This article was also published in Corporate Counsel on November 6, 2014.
The vast majority of terms of service (TOS) on websites are unenforceable. Companies spend a great deal of time and money crafting what they believe to be appropriate TOS, which they hope will provide them with the various protections, safe harbors, and advantages needed in dealing with the public or in transacting business. Countless hours are spent honing, devising, revising and fine-tuning. Eventually, they are crafted just the way the entity wants them, and then they are posted. From time to time, as circumstances change, they are revised. After countless hours of design, reflection, revisions and thousands of dollars in legal fees, the appropriate well-crafted TOS appear. Unfortunately, in most cases those bits will not have any legal bite.
The limitations on damages, the forum clauses, the mandatory arbitration, the automatic renewals, the IP ownership clauses, the assignments and the licenses are all for naught. When the entity goes to enforce the TOS, believing they have entered into a contract with their users, they are unpleasantly surprised time and again by judges who refuse to enforce them.
Most websites do not have an affirmative mechanism for users to acknowledge their acceptance of the TOS. For a variety of reasons, usually related to sales and advertising purposes, websites generally want to move people off the landing page into an area where they have products, advertisements, up-sales, promotions, catalog items and the like. The TOS do not help sales or promote the message; in fact, they may scare people off the site. So, in the vast majority of cases, TOS are relegated to the very bottom of the home page of the website where you have to scroll through several, if not dozens, of screens before you reach them. There they are presented in a light and tiny font that says "Terms of Service," "Legal" or some other vague descriptor.
If you click on "Terms of Service," it is a hyperlink that takes you to the actual TOS. Usually, the TOS begin with language saying, "by using this website, you agree to the Terms of Service." However, in reality very few visitors ever click on the TOS link, let alone affirmatively agree to its terms.
How to Make the Contract Binding
The volume of individuals clicking on the "I Accept" button and not reading the terms was highlighted in a recent story from The Guardian, which related that, as part of an experiment, the law enforcement agency Europol set up a free Wi-Fi access point. Before being granted access, however, one had to agree to their terms and conditions, and one term was, "the recipient agrees to assign their first born child to us for the duration of eternity." And yes, people signed up.
Most websites do their best to, and are usually successful at, getting people engaged in the website and off the landing page, so that almost no users ever get to the bottom of the screen or bother to click on the TOS hyperlink.
However, if one is not aware of the terms of a contract, and therefore does not agree to them, one is not going to be bound by the terms of them. In order to make the TOS enforceable, it has to be a binding contract. You can enter into a contract by signing it, by taking affirmative actions (or forbearance), but not by inaction. It is the online equivalent of saying to someone, "If I do not hear from you, I will assume you agree." That just does not work. You need some form of affirmative action or forbearance. This is basic contract law and is the same for enforcing any contract.
So, how are courts dealing with this situation?
The Two Online Licenses
There are two types of online website licenses, click licenses and browser licenses. Click licenses generally are enforced by the courts. Those are the ones where users have to affirmatively state that they agree to the TOS before entering the site and completing a transaction. There usually is a prominent hyperlink to the TOS right next to the "I Agree" button. Courts have been fairly universal in enforcing those types of agreements. Even later, when visitors say they did not read them, they just clicked "I Agree," courts have held very little sympathy for the "I didn't read it" defense. It is important to require customers, visitors, partners, viewers and whoever else visits a website, after giving them an opportunity in a clear and direct way to see the TOS, to click an "I Accept" button so that it will result in an enforceable contract. However, this occurs in a minority of the cases. Most sites do not use click licenses, but rely on browser licenses found in a buried hyperlink.
In the past, a number of courts have given webhosts a bit of leeway, and if the words "terms of service" were prominently displayed on multiple screens or before a transaction occurred, there was a minority of cases that, based on the very visible TOS notice and language indicating one could look at it, did enforce the TOS. (Cairo Inc. v. Crossmedia Servs Inc.).
However, in a recent U.S. Court of Appeals for the Ninth Circuit case that came down at the end of August 2014 (Nguyen v. Barnes & Noble Inc.), the court was fairly direct in its requirements that a party actually needs to click on an "I Accept" button or must have knowledge of the TOS for it to be binding. Even prominent notices that there is a TOS will not work.
The plaintiff neither clicked on the links nor read the terms. As such, the plaintiff argued that he had no notice of the arbitration requirement and therefore did not agree to it. Barnes & Noble argued that he had sufficient constructive notice of the terms to make it enforceable. The court held, "The proximity or conspicuousness of the hyperlink alone is not enough to give rise to constitute notice." The district court ruled against Barnes & Noble, and the Ninth Circuit affirmed. There is a similar holding in the Second Circuit in Specht v. Netscape Commc'ns Corp.).
The message is clear: If one wants to be able to enforce its terms of service, a mechanism for the user to view the terms and then affirmatively agree to them must be provided.