Can a Company Add an Arbitration Clause to an Existing Contract that is Retro-Active?

Arbitration Mediation

For ongoing service agreements — which range from credit card, internet advertising, and even nursing home admissions — often there is a clause which permits one side to “update” its service terms and, in order to effect fairness, the other party may cancel the service in lieu of accepting the “updated” changes.  I discussed the methods of “updating” via browsewrap and clickwrap methods in this article.  Can a company update its service terms to include an arbitration clause which applies retro-actively to any dispute, even if it arose before the update?

While there any any number of ways, the case of Adtrader, Inc. v. Google LLC illustrates how the largest internet search engine company sought to make those changes.  The underlying dispute in this case over refunds for ads is immaterial to our discussion.  How Google updates its contracts, however, is important.

In Google’s 2013 AdWords Agreement, term 11 said that Google may update the terms and but that the terms will not apply retroactively.  That provision looked like this:

11 Term. Google may add to, delete from or modify these Terms at any time without liability. The modified Terms will be posted Customer should look at these Terms regularly. The changes to the Terms will not apply retroactively andwill become effective 7 days after posting. However, changes specific to new functionality or changes made for legal reasons will beeffective immediately upon notice. Either party may terminate these Terms at any time with notice to the other party, but (i) campaignsnot cancelled under Section 4 and new campaigns may be run and reserved and (ii) continued Program Use is, in each case subject toGoogle’s then standard terms and conditions for the Program available at Google may suspend Customer’sability to participate in the Programs at any time. In all cases, the running of any Customer campaigns after termination is in Google’ssole discretion.

Four years later, Google released its 2017 AdWords Agreement.  This updated the dispute resolution provision AND, contrary to the 2013 revision, made the changes to the arbitration provision retroactive.

Here is Google’s ADR / arbitration language as well as their retro-application language:

13 Dispute Resolution Agreement.
A. Arbitration of disputes. Google, Customer, and Advertiser agree to arbitrate all disputes and claims between Google and Customer orbetween Google and Advertiser that arise out of or relate in any way to the Programs or these Terms. This agreement to arbitrate(“Dispute Resolution Agreement” or “Section 13”) is intended to be broadly interpreted and includes, for example:
1. claims brought under any legal theory;
2. claims that arose before Customer or Advertiser first accepted any version of these Terms containing an arbitration provision;

The critical issue whether these “updates” are permissible lie, at least in part, (a) in the original contract language and (b) whether the client on the other end of the deal has reasonable notice and options/due process.

As for notice, there was a Wall Street Journal article published about the change and Google posted a blog artilce on “Inside AdWords” blog, put a red-alert bar notice at the top of the users’ account, and sent an email.  Moreover, a client could continue to use AdWords but opt out of the new ADR provision without affecting service.

Here is Google’s opt-out provision:

Please read these Terms carefully. They require the use of binding individual arbitration to resolve disputes rather than jury trials or classactions. If Customer wishes, Customer may opt out of the requirement to arbitrate disputes by following the instructions inSection 13(F) below within 30 days of the first acceptance date of any version of these Terms containing an arbitration provision.
30day opt out period. Customer (both for itself and for any Advertiser that Customer represents)and Advertiser have the right to optout of this Dispute Resolution Agreement. A Customer or Advertiser who does not wish to be bound by this Dispute Resolution Agreement (including its waiver of class and representative claims) must notify Google as set forth below within 30 days of the first acceptance date of any version of these Terms containing an arbitration provision (unless a longer period is required by applicable law).Customer’s or Advertiser’s notice to Google under  this subsection must be submitted via webform available An opt-out notice does not revoke or otherwise affect any previous arbitration agreement between Customer and Google or between Advertiser and Google.

Back in the AdTrader case, the court held that the underlying plaintiffs did not have legal grounds to restrain Google from using these agreement updates.

Take-away message: compare your client’s (or company’s) terms of service, update terms, method of notification, and consider whether retro-active arbitration is valid in your jurisdiction.  Consult a lawyer competent in arbitration enforcement and contract issues; ask your prospective lawyer if they have handled contract updates via browsewrap and click wrap agreements — if the lawyer doesn’t know these terms or has no experience, keep looking.

Image Credit: Creative Commons



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