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Online Service Provider Liability

What's an online service provider's liability for poor service?

Successfully suing an online service provider for poor service is not easy. Poor service can come in many painful forms including failure to deliver your e-mail or make your business' web page available to the world over the Internet, or a complete inability to get online. Whatever form it takes, you're often going to find the cards stacked against you.

Let's Define Terms

Let's start by defining some terms here. So far, I've used the generic, all-encompassing term "online service provider." An "online service provider" is a company that provides your computer with information, generally over a telephone line. This term can have a very broad meaning. For the purposes of this article, I'm limiting my focus to two classes of online service providers.

One is an online service provider that gives you access to proprietary information and content that you can only get from them. Examples of this type of service are America Online (AOL) and CompuServe. In response to overwhelming consumer demand, these companies now also provide Internet access.

The other focus is the "Internet service provider" (ISP). ISPs simply give you an on ramp to the Internet. They don't generally provide any unique proprietary content of their own. They do often host personal and commercial web sites as a service to their customers. What this means is that if you want your business to be on the web, you use your ISP's computer to make your web site available to the world on the Internet. (As an aside, some ISPs are beginning to offer their subscribers premium services like stock market prices. In a world of unlimited service for $19.95 per month, they're trying to find new profit centers much like cable television companies offer premium movie channels such as HBO. This is a newly emerging trend that has yet to significantly change the generalization that ISPs don't offer proprietary content.)

What Can Go Wrong?

On the personal side, little can go wrong that's more than inconvenient. You might not get that e-mail from Aunt Matilda or you may find that you can't connect to the Internet because your service provider's telephones are always busy, but that's about it. These things are annoying, but certainly not financially devastating. Your best remedy is to take your business elsewhere.

America Online was, and to some extent still is notorious, for its unbelievably bad service. How bad was AOL? Well, AOL was so bad that a large group of state Attorney's General forced it to refund money to its customers. AOL was so bad that you couldn't even get through on their 800 number to cancel your service with them. Since you couldn't get through to them, they just kept charging your credit card month after month. Now, that's bad.

Even in this extreme case, getting your money back was the bottom line. Nobody got compensated for the hair they pulled out or Aunt Matilda's e-mail that never arrived.

On the business side, it's a whole different ball game. Terrible things can go wrong that can cause immeasurable monetary damages.

How about changing the scenario from Aunt Matilda's e-mail not arriving to an e-mail that would have closed a million-dollar deal had it arrived on time. Or how about if you have a "store" on the Internet and sell merchandise from a web site. What if your ISP fails to make your web site available on the Internet?

This is a question that simply lacks a definitive answer. There are very few court decisions on the issue of online service provider liability for deficient service. The practical answer is that most online service providers use their contract with you to limit their liability. Subject to certain exceptions (the AOL situation was an example of just such an exception), their contract, if properly written, will successfully limit your ability to hold them responsible for damages for deficient service.

I want to emphasize an essential point here. It's well beyond the scope of this column to analyze your situation or even provide you with everything that you need to know to properly analyze your situation. The generalization that I stated in the previous paragraph is just that-a generalization.

An attorney with expertise in this newly emerging area of the law will start by reviewing your contract with your service provider. If you're lucky, a lawyer did not write the contract (a "do it yourselfer") or it was simply not well-written. I've read many of these agreements and you stand a good chance of being "lucky." Few are well-written. You just shouldn't automatically assume that the contract will successfully limit a service provider's liability.

Also remember that the starting point is that the answers in this area are unclear. Depending upon the extent of your losses, you may choose to test the limits of the protection offered to you by the law.

From the service provider's perspective, a well-written contract will include strict limits on warranties and remedies. A typical warranty limitation might say that the service provider doesn't warrant that the service will always be available and that you accept the service on an "as is" basis. A typical remedy limitation might cap any damages to which you might be entitled. Often, these provisions limit you to a refund of one-month's fee.

These warranty and contract remedy disclaimers are usually upheld by courts, but there are some limits. For one, since these are typically the service provider's standard form contracts, courts will interpret any ambiguity in a way that helps the customer. Another limit is "unconscionability." A contract in "unconscionable" when it's so one-sided and unfair that the judge feels physically ill while reading it. (That's not quite a technical statement of the applicable legal standard, but I think you get the picture.) An example might be a clause which says that the service provider is not responsible for even wilful or reckless misconduct.

Know your Rights, But Have a Backup Plan

You should read a perspective service provider's contract before you give them your business. Some are "better written" than others. Of course, "better written" in this context means "more one-sided against you." However, don't just assume that you have no remedy if something goes wrong with your online service. If you lose important e-mails or your web page is rarely up and running, you should seek the counsel of an attorney. You may just have a way to recover the money that you've lost.

If online or Internet related services, like e-mail, are essential to your business, you should have emergency plans ready to go. For example, you might consider a second e-mail account with a second company. If your e-mail service goes down, you could send an e-mail to everybody in your e-mail address book informing them of the problem and offering them a temporary e-mail address. This is a better solution than a long bitter litigation over who's responsible for the lost deal.

Remember, the online service provider industry is in its infancy. Service quality rarely matches what you're used to from the telephone company. Until the online industry matures, the way to go is to have backup plans in place and ready to implement on a moment's notice remain.

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