“I Have Read and Agree to These Terms and Conditions”: Online Contracting in the Internet Age

In our ever evolving Internet-based economy in which consumers purchase a variety of goods, services and subscriptions online, it is critical to correctly draft online contracts so that they will be upheld if subject to a challenge by consumers.

In the first quarter of 2015 alone, the U.S. Department of Commerce estimated domestic e-commerce sales of $80.3 billion. (Quarterly Retail E-Commerce Sales 1st Quarter 2015) In the wake of recent case law regarding online contracts -- including the April 2015 decision from the Eastern District of New York in Berkson v. Gogo, which found an online contract of adhesion unenforceable -- it is increasingly important to stay abreast of developments in this area of the law. In our ever evolving Internet-based economy in which consumers purchase a variety of goods, services and subscriptions online, it is critical to correctly draft online contracts so that they will be upheld if subject to a challenge by consumers.

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Courts tend to group online contracts into four different categories, each requiring a different degree of participation on the part of the individual who is contracting via the Internet: browsewrap, clickwrap, scrollwrap and sign-in wrap online contracts. Briefly, browsewrap (the least likely to be enforced) refers to online agreements in which the website owner deems mere use of (browsing on) the website to constitute assent to certain contractual terms. Clickwrap exists where users must affirmatively click an icon such as “I agree,” but not necessarily view the actual contract to which they are assenting. A scrollwrap contract (usually the most likely to be enforced) requires users to scroll through the terms and at the end, affirmatively indicate their agreement by clicking “I agree.” Sign-in wrap is a hybrid, coupling assent to the terms of the site with the process of signing up for use of the site.

A very high percentage of Americans purchase goods online. (In the first quarter of 2014, 198 million U.S. consumers, or 78 percent of Americans over the age of 15, purchased something online. Cooper Smith, The surprising facts about who shops online and on mobile (Feb. 23, 2015)) However, disputes continue to arise regarding the degree of participation required of the user in order for an online agreement to be enforceable. The Ninth Circuit grappled with the enforceability of browsewrap agreements in 2014 (Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014).) and, most recently, in Berkson v. Gogo, a federal court in New York found a sign-in wrap contract used by Gogo (the online wifi provider) to be unenforceable. Based on the current state of the law, certain issues should be considered when drafting online contracts. (Although determining the existence and enforceability of a given contract is an issue of state contract law, many such state laws are essentially the same with respect to these questions.)

 

Provide Clear Notice

Naturally, a basic tenet of contract law is notice: a consumer must have notice of the terms of a contract in order to be bound by them. As one court noted in rejecting an online agreement, “[t]he 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.” (In re Zappos.com, 893 F. Supp. 2d 1058, 1066 (D. Nev. 2012).) For a meeting of the minds, users must know that they are binding themselves to the terms of the contract.   

As is true of paper contracts, if a company can demonstrate that the user had actual notice, terms that are difficult to find, or even hidden, will be enforced. Where the user had actual notice of the agreement, courts will even enforce browsewrap agreements, (Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1176 (9th Cir. 2014) (collecting cases).) which is essentially the loosest type of online agreement. However, where “there is no evidence that the website user had actual knowledge of the agreement, the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” (Id. at 1177.)

Notably, the burden is on the website owner to put its users on notice if it hopes to bind its users to contractual terms. Interestingly, what constitutes adequate notice for a paper contract may not suffice in the world of online contracts. Currently “[r]eliable scientifically-based studies assessing the types of visual and written cues that put a representative sample of American society, i.e., the average internet user, on actual notice of the importance and ramifications of 'terms of use' have yet to appear.” (Berkson v. Gogo LLC, 2015 WL 1600755, at *11 (E.D.N.Y. April 9, 2015).) As a result, the court in Berkson v. Gogo held that website owners should be subject to stricter scrutiny for notice than those contracting on paper because “[b]ased on assumptions about internet consumers, they require clearer notice than do traditional retail buyers.” (Id. at *13.)

