Contracting Out Liability Online

Contract clauses limiting liability are not new within California. Such clauses have long been recognized as valid; the purpose being for two mutually assenting parties to assess risk involved in the exchange and contract accordingly. These clauses have been challenged within the last decade when it comes to companies offering online web services, such as google, YouTube, twitter etc. These companies have unique business models that necessitate special considerations for their contract terms.

A liability waiver that is clear, unambiguous and explicit, bars claims falling within their scope. However, waivers can be stricken by the court if found unconscionable. Unconscionability is found if the contract term is overly harsh, unduly oppressive, or so one-sided as to shock the consciousness. Plaintiffs argue that these clauses are unconscionable for two reasons, one these companies are given broad authority to take substantial steps to remove content or material from Plaintiffs accounts AND that these clauses are never able to be altered prior to agreement by the Plaintiff.

For companies with specific business models such as YouTube or Twitter, these waivers have not been stricken. The courts have stated in Lewis v. Youtube, LLC(2015), however, that limitation provisions are particularly important when the beneficiary of the clause is involved in a high-risk, low compensation service, typically a service for free to the public. Courts will assess the company’s risk allocation when discussing its liability waiver. Such services receive little in compensation per individual user while having high risk when faced with the possibility of lawsuits from possible millions of users. With such a high risk, these waivers are required as to not force said companies to charge customers based on their risk of liability.

This theory is not absolute. Cases in which waivers were found to be enforceable involved Plaintiffs suing over their lost content and failed to offer actual damages other than removal of their accounts from the respective company’s platforms. The court in In re Yahoo! Customer Data Security Breach(2018), stated that such limits of liability were unconscionable when applied to Plaintiff’s relief under state and federal legal obligations to maintain acceptable levels of data security. In distinguishing this case, the courts have noted that Plaintiffs here, suffered actual damages, and the company was entitled to and required to maintain secure systems to protect users. The allocation of risk contracted out was deemed unconscionable.

All outcomes must be considered for drafting of company liability waiver clauses as the type of duty required by the company and harm suffered by the Plaintiff may make the clause stricken.