Court Limits the Enforceability of "Browsewrap" Terms of Use—Best Practices in Online Contracting

by Wilson Sonsini Goodrich & Rosati
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In an important decision regarding the viability of so-called "browsewrap" agreements, the United States Court of Appeals for the Ninth Circuit—which covers California, among other states—recently affirmed a district court's refusal to enforce important provisions from Barnes & Noble's website Terms of Use (the Terms) after concluding that the plaintiff in a putative class action had not provided affirmative consent to the Terms and, therefore, is not bound by them. Although this case involved an arbitration clause, the holding of the case applies to online contracting generally, and, given the number of important provisions contained in online terms of use, this decision should be considered carefully by anyone using online contracts and determining how to obtain user consent to them.

As discussed in a previous WSGR Alert, courts are increasingly skeptical of so-called "browsewrap" agreements1 unless there is evidence that the end user knows or has reason to know that the site is offered subject to acceptance of the terms of use. In Nguyen v. Barnes & Noble (Nguyen),2 the Ninth Circuit went further, holding that making terms of use available via conspicuous hyperlinks on every page of a website, even if in close proximity to relevant buttons users must click, is insufficient to constitute notice of those terms to make them binding on users if the company does not prompt them to take affirmative action to demonstrate assent. As a result, the court concluded that the plaintiff did not assent to the arbitration provision contained in the Terms. This decision merits careful consideration by website operators and serves as a reminder that terms of service that fail to require users to affirmatively assent—for example, through an "I Accept" checkbox—may be unenforceable.

The Nguyen Decision

In Nguyen, the plaintiff filed a putative class action lawsuit after Barnes & Noble canceled his order for two HP Touchpads offered at heavily discounted "fire sale" pricing because of unexpectedly high demand. Barnes & Noble (B&N) attempted to have the case dismissed based on the arbitration clause included in its Terms. The district court denied B&N's motion, finding that the parties never entered into the agreement that contained the arbitration clause, and allowed the case to proceed in court.

The terms of use at issue in Nguyen were available via a "Terms of Use" hyperlink located in the bottom left-hand corner of every page on the B&N website. The hyperlink appeared either directly below the relevant buttons users must click to proceed through the checkout process, or just a few inches away. Because the user was not required to affirmatively accept the Terms, the court explained that enforceability depended on whether the user nonetheless had actual or constructive knowledge of them.

Actual Knowledge. The plaintiff in Nguyen was never required to click on the "Terms of Use" hyperlink or actually read the Terms in order to complete his purchase, and there was no other evidence with which B&N could prove that the plaintiff had actual knowledge of the agreement.3

Constructive Knowledge. Without evidence of actual knowledge, the court looked at whether the Terms were sufficiently evident to make a reasonably prudent user aware of them, doing a highly fact-intensive analysis into the manner in which the Terms were presented to users of the B&N website. Specifically, the court considered the following factors in its analysis: (1) the conspicuousness and placement of the link to the Terms; (2) other notices given to users of the Terms; and (3) the website's general design. Ultimately, the court held that B&N's conspicuous "Terms of Use" hyperlink and its proximity to relevant buttons alone were not sufficient to constitute constructive notice of the Terms, holding that the onus is on the provider to notify users of terms they wish to make binding.4 "Given the breadth of the range of technological savvy of online purchasers," the court summarized, "consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to expect they will be bound."5

Accordingly, because the plaintiff did not have actual or constructive notice of the Terms, the court did not enforce them and did not require the parties to arbitrate his claims, as would have been required by the Terms.6

Considerations in Choosing and Implementing Online Agreements

Choosing Between Clickwrap and Browsewrap. Many website operators may be hesitant to include clickwrap agreements because they introduce a potential barrier to use of the site. When the website consists largely of static information, such as a corporate website summarizing product and service offerings or a news site, there may be little risk associated with failure to bind a user to particular terms. When a website offers services such as e-commerce, content storage, social networking, or financial account management, particularly when the services are paid for, there is a greater need for certainty that the provider will have the benefit of important terms, such as warranty disclaimers, limitations on liability, forum selection, and dispute resolution7 provisions.

Implementing Clickwrap Agreements. In implementing clickwrap agreements, a service provider needs to ensure that the process gives the user a meaningful opportunity to review the terms and requires the user to affirmatively indicate assent before proceeding (such as a checkbox with a hyperlink enabling the user to open the terms in a new window). In addition, providers should ensure that the box is unchecked by default, the form includes sophisticated data validation to ensure that the user cannot proceed without checking the box, and the back-end database saves a date stamp or similar record that the box was in fact checked.

Modifying Terms. Service providers often find that their terms need to be modified for any number of reasons as services evolve over time. It is important to include a modifications provision that entitles the service to make such changes, provided that the provision isn't so broad that it undermines the validity of the terms themselves. If it is important to the service provider that a modification applies to all existing users and not just new users, the provider should require re-assent or, at the very least, provide prominent notice of the change, such as via email to users or a pop-up or similar notification through the service the first time a user returns to the site. While these methods are the most common, companies are increasingly using creative ways to obtain re-assent, or provide notice, with minimal disruption to the user experience. When a service charges a fee or holds any kind of funds on account for users, the service should offer prompt refunds or repayments of unused amounts if the user does not agree to the new terms.

Conclusion

How to implement and modify online terms of use and similar online agreements is an important decision that depends heavily on the nature of the service, a company's litigation risk profile, and the importance of the enforceability of the particular terms of use.


1 For a more detailed description of the difference between "browsewrap" and "clickwrap" implementations of website terms, see "Federal District Court Refuses to Compel Arbitration, Holding That Zappos.com's 'Browsewrap' Agreement Was Not a Valid Contract," WSGR Alert, November 7, 2012, available at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-browsewrap-agreement.htm.

2 --- F.3d ----, No. 12-56628 (9th Cir. Aug. 18, 2014).

3 Id. at *5.

4 Id. at *14-15.

5 Id. at *15-16.

6 Id. at *18.

7 For a discussion of the enforceability of compelled arbitration and class action waivers in end user terms of service, see "U.S. Supreme Court Issues Significant New Decision Regarding Class Action Litigation," WSGR Alert, April 28, 2011, available at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/pdfsearch/wsgralert_class_action_litigation.htm.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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