Presenting a live 90-minute webinar with interactive Q&A Drafting Clickwrap and Browsewrap Agreements: Advanced Strategies for Enforceable Online Navigating Issues of Authentication, Mutual Assent, Notice, Indemnification, Unilateral Modification, and More

TUESDAY, AUGUST 12, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today’s faculty features:

Michael T. Stanczyk, Attorney, Mackenzie Hughes, Syracuse, N.Y. Andrew Goldstein, Partner, Freeborn & Peters, Chicago

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Drafting Clickwrap and Browsewrap Agreements: Advanced Strategies for Enforceable Online Contracts

Michael T. Stanczyk, Esq. Mackenzie Hughes LLP [email protected] – 315.233.8262 M A C K E N Z I E H U G H E S l l p

A Bit of Background & Terminology Before the Case Law M A C K E N Z I E H U G H E S l l p

Why Use the Term “Wrap”?

• If you bought a software program in the 80’s or 90’s it came wrapped in a thin layer of cellophane. It contained the floppy disks or CDs and a copy of the . These licenses were deemed “shrinkwrap” licenses.

• After the boom of the World Wide Web, software was delivered online and the licenses used retained the term “wrap”, becoming “browsewrap” or “clickwrap” licenses.

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Clickwrap and Browsewrap Licenses Generally M A C K E N Z I E H U G H E S l l p

What are Clickwrap and Browsewrap Licenses? Clickwrap Licenses – A software license (for actual software, website, application, etc.) that requires the user to affirmatively click on a button or checkbox with a term such as “I Agree”, prior to use. – Sometimes called a “click-through” or “click-to-accept” license. – Users usually have opportunity to scroll through and review the terms prior to assent. – If the user does not agree with the terms he or she cannot proceed, their only choice then is to not click on the “I Agree” button and not use the software. – Example: – By clicking on the “I Agree” button you are agreeing to be bound by the following terms and conditions. 9

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What are Clickwrap and Browsewrap Licenses? (cont.) Browsewrap Licenses – Browsewrap agreements are software licenses that do not require affirmative consent other than the user’s initial or continued use of the software, website, or application. – The use combined with the knowledge of the terms and conditions of the browsewrap license are what constitutes the user’s assent. – Generally, courts will enforce browsewrap licenses only if the user had adequate and reasonable notice of the license terms. – Example: – By using this website, you are agreeing to be bound by the following terms and conditions. If you do not agree to these terms and conditions, you may discontinue use of the website at any time. 10 M A C K E N Z I E H U G H E S l l p

Clickwrap and Browsewrap Licenses Generally

• Clients may want these licenses small, non-invasive and out of the way so they won’t scare off potential users. You’ll want the opposite, and may need to educate your client as to why its important. • Drafting, maintaining and updating these licenses can create a perfect storm of legal, design and programming work. • To draft and maintain these licenses properly you’ll have to work closely with your client and their technical team to initially set up the license and for any updates (version 1.0, 2.0, etc.). • There is at least one company out there that can assist with implementation of these licenses (but not the legal drafting). » See PactSafe at www.pactsafe.com

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Clickwrap and Browsewrap Licenses Generally (cont.)

• Like any software licenses, clickwrap and browsewrap licenses are formal contracts that contain property rights. Being contracts, traditional rules of law still apply. • Most cases hinge on whether there was (1) either actual or constructive notice and (2) assent by the user. Whether the user of the software actually knew, impliedly knew, or should have reasonably known, about the terms of the license before he or she clicked to agree or used the software.

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Shrinkwrap, Browsewrap & Clickwrap Case Law Overview M A C K E N Z I E H U G H E S l l p

I. Shrinkwrap License Cases ProCD, Inc. v. Zeidenburg, 86 F.3d 1447 (7th Cir. 1996) – User bought a personal copy of the software, which was priced lower than the commercial version, and resold it to commercial users, in violation of the terms of the enclosed shrinkwrap license. • The license restricted sales of personal copies and gave the user the right to return the software if unsatisfied. – Court upheld enforceability of the license based on UCC Section 2-206, which provides that a purchaser of goods has the right to review a product, including the terms of the license for the product, and if they are not happy with it they can return it. • If they choose to use it and not return it they are bound by the purchase and terms of the license.

