No click-bait here: Click-wrap mandatory arbitration clause in your Terms of Use

In the light of increased data privacy litigation and skyrocketing jury verdicts, more companies now employ mandatory arbitration provisions in website and mobile application terms of use. The Federal Arbitration Act provides that a “written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. However, in order to enforce an arbitration provision, the contract itself must be enforceable. To quote Shakespeare, that is the question. It can be a problem for many companies that rely upon browse-wrap terms of use agreements.     

Browse-wrap vs. Click-wrap

A terms of use is an agreement that a user must agree to and abide by in order to use a website or service. Terms of use are often used on e-commerce websites and social media websites. A terms of use may constitute a legally binding agreement. Courts and commentators have identified a number of variations of terms of use agreements, including “browse-wrap” agreements, “click-wrap” agreements, and modified or hybrid agreements. See, e.g., Calderon v. Sixt Rent a Car, LLC, 2021 WL 1325868, at *7 (S.D. Fla. Apr. 9, 2021); Babcock v. Neutron Holdings, Inc., 454 F. Supp. 3d 1222, 1230 (S.D. Fla. 2020).[i]

“Browse-wrap” refers to an agreement governing the access to or use of materials on a website or downloadable product, whereby the terms of the agreement are posted on the website, usually as a hyperlink. The hyperlink leads to another webpage, which will set forth the terms and conditions of the agreement. In this setup, the terms do not pop up and do not require an action be taken by the user in order to continue. Therefore, no affirmative action is required of the user to acknowledge or agree to the terms of the agreement.

Unlike “browse-wrap,” a “click-wrap” agreement requires users to affirmatively consent to the terms of the agreement. Typically, a website employing “click-wrap” will require a user to check a box confirming that he or she has read the terms of use and has agreed to them, or to click an “Accept” button next to a statement that informs the user that by clicking, he or she is accepting the terms of use.

Thus, the difference between browse-wrap and click-wrap is that browse-wrap does not require a user to do anything but visit the website or download a product to assume consent to terms, whereas click-wrap requires the user to affirmatively engage in some action – such as clicking a box – to show consent. As recently stated by a California federal district court, “[u]nlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent to the terms and conditions expressly ... a party instead gives his assent simply by using the website.... The defining feature of browsewrap agreements is that the user can continue to use the website or its services without visiting the page hosting the browsewrap agreement or even knowing that such a webpage exists.” Gutierrez v. FriendFinder Networks Inc., 2019 WL 1974900, at *4 (N.D. Cal. May 3, 2019) (citation omitted).

Courts Are More Likely to Enforce Click-Wrap Agreements

Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002) is a seminal case illustrating the danger of employing browse-wrap terms of use for mandatory arbitration provisions. In Specht, Netscape faced a class action lawsuit alleging unlawful collection of private information through a Netscape software plug-in then known as SmartDownload. Id. at 21. At the time, Netscape offered various software programs free of charge on its website, including SmartDownload and a separate software plug-in called Communicator. Id. The Communicator software prompted a scrollable text and required visitors to click a “Yes” button to indicate that they had accepted all of the license’s terms, which included a binding arbitration provision. Id. at 21-22. If users did not click “Yes,” they were not permitted to complete installation of the software. Id. at 22. The Communicator license agreement made no mention of SmartDownload or other plug-in programs. Id. The problem was that when plaintiffs downloaded Communicator, they were prompted first to download SmartDownload, which did not provide a click-wrap license. Id. at 22-23. Instead, the SmartDownload license was located in text that would have become visible to plaintiffs only if they had scrolled down to the next screen. Id. at 23.

The trial court held that the browse-wrap terms of use for the SmartDownload were unenforceable because the circumstances of the software’s downloading did not demonstrate that users had consented to the license’s terms. Id. at 25. On appeal, the U.S. Court of Appeals for the Second Circuit affirmed, holding:

After reviewing the California common law and other relevant legal authority, we conclude that under the circumstances here, plaintiffs’ downloading of SmartDownload did not constitute acceptance of defendants’ license terms. Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility. We hold that a reasonably prudent offeree in plaintiffs’ position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload’s license terms hidden below the “Download” button on the next screen.

