Tuesday, September 2, 2014

“Airtight” Online “Terms of Use” via Clickwrap or Browsewrap

Do you know the differences between a “clickwrap” agreement and a “browse-wrap” agreement?  If you don’t, you might be unable to enforce your website’s “terms of use.”  In either case, it might be time to redesign your Website’s legal links to ensure they are valid contracts enforceable against your users.

In a recent decision, the U.S. Court of Appeals for the Ninth Circuit upheld an earlier ruling (Nguyen v. Barnes & Noble, Inc., USDC, C.D. California, Aug. 28, 2012) that an online customer at an e-commerce website did not agree to the website’s terms and conditions governing website use and sale of goods, even though there was a conspicuous hyperlink on every page to the website’s “Terms of Use.”   Nguyen v. Barnes & Noble, Inc. (9th Cir. Aug. 18, 2014).  The court held that the user never gave valid binding consent to arbitration or choice of law terms, because (1) the user did not click on the “Terms of Use”, (2) there was “no notice to users” that they were entering into a contract by using the website, and (3) there was no prompt to users to take any affirmative action to demonstrate assent to formation of a contract.  As a result, the website owner was unable to rely upon the Terms of Use, and the consumer was entitled to sue in court for claims arising out of a failed online commercial purchase.

For website users, the decision encourages never clicking on any hyperlinks relating to “terms of use”, “privacy,” “legal conditions” or other hyperlinks customarily posted by website owners.  For website owners, the decision is a wake-up call to immediately change the layout and functioning of the “terms of use,” “legal conditions,” “privacy” and other warnings.

In Nguyen, the court reminded the parties that there are only two flavors of contracts formed on the Internet.

  • Under “clickwrap” (or “click-through”) agreements, website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use.
  • Under “browse-wrap” agreements, a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the page, but there is no functionality requiring the user to manifest assent to the terms and conditions expressly.  Because there is no affirmative duty to express such assent, the determination of the validity of the browse-wrap contract depends on whether the user has actual or constructive knowledge of the website’s terms and conditions.  (Such knowledge may be presented on the website or may be given later, in the form of a mailed notice of breach and demand for cure.  Without such knowledge, there is no online contract.

The Nguyen decision did not address whether the website user is deemed to have assented to the website’s privacy policy.   However, the same principles could apply if the user were to argue that she had no actual knowledge of the privacy policy and never assented to the use of cookies, pixel tags, metadata analysis, profiling or other clandestine surveillance, or the re-transfer of personal information to third parties.

To ensure actual consent, the Court warned that “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.”  Website owners now must be more “aggressive” or “unfriendly” by giving “actual notice” of the terms and demanding either a clickwrap or a browse-wrap agreement.  “User experience” (“UX”) engineers must now find solutions to keep the website user engaged and in a positive mood, while ensuring that the user is aware of the terms of use and consents to such terms.

One solution involves delaying an “I agree” button (or a display of actual terms of use) until the user is ready to make a purchase or submit information.  But that probably is too late, since the website owner will want to keep any dispute (even as to pre-purchase website usage) out of court and limited to applicable law and a chosen arbitral forum.

Another solution is to force a “pop-up” “I consent” when the user wants to leave the home page.  This could work for privacy matters as well so long as no customer profiling information (from cookies, etc.) were collected at the landing page.  That would require a change in search engine optimization and metatagging customs.  Or “Privacy” might be incorporated into “Terms of Use” to reduce the number of “approval” clicks by users.

A third solution might involve displaying a “Website Terms of Service” button that states “By clicking here, you are indicating that you have read and agree to the Terms of Service.”

The bottom line: “Whether a user has inquiry notice of a browsewrap agreement,  in turn, depends on the design and content of the website and agreement’s webpage.”  Slip opinion, p. 12.  This decision invites everyone to review and perhaps to redesign the legal framework for their online website-based legal agreements.

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