Sept. 29 Record Reporter
The 9th U.S. Circuit Court of Appeals recently declined to enforce an arbitration provision in a website’s terms of use on the grounds that the website owner had not obtained an adequate manifestation of the website user’s assent to the contract.1
The plaintiff, Kevin Khoa Nguyen, was a putative class representative who purchased two Hewlett–Packard Touchpads from Barnes & Noble at liquidation sale prices. Due to unexpected demand, Barnes & Noble declined to fulfill the plaintiff’s two-unit order. The plaintiff purchased two tablets from other manufacturers at a higher price, and he sued on behalf of the whole class for damages.
Barnes & Noble filed a motion to compel arbitration based on an arbitration provision in its terms of use. Barnes & Noble’s website had a hyperlink to the terms of use on the bottom of every page. On each page of the checkout process, the link was in close proximity to the button the customer must use to continue the checkout process. The link was clearly visible and in contrasting color.
Nguyen never clicked the link or read the terms of use, and he did not know about the terms when he completed his purchase. So, when Barnes & Noble invoked an arbitration provision found in the terms, Nguyen resisted on the ground that he had never assented to it.
The 9th Circuit began its analysis with the principle that ordinary rules of contract apply to Internet commerce. “While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.”2
Applying this principle, the court invoked the common law rule that mutual manifestation of assent is required to form an enforceable contract.
With that in mind, the court discussed the principle of mutual manifestation of assent in the context of clickwrap and browsewrap agreements. In a clickwrap agreement, the Internet user manifests his consent to the terms of a contract by affirmatively clicking a box or button indicating his agreement. Some of the more cautiously designed clickwrap agreements force the user to open or scroll through the terms also.
In contrast, browsewrap agreements are terms posted on the website. In a browsewrap scenario the Internet user is (at least purportedly) deemed to consent to the terms by some unrelated action, often continued use of the website.
Of course, clickwrap agreements involve a straightforward manifestation of consent. Because browsewrap agreements involve no affirmative act of consent by the Internet user, courts are much more reluctant to enforce them against individual consumers. A court in the 9th Circuit will enforce them only if the user had actual or constructive knowledge or inquiry notice of the terms of the browsewrap agreement. “In short, the conspicuousness and placement of the “Terms of Use” hyperlink, other notices given to users of the terms of use, and the website’s general design all contribute to whether a reasonably prudent user would have inquiry notice of a browsewrap agreement.”3
The 9th Circuit took a tough stance on what constitutes constructive notice of terms and conditions. It held that placement of a clearly visible “Terms of Use” link in close proximity to a button the user must push to complete a purchase does not, without more, supply constructive notice. Supporting this holding, the court appears to have adopted a least sophisticated Internet user standard for what constitutes constructive notice. It explained that its decision was motivated by the “breadth of the range of technological savvy of online purchasers.” Because of the varying sophistication of Internet consumers, the court placed the onus on website owners to put consumers on notice of the terms of use.
In reaching this holding, the court distinguished a similar case that had held that placement of a link to the website’s terms near the purchase button provided constructive notice. In that case the final page of the checkout screen also contained a warning to “Review Terms.” This two-word warning made the difference between a having an enforceable written contract and lacking it. This subtle distinction reveals that companies doing business online have quite a bit riding on the presence or absence of a few words on their websites. Website owners relying on browsewrap agreements should take extra care that their sites give consumers adequate notice, lest another two-word omission cost them a class action defense.
Samuel Doncaster is a senior litigator at Rose Law Group PC. He regularly litigates online defamation, electronic commerce and cyber law. To further discuss online defamation or any cyber law matter, Doncaster may be reached at sdoncaster@roselawgroup.com, or (480) 291-0747.
Footnotes
1 Nguyen v. Barnes & Noble, No. 12–56628, op. (9th Cir. August 18, 2014) available at 2014 WL 4056549.
2 Id.
3 Id.
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