ARTICLE
21 January 2025

Read The Contract Before You Sign

LP
Ladas & Parry

Contributor

As an enterprise grows, its need for intellectual property (IP) protection expands. Ladas & Parry represents owners of IP rights at every stage of development, both domestically and internationally. Our firm has served a wide range of clients for decades, from managing high profile, global IP portfolios to helping start-ups, entrepreneurs and SME companies, bringing a deep understanding of local legal nuances in order to achieve maximum benefits for our clients. With our depth of experience, we are able to anticipate pitfalls that might not be apparent without our highly specialized knowledge developed over the more than 100 years since our founding. Our firm’s business-friendly approach supports our clients’ objectives, within their budgetary requirements, while protecting their most valuable IP assets worldwide.

In three court decisions in the past several months one can argue "read the contract before you sign" – and understand the law that applies – affected results.
United States Corporate/Commercial Law

In three court decisions in the past several months one can argue "read the contract before you sign" – and understand the law that applies – affected results. In one, a court needed to decide which of two contracts, controlled. In the second, the party seeking to enforce the contract was unable to do so – because they wrote it so the provision on which they relied was unenforceable. In the third, an amendment so that the contract was enforceable, even decades later. Courts typically enforce contracts as written and agreed to by two parties. "Do-overs" are disfavored. A fourth decision dealt with inadequate evidence of consumer "clickwrap" Terms and Conditions -- a failure to prove a particular contract was read and signed by a particular consumer.

1. Coinbase, Inc. v. Suski, 144 S. Ct. 1186 (2024)

Coinbase v. Suski involved two contracts and the dispute was about which of two contracts controlled. "The first contained an arbitration provision with a delegation clause; per that provision, an arbitrator must decide all disputes under the contract, including whether a given disagreement is arbitrable. The second contract contained a forum selection clause, providing that all disputes related to that contract must be decided in California courts." While the ruling in the Supreme Court was that it is a court that should decide contract enforceability, hindsight permits the observation: if there were two contracts, why was not the second contract clear that it replaced the first contract? Read the first contract when writing the second – and make it clear. Another solution could be "boilerplate" that clarifies generally what happens if there are conflicting contracts.

2. Rodgers-Rouzier v. American Queen Steamboat Operating Company, LLC, 104 F.4th 978 (7th Cir. 2024)

In the Rodgers-Rouzier case it appears American Queen Steamboat outsmarted themselves in exercising control over labor disputes. The contract specifically included an arbitration clause that said the Federal Arbitration Act applied. The drafter of the contract, unfortunately for them, apparently failed to either understand the business or to look up the statute said to control. A "steamboat" company chose to have controlling a law that excluded maritime contracts. The argument "we didn't mean just Federal, we meant Indiana, too" was unsuccessful. Knowing what law applies, when the contract invokes that law is a fundamental. Similarly to the above, "boilerplate" might be written to save the intent – "Federal Arbitration applies, but if it doesn't the law of the forum state applies ...".

3. Zimmer Biomet Holdings, Inc. v. Insall, 108 F.4th 512 (7th Cir, 2024)

Zimmer has become a very successful company in the medical field. An important part of the business is making and selling implants for joint replacement. Innovation in the certain joint replacement implants was led by Dr. Insall, to the point where Zimmer took ownership of his patents and provide for royalties until "the expiration of the last to expire of the patents licensed hereunder or so long as Product is sold by ZIMMER, whichever is last to occur." The contract was in 1991. Three years later "[t]he parties amended the agreement in 1994. Among other things, Insall promised to work exclusively for Zimmer through January 1, 2011." The amendment included calculation of 0.05% for "future knee systems" A 1998 amendment added 1% royalties "on all sales of the NexGen Knee and all subsequently developed articles, devices or components marketed by Zimmer as part of the NexGen Knee family of knee components and not at the rate provided for sales of "future knee systems."" (Zimmer Biomet Holdings, Inc. v. Insall No. 22-cv-02575, Docket 47 (ND Ill. April 11, 2023). Zimmer continued to sell Insall developed knee systems, but decided to stop paying royalties in 2018 resulting in litigation to recover the unpaid money. While the decision does not reveal whether awareness of the law was specifically a factor in the 1994 and 1998 amendments, there was an argument that patent royalties were not permitted after a patent expired, but when royalties were based on a patent plus some other rights, they could continue. The format of the amendments is consistent with having some royalties continue after patent expiration. (Brulotte v. Thys Co., 379 U.S. 29 (1964) as clarified in Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015) ("... all the decision [i.e., Brulotte] bars are royalties for using an invention after it has moved into the public domain." Id. at 453–54; "post-expiration royalties are allowable so long as tied to a non-patent right — even when closely related to a patent." Id. at 454."). Zimmer agreed to the amendments, presumably because they were good for business. Whether the original contract was, or not, the amendments brought the deal within the limits of the law. Someone read the contracts and applied the law.