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I. Shrinkwrap License Cases (Cont.) Other shrinkwrap cases with similar facts/holding as ProCD: Hill v. Gateway 2000, Inc. 105 F.3d 1147 (7th Cir. 1997). Mortenson Co. v. Timberline Software, 93 Wn. App. 819, 828 (Wash. Ct. App. 1999). Brower v. Gateway 2000, Inc. 676 N.Y.S.2d 569 (1st Dept. 1998). Conflicting authority: Step-Saver Data Sys. v. Wyse Tech., 939 F.2d 91, 96 (3d Cir. 1991) (used historic mailbox rule to find no assent to license, finding a contract for sale of software existed through purchase orders, phone calls, and invoices prior to license terms being proffered,). Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 256 (5th Cir. La. 1988) (finding that federal copyright law preempted terms of license). Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000) (opposite holding of Brower case above).

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II. Clickwrap License Cases Compuserve v. Patterson, 89 F.3d 1257 (6th Cir. 1996). – Patterson, a resident of Texas, sold his own software to third parties over Compuserve’s system, pursuant to the terms of a clickwrap agreement. • Compuserve began to sell its own software that was similar to Patterson’s and Patterson demanded Compuserve pay him $100,000 as a settlement. • Compuserve filed a declaratory judgment action in Federal court in Ohio. • Patterson moved to dismiss the action due to alleged lack of personal jurisdiction, claiming he never visited, did business in, or consented to suit in Ohio. – Sixth circuit found that making Patterson subject to suit in Ohio due to his acceptance of the clickwrap agreement, a Shareware Registration Agreement, did not violate the due process clause of the United States Constitution. – Court reasoned that Patterson personally availed himself to do business with Compuserve, and made money doing so, and could therefore have reasonably expected he’d have to defend himself in Ohio due to the terms of the agreement.

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II. Clickwrap License Cases (Cont.) Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005) – An online game had a clickwrap agreement which had to be accepted prior to download, where the agreement prohibited reverse engineering. » The clickwrap agreement was included in the End User License Agreement that each user had to affirmatively agree to (by clicking on “I Agree” button) when installing the game, and you could not play the game without agreeing. • Users also had to enter a CD Key which was included on the copy of the CD the game came on. The CD Key was connected to the CPU’s IP address to prohibit pirating and copying of the CDs. – Certain users reverse engineered the game and created their own online site to play it. » The game maker sued. – the Court of Appeals for the Eighth Circuit upheld the clickwrap agreement provision that prohibited reverse engineering, stating that the users had expressly relinquished their right to reverse engineer by agreeing to the terms of the license agreement. » There were various other copyright claims, and the court also held that the users violated the Digital Millennium Copyright Act, which seemingly made ruling against the users easier.

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II. Clickwrap License Cases (Cont.)

Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007) – A user shipped a ring worth $100,000 via UPS, which UPS then lost. In order to ship the ring the user had to click not once but twice to agree to UPS’s terms of use on its website. • The terms provided that UPS would not be responsible for any item of “unusual value” – User sued for the value of the ring and the court upheld terms of use, finding that UPS provided adequate notice on its website to anyone shipping an item. • If the user chose not to read the terms, that does not let him avoid any of the provisions he does not like. – Court held that using a clickwrap agreement for online transactions was “common in Internet commerce” where “one signifies agreement by clicking on a box on the screen.”

