Marketplace Trends

Avoiding the Pitfalls of Poor Online Marketplace Terms Management

Pitfalls of Poor Terms

Your online marketplace is only as good as its linchpin: its terms. In order to take advantage of market momentum and do business at scale, you need to avoid the pitfalls of poor terms management.

The primary purpose of legal departments across business ecosystems is to protect the business. Their roles are especially crucial in online marketplaces that have millions of users and complete as many transactions in a day - the higher the volume, the greater the risk profile. This means that the online terms of service presented to users are the most important contracts in your entire business.

Download: How Online Terms Can Make or Break Your Marketplace App

Class Action and the Arbitration Clause

Part of this job means protecting marketplaces from expensive lawsuits, especially class actions, which can cost the business millions in fees and work hours. Class actions are a drain on the resources of any business and can also chip away at the reputation that took years to build. In order to prevent that, lawyers often include arbitration provisions within the online terms. Arbitration protects against class action suits, saving both money and time.

In 2019, 75% of clickwrap cases featured companies trying to enforce their arbitration clause in court. The enforceability of the arbitration provision, of course, depends on the enforceability of the online agreement itself, which isn’t determined (only) by the content of the contract, but also by the design of the screen and records of terms of acceptance maintained.

Related: PactSafe's 2020 Report on Clickwrap Litigation Trends

For example, Public Storage was not able to enforce their arbitration clause in court because the records they maintained weren’t enough to prove that a particular person (here, the plaintiff) affirmatively agreed to Public Storage’s online terms. Also, there were numerous times when Uber failed to enforce arbitration based on the design of their screen. These companies did not follow the best practices of online agreement, and it shows in their rulings.

When Lawsuits Come Home to Roost: Preparing for Court

Litigation is expensive and these companies face potentially paying millions in overall costs. Preparing for court is a monstrous feat that costs both time and money in significant amount. In addition to court fees, outside counsel with high hourly rates, key personnel (you) will have to spend hours preparing testimonies for the affidavits and declarations your Legal team will use as evidence.

Related: How to Design and Present Enforceable Terms in Your Marketplace App

Additionally, successful affidavits give tremendous detail about the acceptance system - the sign up process, user flow, presentation of agreements, and ways you validate/authenticate acceptance data. These can total up to 50 pages and cost a lot of money to prepare.

This is also in addition to the e-discovery process that Legal and the entire business will have to go through to find the necessary records that validate your business’ position.

Managing Terms at Scale

This is what makes terms management crucial. It’s not just presenting the terms on the screen (though that is important), but it is also keeping detailed records and having the opportunity to pull those records at intervals. 

Version control is another important part of managing terms at scale. Successful terms management means being able to keep immaculate records of who signed your terms, when, and what version was live at the time of signing. This is especially crucial if you expand purchasing points to multiple sites, re-sellers, other vendors, and even new markets.

Download: Why You Need a Third-Party Vendor for Your Online Terms

It’s possible to design an entire system that makes collaborators out of Technical and Legal teams; together they can address the issues of design and enforceability. 

As your marketplace continues to do more business and increase transaction volume, it becomes increasingly necessary to build compliance into the user experience and seek out third party solutions that can help bridge the gap between the two teams. 

To read more about how to make online terms your competitive advantage, read our eBook, How Online Terms Can Make or Break Marketplace Apps.

Download the "How Online Terms Make or Break Apps" eBook

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