Overstock And Sears Lessons In Website Disclosures


Last week U.S. District Court Judge Sterling Johnson, Jr., ruled that Internet retailer Overstock cannot enforce a mandatory arbitration provision set out in its online terms and conditions. The reason – there is no evidence that consumers read or agreed to the policy.

The case initially arose from a dispute as to whether Overstock could charge a consumer a restocking fee. The consumer sued Overstock for charging her a $30 fee after she returned a vacuum cleaner. Overstock brought a motion in the district court on the grounds that the case must be dismissed because the website’s terms and conditions provided for mandatory arbitration. This provision was included in terms and conditions displayed as a link at the bottom of Overstock’s home page.

Notably, the placement of the link at the bottom of the page below the fold was not sufficient to draw the consumer’s attention to the website terms and conditions nor was any consumer action required demonstrating agreement with such terms and conditions. Specifically, the court found that the consumer “lacked notice of the terms and conditions because the website did not prompt her to review the terms and conditions and because the link to the terms and conditions was not prominently displayed.”

The Overstock ruling is a clear demonstration of a trend in the court system to require online marketers to prominently display and document consumer action to accept the terms and policies of the website if they intend to enforce the provision against consumers. Thus, it is my recommendation that each website clearly and prominently display a link to the terms and conditions as well as the privacy policy above the submit button and require submission of any order to include an acceptance of the terms and privacy policy.

This ruling is further demonstrative of the Federal Trade Commission’s recent call for clear and prominent notice to consumers when companies track for behavioral marketing. In the past, policymakers have indicated that companies that track consumers for behavioral targeting should notify people via privacy policies. But earlier this year, the FTC called for clear and prominent notice to consumers, which will likely require something more than a link to privacy policy at the bottom of a page.


The trend cited above is made clear in the FTC’S investigation of Sears. Between April 2007 and January 2008, visitors to the Kmart and Sears websites were invited to join an “online community” for which they would be paid $10 with the idea they would be helping the company learn more about their customers. To join the “My SHC Community,” users downloaded software. That software ended up pulling in consumer’s prescription information, emails, bank account data, credit card data and purchases on other sites.

The FTC filed a complaint against Sears, accusing the retailer of deceiving those who signed up for the service and downloaded the software. “(Sears) failed to disclose adequately that the software application, when installed, would: monitor nearly all of the Internet behavior that occurs on consumers’ computers, including information exchanged between consumers and websites other than those owned, operated, or affiliated with respondent, information provided in secure sessions when interacting with third-party websites, shopping carts, and online accounts, and headers of web-based email; track certain non-Internet related activities taking place on those computers; and transmit nearly all of the monitored information (excluding selected categories of filtered information) to respondent’s remote computer servers.” Once again, the required “disclosure” was buried in terms and conditions as a link at the bottom of the page.

Take a look at your websites. Make sure the disclosures are prominent, above the fold and require consumer action to agree to the terms that you can document to a court or federal agency later.

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