If you're like most small ecommerce businesses, you'll need to amend your Customer Agreement from time to time. You might want to add a new membership option... or add a clause for a money-back guarantee, just to name a couple of examples.

Note that your Customer Agreement may go by any one of several names -- such as SaaS Agreement, Membership Agreement, Subscription Agreement, Terms of Sale, Content License Agreement, etc.

Will your amendments be effective? That's the question you should ask. If the new provisions are worth adding, it's worth it to make sure that they're legally enforceable.

Up to now, the solution adopted industry-wide was to be sure that the original agreement had a clause that goes something like this:

"We may amend these contract terms at any time; your continued use of this site indicates your acceptance of these modified terms." It's been generally believed that

a clause like this is probably legally effective... that is, until the case of Douglas v. Talk America, No. 06-75424 (9th Cir. July 18, 2007).

Douglas v. Talk America

Talk America needed to make typical amendments to its online agreement which included additional charges, a clause that required arbitration of disputes instead of litigation, and a change of controlling state law. The plaintiff filed a class action against Talk America claiming that the amendments were not enforceable due to lack of notice.

Talk America sought to dismiss the class action suit by compelling arbitration, but the 9th Circuit stated that it would be a "fundamental misapplication of contract law" to hold that the plaintiff was bound by the revised contract terms when he was not notified of the revisions.

In the Douglas case, the 9th Circuit ruled that contract revisions are not enforceable where the only notice is merely posting the revised contract online. With this ruling, the 9th Circuit became the first federal appellate court to rule on the enforceability of these types of contract provisions. This ruling has the effect of shifting a significant burden in terms of contract management to you. And it's a major pitfall to avoid.

The Court reasoned that the plaintiff could have known of the new contract terms only after visiting Talk America's website, but that even if he had visited the website, he would have had no reason to look for revisions to contract terms.

In its opinion, the Court stated: "[p]arties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side." The court went even further stating that if "continued use of Talk America's service could be considered assent, such assent can only be inferred after proper notice of the proposed changes."

How To Provide Notice?

The 9th Circuit did not provide a discussion of how notice is to be provided. At this time, online notices sent by email or by posting in the user's account would seem to be sufficient if the online agreement provides for these types of notice for the purpose of amendment of online agreements. Of course, offline notices sent by old fashioned, "snail mail" should also suffice, but that's a very expensive alternative.

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