4. Proof of Reading and Signature as a Corollary

Gaines v. Ciox Health, LLC, 2024 IL App (5th) 230565 (5th Dist. 2024) dealt with a corollary: for there to be an enforceable contract there must be a meeting of the minds. The proponent of the contract has the burden to introduce evidence to show that meeting of the minds. Internet Terms and Conditions are ubiquitous, particularly for consumer transactions.

There are different types of online consumer agreements. These include clickwrap agreements, browsewrap agreements, and hybrid versions of those agreements. Regardless of the type of online agreement, the circumstances of the transaction must provide the offeree with reasonable notice that the terms of an agreement are being offered and that certain acts or conduct by the offeree will constitute acceptance of the offer. See Arbogast, 2021 IL App (1st) 210526, ¶ 27 (citing Hubbert v. Dell Corp., 359 Ill. App. 3d 976, 983-84 (2005)). The conduct of a party is not effective as a manifestation of assent, unless that party knows or has reason to know that the other party may infer from his conduct that he assents. Arbogast, 2021 IL App (1st) 210526, ¶ 27. Determining whether an Internet user has agreed to online terms of service is a "fact-intensive" inquiry. See Sgouros v. TransUnion Corp., 817 F.3d 1029, 1034-35 (7th Cir. 2016) (applying Illinois contract law). Courts may consider whether the web pages adequately communicated all the terms and conditions of the agreement and whether the circumstances support the assumption that the purchaser received reasonable notice of those terms and conditions. Sgouros, 817 F.3d at 1034. Thus, courts should look closely at the law and the facts to see if a reasonable person in the plaintiff's shoes would have realized that he was assenting to the terms and conditions of the website when he registered for an online service. Sgouros, 817 F.3d at 1035.

There are practical and administrative issues in proving these contracts – ignoring the rhetorical question of "do consumers1 really read" them. The question is whether the company seeking to enforce the contract has evidence to show that the particular consumer in the case was presented the particular version of the contract and that consumer's later conduct manifested assent to the contract. Recording "clicks" might be fine, but who did that clicking after what steps indicating reading (or at least scrolling past and having the opportunity to read!) needs to be proven. It is not enough to show business practices to support the proposition that "everybody did it."

Ciox failed to produce competent evidence that the plaintiff agreed to the Terms and Conditions for Ciox eDelivery when he registered to use the online portal. By all accounts, online self-registration for the Ciox eDelivery system, as it existed in 2019, was a multi-step process. Ciox did not produce any documents or screen shots to replicate the self-registration process. Ciox did not describe or attach screenshots to show the number of screens that a registrant would have had to "click through" to locate the screen containing the Terms and Conditions for Ciox eDelivery. According to the record, Ciox eDelivery portal was updated and renamed in 2022. There is no indication of whether Ciox archived or preserved online records from the 2019 self-registration process.

General ideas of record keeping were unable to prove "offer, acceptance, and consideration" of particular terms and conditions by a particular party at a particular time.

Conclusion

Experience and skill, considering all relevant facts, coupled with writing contract terms consistent with the law, can go a long way towards ensuring that contract terms comport with what the parties imagined they were doing – the writing and intent evidence therein should reflect that imagination. Read the contract and make sure it accomplishes what the parties have in mind. And if you are the party wishing to enforce a contract, keep a copy and be able to prove that the party on the other side read and signed it.

Footnote

1. Or non-consumers dealing with electronic contracts. Winters v. AT&T Mobility Servs., LLC, 2017 U.S. Dist. LEXIS 105804 (CD Ill. 2017)

Reprinted with permission of the Illinois Bar Journal, Vol. 112 #11, Nov. 2024. Copyright by the Illinois State Bar Association. (isba.org )

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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