Click it to Stick it: Guide to Creating Binding Online Agreements

Contract terms and purchaser assent to those terms, conditions, intended use and warning information provided with a purchased product are known fertile ground for defending product claims.

In today’s virtual age, consumers turn to the internet to purchase products, particularly during the holiday season. In this post, we examine the enforceability of online contracts and corresponding reliance upon virtually provided product documentation.

Manufacturers and sellers often rely upon contracts featured on their websites to govern relationships with consumers. These contracts, often referred to as “Terms of Service” or “Terms of Use” agreements, routinely contain terms and conditions regarding their visitors’ access to and use of the website. These agreements commonly include terms such as venue and arbitration clauses, which tend to favor the websites by permitting them to litigate claims in a more convenient and less expensive forum. Hosts of additional information can also be provided to online consumers including terms of product use, warnings and product labeling. Whether websites succeed in holding their users accountable for having received, understood and accepted this information, however, depends on whether courts are willing to enforce the agreement and recognize a consumer “reviewed and understood” information provided online. As recent court decisions demonstrate, by following certain guidelines, manufacturers and sellers can improve the likelihood that their online contracts and attempt to inform consumers will be enforced and upheld by the courts.

Web-based agreements can broadly be characterized as either “clickwrap” or “browsewrap” agreements. Clickwrap agreements require users to affirmatively indicate assent by taking action, such as clicking an “I accept” button or checking a box before using the website or placing an order. Browsewraps, by contrast, provide users the terms of use, often through hyperlinks on the main page; they do not require users to take any affirmative action expressly indicating their agreement to those terms. Instead, operators of websites containing browsewrap agreements posit that users manifest their assent to their terms of use simply by using the website.

Decisions by courts reviewing the enforceability of these agreements demonstrate that the primary consideration is whether users had notice of the terms and actually agreed to be bound by them. One way to ensure these criteria are met is to have users actually click to assent to the terms. Hence, courts have treated clickwrap agreements more favorably than browsewrap agreements.

In Fteja v. Facebook, Inc., 841 F. Supp. 2d 829 (S.D.N.Y. 2012), the plaintiff alleged that Facebook wrongfully disabled his account for discriminatory reasons, causing him emotional distress and reputational damage. Facebook filed a motion to transfer the action to federal court in the Northern District of California pursuant to the forum selection clause in its online terms of use. In opposing the motion, the plaintiff argued that he never agreed to the terms of use and thus was not bound by the forum selection clause. Siding with Facebook, the court held that the terms of use were enforceable and binding because the plaintiff had checked a box affirmatively manifesting his acceptance at the time he registered his account.

The recent decision in Nicosia v. Amazon, 84 F. Supp. 3d 142 (E.D.N.Y. 2015) also illustrates the successful formation of contracts online. In that case, the plaintiff filed a putative class action alleging that Amazon improperly failed to prevent the sale of a particular weight loss supplement that contains a controlled substance through its website. Amazon moved to dismiss in favor of arbitration based on an arbitration provision and a class action bar in the user agreement contained on its website. When the plaintiff made his purchases through the website, the final check out screen contained the language: “By placing your order, you agree to Amazon’s privacy notice and conditions of use.” In order to complete his orders, the plaintiff also was required to click a square button below and to the right of this disclaimer stating: “Place your order.” The court concluded that the notice and the “place your order” button was adequate to incorporate the terms of use into the purchase agreement.