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II. Clickwrap License Cases (Cont.) • Starke v. Gilt Groupe, Inc., 2014 U.S. Dist. LEXIS 58006 (S.D.N.Y. 2014) (arbitration provision in clickwrap license, which had a link to the text of the license, was upheld, and found not to be unconscionable) • Motise v. America Online Inc., 346 F. Supp 2d 563 (S.D.N.Y. 2004) (user that signed on with another user’s id and password still bound, as sub-licensee, of the terms including forum selection clause). • Hoffman v. Supplements Togo Management, LLC 18 A3d 210 (N. J. App. Div. 2011) (found forum selection clause unenforceable due “the manifestly unfair manner in which defendant’s website was structured” and court seemed to imply that it believed the website owner was intentionally hiding the terms). • Nguyen v. Barnes & Noble, Inc., 12-cv0812-JST, (C.D. Cal. 2012) (arbitration provision not enforceable because browsewrap agreement was hard to find and barely noticeable). • Caspi v. Microsoft Network, LLC, 323 NJ Super 118 (N.J. App. Div. 1999) (upheld forum selection clause where users had to click on scrollable window and click “I agree” or “I don’t agree.”) • Mortgage Plus, Inc. v. DocMagic, Inc., 2004 WL 2331918, 2004 U.S. Dist. LEXIS 20145 (D. Kan. 2004) (clickwrap agreement upheld) • Taxes of P.R., Inc. v. TaxWorks, Inc., 2014 U.S. Dist. LEXIS 37765 (D.P.R. 2014) (upheld forum selection clause in clearly stated clickwrap agreement, following ProCD precedent).

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III. Browsewrap License Cases Specht v. Netscape Communications Corp., 306 F.3d 17 (2nd Cir. 2002). – Users who downloaded certain software programs provided by Netscape filed a class action in federal court, and Netscape moved for arbitration as per the download terms. » There were, however, multiple ways to download the Netscape programs, some of which required an affirmative assent and some of which did not require any assent to the terms of the license (case is about the latter). – The 2nd Circuit found that users could download and use the software without having to view the full terms of the contractual arrangement including the arbitration clause. » Court found that a reasonably prudent consumer would not assent to contractual terms that were so inconspicuous that they could use the product while totally overlooking them. You had to scroll down and click on the terms to see them. – Court said what is needed is “clarity and conspicuousness” to ensure the user is cognizant of the terms of the license (emphasis mine). » Aside: Court seemed concerned that the Internet gives companies too many opportunities to exploit unsuspecting users. Simple rule is that if the user isn’t reasonably alerted to the contractual terms, she cannot assent to them.

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III. Browsewrap License Cases (Cont.) Fteja v. Facebook 2012 WL 183896 (SDNY 2012) • User sued Facebook in New York for terminating his account. Facebook made a motion to remove the case to California pursuant to the forum selection clause in its Terms of Service. – Court found the Terms of Service was a hybrid clickwrap/browsewrap where to create an account each user had to click on a “Sign Up” button and agree to the following “By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service” where the words Terms of Service were a hyperlink to another page which contained the Terms of Service (which you did not have to view to sign up). • Court held that the forum selection clause was enforceable against the user, and that failure of a user to read the terms does not let them avoid the agreement (user was savy enough to know how hyperlinks work). Court analogized to the cruise ship cases (below) where ticket holders were deemed to have had actual or constructive knowledge of the terms on the back of the ticket regarding forum selection. – See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991); Effron v. Sun Line Cruises, 67 F.3d 7 (2d Cir. N.Y. 1995). • Similar holding in E.K.D. v. Facebook, Inc., 885 F. Supp. 2d 894 (S.D. Ill. 2012). 21

