINA
Google is not working on a bespoke search engine that caters to China’s totalitarian tastes, and it has no plans to develop one, CEO Sundar Pichai told lawmakers on Capitol Hill Tuesday.
“Right now, we have no plans to launch in China,” he told members of the U.S. House Judiciary Committee at a public hearing on Google’s data collection, use and filtering practices.
“We don’t have a search product there,” he said. “Our core mission is to provide users access to information, and getting access to information is an important human right.”
Pichai acknowledged that the company had assigned some 100 workers to develop a search engine for totalitarian countries, however.
“We explored what search would look like if it were to be launched in a country like China,” he revealed.
A report about a Google search engine for China appeared in The Intercept this summer.
The project, code-named “Dragonfly,” had been under way since the spring of 2017, according to the report, but development picked up after Pichai met with Chinese government officials about a year ago.
Special Android apps also had been developed for the Chinese market, The Intercept stated, and had been demonstrated to the Chinese government for a possible rollout this year.
“We certainly hope they abandoned those plans,” said Chris Calabrese, vice president for policy for the Center for Democracy & Technology, an individual rights advocacy group in Washington, D.C.
“We didn’t think it was a good idea to build a search engine that would censor speech in order to go into the Chinese market,” he told the E-Commerce Times.
Google may have been testing the waters with its Chinese browser, maintained Russell Newman, assistant professor for the Institute for Liberal Arts & Interdisciplinary Studies at Emerson College in Boston.
“It’s an example of a firm seeing how far down the road it can go before it receives pushback,” he told the E-Commerce Times. “It discovers a limit, then pushes that limit a little more. I’d be surprised if they wholly gave up on the search engine for China.”
Mission: Protecting Privacy
In his opening remarks to the committee, Pichai declared that protecting the privacy and security of its users was an essential part of Google’s mission.
“We have invested an enormous amount of work over the years to bring choice, transparency and control to our users. These values are built into every product we make,” he said.
“We recognize the important role of governments, including this committee, in setting rules for the development and use of technology,” Pichai added. “To that end, we support federal privacy legislation and proposed a legislative framework for privacy earlier this year.”
Pichai also addressed a burning issue for Republican members of the panel.
“I lead this company without political bias and work to ensure that our products continue to operate that way,” he said. “To do otherwise would go against our core principles and our business interests.”
‘Bias Running Amok’
Among the Republicans on the committee who raised the issue of unfairness with respect to the way Google’s search algorithm treats conservative views was Mike Johnson, R-La.
“My conservative colleagues and I are fierce advocates of limited government, and we’re also committed guardians of free speech and the free marketplace of ideas,” he told Pichai.
“We do not want to impose burdensome government regulations on your industry,” Johnson continued. “However, we do believe we have an affirmative duty to ensure that the engine that processes as much as … 90 percent of all Internet searches, is never unfairly used to unfairly censor conservative viewpoints or suppress political views.”
Political bias is running amok at Google, charged committee member Louie Gohmert, R-Texas.
“You’re so surrounded by liberality that hates conservatism, hates people that really love our Constitution and the freedoms that it’s afforded people like you, that you don’t even recognize it,” he told Pichai, who was born in India.
“It’s like a blind man not even knowing what light looks like because you’re surrounded by darkness,” Gohmert added.
Despite Republican claims of liberal bias in Google’s algorithm, “there isn’t any evidence to back that up empirically,” Calabrese said.
Committee members also were concerned about Google’s market dominance.
“I’m deeply concerned by reports of Google’s discriminatory conduct in the market for Internet search,” said David Cicilline, D-R.I.
Google has harmed competition in Europe by favoring its own products and services over rivals, and by deprioritizing or delisting its competitors’ content, he noted citing European Commission findings.
“It is important for the U.S. government to follow the lead of other countries and closely examine the market dominance of Google and Facebook, including their impact on industries such as news media,” observed David Chavern, CEO of the News Media Alliance in Arlington, Va., a trade association representing some 2,000 newspapers in the United States and Canada.
“We will continue to urge for more hearings to examine ways in which the duopoly impacts the business of journalism, which is essential to democracy and civic society,” he told the E-Commerce Times.
Prelude to Privacy Law
House and Senate hearings in recent months are just the prelude to data privacy legislation that could be introduced next year.
“We’re certainly going to see a wide variety of comprehensive privacy bills filed, and I think we’ll make some progress,” Calabrese said.
“Advocates have seen the need for privacy legislation for a long time,” he said, “and now that we have privacy legislation set to kick in in California in 2020, there’s a lot of companies who would rather be governed by a federal law than they would a bunch of different state laws.”
If a general privacy law is enacted, it shouldn’t use Europe’s General Data Protection Regulation as a model, maintained Alan McQuinn, senior policy analyst for the Information Technology and Innovation Foundation, a public policy and technology innovation organization in Washington, D.C.
“We don’t want to see the GDPR enacted here in the states,” he told the E-Commerce Times.
“It is highly likely to create a drag on the European economy and hurt innovation and businesses,” McQuinn explained.
Privacy rules should be styled to fit industries, such as healthcare, finance and commerce, he suggested.
“The sector-specific approach that the U.S. has taken toward privacy has allowed for more innovation,” McQuinn noted, “and created the powerhouse of the digital economy that we have here.”