Companies faced with putative class action lawsuits often use class action waivers, mandatory arbitration clauses, choice of law, and other provisions to reduce exposure and administer the litigation process. Online terms provide other rights and protections, including for permissible uses of the website, automatic renewal programs, and user-generated content, such as consumer reviews and feedback.
To achieve these goals, the first thing companies must do is bind consumers to the terms. This is where things get tricky, and courts have been far from clear about how companies can do this.
In April the Ninth Circuit held in Berman v. Freedom Financial that the webpage "did not adequately call to [consumers'] attention either the existence of the terms and conditions or the fact that, by clicking on the 'continue' button, they were agreeing to be bound by those terms" containing mandatory arbitration provisions. In that case, the plaintiffs sued for violations of the Telephone Consumer Protection Act (TCPA). The marketer argued that its website terms and conditions required plaintiffs to arbitrate their claims rather than proceed as a class action in federal court. The Ninth Circuit disagreed and held that the plaintiff was not bound by the terms.
Instead, the notice must explicitly explain the legal significance of the action the consumer must take to enter into a contractual agreement, such as "By clicking the Continue button, you agree to the Terms & Conditions." The Ninth Circuit found that the marketer did not bind the plaintiffs to the terms because the design and content of the web pages plaintiffs visited did not adequately call to their attention either the existence of the terms and conditions or the fact that, by clicking on the "continue" button, they were agreeing to be bound by those terms.
The moral of the next case is simple: Get the substance of the terms and conditions right at the outset or at least get proof of consent to changes when they are made. In Sifuentes v. Dropbox, a court held that modifications to terms and conditions, which contained a mandatory arbitration clause, did not bind the plaintiff, even though the seller emailed him notice of the modifications.
In that case, the plaintiff filed a putative class action against DropBox over a 2012 data breach. DropBox argued that the plaintiff affirmatively checked a box agreeing to the terms of service when he created an account in 2011. The terms changed twice, including in 2014 when DropBox added an arbitration provision to its terms of service. DropBox argued that it emailed plaintiff and its other customers, notifying them about the updated terms and summarizing the changes, including the new arbitration provision. The plaintiff denied that he ever agreed to arbitrate or read any updated terms of service or opened any emails about these issues.
The court held that the modification did not bind the plaintiff because nothing in the record showed that plaintiff saw or read the email, such as a read receipt reflecting that plaintiff opened the email. Accordingly, the defendant had not shown that plaintiff had actual notice of the updated terms of service—something that could have been cured by getting the terms right at the outset or obtaining proof that the plaintiff consented to or at least saw the revised terms.
These decisions demonstrate that the devil is in the details when drafting online terms and obtaining proof that consumers consented to them. It remains to be seen whether these decisions will have broader impacts on other types of marketing and legal risks, including obtaining consent for telemarketing under the TCPA, other privacy statutes, and automatic renewal laws. Regardless, it might be time for marketers and sellers to reevaluate their terms and conditions, look at how the terms are presented to consumers, and ensure that consent to the terms can be proved.
Don't forget to register for our Advertising Law Symposium, which kicks off on September 15.
If you have questions about your company's website terms, please feel free to contact the authors.