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The Problem With Web Site References in Contracts

The terms and conditions of the contract are supplemented by and/or subject to the terms of the service guide, along with a URL reference to the carriers Web site. This language seems innocuous and the explanation sounds logical. Do not believe it, not even for a second.

March 30, 2010

7 Min Read
The Problem With Web Site References in Contracts

By Neil Ende

More than a decade ago, I wrote an article for PHONE+ warning of the dangers of the filed rate doctrine. In short, the filed rate doctrine establishes that carriers are legally bound to provide service (to resellers and end-users alike) in accordance with the terms of their tariffs even where those terms were in conflict with the express terms of a signed contract. Thus, for example, if a carrier offered a reseller a rate in a contract that was not found in its tariffs, that carrier could not lawfully provide service at the contract rate. Indeed, the Supreme Court has repeatedly held that even where a carrier intentionally (fraudulently) misrepresents its rates in a contract and the reseller specifically relies on the misrepresented facts, the carrier can not be held to the promised rate if it conflicts with the published tariff, regardless of the negative impact on the reseller.

Proponents of the filed rate doctrine argued it was necessary to hold carriers to the terms of their published rates to ensure that carriers did not discriminate among their customers. This argument was flawed in too many ways to describe here and the doctrine had little if any actual effect on the rampant discrimination in the telecom industry. On the flip side, the doctrine was a wide open door to abuse, allowing carriers, often intentionally, to lure innocent resellers into seemingly attractive contracts only to find out later that they could not enforce the attractive rate provisions while remaining bound to the egregious minimum and commitment terms. Needless to say, the filed rate doctrine caused extreme hardship to many resellers and was nothing short of a legal abomination.

With the advent of competition in the telecommunications industry, over a series of decades and in a series of steps, the FCC eliminated the obligation to file tariffs for interstate and international services, where the FCC has jurisdiction. (States have jurisdiction over intrastate services, where tariff requirements and thus variations of the filed rate doctrine remain in place to date). Notably, many carriers — including those viewed as the most aggressive abusers of the doctrine — lobbied and filed lawsuits all the way to the Supreme Court in an attempt to keep the FCC from ending the tariff-filing requirement. However, the elimination of the doctrine at the federal level did end the egregious impact of the doctrine on most interstate services.

Web-Based “Service Guides. Unfortunately, the benefits derived from the elimination of the filed rate doctrine were short-lived. Indeed, in the series of orders surrounding the elimination of the tariff filing requirement, the FCC ordered carriers to post their service offerings on their Web sites. While the FCC may have had the best of motivations for imposing this requirement, the opportunity for abuse that it created was just too tempting for many carriers to resist. Now, rather than “hide” the most inconsistent and egregious terms in “plain sight” in their mountainous filed tariffs — right on cue and just as we predicted at the time — they did so by placing those same terms in tariff-like “service guides” and other documents posted on their Web sites. The only difference was that the enforceability of these “service guides” was not as automatic as interstate tariffs had been under the filed rate doctrine. Instead, the enforcement of the provisions of carrier “service guides” was effectuated by contract terms through which the reseller or end-user agreed to be bound by the terms of the “service guide.”

While these terms are presented in numerous forms, they generally contain a seemingly innocent brief statement that the terms and conditions of the contract are supplemented by and/or subject to the terms of the “service guide,” along with a URL reference to the carrier’s Web site. To the innocent reader, this language can seem innocuous enough and the explanation one receives on inquiry sounds logical: “That language just allows us to avoid attaching a lot of exhibits to the contract describing our service offerings.” Do not believe it; not even for a second. Indeed, if you want undeniable proof of the real motivations behind these provisions, the next time you receive a contract with this term in it, add a reference to your “service guide” that allows you to supplement or override terms of the contract by posting them on your Web site. The gasps of outrage and unfairness and the demands by the carriers that you remove that language will be immediate and overwhelming.

The simple fact is that these terms are indescribably dangerous as they give one party the absolute and often unfettered right to unilaterally change essential terms of the contract. This danger is equally real whether it is the applicable rate in a carrier/reseller agreement or a commission in a carrier/master agent or master agent/subagent agreement. In many respects, terms of this nature render the contract useless. Even worse, they almost always allow that party to make changes without any notice whatsoever. Just like the bad old days of the filed tariff, you are deemed to have constructive notice of any changes in the “service guide” immediately upon the posting of the change. As such, to have real visibility to the requirements of your contract, you would literally have to do nothing other than monitor the “service guide” on the carrier Web site 24/7.

Now, I expect that many of you are saying to yourself, “This cannot be right … the courts would never enforce such provisions.” I cannot tell you how many clients — and even many “telecom” attorneys — made the same arguments about the application of the filed rate doctrine. And, in a perfect and just world, you would be right now and they would have been right then. The problem is that we do not live in a perfect or a just world and you, like many “telecom” attorneys of old, would be wrong, at least in many instances. Indeed, while these cases can turn on their specific facts and we have been successful in defeating arguments based on the filed rate doctrine, the courts have for decades upheld the application of tariff terms that conflict with contract terms and they have now begun to do so with respect to the terms of Web site “service guides.”

Responses to Web Site References in Contracts. The principle here is not obscure or difficult for either lawyer or layperson. Parties enter into contracts for the purpose of setting forth the material terms of their agreement. There is little purpose in doing so if one party has the absolute and unfettered right to change those terms, especially if that party can do so without notice to the other and the other remains bound to the remaining terms of the contract. So, the next time that you see www.carriername.com in a contract, you should immediately transpose it to www.wewilldestroyyourbusiness.com and react just as you would in that circumstance.

It can be difficult, particularly if you are not represented by experienced telecom counsel, to get these Web site references removed from your agreements. If that is the case, and you are determined nonetheless to do business with the provider, there are things that you can do to mitigate the worst of the effects. At a minimum, you should demand:

  1. that the contract clearly state that the terms of any “service guide” are those that appear on the Web site on the date that the contract is signed and have a copy of that version of the “service guide” attached as an exhibit to the contract;

  2. that you are provided actual written notice (letter, e-mail, facsimile) in advance of any change in any applicable term of the “service guide”;

  3. that you have the absolute right to terminate the contract without further liability, including any liability associated with a proposed change, in the event that you determine, in your sole discretion, that the change will have an adverse impact on your business.

Your contracts are the foundation of your business. Good contracts set forth the essential terms of agreement in a clear and comprehensive manner and allocate the risk in a fair manner. Contracts with Web site references are, by definition, ambiguous and allocate all the risk to the party that is subject to unilateral changes in the “service guide.” They are foundations without mortar and, if history is any guide, it is only a matter of time before your business will be crushed.

Neil S. Ende is managing partner of Technology Law Group LLC, a Washington, D.C.-based law firm specializing in telecommunications transactional and litigation issues. He can be reached by phone at +1 202 895 1707 and by e-mail at [email protected]. The opinions expressed in this article are those of the author and are not and should not be construed as legal advice.

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