How Not to Do Website Terms of Use

Client: Hi Paul, we need website terms of use and a privacy policy. We want to save money, so we’ve copied the terms of use and privacy policy for XYZ company, which has a similar product. Please review it for us so we can post it when we launch next week.

Me: [facepalm repeatedly]

This is the classic and all-too-common scenario, and it’s completely the wrong way for a startup to do their website terms of use and privacy policy. First, it’s blatant copyright infringement. Just swapping out your company name for their company name isn’t exactly going to fool anyone.

Second, just because XYZ has a similar product, or operates in roughly the same space, doesn’t mean that they operate exactly how you operate in every single respect. Nor does it mean that their policies and practices will suit your tastes. So unless you plan on copying all of XYZ’s internal policies and practices and operating procedures, much of what is in that terms of use and privacy policy simply won’t be an accurate reflection of your company.

Third, who’s to say that the terms of use or privacy policy that you copied from someone else’s website is any good? It could be a hot mess. They could have copied their terms of use from some company that’s completely unrelated in every way.

As the CEO of a startup, your job is much bigger than just writing software code. You have to run the company. That means putting the time into things like what will go into your terms of use, and developing information collection and handling practices that are accurately reflected in your privacy policy. You have to be intentional about this. When you just send me a terms of use that you copied from someone else, I’m going to push back, and ask you to describe your business model and practices. If you can’t do that, it tells me you haven’t put the time into it yet.

This is an important process, and you cut corners at your risk, and the risk of your investors. Terms of use, if done right, form a binding contract between your company and its customers, a contract that favors you and puts your company in a strong position. Done poorly, and you’re litigating with a customer in a court in Fairbanks, Alaska in February. Privacy policies are increasingly important as states like California, with 38 million residents, pass more and more restrictions on how you can collect and use customer data. You don’t just face the risk of class-action lawsuits, you also have to worry about FTC investigations and fines. Spending your time and money to do things right from the start will save you money, time, and headaches down the road.


New California Law Requires Disclosure When Using A Chatbot

Beginning on July 1, 2019, a new California law will require websites that use chatbots to clearly disclose that it is a bot communicating online, and not a person.

The use of online chatting with ecommerce and other types of websites is becoming more widespread on a daily basis. Online chat tools allow potential customers to ask questions about products and services and get answers on a real-time basis. These tools also enable companies to address service and support issues on a real-time basis. I’ve used these tools to get help from wide spectrum of websites, ranging from the Delaware Secretary of State, when I needed guidance on a corporate filing on behalf of a client, to Goulet Pens, when I dropped an expensive fountain pen and needed guidance on a replacement nib.

The new California law makes it “unlawful for any person to use a bot to communicate or interact with another person in California online, with the intent to mislead the person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase or sale of goods or services in a commercial transaction or to influence a vote in an election.”

However, there’s no liability if the person using the bot discloses that it is, in fact, a bot. The disclosure must be “clear, conspicuous, and reasonably designed” to inform persons that they are communicating with a bot. While the law doesn’t provide any more specific information on how a disclosure can comply with that standard, we can look to some general principles and Federal Trade Commission (FTC) guidelines that have evolved over the past few years. For example:

  1. Placement and prominence of the disclosure
  2. How close the disclosure is to the related claim
  3. Whether the disclosure can be avoided
  4. Whether other parts of the advertisement distract from the disclosure
  5. Whether the language is understandable


Considering that more than 39 million people live in California, it is highly likely that some California resident is using your website, no matter where your company is based, and no matter whether you sell to businesses or consumers. Consequently, we strongly recommend that all companies that sell goods or services and that use online chat tools comply with the California law. As mentioned at the top, this law goes into effect on July 1, 2019.

Celebrity Endorsements and Social Media

If you follow any celebrities or sports stars on social media, you may have seen one of them endorsing or promoting a product. Just the other day, Katy Perry posted a photo of herself on Instagram, wearing a Prada outfit with the hashtag “#Prada.”

The fact that I follow Katy on Instagram may shock you, but here’s something even more shocking: did you know that Federal Trade Commission rules require celebrities and influencers to disclose their relationships with brands on social media? You may not be the only one to just learn that. The FTC recently sent out more than 90 letters to various celebrities, athletes, and other social media influencers, reminding them of their obligation to clearly disclose their relationships to brands when promoting or endorsing products on social media. When I look at that picture posted by Katy, I wonder whether Prada paid her to promote their products? Or did they give her the outfit for free? Is she just posting in Prada spontaneously? You can’t tell from her post.

