Landmark Second Circuit Ruling Clarifies the Standards for Mobile Contracts

by Coblentz Patch Duffy & Bass
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On August 17, 2017, the United States Second Circuit Court of Appeals issued a landmark ruling in Meyer v. Kalanick1 that clarifies the standards for contract formation in the age of smartphones and mobile contracting, providing important guidance to companies about how to design enforceable mobile contracts. The Second Circuit, applying California law to determine the enforceability of the arbitration clause in Uber’s Terms of Service (“Terms”), held that a “reasonably prudent smartphone user” unambiguously assents to a conspicuously hyperlinked contract when he downloads a smartphone application (“app”) to his mobile phone and signs up for an account. Coblentz, led by Timothy Crudo, Rees Morgan, Mark Hejinian, and Skye Langs, had filed an amicus brief in the case on behalf of the Internet Association and the Consumer Technology Association urging the Court to adopt the “reasonably prudent smartphone user” standard.

The case arose after Plaintiff Spencer Meyer used his mobile phone to download Uber’s smartphone app and register for an account. During the registration process, Meyer entered his credit card information and, on the same screen, clicked a button marked “Register.” The “Register” button was located just above a notice, hyperlinked to Uber’s Terms, that “(b)y creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”

After using Uber’s app to hail several rides, Meyer filed a class action lawsuit alleging that the app facilitates price fixing. Uber moved to compel arbitration under its Terms, but Judge Jed Rakoff of the United States District Court for the Southern District of New York held that the contract was not binding because the registration page did not provide reasonably conspicuous notice of the Terms, nor did Meyer unambiguously manifest assent to them.2

The Second Circuit reversed, cutting through the weeds of numerous decisions governing contract formation in the modern landscape of “clickwrap,” “browsewrap,” and “sign-in-wrap” agreements. While the question of whether a consumer has assented to terms of an online agreement turns on the design of the user interface – such as the proximity between the link to the contract terms and the manifestation of assent, as well as the amount of visual clutter on the page – the Court viewed the precedent of online contracting through the lens of what a “reasonably prudent smartphone user” would expect when downloading and using a mobile app.

The Court recognized that smartphones are increasingly ubiquitous, with modern consumers conducting significant business through mobile apps, including shopping, online banking, and health management. A reasonable smartphone user engaged in such e-commerce understands that by downloading apps and creating accounts, they are entering into contracts. Explicitly applying, for the first time, the standard of a “reasonably prudent smartphone user,” the Court held that, as a matter of California law, the design of the registration page on Uber’s mobile app provided “reasonable notice” to a smartphone user that he or she was entering into a contract, and that by clicking the “Register” button, Meyer unambiguously assented to Uber’s Terms.

The Second Circuit’s ruling clarifies the standards for mobile contract formation and provides companies with important guidance for designing user interfaces that will support the enforceability of internet or app-based consumer contracts. The ruling does not, however, mean that businesses no longer have to worry about the validity of the contracts their customers execute through online or mobile applications. Consumers are not automatically on notice that they are entering into a contract merely because they have downloaded and used a smartphone application or completed an online transaction. The terms and conditions still must be conspicuous, and it must be clear when and how consumers assent to them.  But the Second Circuit's opinion recognized that the conspicuousness of the terms and the sufficiency of assent should be analyzed from the perspective of a reasonable person who engages in mobile contracting – someone, in other words, who would understand the import of hyperlinks and other common indicia of contract formation in the e-commerce era.

Now is a good time for businesses to review their online and mobile contracting practices. Make sure that your terms and conditions are highly visible on an uncluttered page or screen. Also make sure that users are required to affirmatively indicate their assent to the terms, either by clicking a button or checking a box, before engaging in any of the activities you intend to have governed by the contract. For mobile phone applications, the terms (or a link to them), along with a way to indicate assent, should be the only things displayed on the screen at the time of contract formation. Finally, while not necessarily required, requiring users to actually scroll through all the terms, and affirmatively indicate that they have read them and agree to them, goes a long way towards ensuring that users are on clear notice of the terms and have objectively assented to them.

 

1 Meyer v. Kalanick, Nos. 16-2750-cv, 16-2752-cv (2nd Cir. Aug. 17, 2017).

2 Meyer v. Kalanick, 200 F. Supp. 3d 408 (S.D.N.Y. 2016).

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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