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III. Browsewrap License Cases (Cont.) In re Zappos.com, Inc. Customer Data Security Breach Litigation, 893 F.Supp. 2d 1058 (Dist. Ct. Nevada 2012). – Users sued in multiple forums for damages due to a security breach. • Zappos filed a motion to compel arbitration in Las Vegas pursuant to its terms of use agreement, which was a typical browsewrap agreement which also gave Zappos the right to amend any of the terms as it saw fit. – Zappos had a hyperlink on each page of its website to the terms but it was hard to see, being the same size and color as other insignificant links, and located ¾ of the way down the page. The website never prompted or directed a user to the terms even when purchasing a product or opening an account. – Court concluded that the plaintiffs may have never seen the terms, so in no way could be deemed to have actually or constructively agreed to them. No assent, no contract. • Sidenote: The Court also held the arbitration provision was an illusory contract (and therefore not enforceable) because Zappos was able to amend the Terms as it saw fit at any time. See Grosvenor v. Qwest Corp., 854 F. Supp. 2d 1021 (D. Colo. 2012) for this same holding.

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III. Browsewrap License Cases (Cont.) Register.com v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004). – Register.com sued Verio for violating the terms of use of its WHOIS database, which Verio used to get information on who registered domain names with Register.com to offer web services to the registrants. • As part of receiving the information from WHOIS, Register.com’s terms stated that the domain name registrant information, which consisted of email, phone number and mailing address, could not be used for marketing purposes. The terms of use were, however, proffered after the domain name registrant information was presented to the user of the WHOIS database. – VERIO claimed there was no contract as it never agreed to the terms, and in any event any user of the WHOIS site could receive the information before seeing the terms. • The court said that this argument may only have worked if Verio used the WHOIS database once, but Verio did it every day with full knowledge of the terms. – The Second Circuit held that Verio’s continued use of Register.com’s WHOIS database constituted consent to Verio’s terms of use, expressly rejecting Verio’s argument that they were not enforceable because the user had not clicked an “I agree” icon.

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III. Browsewrap License Cases (Cont.) Pollstar v. Gigmania, Ltd., 170 F. Supp. 2d 974 (E.D. CA 2000). – Pollstar kept track of concert information on its website, which any user could download by accepting the terms of Pollstar’s license. » License prohibited commercial use of information. » License was not on Pollstar’s homepage, but on different page of its site. » Visitor is alerted to existence of Pollstar’s license only by reason of a small grey print on grey background (with a link to terms, but other links on homepage were blue) – Gigmania downloaded information from Pollstar’s site and used it on its own site for commercial purposes. Pollstar sued to enforce terms. – The court refused to enforce the terms of the license agreement because it found that the link to the license was hard to read based on the way it was presented. • Notably, the court did not rule that the license agreement was unenforceable, only that the website did not give users adequate notice of it.

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III. Browsewrap License Cases (Cont.) Ticketmaster Corp. v. Tickets.com, Inc., 2003 U.S. Dist. Lexis 6483 (C.D. CA., March 7, 2003) – Tickets.com used deep links to Ticketmaster’s interior pages, in violation of Ticketmaster’s terms of use which were on its homepage. – Relying on Register.com and Pollstar, the court held that a contract can be formed by use of a website, provided the user, at the time of use, has knowledge of the site’s terms and conditions that provide that such use constitutes an agreement to be bound. • Court relied on “cruise ship” case law precedent. It analogized interior web pages to the back of a cruise ship ticket’s venue clause, where user has actual or presumptive knowledge. – Court found that Tickets.com used Ticketmaster’s site with full knowledge of the terms, and upheld such terms in the breach of contract action.

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III. Browsewrap License Cases (Cont.) Jerez v. JD Closeouts, LLC, No. CV-024727-11, 2012 WL 934390 (N.Y. Dist. Ct. 2012). – The court held that a terms of sale provision found on the “About” page of the website was not enough to enforce the forum selection clause. • Plaintiff ordered products ($6,000 worth of tube socks) over the Internet, and sued claiming there were defects. • Seller moved to dismiss claiming the forum selection clause required the dispute be heard in a Florida state court, and Plaintiff claimed he never saw clause. – Court found the clause was not reasonably communicated where it was “buried” and “submerged” on the website, and could only be found by clicking on an “inconspicuous” link to the company’s About Us page. Seller’s attempt to have the terms incorporated by reference in a printed contract and letter agreement were not enough for the court. • Court relied on Specht and Carnival Cruise Lines. – Similar holding in Cvent, Inc. v. Eventbrite, Inc., 739 F. Supp. 2d 927 (E.D. Va. 2010).

