Juno Settles With NY on Service Agreement

Changes in service agreements could be hazardous to an ISP’s legal health — if proper notification is not given to customers.

While asserting it had complied with all applicable laws, Juno Online Services Inc., now a subsidiary of United Online Inc. , settled an inquiry by the New York Attorney General Eliot Spitzer Tuesday.

The inquiry stemmed from service agreement
changes that Juno initiated early in 2001 in order to pave the way for a distributed supercomputing effort dubbed the Juno
Virtual Supercomputer Project (JVSP).

Spitzer alleged that the way in which Juno amended its service agreement with customers amounted to deceptive business practices, false advertising and a violation of state laws.

The settlement, which included a $30,000 payment to cover the costs of the investigation, requires the company to take several steps
to notify its customers about service agreement changes, above and beyond posting the new agreement to its Web site.

Under the agreement, when the company makes a “material change” to its service agreement, it will have to provide notice of the
proposed changes to each active subscriber affected by the change.

The notice has to be delivered either by e-mail 30 days prior to
the effective date of the change; through a “pop-up” screen displayed the first time the subscriber signs onto the service during
the period beginning at least 30 days prior to the effective date of the proposed change and ending no earlier than 60 days
following the date of the change; or by U.S. mail at least 30 days prior to the effective date of the change.

The assurance also
requires the company to post the new service agreement on the Web site at least 30 days prior to the date of the effective change.

In addition, the notifications and the Web site posting must “clearly and conspicuously identify that there is a change, state the
effective date of the change, briefly describe the subject matters covered by the change and refer the member to the specific
paragraph(s) in the service agreement where the full text of the change is set forth.”

In the Assurance of Discontinuance which settled the inquiry, Juno did not have to admit any pending charges.

“Juno asserts that it has conducted its business in compliance
with all applicable laws and that its practices equal or exceed the compliance level of other Internet Service Providers,” it said in a statement.

modification of its services and by agreeing to this Assurance, Juno does not admit, and expressly denies, that it has violated any provisions of the laws enforced by the New York Attorney General. Juno specifically asserts that modifications to its subscriber
service agreement in early 2001, and its communications with subscribers concerning the then-planned JVSP were conducted in accordance with applicable New York law. While Juno concedes that certain of its communications regarding the JVSP were poorly
drafted, the JVSP was intended only to apply to subscribers who affirmatively agreed to participate in the JVSP. However, the JVSP
was never implemented and Juno has no plans to revive the JVSP.”

A United Online spokesman added, “The supercomputing project was never implemented. It was a project that Juno had in the works before it merged with NetZero. After the merger closed, the company chose not to continue.”

The JVSP, which withered on the vine in the wake of Juno’s merger with NetZero to form United Online, was intended
to help monetize Juno’s free subscriber base by harnessing subscribers’ unused processing power and selling it to medical research
facilities which do a lot of compute-intensive work.

But, in order to make the project — which then Chief Executive Officer Charles Ardai said could conceivably attain a hypothetical
effective processor speed in the order of a billion megahertz — work, the ISP had to make some changes to its service agreement.

The initial version of the new service agreement, posted to Juno’s Web site on Jan. 18, 2001 (the JVSP was not announced until Feb.
1, 2001), had language that would require subscribers to allow it to download “computational software” to subscribers’ computers,
and which could even require subscribers to leave their computers on at all times.

“In connection with downloading and running the Computational Software, Juno may require you to leave your computer turned on at all
times, and may replace the “screen saver” software that runs on your computer while the computer is turned on but you are not using
it,” section 2.5 of the service agreement said. “The screen saver software installed by Juno, which may display advertisements or
images chosen by Juno, is an integral part of the Computational Software and you agree not to take any action to disable or
interfere with the operation of either the screen saver software or any other component of the Computational Software.”

Additionally, the policy put the onus on subscribers for dealing with costs associated with those requirements.

