The United States Court of Appeals for the Ninth Circuit recently decided the case of Kevin Khoa Nguyen v. Barnes & Noble, Inc., No. 12-56628 (9th Cir. 2014). This case highlights the importance of making website Terms of Use and other policies as clear and conspicuous as possible, and even requiring a website user to affirmatively agree to such terms before using the website.

Summary of the Case

Barnes and Noble is a well-known retailer with both physical and online stores. Customers can purchase items using the Barnes and Noble website. At the time the facts of this case took place, Barnes and Noble’s website contained Terms of Use (the “Terms”), which were available via hyperlinks located on the bottom of each page of the website as well as on each page of the online check out process. The hyperlinks were underlined and in green font.

The Terms of Use were in a “browsewrap” format, meaning that a website user would could click on a hyperlink and view/scroll through the Terms. The website did not require any affirmative action on the part of the user to acknowledge and agree to the Terms (such as, for example, in “clickwrap” formats where a user must “check the box” before proceeding).

In August 2011, Barnes and Noble offered a “flash sale” of Hewlett-Packard Touchpads, offering the devices at significantly reduced prices. Nguyen ordered two Touchpads via the Barnes and Noble website and received confirmation via email of the transaction. The next day, Nguyen received another email from Barnes and Noble, informing him that his order was cancelled due to an unexpectedly high demand for the product. Nguyen then purchased substitute products at a significantly higher price. Nguyen alleged that his reliance on the first email from Barnes and Noble confirming his transaction, and their delay in informing him that the transaction was cancelled, prevented him from taking advantage of the sale and purchasing the Touchpads at the reduced price. Nguyen filed suit in California Superior Court against Barnes and Noble on behalf of himself, and others whose orders had been cancelled, claiming that Barnes and Noble engaged in deceptive business practices and false advertising.

Barnes and Noble moved to compel arbitration, arguing that Nguyen was bound by the arbitration clause in the Terms. Nguyen’s position was that because he had no notice of the Terms, and did not agree to them, he was not bound by the arbitration clause. Barnes and Noble’s position was that Nguyen had constructive notice of the Terms via the hyperlinks on each page, and was therefore bound by the arbitration clause.

The question before the Court was whether or not by merely using the Barnes and Noble website, Nguyen was bound by the Terms when he was not prompted to agree to them and, as he claimed, never read them.

In analyzing this issue, the Court made clear that the doing business over the internet has not changed two fundamental principles of contract law: (1) contracts require mutual assent of the Parties, and (2) failure to read a contract before agreeing to its terms does not relieve a Party of its obligations under the contract. The Court, however, did point out that the burden is on website owners to put users on notice of their terms.

The Court also made a distinction between “browsewrap” and “clickwrap” formats for providing terms, stating:

Were there any evidence in the record that Nguyen had actual notice of the Terms of Use before completing his online purchase, the outcome of this case might be different. Indeed, courts have consistently enforced browsewrap agreements where the user had actual notice of the agreement.

Without evidence that Nguyen had actual knowledge of the Terms, the Court then turned to whether or not the Barnes and Noble website was sufficient to put a “reasonably prudent user” on notice of the Terms.

Previous cases have supported the notion that terms buried in the footer of a website or obscured in a manner that makes them hard to find (not using a stand-out color, underline, or other distinguishing feature) is not sufficient to provide notice of the terms to a user. The Court in this case agreed with this position and took the analysis one step further, stating:

Where a website makes its terms of use available via a conspicuous hyperlink on every page of the website 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 constructive notice.

As such, the Court held that Nguyen did not have sufficient notice of the Terms and therefore he did not enter into a contract with them for arbitration of any claims.
Practice Tips

• Every website should have Terms of Use governing the relationship between the website owner and website users.
• Terms of Use must be clear, conspicuous, and prominently displayed so that a reasonably prudent user can easily find them.
• Websites should require some form of affirmative acknowledgement and acceptance of the Terms of Use whether by “clicking the box” or “agreeing before proceeding.” This is particularly relevant for online retailers or websites that collect financial or personally identifiable information from users.