A Terms of Service allows your business to define acceptable usage of your online space – and to ensure users don’t define it for you. In addition, here are 3 reasons a Terms of Service is a good idea for your business:
- To limit liability
- To protect your intellectual property
- To stipulate how disputes will be resolved
Let’s break each of these down some more.
1. To limit liability
Online marketplaces are inherently rife with risk because of the sheer volume of transactions that occur daily. While they do not own their inventory, they own the space (platform) in which the transaction occurs. As a result, users may try to hold marketplaces responsible for faulty goods and services sold through their platform.
For example, in 2015, Heather Oberdorf bought a retractable dog leash from a third-party seller on Amazon called Furry Gang. While walking her dog, the leash snapped backward and blinded her. She brought action against Amazon as the marketplace
But because of Amazon’s Services Business Solutions Agreement, a judge in Oberdorf v. Amazon ruled that Amazon was not responsible for the damage.
“The Amazon Marketplace serves as a sort of newspaper classified ad section, connecting potential consumers with eager sellers in an efficient, modern, streamlined manner,” the judge wrote. “It cannot be liable to the Oberdorfs under a strict products liability theory.” (via CNBC)
Online marketplaces need Terms of Service agreements to outline what they are and are not responsible for to protect them from risk.
2. To protect your intellectual property
Anything your company creates — images, logos, content, products, etc — is its intellectual property. While registering your intellectual property is the start of protecting it, including protection provisions in your online legal agreements, like Terms of Service and User Agreements, is an important part of enhancing that protection.
Intellectual property concerns include (but are not limited to) trademark abuse, copyright infringement, and unauthorized patent use. For online marketplaces specifically, since they facilitate transactional relationships between buyers and sellers, these issues may arise from a seller’s behavior.
For example, in 2013, Milo & Gabby, an online seller of animal-shaped pillows, sued Amazon for a host of intellectual property infringements. Milo & Gabby allege that a seller on the marketplace used Milo & Gabby’s pictures and likeness to sell a product that was also a knock-off of theirs. Milo & Gabby sued Amazon for abusing their intellectual property, since Amazon “fulfilled” the knock-off orders.
However, courts ruled in Amazon’s favor, because they decided that Amazon was not the actual “seller,” and therefore not actually infringing upon Milo & Gabby’s intellectual property.
Use your Terms and Conditions to define your role in the marketplace
This shows just how important it is that online marketplaces define their roles clearly in their agreement with buyers and sellers. The owners of the marketplace do not own any of the inventory, but rather facilitate the transaction between buyer and seller. Because of the volume of users on either side, it is impossible to keep track of everything happening with thousands of sellers each day.
The best place to define your role in your own marketplace is in your Terms and Conditions. Within it, you tell users on both sides of the transaction what actions are allowed, which are not, and which you as the owner of the space will be responsible for.
3. To stipulate how disputes will be resolved
In a litigious society like America, people don’t really need an excuse to sue you. To protect yourself from these negative possibilities, your online legal agreements like Terms of Service should outline how you want to resolve disputes.
Most companies (and online marketplaces) include an arbitration clause in their terms. Without this, a marketplace is at risk for class action, a ridiculously expensive endeavor that costs companies millions. Arbitration, on the other hand, is cheaper, shorter, and less formal than class action.
For example, in December 2015, Spencer Meyer sued Uber for price fixing. And while a district court ruled in favor of Meyer because of Uber’s clickwrap design, a second circuit court reversed the decision and compelled Meyer to resolve his dispute via arbitration as per Uber’s Terms of Service.
Ensure your online marketplace has a Terms of Service
There is no denying how crucial the Terms of Service are to the online marketplace. If wisely crafted, your Terms of Service can protect you from costly, time-consuming, and reputation-damaging litigation.
And while it is important for you to have all these outlined in your Terms of Service, it is even more important that your Terms of Service are enforceable in court. This means considering everything from presentation to acceptance methods and the content of the terms themselves.
To learn more about how to ensure your Terms of Service are an effective first line of defense for your online marketplace, get a tour of Ironclad’s clickwrap transaction platform.
- 1. To limit liability
- 2. To protect your intellectual property
- 3. To stipulate how disputes will be resolved
- Ensure your online marketplace has a Terms of Service
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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.