The FTC has endorsement guidelines that apply to these situations. If there is a “material connection” between an endorser and an advertiser, they have to clearly and conspicuously disclose that connection, unless it is already clear from the context. A material connection is a connection that might affect the credibility that consumers give the endorsement. It can be a business or family relationship, a monetary payment, or a gift of free product. These guidelines don’t just apply to the celebrities like Katy Perry or Donald Trump; they also apply to the marketers like Prada. So if Katy wore that Prada outfit just because she loves how she looks and feels in Prada (and who doesn’t?), that’s one thing. But if Prada pays her to wear their outfits and post pictures on Instagram, then it’s not quite as compelling an endorsement. The same applies if Donald Trump tweets about how wonderful Ivanka’s fashion line is. She’s his daughter, so there’s a material connection that affects the amount of credibility we give to Trump’s tweet. On the other hand, in the specific case of Donald and Ivanka Trump, the family relationship is well known, so there may not be a need for an explicit disclosure.

In the letters, the FTC noted that in the case of Instagram posts, consumers may only see the first three lines of longer posts, unless they click the “more” button. According to the FTC, when making endorsements on Instagram, celebrities should disclose the material connection about the “more” button. The same general concept applies to other social media – Facebook, Snapchat, Twitter, etc.

It is common in these posts to provide multiple hashtags, generally at the end of a post. Putting a disclosure in such a location is not conspicuous enough. Also, some techniques influencers may use to disclose material connections may not be sufficient. For example, the FTC noted that consumers may not understand disclosures such as “#sp” or “Thanks [brand name].”

Consequently, brands and marketers should develop an “influencer policy” that provides guidelines to the various celebrities and other influencers that endorse their products on social media. The brands should try to agree in advance as to the disclosure that the influencer will make, rather than leave it up to the influencer’s discretion. Using a hashtag such as #ad or #advertisement is appropriate in cases where the brand has had input in the content. A hashtag such as #sponsor (rather than #sp) is appropriate in other cases. Also, the policy should require that disclosures be made at the top of a post, and be separate from long hashtag strings.

By taking a more proactive approach to how celebrities and influencers endorse products on social media, brands can minimize their liability for misleading endorsements. Are you paying attention, Katy?

Internet Sellers Take Note: The Mail Order Rule Isn’t Just for Mail

laptopAre you familiar with the “Mail Order Rule?” The rule, put out by the Federal Trade Commission (or FTC) way back in 1975, basically prohibits mail-order sellers from soliciting orders unless they reasonably expect that they can ship the merchandise within the time stated in the solicitation or, if no time is stated, within 30 days.

But wait, there’s more!

The rule also requires a seller to seek the buyer’s consent to a delayed shipment when the seller learns that it cannot ship within the time stated or, if no time was stated, within 30 days. If the buyer doesn’t consent to delayed shipment, the seller must promptly refund all money paid for the unshipped merchandise. There are specific requirements in the rule as to how the refunds must be made and when.

But wait, there’s more!

The FTC recently updated the Mail Order Rule with some important changes. The Mail Order Rule is now the “Mail, Internet, or Telephone Order Merchandise Rule,” because really, who orders anything by mail anymore? And never let it be said that the government is slow to recognize or adapt to change, like, for example, the internet.

The FTC made 4 key changes to the rule:

  • First, the FTC changed the name of the rule to clarify that the Rule also applies to orders over the Internet, including merchandise ordered using shopping apps, in addition to orders by phone or mail. The Rule also covers merchandise orders placed over the Internet even when the buyer is in the seller’s store at the time of placing the order. For example, if you go into a clothing store, and find a shirt you like, and then use your smartphone to place the order because you can’t find a salesperson anywhere within 100 miles, that order is covered.
  • Second, the new and improved rule gives sellers the flexibility to use methods other than first class mail to deliver refunds and refund notices, as long as those methods are at least as fast and reliable as first class mail. These other methods may include e-mail (for notices), and electronic transfers and private couriers (i.e. Fed Ex).
  • Third, the old rule described sellers’ refund obligations when buyers paid by certain enumerated methods, such as cash, check, money order, or credit. It did not provide similar obligations when buyers paid with any other method not listed in the rule, such as debit cards, payroll cards or gift cards. The new rule clarifies sellers’ obligations for orders using those non-enumerated payment methods: (1) sellers can provide refunds in the form of cash, check or money order, or (2) sellers can provide refunds using the same method that the buyer used. When a buyer uses a non-enumerated payment method, sellers must provide refunds within 7 working days after a buyer’s right to a refund vests.
  • Fourth, the amendments address the timing of refunds for third-party credit transactions (for example, Visa or MasterCard), which sellers often can’t distinguish from non-enumerated methods like debit cards, payroll cards, and gift cards. The old rule allowed sellers one billing cycle in which to provide a refund for third-party credit transactions. Under the new rule, sellers must provide refunds within the same 7 working day period that would apply to non-enumerated payment methods. However, if the seller is also the creditor (such as merchants using their own store charge cards), the refund deadline is still one billing cycle.

The new rule will take effect December 8, 2014, so this is a good time for anyone selling merchandise by phone, mail, or e-commerce to review their policies on delayed shipments and refunds.

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