Id. at 35. Therefore, Netscape could not compel arbitration in the terms of use for claims alleged against it in the class action. Id.

This is not to say that browse-wrap agreements will never be enforced. In the Ninth Circuit, for instance, courts “consistently” enforce browse-wrap agreements “where the user had actual notice of the agreement.” Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1177 (9th Cir. 2014) (citations omitted). The key is whether “the user has actual or constructive knowledge of” the terms of use. Id. at 1176 (citations omitted). If not, the terms are unenforceable. See id. Thus, the two general scenarios where courts will enforce a browse-wrap agreement are (1) where the agreement “resembles a clickwrap agreement – that is, where the user is required to affirmatively acknowledge the agreement before proceeding with use of the website,” or (2) based on an “inquiry notice” theory, “where the website contains an explicit textual notice that continued use will act as a manifestation of the user’s intent to be bound.” Id. The burden is on the party seeking to enforce the terms of use to demonstrate the user’s actual or constructive notice.

Somewhat recently, in Gutierrez v. FriendFinder Networks, Inc., 2019 WL 1974900 (N.D. Cal. May 3, 2019), a California federal court enforced an arbitration provision found in browse-wrap where defendant produced evidence that plaintiff had separately acknowledged and agreed to the website’s terms of use. There, plaintiff filed a class action against defendant, the operator of an adult website, following a breach of defendant’s system, resulting in the theft of “two decades worth of personal information of 339 million AFF users.” Id. at *1. The website’s terms of use had a binding arbitration provision. Id. at *2. In successfully moving to compel arbitration, the website operator produced a transcript of a previous call between plaintiff and defendant whereby plaintiff, in seeking to regain access to the website after being temporarily banned, acknowledged the terms of use during the call. Id. at *7.

The court held that the transcript provided sufficient evidence to establish that plaintiff had actual or constructive notice of the website’s terms of use:

On these facts, Plaintiff agreed to be bound by the Terms. Plaintiff’s call with the customer service representative in 2013 gave him at least inquiry notice of the Terms. The customer service representative informed Plaintiff that he had been banned because he violated the Terms. Call. Tr. at 3–4. A few seconds later, when Plaintiff asked for further elaboration as to why he had been banned from the chat, the customer service representative reiterated: “Because we set restrictions on the website so you need to follow our rules and regulations.” Id. This constituted notice to Plaintiff that if he wanted to use the site, he needed to comply with the Terms. See Nguyen, 763 F.3d at 1177 (“[W]here the website contains an explicit textual notice that continued use will act as a manifestation of the user’s intent to be bound, courts have been more amenable to enforcing browsewrap agreements.”).

Id. at *7. Because plaintiff acknowledged existence of the terms of use, and because they “were readily available” to him, he was bound by them. Id. His failure to read them, despite knowing he was bound by them, could not absolve his lack of compliance. Id.   

Courts Have Reached Varying Results When Considering Hybrid Click-Wrap Agreements

Recent case law underscores the risk of utilizing even so-called “modified” or “hybrid” click-wrap agreements that display the terms and conditions of use on separate webpages and do not require users to check a dialog box indicating that they read and agree to the displayed terms. For instance, two courts have recently reached opposite conclusions when considering the enforceability of arbitration provisions included within terms and conditions that customers could, but were not required to, access via hyperlinks when booking online products or services. Compare Calderon v. Sixt Rent a Car, LLC, 2021 WL 1325868 (S.D. Fla. Apr. 9, 2021), with Wollen v. Gulf Stream Restoration & Cleaning, LLC, 2021 WL 2878703 (N.J. Super. Ct. App. Div. July 9, 2021). The courts’ decisions in those matters suggest that the enforceability of hyperlinked terms and conditions may in some cases hinge on whether the user is expressly directed to read the terms and conditions.

