Proposed New Law Targets Online Terms of Service

A bipartisan bill recently introduced by Congresswoman Lori Trahan (D-MA-3) and Senators Bill Cassidy (R-LA) and Ben Ray Luján (D-NM) requires companies conducting business online to fully explain certain business practices to consumers on their website.

Among other items, the Terms of Service Labeling, Design and Readability (TLDR) Act authorizes the Federal Trade Commission (FTC) to issue rules requiring online businesses to post a “short-form” terms of service summary on their website, which must be written in plain English and include the following:

  • A description of the effort required to read the full terms of service (i.e., a total word count or the approximate time it would take to read the terms).
  • The categories of sensitive information that the company processes.
  • An explanation of what sensitive information is required for the basic functioning of the service and what sensitive information is needed for any additional features.
  • Directions for how the user can delete their sensitive information or prevent the company from using their sensitive information.
  • A summary of legal liabilities and rights (including mandatory arbitration, class action waivers, licensing or waivers of moral rights).
  • A list of reported data breaches from the past three years.
  • Historical versions of terms of service and changes.
  • Anything else the FTC deems “necessary.”

The current version of the bill also requires companies to display their full terms of service in some kind of interactive data format on a permanent website page, with the summary statement at the top of that page.  It also authorizes the FTC to treat violations as an unfair or deceptive act or practice under Section 18(a)(1)(B) of the FTC Act. State attorneys general will also be able to pursue civil penalties.

Although it applies to any entity that operates a website or an online service for commercial purposes, the proposed law is clearly aimed at large technology companies, as it includes an exemption carved out for “small businesses,” defined as companies that are independently owned and operated and are not dominant in their field of operation.

The TLDR Act is just one of several congressional attempts aimed at improving online transparency by making online terms more easily understandable.  In announcing the bill, Senator Cassidy’s office referred to a 2012 study that determined it would take the average American 76 days to read the online agreements that many technology companies use, which is why most if not all consumers simply agree to the terms without reading any portion of them.

Although this bill is a long way from becoming a law, its introduction underscores the importance of online terms, and how they’re being perceived.

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