Website Terms of Use May Risk Liability Under California Law

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Latham & Watkins

Complex Commercial Litigation Practice February 23, 2024 | Number

3223

Website Terms of Use May Risk Liability Under California Law

Companies selling or leasing consumer goods or services should be alert to a recent rash

of lawsuits targeting terms of service provisions.

A recent spate of class action lawsuits brought under California Civil Code section 1670.8 raises the

specter of liability for companies whose online terms of use include provisions that plaintiffs allege limit

consumer reviews. Although section 1670.8 is not new legislation, it has been seldom litigated since

going into effect on January 1, 2015. However, several putative classes of plaintiffs have recently taken

aim at so-called “non-disparagement” provisions in the terms of use of retailers’ websites, highlighting a

potential concern for any business whose terms of use contain such provisions.

How Does Section 1670.8 Impact Website Operators?

Broadly, the statute protects California consumers’ rights and ability to leave consumer reviews, whether

negative or positive. The relevant provisions of section 1670.8(a) state:

(1) A contract or proposed contract for the sale or lease of consumer goods or services may not

include a provision waiving the consumer’s right to make any statement regarding the seller or lessor

or its employees or agents, or concerning the goods or services.

(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section,

or to otherwise penalize a consumer for making any statement protected under this section.

Section 1670.8 provides a carve-out allowing for a company hosting online consumer reviews to remove

a review “that is otherwise lawful to remove.”

For instance, a hosting service would presumably be within

its right to remove a review that contained copyright-infringing content.

According to the statute’s legislative history, the purpose of section 1670.8(a)(1) is to “make clear that

non-disparagement clauses, which are provisions seeking to prevent individuals from making critical

statements about a business, are unlawful in specified consumer contracts.”

The legislation was inspired

by the well-reported story of a couple who purchased a product from a website, left negative comments

on a different consumer review website, and then were assessed a penalty of $3,500 by the online

retailer for breaching a non-disparagement clause in its terms of use policy.

Yet courts have had little opportunity to analyze the meaning and effect of section 1670.8. At least one

court found that the statute does not apply when the plaintiff “has not alleged that [the defendant] sold or

leased him a good or service.”

Consequently, the court noted the law does not apply to “free-to-use

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online services.”

Still, this limitation leaves a large number of website operators potentially subject to the

statute, since many websites sell consumer goods or services online.

Meaning and Effect Unsettled

Since November 2023, nearly 20 putative class actions attacking alleged non-disparagement provisions

under section 1670.8 have been filed. The instant rash of lawsuits are reminiscent of a wave of lawsuits

brought some years back under the New Jersey Truth in Consumer Contract and Warranty Act (TCCWNA),

a statute that addresses, restrictive provisions in consumer contracts. In relevant part, the TCCWNA

prohibits a seller from offering or entering consumer contracts that contain any term that violates a “clearly

established” New Jersey or federal law.

The New Jersey Supreme Court ultimately derailed many would-

be claims by ruling that consumers could only maintain a lawsuit under the statute if they alleged actual

harm from a purportedly unlawful provision in a contract or notice.

At this juncture, how California courts will enforce section 1670.8 is largely unsettled, leaving open the

potential for liability. It is possible that, as in New Jersey, courts will impose standing requirements, as the

statute could be read to limit standing to consumers who have entered or been proposed to enter violative

contracts, and potentially, to those against whom enforcement has been sought. However, the statute

also provides for civil penalties not to exceed $2,500 for the first violation, $5,000 for the second and any

subsequent violation, and up to $10,000 per willful violation. Some plaintiffs have argued that a violation

occurs each time a consumer bound by a website’s terms of use, including an alleged non-disparagement

provision, accesses that website, regardless of whether the website owner attempts to enforce that

provision.

The statute also explicitly states that civil penalties are not the exclusive remedy for violations,

which allows plaintiffs to seek other remedies.

What Can Website Operators Do?

While plaintiffs’ interpretations of section 1670.8 appear dubious, until California courts provide clarity,

companies selling or leasing consumer goods or services should monitor these cases and consider

reviewing their online service’s terms of use to assess any potential risk. Particular care should be taken

around terms of use with provisions that could be construed as restricting consumers’ right to speak

about the company or the goods and services offered through the applicable online service.

If you have questions about this Client Alert, please contact one of the authors listed below or the Latham

lawyer with whom you normally consult:

Ghaith Mahmood

ghaith.mahmood@lw.com

+1.213.891.8375

Los Angeles

Nima H. Mohebbi

nima.mohebbi@lw.com

+1.213.891.7482

Los Angeles / Century City

Jessica Stebbins Bina

jessica.stebbinsbin[email protected]om

+1.424.653.5525

Century City

Dixon Carvalho Anderson

dixon.carvalhoanderson@lw.com

+1.424.653.5674

Century City

Greg Swartz

greg.swart[email protected]m

+1.213.891.8652

Los Angeles

Sachin K. Gupta

Knowledge Management Lawyer

sachin.gupt[email protected]om

+1.212.418.7841

New York

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