In Calderon, a Florida district court, applying California law, enforced an arbitration provision that customers could access via a hyperlink situated above a “BOOK NOW” button that they were required to click in order to complete online reservations. 2021 WL 1325868, at *7. There, a putative class action was filed against Sixt Rent a Car, a luxury rental-car company, alleging that Sixt engaged in a company-wide scheme to systematically charge unfair, deceptive, and unauthorized repair fees to customers. Id. at *1. The specific claims of one of the named plaintiffs, Charnis, arose out of a rental car reservation he booked on Sixt’s website. Id. at *1-2. Sixt filed a motion to compel arbitration and to stay Charnis’ claims based on a mandatory arbitration provision within the terms and conditions that Charnis confirmed he read and accepted when he booked the online reservation. Id. A corporate representative of Sixt attested to what the reservation booking process on Sixt’s website was at the time Charnis booked his reservation. Id. at *2. The representative attested that, before completing a rental car reservation on Sixt’s website, customers were required to click a “BOOK NOW” button. Id. at *2. Immediately above the “BOOK NOW” button was a statement that read, “By clicking the button, I confirm that I’ve read and accepted the rental information and the terms and conditions.” Id. The phrases “rental information” and “terms and conditions” were hyperlinked in orange against a white background. See id. Clicking on the “terms and conditions” hyperlink displayed a rental jacket, which contained the at-issue arbitration provision. Id. at *3.Charnis did not dispute this description of the booking process or that he clicked the “BOOK NOW” button when he booked his reservation. Id. at *6.

The Florida district court, applying California law, found that, based on these facts, Charnis agreed to arbitrate his claims against Sixt. Id. at *7. In so doing, the court acknowledged that the agreement involved in Sixt’s online booking process was not a “pure” click-wrap agreement because it included the rental jacket’s terms and conditions in the form of a hyperlink that would direct Charnis to another page and did not expressly require Charnis to check a box stating that he agreed to the displayed terms. Id. Nevertheless, the court determined that Charnis manifested his assent to arbitration by clicking the “BOOK NOW” button, which confirmed that he read and agreed to the displayed terms, including the arbitration provision. Id. Accordingly, the court granted Sixt’s motion to compel arbitration and stay Charnis’ claims. Id. at *8.

In Wollen, the Superior Court of New Jersey, Appellate Division recently considered a mandatory arbitration provision contained within terms and conditions that customers could access as part of a substantially similar online booking process. See 2021 WL 2878703,at *1-2. Unlike the Florida district court in Calderon, however, the New Jersey court in Wollen refused to give effect to the arbitration provision at issue because the court determined that the method of delivery did not establish that the plaintiff agreed to arbitration. See id. at *5.

At issue in Wollen was whether the motion judge properly granted defendant HomeAdvisor’s motion to compel arbitration of the plaintiff’s claims against it based on a mandatory arbitration clause embedded within HomeAdvisor’s terms and conditions. See id. The plaintiff’s claims against HomeAdvisor stemmed from her dissatisfaction with a third-party contractor she retained pursuant to a referral she obtained through HomeAdvisor’s website. See id. at *3-4. When the plaintiff submitted her referral request on HomeAdvisor’s website, she was required to navigate multiple webpages, none but the last of which referred to HomeAdvisor’s terms and conditions. Id. at *1. The final webpage required her to click a button entitled “View Matching Pros.” Id. at *1-2. Immediately below that button was a single line of text providing, “By submitting this request, you are agreeing to our Terms & Conditions.” Id. at *1. The phrase “Terms & Conditions” was displayed in blue font against a white background and acted as a hyperlink. Id. at *2. Clicking on the “Terms & Conditions” hyperlink would direct the user to a separate document, entitled “HomeAdvisor Terms & Conditions,” which contained the arbitration provision at issue. Id. at *2. When deposed, the plaintiff stated that she did not recall clicking on the “Terms & Conditions” hyperlinked text before clicking on the “View Matching Pros” submit button. Id. at *3.

