called into question
Overview
In a decision recently issued in the Eastern District of New York, a court has questioned the enforceability of a website Terms of Use document that does not require a user to aEURoeclick through,aEUR? and is only noticed in a small link at the bottom of a long scroll-page. The case, Hines v. Overstock.com, Inc., 2009 U.S. Dist. LEXIS 81204, 2009 WL 2876667(E.D.N.Y. Sept. 4, 2009), denied Overstock.comaEUR(TM)s request to stay litigation for arbitration, as it held that the plaintiff had not assented to the arbitration clause in Overstock.comaEUR(TM)s website Terms of Use due to a lack of sufficient notice.
Background
Although they may not be required, website Terms of Use agreements have become commonplace on the Internet. These documents are useful business tools that can include important protections for online businesses, such as limitations on liability and arbitration requirements for disputes based on Internet sales. When enforceable, website Terms of Use can be an effective risk management tool for a business with an online presence.
As a Terms of Use document is a contract, albeit an electronic one, the ordinary rules of contract formation apply. In the context of online agreements, evidence of mutual assent to a contract is often the focus of whether a Terms of Use agreement is enforceable. A major issue in cases regarding the enforceability of website contracts is the extent to which a user is aware of the existence of terms, which is required to find mutual assent to the contract. Even if a user does not actually read the terms of an electronic contract, it is generally enforceable as long as the user was aware of the terms, but chose not to read them. There are two general types of ways these agreements are implemented, known as the aEURoeClickwrapaEUR? method or the aEURoeBrowsewrapaEUR? method. Both of these methods attempt to ensure evidence of the mutual assent needed to enforce a contract.
A Clickwrap agreement generally requires a website user to click an aEURoeI AgreeaEUR? button prior to using a website service, thereby affirmatively assenting to the websiteaEUR(TM)s Terms of Use. When properly implemented, these agreements are generally considered enforceable, as the click of a user evidences that the user was aware of the existence of the terms, even if the user did not actually read them. As a result, when properly implemented, courts have generally upheld the enforceability of Clickwrap agreements.
A Browsewrap agreement generally does not require a user to do anything other than navigate to and use a website. No aEURoeI AgreeaEUR? button is required to be clicked in order for the contract to be agreed to. As there is no overt evidence of a useraEUR(TM)s awareness of the existence of these terms, in that no affirmative action other than the use of the website is required, the enforceability of these terms generally turns on whether a user was actually aware, or should have been aware, that the terms existed.
Browsewrap agreements have become popular on the Internet due to their ease of use and minimal disruption to a useraEUR(TM)s experience. Currently, predominant practice is to place the notice of the existence of these terms at the bottom of a website homepage through a link labeled aEURoeTerms of Use,aEUR? aEURoeTerms of ServiceaEUR? or aEURoeTerms and Conditions.aEUR? However, courts have reached inconsistent results when a Terms of Use is noticed in this manner, sometimes holding that the contract is not enforceable.
Recent Decision
The recent decision Hines v. Overstock.com, Inc. follows a number of previous cases, and affirms what may be the beginning of a trend holding that Browsewrap agreements that are only noticed at the bottom of a homepage are not enforceable.
The defendant, Overstock.com, is an online retailer that implemented a Terms of Use on its website. This document contained, among other clauses, a clause requiring a user to agree to arbitration as a dispute resolution mechanism. Overstock.comaEUR(TM)s website Terms of Use was noticed at the bottom of its home page, but a user did not have to aEURoeclick throughaEUR? the agreement, or even scroll to the area where the terms were visible, prior to making a purchase. The plaintiff purchased a product on Overstock.comaEUR(TM)s website, but testified that she never scrolled to or saw the notice of the Terms of Use. A dispute arose, and after the plaintiff brought suit, Overstock.com requested that the court stay the case in favor of arbitration.
In denying Overstock.comaEUR(TM)s request, the court held that the Terms of Use agreement was not enforceable, as a user could complete an entire purchase without scrolling to the area of the website that noticed the terms. Thus, combined with a plaintiffaEUR(TM)s testimony that she never scrolled to the area with the terms, the court held that there was no actual or constructive notice of the website terms, and they were therefore not enforceable.
Comment
This case follows a number of similar decisions holding that website Terms of Use agreements noticed at the bottom of a website do not provide constructive notice to users, and are therefore unenforceable without evidence that a user was actually aware of the existence of the terms. These decisions call into question the dominant practice on the Internet of noticing these terms at the bottom of a scroll page. The decision appears to indicate that, in the event that a Clickwrap agreement is not used, placement of the notice and link to a website Terms of Use agreement at the top of a homepage as well as at the bottom may be more effective. As this decision appears to hold, more prominently providing notice of the existence of a Terms of Use agreement immediately on-screen when a user enters a website may increase the chances of a Browsewrap agreement being enforced.
For assistance in drafting or implementing website Terms of Use agreements, or for other intellectual property and Internet-related issues, please contact Adam R. Bialek, at 212-915-5143 or adam.bialek@wilsonelser.com, or Scott M. Smedresman, at 212-490-3000 or scott.smedresman@wilsonelser.com.
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This communication is for general guidance only and does not contain definitive legal advice.
(C) 2009 Wilson Elser Moskowitz Edelman & Dicker LLP. All Rights Reserved.
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