This article also appeared in the January 2015 issue of The Licensing Journal.
The Ninth Circuit Court of Appeals recently decided a case addressing the enforceability of terms of use posted on websites as mere notices that are not affirmatively accepted by users through a formal acceptance process such as checking an "I agree" box. This case reinforces certain principles of online contract formation and provides helpful guidance to companies of all sizes across countless industries that use websites and/or mobile applications to promote their businesses and connect with customers.
Background
In a recent decision, Nguyen v. Barnes & Noble Inc., 2014 U.S. App. LEXIS 15868 (9th Cir. August 18, 2014), the plaintiff alleged that the website operator engaged in deceptive business practices and false advertising by cancelling an order placed through the website operator's website. The website operator moved to compel arbitration because the terms of use (TOU) posted on its website contained a provision that required all disputes arising out of website use to be resolved through arbitration. The plaintiff argued that it was not bound by this arbitration provision because it neither had notice of, nor agreed to, the TOU. In response, the website operator argued that the arbitration provision was enforceable because (i) the placement of the TOU on the Website provided constructive notice of the contract, including its arbitration provisions; and (ii) the plaintiff continued to use the website after such notice.
In analyzing the case, the court closely scrutinized the website's actual design and content and the contract notice and implementation measures used for the TOU. Following this review, the court concluded that (i) the TOU was accessible through underlined hyperlinks set in green typeface located in the bottom left-hand corner of every page on the website; and (ii) those hyperlinks were located (a) alongside other legal notices, and (b) in close proximity to buttons that users had to click on to complete online purchases. Nevertheless, despite these findings, the Ninth Circuit Court of Appeals ultimately still ruled against the website operator as follows:
"[W]here 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 rise to constructive notice."
Accordingly, the court held that the plaintiff did not receive sufficient notice of the TOU, and therefore did not accept the terms and enter into a contract with the website operator. Without an enforceable contract, the website operator could not rely upon arbitration as a means to address the plaintiff's claims.
Implications
This recent decision does not break any new legal ground. Traditional contract formation analysis will still apply to website terms of use. Nonetheless, this case does illustrate and confirm a number of important principles that bear repeating about the use and enforceability of online contracts. For instance, courts remain reluctant to enforce against individual consumers normally bargained-for contractual terms contained in browsewrap agreements, including, without limitation, forum selection clauses, class action waivers, and/or mandatory arbitration provisions.
Further, this decision highlights the importance of evaluating the unique facts and circumstances when considering whether to implement terms of use through a browsewrap agreement or a more formal clickwrap agreement (i.e., terms that must be accepted through some affirmative process). The content and functionality of the website, the website operator's risk tolerance, the products and services offered on the website, the particular terms included in the terms of use, whether any fees apply, and the types of contracting parties and their respective bargaining positions can all be relevant in determining the proper method for implementing terms of use under the applicable circumstances.
Furthermore, this decision also teaches businesses not to lose sight of the vital fact that drafting properly customized terms of use for a particular website is only half the battle. All online legal terms must also be presented to and implemented with users in a manner that would make them enforceable. Otherwise, even the most protective and clearly drafted terms of use are at risk of being set aside. Lastly, although this case does not directly address principles of online contract formation on mobile applications, it seems to suggest that businesses should be particularly cautious when considering how to implement online agreements on mobile applications.