Does My Business Website Need a "Terms of Service"?

The Internet provides a wonderful mechanism for New York businesses to interact with their customers, vendors, and other interested parties. But businesses must also tread carefully, as the Internet is not an unregulated or lawless domain. If your business uses a website to solicit feedback or potential customers, it is important to establish ground rules for anyone who visits your page. That is why many companies publish a “terms of service” on their website; it can help protect against potential civil litigation.

Appeals Court Finds Long Island Man's Lawsuit Not So “Gr-r-reat”

A recent New York case offers a useful example. Kellogg Co., the well-known Michigan-based cereal manufacturer,launched a website called “Gr-r-reat Ideas” several years ago to “solicit ideas from external vendors and suppliers, as well as consumers.” Basically, anyone could submit an idea for a new product or technique to Kellogg through this website and the company promised to respond within six to eight weeks.

According to the terms of service posted on the website, Kellogg said it was “not obligated in any way to pay for a submitted innovation.” But if the company accepted an idea, and it was not already under copyright or patent protection, then the person submitting the proposal could receive up to $5,000 at the “sole discretion” of Kellogg. The terms of service further stated it was a “legally binding agreement for the submission of ideas.”

In 2008, aLong Island man submitted an idea through the Kellogg website for a line of “flavored cereal milk breakfast drinks” based on Kellogg's popular “Froot Loops” cereal. His submission included proposed packaging designs. The man said he received a response about a month later stating Kellogg was not interested in the idea “at this time.”

But in 2013, Kellogg did launch a line of “breakfast shakes,” which the man claimed had a “striking similarity” to the flavored breakfast drinks he proposed five years earlier. He contacted Kellogg, but the company denied their product was based on his idea. Kellogg added that by submitting his proposal through the website, and agreeing to the terms of service, the man “had acknowledged a waiver of rights to Kellogg’s to use his concept anyway.”

The man responded by filing a lawsuit in Brooklyn federal court, alleging breach of implied contract and “unjust enrichment.” The court dismissed the lawsuit. On appeal, the U.S.Second Circuit Court of Appeals agreed with Kellogg and the trial court that the man had no case. The appeals court noted the man acknowledged the website's terms of service “were considered a legally binding agreement for the submission of ideas.” His only counter-argument was that the “terms of service” presented to the trial judge was not exactly the same as the version originally published on the website. The Second Circuit said that was irrelevant here, as the man alleged breach of “implied” contract where there was, in fact, an express agreement governing the parties' relationship.

Need Help With a Business Matter?

This case illustrates how even a seemingly minor thing like a website's terms of service can affect business litigation. If you need advice on any type of contract or related matter from a qualified New York business attorney, contact the offices of Nisar & Mason, P.C. today.