Without evidence of actual notice, a court will examine whether the website puts an "average internet user" on inquiry notice of the contractual terms. (Id. at 1177.) This can turn, in large part, on the website's design – which should make clear to the user that he or she is agreeing to the applicable terms of use. In refusing to find the existence of an online contract, courts have weighed in on website layout, noting “[t]he Terms of Use is inconspicuous, buried in the middle to bottom of every . . . webpage among many other links.”  ( In re. Zappos.com, 893 F. Supp. 2d 1058, 1064 (D. Nev. 2012).) As the 9th Circuit observed, “consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.” (Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014).) Because the onus is on the website owner to put its users on notice, it is interesting to note (as one federal court recently noted) that the “average internet user” often reads web pages in an F-shaped pattern, with two horizontal stripes toward the top, followed by a vertical stripe along the left; this social science research can be taken into account when deciding where to place links or contractual terms. (Jakob Nielsen, F-Shaped Pattern for Reading Web Content, Nielsen Norman Group (April 17, 2006))

   

Allow a Realistic Opportunity To Read the “Terms of Use”

 In keeping with the heightened requirements of notice for online contracting, businesses should ensure that the average user has a realistic opportunity to read the contract terms, and layout of the site should encourage users to examine the terms. This can be done, for example, by making the terms conspicuous and clearly available through a hyperlink. At least one court has refused to enforce an online agreement in part because “the website never directs a user to the Terms of Use.” (Id.)

Making the terms easily available to the user may be the difference between an online contract being enforceable or unenforceable. Notably, one court recently rejected an arbitration provision in an online agreement in part “because the website did not prompt her to review the Terms and Conditions” (Hines v. Overstock.com, 668 F. Supp. 2d 362, 367 (E.D.N.Y.), aff’d 380 F. App’x. 22 (2d Cir. 2010).) Naturally, a court is more likely to find a meeting of the minds where the consumer has actually viewed -- or been given a meaningful opportunity to review -- the terms of the agreement.

 

Require Affirmative Acceptance

Finally, “[m]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract [law].” (Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 29 (2d Cir. 2002).) In drafting an enforceable online contract, companies should seriously consider requiring users to affirmatively manifest assent by, for example, clicking “I agree”; many courts have upheld online contracts where this mechanism is used. As the court noted in Gogo, “almost every lower court to consider the issue has found ‘clickwrap’ licenses, in which an online user clicks ‘I agree’ to standard form terms, enforceable.” (Berkson v. Gogo LLC, 2015 WL 1600755, at *28 (E.D.N.Y. April 9, 2015) (collecting cases).)

As a best practice, and in order to meet the "assent" requirement, businesses also should consider implementing a scrollwrap form of contract, which requires consumers to take the additional step of scrolling through the agreement to which they are binding themselves. Of course, clicking “I agree” after scrolling through the agreement does not necessary mean the consumer has actually read the contract, and companies obviously cannot compel users to read contract terms. In fact, there has been an empirical analysis “finding that Internet users on average read approximately twenty percent of the words on a webpage during an average visit.” (Id. at *10 (citing Jakob Nielsen, How Little Do Users Read?, Nielsen Norman Group (May 6, 2008)).) (Many lawyers and judges themselves do not read the fine print in these types of contracts. (Debra Cassens Weiss, Chef Justice Roberts Admits He Doesn’t Read the Computer Fine Print, ABA Journal (Oct. 20, 2010))) Put another way, as in the world of paper contracts, “failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract.” (Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014).)

 

Takeaways

Despite their pervasiveness, online agreements are still somewhat unsettled ground in both federal and state courts. Many courts have yet to consider the enforceability of online contracts: there are few federal circuit decisions on online contracts, and even fewer state appellate courts have considered their enforceability. In this evolving area of the law, most of the guidance is coming out of the federal district courts. Courts that have considered these agreements routinely apply the principles described above, but, not surprisingly, courts “nonetheless reach disparate and fact-specific specific conclusions.” (Be In, Inc. v. Google Inc., 2013 WL 5568706, at *7 (N.D. Cal. Oct. 9, 2013)) As a result, companies doing business via the Internet should continue to pay close attention to relevant developments in the law.   

Contributing Author

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Lauren E. Aguiar

Lauren E. Aguiar represents U.S. and international clients in litigation and arbitration involving a wide range of commercial matters. Her experience includes federal and state...

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Contributing Author

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Katherine E. Fletcher

Katherine E. Fletcher is an associate at Skadden.

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