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October 21, 2014

Guest post by Jacob Kojfman
(Vancouver Tech Law Blog)

If you do anything online, you are going to be subject to some sort of terms and conditions and privacy policies. It can take over 40 years to read all the terms and conditions of all the licenses you may be subject to, so most people just click “I agree” without actually reading it, or even thinking that they are entering into a binding contract.

If written properly, agreeing to terms and condition can force you to sign away your rights to sue or  even your first born child.  Because they are a contract, even well written terms and conditions may not be upheld by a court if the principles of contract law are not properly applied.  A recent case in the United States shows the importance of making sure that terms and conditions, no matter how well written, need to still meet all the standard requirements of a contract if a company wants to rely on those terms.  This case provides some valuable lessons if you are going to present your own terms and conditions to online users.

In Nguyen v. Barnes & Noble, Inc., the court rejected Barnes & Noble’s reliance on its browsewrap agreement requiring users to submit to arbitration in the event of a dispute.  The Ninth Circuit court refused to uphold Barnes & Noble’s terms and conditions, which were on every page of the website’s online checkout process, underlined and in green type, when the bookseller tried to force Nguyen to submit his claim to arbitration because Barnes & Noble refused to fulfill his order for heavily discounted tablets.

Due to unexpected high demand, Barnes & Noble sold out of the discounted tables and cancelled Nguyen’s order, as it was allowed to do as per the terms and conditions of the website.  Had Nugyen clicked the hyperlink to the terms and condition, he would have read a statement that by visiting any area on the website, creating an account or making a purchase would have subject him to those terms and conditions, which required any disputes to be resolved using arbitration or be litigated only on an individual basis and not on a class basis.

The court found that Nguyen did not have enough notice of the terms and there was no evidence that he had actual knowledge of the terms.  Even if the terms and conditions are conspicuous (as underlined green font may be considered), because the process did not provide notice or a prompt affirmative action by the user, this was not enough to give constructive notice.

The court said that terms that state that simply using the website the user agrees to be bound to the terms and conditions does not constitute reasonable notice of the terms.  Even with the increase in technology and relying on online forms and agreements, the same principles of contract law still have to apply.

The court called Barnes & Noble’s terms to be “browsewrap” agreements because the user agrees to the terms of the site just by using it.  If Nguyen had actual notice of the terms and conditions, the court may have found against him and upheld the arbitration clause.  The court found there was no evidence of actual knowledge of the terms and conditions.  Even though a reasonably prudent user would have inquiry notice of a browsewrap agreement, that notice depends on the design and content of the website and the agreement’s webpage.  In this case, even though the hyperlink to the terms was in close proximity to the relevant buttons a user had to press to proceed in checkout, the court found that it was not enough, and kept with a tradition not to enforce browsewrap agreements against individuals, even if the terms are in a conspicuous hyperlink, but the user does not have any notice or prompt to take any affirmative action to click that hyperlink.

For businesses that want to be able to rely on the terms of use they put forward, these three cases, Zappos, Gilt Groupe and Barnes & Noble, provide  valuable lessons to be learned.  Browsewrap agreements may be legally enforceable, but if you do not want to take that chance, then use a “clickwrap” or “clickthrough” agreement, which is what helped Gilt force an unhappy customer to arbitrate his claim instead of initiating a class action lawsuit.  A clickwrap either requires a positive action to be taken by the user, such as checking a box that the user agrees to the terms and conditions, or as Gilt Groupe did, give notice to the user that by registering or completing a purchase the user is subject to the terms and conditions.  Whether or not the user actually reads the terms and conditions is not what is important.  What is important is that the website very clearly told the user where to find the terms and conditions.

Even without taking into account any other experience with other websites and their terms and conditions Nguyen may have had (and the Court stated that any such experience had no bearing on whether he had constructive notice), in my opinion, the court got this decision wrong.  The hyperlink to the terms and conditions was on every page of the website, and was set in green typeface on every page of the online checkout process, and was in close proximity to the buttons Nguyen had to click to proceed.  I cannot see how someone had more notice than that.

Most times when I buy something in a store, the terms and conditions for the purchase, especially refunds, are found on the back of the receipt.   I have never had a store clerk specifically tell me that my purchase is subject to terms and conditions on the back of the receipt.  Based on the Ninth Circuit’s decision, it seems that I need to be notified of all the terms and conditions and have someone specifically tell me that I am subject to the terms and conditions and where to find those.   After all, if the standard rules of contract need to apply to online agreements, should those same rules not apply to “in real life”.

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