Earlier this month it was widely reported that a Grandville-based online company called KlearGear had charged a Utah customer a penalty of $3,500 for posting a bad review of the company online.
The company had contacted Jen Palmer, the disgruntled customer, threatening her with the fine – which it said was part of a disparagement clause included in the company’s terms and conditions – if she did not remove her negative review from the website ripoffreport.com.
To remove the negative review from the site would have cost Palmer a couple of thousand dollars, so the review was not removed. Meanwhile, KlearGear reported Palmer to consumer credit-reporting agencies, effectively damaging her credit.
The incident left many scratching their heads and asking, “That can’t be legal, can it?”
According to Stephen MacGuidwin, an attorney at Varnum Law, that particular case may or may not be legal, but in general a disparagement clause with a monetary penalty could, in fact, hold up in court.
He said one thing a court would look at is if the consumer knew or should have known about the clause and whether or not the penalty was reasonable.
“For instance, in this Grandville case, a judge would probably take a look at this $3,000 penalty and say is that a reasonable estimate of the damage that would accrue to this website?”
MacGuidwin said there are many things that can be found in terms and conditions or terms of service agreements that consumers might be surprised to find they’ve agreed to.
“From a legal perspective, the only guideposts that we have are statutes and other laws that say that you can’t do certain things, but beyond those certain things, you can pretty much do whatever you want,” MacGuidwin said.
“One of the big legal issues that the Supreme Court took up a couple of years ago dealt with arbitration clauses and with what we call ‘class action waivers.’ What some of these companies will do now is they will put in their terms of service that you waive the right to file a class action if anything happens with the product or service,” which greatly weakens a person’s opportunity for restitution from a faulty product.
MacGuidwin said arbitration clauses also have inhibited consumers from filing lawsuits against companies.
“They can put terms and conditions in there that you agree to arbitration in California or in Washington, and courts are dealing with whether those provisions are enforceable. For the most part, they are saying that those provisions are enforceable.”
Consumers also might be surprised to learn what kind of information they are allowing companies to collect and use about them.
“I think people were surprised a year or so ago – Apple users didn’t know or weren’t aware that Apple was collecting information about their GPS locations,” he said.
“People might be surprised to know that certain location information is collected by a cell phone and used in marketing and promotions.”
One of the biggest factors in deciding if a provision in a company’s terms of service is enforceable is whether the consumer knew about or should have reasonably known about the clause.
“Certain websites, for example, will make you click on something to say, ‘I agree with this website’s terms and conditions,’ ” MacGuidwin said.
In the past it was more common for a website to simply include its terms and conditions somewhere on its website, but that is becoming less common.
“It all comes down to the fundamental question of did the person have notice of what was in the terms of service?” he said. “It used to be that it was enough to just put it down at the bottom of your web-site, and then some courts said, ‘No, that is not enough.’
“So now most websites are shifting to actually have you physically click to say, ‘I agree to this,’ because in the eyes of the court, that way there is more proof that you actually took the time to click on it and you knew what was in the agreement, or you had more of a chance to review what was in the terms and conditions.”
The best thing a consumer can do, according to MacGuidwin, is to read the terms of service and know what they are agreeing to before clicking, and businesses should make sure they are providing good notice to consumers about their terms of service.
“Make sure that they are fairly prominent and this interactivity is fairly important,” he said.
MacGuidwin said while he is seeing European countries pass more laws related to consumer privacy regulations, he has not seen the same thing happen in the United States.
He expects that discussion will grow, however, as people become more concerned with what is going into companies’ terms and conditions.
Grand Rapids Business Journal