In December 2001 Kodak's Web site offered a digital camera package for £100. It was advertised as a "special deal" and within days thousands of customers placed orders online and provided their credit card details for payment. They received an automated online confirmation that urged them to keep the message both as proof of purchase and for claiming under warranty.
Then Kodak discovered that the price of £100 was an error - the price should have been £329.
Kodak initially claimed that the orders for cameras had not been accepted so no contract was formed. It said the confirmatory e-mail was only sent to follow industry practice and was not an acceptance of an offer.
A contract is formed where there is an offer, an acceptance, consideration and an intention to create legal relations. An offer is distinguished from an "invitation to treat" because the latter lacks that intention to be legally bound.
Although Kodak's Web site did not make it clear, the relevant pages were probably an invitation to treat. By filling out the order form and giving credit card information, the customer responded by making an offer to buy the package.
The difficulty for Kodak, however, was that the automated response suggested that the orders had been accepted. It not only acknowledged the order but also talked about "this contract". Although the response was no doubt designed to enhance the user experience, it gave customers the impression that their orders had been accepted.
So to avoid difficulties it is essential to ensure that your Web site is structured to reflect the way you want to do business. If Kodak wants to be certain that an automated e-mail in response to an order does not amount to acceptance of the order, this should be made clear so that the customer is in no doubt about the position. The Web site should also specify when acceptance does occur. This will be necessary in any case to comply with the latest EU laws on e-commerce.
Kodak argued that the customers must have realised the £100 price tag was a mistake. The courts have long accepted that a contract is unenforceable where the offer does not express the true intention of the seller, if the purchaser must have realised that a mistake has occurred.
The Internet, however, is seen as a medium for great bargains so online customers might have difficulty distinguishing between a price error and a promotion. A product advertised online as a "special deal" during post-Christmas sales had obviously been taken seriously enough by Kodak's customers.
An e-tailer looking to protect itself should set up systems to ensure that mistakes are picked up before product details and prices are loaded on to a live Web site.
Kodak may also have been accused of committing the offence of giving a misleading price indication. To defend this allegation Kodak would have had to show that it acted diligently and took all reasonable steps to avoid misleading the consumer.
In the event Kodak agreed to honour the orders, whether as a public relations consideration or after a reassessment of the legal position is not clear. However, it undoubtedly has proved an expensive experience for the company.
How to get Web contracts right
- Ensure that Web sites are set up as invitations to treat, not as offers
- State clearly in your terms and conditions when acceptance occurs
- Clarify any conditions which affect the basis of accepting the order
- Have reliable systems in place to stop errors happening or at least identify them before it is too late
John Worthy is head of e-commerce at international law firm Denton Wilde
This was first published in March 2002