Browsewrap agreements have not received the same level approval. In In re Inc., Customer Data Security Breach Litigation, 2012 WL 4466660 (D. Nev. Sept. 27, 2012), a number of plaintiffs sued for allegedly failing to protect their identifying information following a security breach. The action was pending in the District of Nevada when filed a motion to compel arbitration based on a clause in its website’s terms of service requiring all disputes to be arbitrated. The clause was contained in a browsewrap agreement that did not require customers to affirmatively agree to its terms. Rather, the terms of use could be accessed via a hyperlink located in the bottom left corner of its website.  The hyperlink would appear on page three of four if printed out. Holding that the plaintiffs never viewed or manifested assent to the terms, the court observed that “[n]o reasonable user would have reason to click on the Terms of Use,” as failed to direct users to review the terms and “[a] party cannot assent to terms of which it has no knowledge or constructive notice.” In arriving at this conclusion, the court observed that a “highly inconspicuous” hyperlink buried among numerous links does not adequately notify customers of the terms. As such, the court found the arbitration provision to be unenforceable. As the court reasoned, “the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance, no meeting of the minds, and no manifestation of assent.” Absent such manifestation of assent, no contract was formed and the plaintiffs could not be ordered to arbitrate the dispute.

The Ninth Circuit reached a similar ruling last year in Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014). In that case, Barnes & Noble had cancelled the plaintiff’s order for two tablets. The plaintiff filed suit, and Barnes & Noble moved to compel arbitration based on an arbitration provision in its website’s terms of use. The terms of use resembled a browsewrap agreement, as they appeared at the bottom left hand corner of each screen on Barnes & Noble’s website and users were not required to affirmatively indicate their agreement. The court ruled that while the terms of use were accessible to users via a “conspicuous” link during the checkout process, they were not binding on the plaintiff.

As the court explained, in deciding whether to enforce browsewrap agreements, the main consideration is whether users received actual or constructive notice of the terms of use. Thus, the enforceability of the agreement depends on whether the website places a “reasonably prudent user on inquiry notice of the terms of the contract.” In reaching its conclusion that the agreement was invalid, the court found no evidence to indicate that the plaintiff had any knowledge of its terms or the arbitration provision. The fact that the link to the terms was conspicuous to users was not sufficient in and of itself to impart constructive notice. Since it could not be shown that the plaintiff received actual notice of the terms of the agreement, the court determined he could not be forced to arbitrate the action. Courts considering consumer acceptance and reliance upon warning and related product information reached similar conclusions.

In light of courts’ clear trend of upholding clickwrap-style agreements (while disfavoring browsewrap agreements), manufacturers and sellers can take certain steps to improve their chances of having their web-based agreements enforced and consumer acceptance of product related information upheld.

  1. Closely review your websites to determine whether your agreements more closely resemble clickwrap or browsewrap agreements. Manufacturers/distributors/sellers may want to consider replacing browsewrap or browsewrap-style agreements with agreements that require visitors to explicitly accept the terms and conditions and/or product related materials before they can proceed with using the website or placing orders through the website.
  2. Agreements and terms of those agreements should be easily accessible and conspicuous to users (i.e., not buried under other language or other features of the website). One way of accomplishing this is by including text linking to those terms in bold text that is in a different color, font, or format from the surrounding language.
  3. Consider including language explicitly stating that the terms apply to the use of the website and any orders placed through it. Placement of a separate button that users can click or a box to check in close proximity to the terms before a user can proceed with making a purchase or registering an account is prudent as well. Requiring users to affirmatively indicate their assent in this manner is critical to establishing that they had notice of and agreed to be bound.
  4. Finally, keep internal records reflecting users’ acceptance of information and assent to agreement terms. This will serve as clear evidence that users have agreed to the website’s terms.

By following these guidelines, manufacturers and sellers can place themselves in a stronger position to successfully enforce the terms and conditions on their websites in court, and hold consumers accountable for having received, reviewed and accepted the warnings and product related information so diligently provided.

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Products Liability Prevention & Defense
Our attorneys represent foreign and domestic designers, manufacturers, and distributors of a diverse array of products, from food and drugs to industrial equipment and building materials. We help clients respond to major personal injury and property damage claims in the form of single-product cases, class actions, mass torts, and multidistrict litigation, as well as all types of congressional, regulatory, or criminal investigations. Our team works closely with corporate counsel to minimize a company’s overall liability and establish efficient protocols for fielding claims and advise on labeling, marketing, manuals and instructions, supply and distribution contracts, and insurance and indemnification issues.
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