The New Jersey appellate court concluded based on these facts that the motion judge improperly referred the plaintiff’s claims against HomeAdvisor to arbitration. Id. at *9-10. In reaching this conclusion, the court determined that the “Terms & Conditions” hyperlink did not provide reasonable notice of HomeAdvisor’s terms and conditions to “the reasonably prudent internet user” because, although the words “Terms & Conditions” were offset in blue font, they were “not underlined, bolded, or enlarged.” Id. at *9. Further, the court opined that the hyperlink was “vague, ambiguous and misleading” because “absent from the hyperlink’s wording was any indication that the user was required to read the terms and conditions before submitting her request for service professionals.” Id.

The court found it “[m]ost significant,” however, that the plaintiff “was not required to affirmatively assent [to] – or even view – the terms and conditions.” Id. “HomeAdvisor,” the court explained, “did not require plaintiff to open, scroll through, or acknowledge the terms and conditions by ‘clicking to accept’ or checking a box that she viewed them before clicking the View Matching Pros submit button.” Id. As a result, the court determined that there was no evidence in the record that the plaintiff accepted, let alone viewed, HomeAdvisor’s terms and conditions before placing her referral request. Id. By extension, the court determined that HomeAdvisor failed to establish that the plaintiff assented to its terms and conditions, including the arbitration provision at issue. Id.

Notably, the court concluded its opinion with the following instruction:

Our decision should not be interpreted to suggest that a consumer contract cannot be formed by reference to a hyperlinked document, or that we are invalidating browsewrap agreements in toto. At the very least, however, the internet user should be directed in words – and not just by font of a different hue – to click on that hyperlink. In the alternative, the hyperlinked document, itself, should contain some semblance of an acknowledgment, or inability to submit a request unless the user scrolls through the terms and conditions at issue.

Id. at *10.

What a Company Should Consider

A best practice is to have your company’s website or application governed by a click-wrap license or terms of use whereby the user must affirmatively “Accept” or agree to the terms and conditions of the agreement. The “Accept” or “Agree” button should not be pre-checked. Short of that, companies should employ measures that require a user to acknowledge the terms and conditions of the agreement before proceeding with use of the application or website. At the very least, companies should provide ample, conspicuous, and explicit notice of the terms and conditions as well as acceptance thereof being a condition of the website’s or application’s use.

Locations where a company may consider providing the terms and conditions of the agreement, or at a minimum, notice of them, should be anywhere a user is requested to undertake an action, such as:

  • Downloading software or an application
  • Creating an account page
  • Signing on to an account
  • Checking out of an account, such as when placing an order

The key is to compile evidence showing that the user either agreed to the terms of use, or at the very least, had notice of them, and that his or her continued use of the website or application constituted an express and affirmative consent to the terms of use.

 

[i] Other variations of web-based agreements that have been identified include “scroll-wraps” and “sign-in wraps.” See Babcock, 454 F. Supp. 3d at 1230 (citing Selden v. Airbnb, Inc., 2016 WL 6476934, at *4 (D.D.C. Nov. 1, 2016)). A “scroll-wrap” is similar to a “click-wrap” agreement. See id. 1230 n.4. However, unlike a “click-wrap” agreement, where a user accepts a website’s terms of use by clicking an “I agree” or “I accept” button, with a link to the agreement readily available, a “scroll-wrap” presents the user with the entire agreement and requires the user to scroll to the bottom of the agreement to find the “I agree” or “I accept” button. Id. A “sign-in-wrap,” meanwhile, is an agreement in which, when a user signs up to use an internet product or service, a sign-up screen states that acceptance of a separate agreement is required before the user can access the service. Id. at 1230. Though a link to the separate agreement is provided, the user is not required to indicate that he or she has read the agreement’s terms before signing up. Id.