Ninth Circuit Affirms District Court’s Refusal to Enforce Arbitration Clause in Barnes & Noble’s Browsewrap Agreement—Conspicuous Hyperlinks to Terms of Use, ‘Without More,’ Is Insufficient

by Pepper Hamilton LLP

E-commerce forges ahead as many consumers’ preferred way of buying things, and the law is evolving to meet the demands of advancing technology while also accounting for the public’s protection. In the most recent example, the Ninth Circuit Court of Appeals published an opinion, Nguyen v. Barnes & Noble Inc., 2014 U.S. App. LEXIS 15868 (9th Cir. August 18, 2014), in which the court invalidated the bookseller’s arbitration clause in its Web site’s terms of use, putting businesses on notice that something “more” is needed before courts will enforce certain browsewrap agreements.

Nguyen is a putative class action concerning Barnes & Noble’s online “fire sale” to liquidate, at highly discounted prices, its inventory of a discontinued tablet computer. Nguyen had purchased two of the tablets and received e-mail confirmation. But the next day, due to unexpectedly high demand, Barnes & Noble cancelled his order. Nguyen then sued for damages on behalf of himself and similarly situated consumers.

Barnes & Noble responded by moving to compel arbitration. Its Web site’s terms of use provided that all disputes arising out of the site’s use must be resolved in binding arbitration that must be conducted via telephone or online and without mandatory in-person appearances. Additionally, no claims could be consolidated with those of other parties, and the parties expressly waived class arbitration.

However, these usage terms were presented to consumers in browsewrap agreements—i.e., an agreement containing mandatory usage terms that can be reviewed via a hyperlink. Barnes & Noble attempted to tie the consumer’s continued site usage with assent to the browsewrap agreement’s terms, even though users could make a purchase without actually seeing the agreement’s terms—or even knowing they exist. This stands in contrast to clickwrap agreements, which force users to affirmatively click a button or box that shows their consent.

So it was with Nguyen, who claims he never actually followed the link to Barnes & Noble’s terms of use, and never even knew they existed. In deciding whether Nguyen constructively assented, the court analyzed the Web site’s design and content to determine if a reasonably prudent user would have been on inquiry notice of the usage terms. For example, the court noted:

  • Barnes & Noble made the terms available through a conspicuous link in the bottom left corner of every page on the Web site
  • the link appeared prominently alongside links to other similar information, such as a privacy policy and copyright terms, each of which was displayed in underlined green typeface
  • on at least some pages, the link was visible without needing to scroll down
  • the link appeared directly below buttons that consumers must click to checkout, so consumers saw the link before they completed orders.

Nevertheless, the Ninth Circuit held that “where a Web site makes its terms of use available via a conspicuous hyperlink on every page of the Web site but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.” Id. at *17 (emphasis added).

What more (other than converting to clickwrap) should Barnes & Noble have done? The court doesn’t exactly say. But it does discuss with approval other browsewraps that, in addition to making terms available via a prominent link, also provided explicit, sufficiently noticeable warnings that continued use of the site would bind users to the terms. For example, the court extols one such browsewrap that contained such a notice at the bottom of every page. But, Barnes & Noble had not provided such a notice.

Two things should be noted about Nguyen. First, the case is likely distinguishable from those involving business-to-business e-commerce. Nguyen concerns consumers, and the opinion expressly notes courts’ traditional willingness to enforce browsewraps against businesses but not against individual consumers. Still, even in the business-to-business context, this may be a situation where an ounce of prevention is worth a pound of cure, and companies may want to take note of this decision and adjust their e-commerce practices accordingly.

Second, the stakes here were certainly larger than just the proper forum for hearing plaintiff’s claims. Under recent Supreme Court precedent, such class waivers in arbitration provisions are enforceable, and enforcing arbitration here would likely have ended the case. Of course, this underscores the potential value of getting consumers’ effective agreement to usage terms.

In sum, Nguyen lends an important lesson for businesses engaging in e-commerce with California consumers, and who want to do all they can to improve the chances of their arbitration agreements being found enforceable. It appears safest to move to clickwrap and require affirmative evidence of consumer assent to usage terms. Otherwise, if businesses still prefer to use browsewraps, they should at the very least make sure that: (1) usage terms are available via a conspicuous link; and (2) the site contains conspicuous textual notices that use constitutes agreement with the usage terms—and, even then, it is not certain that such provisions will be upheld in light of Nguyen. In the end, despite federal courts’ now 30-year record of enforcing arbitration agreements, arbitration is still a matter of contract, which requires both parties’ agreement.

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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