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III. Browsewrap License Cases (Cont.)

• Hubbert v. Dell Corp., 2005 WL 1968774 (Ill. App. Ct. 2005) (court upheld arbitration clause in Dell’s for cause regarding alleged false claims made by Dell to online purchasers of the computers. Court found different colored hyperlinks on each page like a multipage contract). • Hines v. Overstock.com, Inc., 668 F. Supp.2d 366 (E.D.N.Y. 2009) (both arbitration and forum selection clause invalid due to no actual or constructive notice) • Van Tassell v. United Mktg. Group, LLC, 795 F. Supp. 2d 770 (N.D. Ill. 2011) (holding arbitration provision was unenforceable where it was included website’s conditions of use but difficult to find, because users had to scroll all the way down home page, click on Customer Service link, then scroll down and click another link to find it). • Cvent, Inc. v. Eventbrite, Inc., 739 F. Supp. 2d 927 (E.D. Va. 2010) (terms of use not valid as they were buried at bottom of first page and on no other page).

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Concluding Thoughts from the Case Law

Here’s a quick summary of what can be gleaned from the case law: a) Create an easy to read, reasonable license that follows industry norms; b) Give the user reasonable notice that the license exists;  Make sure the notice is CLEAR AND CONSPICUOUS  Colors, size, font, placement, timing, etc. all relevant. Don’t “bury” it. c) Let the user read the full license if he or she so chooses (scrollable pop-up being preferred), prior to acceptance (click or use); d) Opt for clickwrap over browsewrap if possible.

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Michael T. Stanczyk, Esq. [email protected] – 315.233.8262

29 Strafford Webinar - "Drafting Clickwrap and Browsewrap Agreements: Advanced Strategies for Enforceable Online Contracts"

By Andrew L. Goldstein Freeborn & Peters LLP © 2014

Introduction - Types of Online Agreements

1. Browsewrap 2. Clickwrap 3. Hybrid Clickwrap /Browsewrap

31 Introduction - Types of Online Agreements Browsewrap

“where website terms and conditions of use are posted on the website typically as a hyperlink at the bottom of the screen.” Hines v. Overstock.com, Inc., 668 F.Supp.2d 362, 366 (E.D.N.Y.2009)

32 Introduction - Types of Online Agreements Clickwrap “A clickwrap agreement, by contrast, requires a user to take more affirmative action; the user must click an ‘I agree’ box after being presented with a list of the terms and conditions of use in order to receive access to a particular product.” Zaltz v. JDate, , 952 F. Supp. 2d 439 (E.D.N.Y. July 8, 2013)

33 Introduction - Types of Online Agreements Hybrid Clickwrap /Browsewrap • Fteja v. Facebook, Inc., 841 F. Supp. 2d 829 (S.D.N.Y. 2012) • Zaltz v. JDate, , 952 F. Supp. 2d 439 (E.D.N.Y. July 8, 2013) • Newell Rubbermaid Ind. v. Storm, C.A. No. 9398-VCN, 2014 WL 1266827 (Del. Ch. Mar. 27, 2014) • Moretti v. Hertz Corp., No. 13- 2972, 2014 WL 1410432 (N.D. Cal. Apr. 11, 2014)

34 General rules for an enforceable online agreement (from the ABA Committee on Cyberspace Law):

1. The user must have adequate notice that the proposed terms exist; 2. The user must have a meaningful opportunity to review the terms; 3. The user must have adequate notice that taking a specified, optional action manifests assent to the terms; and 4. The user must, in fact, take that action.