“You agree that, as between you and Juno, you shall have sole responsibility for any maintenance or technical issues that might
result from such continuous operation,” the policy said. “If your usage of the Service is infrequent, Juno’s ability to obtain the
results of completed computations may be impaired. Consequently, you expressly permit and authorize Juno to initiate a telephone
connection from your computer to Juno’s central computers using a dial-in telephone number you have previously selected for
accessing the Service; Juno agrees that it shall exercise such right only to the extent necessary, as determined in Juno’s sole
discretion, to upload the results of completed computations to Juno in a timely fashion; and you agree that, as between you and
Juno, you shall be responsible for any costs and expenses (including without limitation any applicable telephone charges) resulting
from the foregoing.”

On Feb. 1, 2001, Juno announced the JVSP in a press release which toned down some of the language from the service agreement:
“Initially, Juno expects to recruit volunteers from among its millions of subscribers to provide the computing power required for
its early virtual supercomputing activities. Subscribers to Juno’s free basic service may ultimately be required to make their
unused computing power available to the projects as a condition for using that service. While the company’s billable subscribers
may be offered the opportunity to participate on a strictly optional basis in order to advance biomedical research and/or other
forms of scientific and technical progress, the company does not currently expect to require the participation of such subscribers.”

At that time, Ardai also told InternetNews.com that the new service agreement would initially only apply to new subscribers, not
existing free subscribers, though he also noted that the company reserved the right to extend the agreement to all free subscribers
at a later date.

But it was not the conditions of the new service agreement which caused Spitzer to look askance. Instead the New York attorney
general claimed the company had made insufficient attempts to notify its customers of changes to its policy.

Juno followed up the press release with e-mails to all of its subscribers (both billable and free) on March 5, 2001, which explained
the project. The e-mails were identical, except for one sentence. Billable subscribers were told: “As a paying subscriber to one of
our premium services, you will NOT be required to participate in this project — but we thought you might be interested in learning
about it.” Meanwhile, free subscribers were told: “We would like as many of our members as possible to participate in this project,
allowing us both to maximize our contribution to advanced research and to help us cover the cost of providing the free Internet
access service of which you are currently a user.”

However, on March 13, 2001, Ardai sent an e-mail to all Juno users. The e-mail included the latest version of the service agreement
(posted to the company Web site on March 13). In the e-mail, Ardai said that although “the new Service Agreement is identical to the
previous version in many respects, there have been a number of additions and changes.” He continued, “take a moment to review the
Agreement” because by “[c]ontinuing to use the Juno service, you indicate that you have read and accept the terms of the revised
Agreement…” He went on to say, “changes will be effective immediately upon transmission of notice by e-mail…”

Attorney General’s issues
The attorney general’s office noted that Ardai’s e-mail did not highlight or describe the changes between the old and new service
agreements, and did not include a version of the old service agreement.

“It was deceptive and misleading for Juno to have represented repeatedly to its paying subscribers in its February press release,
its March 5th e-mail, and its posted “FAQ’s” that [billable] subscribers would not be required to take part in the JVSP, and then
only eight days later, in its March 13th Web site posting and the Ardai e-mail, to have revised the Service Agreement to include the
material changes contained in the March 13th web site posting and the Ardai e-mail, which
purportedly subjected Juno’s paying subscribers to the very provisions of the JVSP,” Spitzer said in the assurance.

He added, “It was impermissible for Juno to have represented to its subscribers that the changes to the Service Agreement in
connection with the JVSP were “effective immediately.” Such a provision afforded consumers an unconscionably short time (i.e., no
time at all) to decide whether to assent to the changes, and, likewise to find an alternative ISP if they disagreed with terms of
the revised Service Agreement. Such a term therefore constituted a coercive, improper, and thus unconscionable business practice.

He also noted that the provisions were unenforceable, because the notice the company provided to subscribers was “insufficient to
support a claim of voluntary consent since the changes were neither highlighted nor described, and were contained solely within a
much larger fifteen page e-mail.”

— Erin Joyce contributed to this article.

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