Startup legal issues: Terms of Service amendments

Many websites have Terms of Service that say something to the effect of "We reserve the right to amend this Agreement at any time and without notice." I would argue this kind of language is dangerous and may cause your Terms of Service to be entirely invalid. Why? Because a Terms of Service agreement is basically a contract, and a contract where one party can arbitrarily change the terms of the contract may be considered illusory.

In the Harris v. Blockbuster case earlier this year, the Terms of Service were found to illusory because Blockbuster could arbitrarily change the terms and they would take effect upon posting. To quote from the decision:

The Court concludes that the Blockbuster arbitration provision is illusory for the same reasons as that in Morrison. Here, as in Morrison, there is nothing in the Terms and Conditions that prevents Blockbuster from unilaterally changing any part of the contract other than providing that such changes will not take effect until posted on the website. There are likewise no “Halliburton type savings clauses,” as there is “nothing to suggest that once published the amendment would be inapplicable to disputes arising, or arising out of events occurring, before such publication.” The Fifth Circuit in Morrison noted the lack of an “express exemption” of the ability to unilaterally modify all rules, which the Blockbuster agreement also does not contain. The Blockbuster contract only states that modifications “will be effective immediately upon posting,” and the natural reading of that clause does not limit application of the modifications to earlier disputes.

There seems to be no fail-proof way to avoid this. As a reasonable best practice, consider using an approach similar the following:

1. Give a reasonable time period after you post the change to the Terms of Service before they take effect (such as one week).
2. Keep a history of changes at the bottom of the Terms of Service which summarizes the change (it's unreasonable if the user needs to reread the entire Terms of Service to spot the change).
3. In addition to posting it on the website, email users (if you have their email address) and provide an RSS feed so users can opt-in to see changes (without having to provide their email address).

Hat tip to Eric Goldman

Startup legal issues: DMCA safe harbor exemption

The Digital Millenium Copyright Act has a safe harbor provision for service providers for copyright infringement (see 17 USC 512). These safe harbor exemptions are very important for companies which archive information (e.g., Google) and utilize user-generated content (e.g., YouTube and Yelp). The service provider is not directly liable if they meet *all* of the conditions for exemption. If a service provider fails to meet any of the conditions, then the safe harbor exemption does not apply, end of story.

Many people seem to know the general conditions for exemption outlined in Section 512(c). A service provider shall not be liable ... if the service provider:
(A)
(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;
(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or
(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;
(B) does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity; and
(C) upon notification of claimed infringement as described in paragraph (3), responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.

However, a lesser known one seems to be the requirement to file an Interim Designation of Agent to Receive Notification of Claimed Infringement with the Register of Copyrights.

Section 512(c)(2) is very clear on this:
(2) Designated agent.— The limitations on liability established in this subsection apply to a service provider only if the service provider has designated an agent to receive notifications of claimed infringement described in paragraph (3), by making available through its service, including on its website in a location accessible to the public, and by providing to the Copyright Office, substantially the following information:
(A) the name, address, phone number, and electronic mail address of the agent.
(B) other contact information which the Register of Copyrights may deem appropriate.

Side note: There is some debate if service providers are exempt from any liability (direct, contributory, or vicarious liability) for copyright infringement, or if they are only exempt from direct liability.

Hat tip to Eric Goldman