35 User Acceptance / Mutual Assent

36 User Acceptance / Mutual Assent

• What constitutes acceptance, i.e., proceeding to use website, creating an account, making a purchase, etc. • Employee acceptance for binding employer • Separate assent to any unusual terms • Pop-ups • Printable • Scroll through to accept

37 Notice 1. Hyperlinks to terms (see In re Zappos.com, Inc., 2012 WL 4466660 (D. Nev. Sept. 27, 2012) a. Prominent – not buried among other links b. Different color/background, larger font than other links c. At top of web page or “above the fold” d. One click away e. More than one location i. Payment or checkout page ii. Subscription page or account creation page iii. Every page in website A. Cairo, Inc. v. CrossMedia Services, Inc., 2005 WL 756610 (N.D. Cal. Apr. 1, 2005)

38 Notice 2. Up front terms a. Acceptance – non-acceptance b. Specify what websites, apps, etc. the terms cover c. Reference / hyperlink to privacy policy and other policies, such as Acceptable Use Policy d. Modifications e. Jurisdiction f. Age restrictions

39 Notice Age restrictions 1.Children's Online Privacy Protection Act (COPPA) 2.C.M.D. et al v Facebook Inc., Case No. 12-CV-01216-RS (N.D. Cal. 3/26/2014)

v.

40 Modification

41 Modification

1. Notice and Assent a. Unilateral amendment i. In re Zappos.com, Inc., 2012 WL 4466660 (D. Nev. Sept. 27, 2012) ii. Comb v. PayPal, Inc., 218 F. Supp. 2d 1165 (ND Cal. 2002) iii. Rodriguez v. Instagram, LLC, Case No. CGC-13-532875 (Super. Ct. San Fran. July 16, 2013) iv. Schnabel et al. v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012) v. Douglas v. United States District Court, 495 F.3d 1062 (9th Cir. 2007)

42 Modification

b. ii. Mechanism to signify assent i. A new “click box” to accept ii. Return email 2. Change management a. Date (and update) the version of the terms b. Save prior versions

43 Forum selection

a. Ajemian v. Yahoo!, Inc., 83 Mass. App. Ct. 565 (Mass. Appeals Court 2013) – not upheld b. Moretti v. Hertz Corp., supra - upheld c. Zaltz v. JDate, supra – upheld d. Douglas v. United States District Court, supra – not upheld

e. Hancock v. AT&T, 701 F.3D 1248 (10th Cir. 2012) - upheld

44 Arbitration

• Schnabel et al. v. Trilegiant Corp., supra – not upheld • Hancock v. AT&T, supra - upheld • Douglas v. United States District Court, supra – not upheld

45 Other Key Terms a. Non-compete i. Newell Rubbermaid Ind. v. Storm, supra b. Third party beneficiaries i. Ajemian v. Yahoo!, Inc., supra c. Linking to your website d. Use of spiders, crawlers and other robotic devices i. Register. com, Inc. v. Verio, Inc., 356 F. 3d 393 (2d Cir.2004) e. Digital Millennium Copyright Act (DMCA) notice / take down procedure - 17 U.S.C. § 512(c)

46 Other Key Terms f. User names and passwords g. Copyright and trademark notices h. Any rights to copy, download, etc. from website f. Restrictions i. “Over the transom” clause for unsolicited submissions j. Non-disparagement clauses f. Casey Movers g. Kleargear.com

47 Non-disparagement clauses

48 Non-disparagement clauses

Non-Disparagement Clause

In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees.

Should you violate this clause, as determined by KlearGear.com in its sole discretion, you will be provided a seventy-two (72) hour opportunity to retract the content in question. If the content remains, in whole or in part, you will immediately be billed $3,500.00 USD for legal fees and court costs until such complete costs are determined in litigation. Should these charges remain unpaid for 30 calendar days from the billing date, your unpaid invoice will be forwarded to our third party collection firm and will be reported to consumer credit reporting agencies until paid.

49 Questions or Comments?

Andrew L. Goldstein Freeborn & Peters LLP [email protected]