The $1.6 Million Mistake: Terms & Conditions Lessons from a Retail Giant

It started with a data breach.

In 2012, popular online retailer Zappos.com was hacked, exposing the names, phone numbers, and account details of millions of customers. Lawsuits followed swiftly, accusing the company of failing to safeguard user data.

But when Zappos tried to shield itself with a mandatory arbitration clause buried in its Terms of Use, the Nevada District Court said no.¹

Why? Because, the court found, customers never truly agreed to those terms in the first place. Zappos’s browsewrap² terms, hidden away at the bottom of the website and never clearly presented during account creation or checkout, didn’t form a valid contract. Worse, other clauses tucked inside the site’s terms were deemed unenforceable

The result: their best legal defense evaporated. Zappos settled for $1.6 million in court costs and discounts on future orders for affected customers. While the breach was damaging, it was the terms and conditions that turned a security incident into something much more.

The case against Zappos establishes a clear precedent for businesses: if your legal policies aren’t clear, accessible, and properly structured, they might not protect you when it matters most.

Protecting Your Business Online: The Importance of Terms & Conditions

The case against Zappos.com wasn’t a one-off occurrence. Big names like Ticketmaster, Dell Computers, and Barnes & Noble have found themselves under scrutiny for their digital terms & conditions.

In fact, technology has transformed how businesses operate, making websites a primary platform for public interaction. As this digital shift continues, the potential for liability and risk in online transactions only continues to grow, and this digital landscape introduces unique legal challenges that businesses must take seriously.

The case against Zappos establishes a clear precedent for businesses: if your legal policies aren’t clear, accessible, and properly structured, they might not protect you when it matters most.

What are Terms & Conditions?

At its core, a Terms & Conditions agreement (often referred to as “T&Cs”) are the rules and guidelines outlining how people can use your website, and they apply to anyone who visits, browses, or interacts with your site.

It can address things like:

Who owns the website
How the website’s content can be used
Limitation of liability
Intellectual property protection
Dispute resolution procedures

In many cases, a privacy policy is also included within the T&Cs, which explain how personal information (like names, email addresses, or browsing habits) are collected and used.

Without enforceable terms, you may have no recourse against common business situations like payment chargebacks, customer disputes, or misuse of your website and its content. And, as we’ve seen in cases like Zappos.com, courts are growing increasingly skeptical of vague or hidden terms.

How Terms & Conditions Protect Your Business

T&Cs aren’t a “nice to have” feature, they’re a crucial step in protecting your business. Properly established terms and conditions serve as a legally binding agreement between your business and anyone who visits or uses your site.

One of the benefits of having well-established T&Cs is limiting liability as a business owner. For example, if a user misuses your website or suffers damages from relying on the information your site provides, your T&Cs can include disclaimers that help protect you from legal responsibility.

Terms and conditions also provide business owners greater control over their websites by establishing guidelines around acceptable behavior, such as prohibiting abuse, abusive conduct, or illegal activity, which can be especially important for interactive websites or e-commerce platforms. By including clauses regarding your website’s intellectual property, you can ensure your original content, branding, logos, and any other copyrighted materials are not copied or used without permission.

What Happens Without Terms & Conditions?

Terms & Conditions matter. As an example: in 2018, Machinio Corp. was alleged to have “scraped” sales listing data from a competitor for listing on their own site. The plaintiff, Alan Ross Machinery Corp., claimed this was (among other issues) a breach of contract, pointing to a clause in their Terms of Use page. However, just like the Zappos case, the court ruled the plaintiff’s use of a browsewrap agreement meant Machinio Corp. did not have proper notice, and therefore was not bound by the terms and conditions agreement.

Motion to dismiss, granted.³

When you’re running a business, creating a terms & conditions page full of legal jargon is probably the last thing on your mind. But even small and midsized businesses can face legal exposure when they haven’t properly protected themselves with a T&C agreement. It just takes one disgruntled customer, miscommunication, or security breach to trigger big consequences.

Here’s what you could face without enforceable terms and conditions:

You lose the right to control disputes on your terms
You may be unable to defend against misuse of your content or services
You could face regulatory penalties for noncompliance with privacy laws
You damage your credibility with customers, partners, and investors

In short, you’re leaving yourself open to risk, expense, and serious legal headaches.

Your Shield Against Legal Trouble

If you’re launching a new site, updating your online store, or just realized while reading this that you can’t remember the last time your legal policies were reviewed, now is the time to act.

A well-crafted Terms & Conditions agreement (and a compliant Privacy Policy – look for a Danna McKitrick blog post about this topic soon) offers serious protection from legal exposure, and demonstrates professionalism, builds customer trust, and gives you and your customers a clear roadmap for handling problems.

And if you’re in a regulated industry, handle sensitive customer information, or have questions about data breach readiness, it’s smart to work with a law firm that understands both the business and the tech.

At Danna McKitrick, we help businesses proactively protect what they’ve built, from clear Terms & Conditions documents to cybersecurity policies and data breach response strategies. To ensure your T&Cs are legally sound, comprehensive, and compliant with relevant laws, it’s highly recommended that you consult a qualified legal professional.

Written by attorney Sarah Ayers. Research by law clerk Callie Kinser.

[1] In re Zappos.com, Inc., Customer Data Security Breach Litigation, 893 F. Supp. 2d 1058 (D. Nev. 2012).
[2] “Browsewrap” refers to license agreements in which a user agrees to terms simply by use of a product, rather than through an affirmative action like clicking on a button or pop-up. Often buried on a separate page accessible through a hyperlink or menu option.
[3] Alan Ross Mach. Corp. v. Machinio Corp., 17-CV-3569, 2019 WL 1317664 (N.D. Ill. Mar. 22, 2019).

The choice of a lawyer is an important decision and should not be based solely upon advertisements.

Business Law Sarah Ayers