• by Wendy Davis  @wendyndavis, September 14, 2009

A federal judge has ruled that Internet retailer Overstock can't enforce the manadatory arbitration agreement set out in its online terms and conditions because there is no evidence that consumers read the policy.

The ruling, issued last week by U.S. District Court Judge Sterling Johnson, Jr., gew out of a dispute about a restocking fee between customer Cynthia Hines and the online retailer. Hines sued Overstock for charging her a $30 fee after she returned a vacuum cleaner. Overstock countered that the case should not be in court because the site's terms and conditions provided for mandatory arbitration. A link at the bottom of Overstock's home page took visitors to a page that spelled out those terms.

But Johnson found that the "browsewrap" agreement did not adequately notify Hines about the provision. Hines "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," he wrote.

Seattle cyberlaw expert Venkat Balasubramani said that the decision shows that courts are skeptical about whether consumers click on and then read online provisions. "If you can't show that the consumer read the agreement, then the consumer's not going to be bound by it," he said. Nonetheless, he added, many companies assume that browsewraps are enforceable.

While the specifics of the case dealt with an arbitration clause, some lawyers say that the same principles could also apply when sites notify people about any significant matters -- including behavioral targeting policies.

"When courts think something is so important that a consumer might not have purchased if the details of the deal were more visible, they will impose a higher bar to ensure users are informed," Jules Polonetsky, co-chair and director of the think tank Future of Privacy Forum, said in an email to Online Media Daily.

Polonetsky adds that the Overstock ruling is "in sync with thinking at the FTC and on the Hill, where increasingly the view is that behavioral advertising matters enough to users that sites need to be truly up front about it."

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 recently called for clear and prominent notice to consumers, which might require something beyond a link to privacy policy.