Class action is a special type of lawsuit which is sometimes available in circumstances where everyone in the class is essentially identical. So all the legal rights are identical of the people who would be part of the class action. The clearest example, the most illustrative example in law, is when you've got people who own stock in a company. Their ownership rights represented by the stock certificates are identical for each person that owns shares of stock. So one person who owns that share of stock can actually bring a class action against the company on behalf of all the shareholders. That's an example of a class action.
Matt: Hello, and welcome back to Internet Law Radio. I'm Matt Plessner, once again. And today we're going to be talking about how to protect yourself against class actions and website agreements. We're joined by Enrico Schaefer from the Traverse Legal Office, who specializes in Internet law. Enrico, nice to have you back.
Enrico: Hey, how are you doing today, Matt?
Matt: I'm doing well. Thanks for asking. Now, for those of you who are not in tune with legal terminology, myself included, can you tell us, Enrico, what is meant by a class action?
Enrico: Class action is a special type of lawsuit which is sometimes available in circumstances where everyone in the class is essentially identical. So all the legal rights are identical of the people who would be part of the class action. The clearest example, the most illustrative example in law, is when you've got people who own stock in a company. Their ownership rights represented by the stock certificates are identical for each person that owns shares of stock. So one person who owns that share of stock can actually bring a class action against the company on behalf of all the shareholders. That's an example of a class action.
You can also have class actions across many different types of issues. And what happens is that if the case gets certified as a class action by the court, then the defendant, the company that's been sued by the class action attorneys, has to, potentially, pay a settlement to everyone who's in the class.
Matt: Now, we're talking about website agreements and dealing with class actions. Are website agreements contractual agreements?
If you allow me, as a website operator to register, using my email address and a password, so that I can do special things on your website, then your website agreements are going to govern the contract of those people who actually register to use your website. So, you want to think about it as the base contract between you and everyone who interacts with your website.
Matt: Enrico, between what two, or even more people, do web agreements usually exist?
Enrico: Well, it is. The person who owns and operates the website is one contracting party. And on the bottom of their website, if they're doing things correctly, they'll have a number of website agreements, which will include terms of service and privacy agreements and these types of things. What that terms of service will say is that you as a visitor to this website, agree to the following terms. It's different than a click wrap, Matt, in that a click wrap, the person who's visiting your website, actually clicks 'I agree'. This is called a browser wrap agreement, when simply by being on the website, you as a website visitor, agree to the terms of service. So the contracting parties are the website owner and anyone and everyone, individually, who might interact with your website.
Matt: What are some of the main issues that come up with website agreements that lead to these lawsuits?
Enrico: There are lots of different variations. It really depends on what it is that you are offering on your website. So let's say, Matt, that you're selling a product through your website. And someone says that you've deceptively marketed your product, or you've violated some law in the sale of your product. Then that person can, potentially, sue you for that misrepresentation or defective product, or what have you.
The danger becomes when that person not only sues you on their own behalf, which the damages may be just the purchase price of that single product. Well, that's not very much money for someone to sue over. But if they bring a class action on behalf of everyone who bought your product or service, now all of a sudden you go from one plaintiff to potentially thousands, or tens of thousands, or hundreds of thousands of plaintiffs, all suing you under one person's name. And that person who is the class representative is going to be the person who is going to represent the entire class.
One of the things that you can do, Matt, is in your website agreements, you can spell out that the people who visit the website, people who register to use the website, people who buy things on the website, waive the right to bring or be part of a class action related to that use. What you will see in some of the more sophisticated terms of service agreements that we draft for clients, is if that client is doing something that can result, potentially, in a class action, is we'll try and draft language that precludes a class action from being filed.
Those aren't always enforceable. Courts can decide whether or not to enforce a particular provision within the terms of service. But you still want to have that kind of provision in there, especially if you have a high risk website, because the main thing is that you want to discourage any attorneys from taking the class action, because they see the waiver and the terms of service, the website agreements. And you will, potentially, then have that argument to be made to a judge. To say, "Hey, look. Our terms of service, Your Honor, preclude class action litigation from being filed against us by a website user or registered user". And you could win that argument, which could drastically reduce the risk of what I call 'bet the farm litigation', where you get sued and you potentially could get put out of business.
Matt: Enrico, besides what we were just saying, what are some other ways to protect yourself from class actions prior to the agreement?
Enrico: They're really practical things. If you have a particular business model, what you're going to want to do is work with your lawyer and law firm to identify which parts of that business model may lend themselves to a particular type of class action. What lawyers are going to be looking for, if they specialize in both Internet law and understand class action law and consumer class action law, what they're going to be looking for is high risk areas within your business model. And then those business model items might be tweaked. Or you might do something in terms of upping the level of agreement by the websites users on particular issues. You might get them, for instance, to actually click on a click wrap agreement where they say 'I agree', and they acknowledge the fact that they're going to waive the right to be part of a class action.
So it's both on the business model side that the lawyer will work, and also on the website agreement side that a lawyer will work in order to reduce your risk. Class actions are, probably, the number one avenue of risk for a company, where you could actually get put out of business really quickly if you find yourself being named in a class action litigation as a defendant.
Matt: Well, Enrico, it's always helpful to have you with us to talk about these things. Thank you for being here.
Enrico: You're welcome, Matt. Have a great day.
Matt: I'm Matt Plessner and join us next time on Internet Law Radio.
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