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Federal Court Holds 'Browsewrap' Agreement Unenforceable
Posted On September 16, 2014
In a decision that raises questions about the legality of “browsewrap” agreements on ecommerce websites, a California court ruled that a browsewrap agreement in the form of a hyperlink to a separate webpage is not enforceable. The decision in the case of Nguyen vs. Barnes & Noble, Inc. found that even though there was a “conspicuous hyperlink” to the website’s terms and conditions in which the website did not require the user to affirmatively agree to the terms, those terms were not enforceable. The case could have significant repercussions for ecommerce websites and highlights the importance of the “clickwrap” agreement, which requires consumers to affirmatively click that they agree before completing an ecommerce transaction.

The case arose out of an online “liquidation sale” of HP TouchPads offered by Barnes & Noble (B&N) through its website. Kevin Khoa Nguyen learned of the sale and purchased two TouchPads through the website, receiving an email confirmation of the successful purchase. Every page of the B&N website included a hyperlink to a separate Terms of Use page. That page included a provision stating that “By visiting any area in the Barnes & Site … a User is deemed to have accepted the Terms of Use.” However, at no point in the transaction was Nguyen required to click on the Terms of Use link or in any way affirmatively agree to the Terms of Use in order to complete the transaction.

The next day, Nguyen received notice that his order had been cancelled due to a high volume of total orders. By the time he learned of the cancellation, the bargain TouchPads were no longer available from B&N or other online vendors. Nguyen filed a class action lawsuit against B&N claiming false advertising and deceptive business practices. B&N responded by asserting that Nguyen had agreed to the terms and conditions of B&N’s website, which required any claim against B&N to be resolved through binding arbitration, and asking that the case be dismissed. (In 2011, the U.S. Supreme Court upheld the right of businesses to impose binding arbitration on consumers while at the same time banning class action lawsuits. This limited the rights of consumers to employ a full range of legal options in disputes against businesses.) Nguyen asserted that he had neither read nor agreed to the terms and therefore wasn’t bound by them.

Principles of Contract Law

Any website’s terms and conditions agreement is governed by general principles of contract law. One of those principles is that all parties to the contract must mutually assent or agree to the contract. Contract law goes on to say that this mutual agreement can take place “by written or spoken word or by conduct. …” In classic contract law, the agreement usually is in the form of signatures of the parties on a written contract. In some cases, verbal statements are enough.

In the cyber world, however, neither party is usually in a position to sign a document or have a face-to-face agreement, so other forms of “conduct” that serve as agreement have emerged. The court focused on two distinct forms of online conduct: the clickwrap agreement and the browsewrap agreement. (Both terms arose from the “shrinkwrap” agreement, a form of agreement that came out of the software industry in which the software’s license was included in the container and was not visible until the consumer removed the shrinkwrap packaging on it. Courts found that continuing to use the software after removing the shrinkwrap constituted agreement with the license, whether the user read the agreement or not.) In a clickwrap agreement, the user is presented with the terms and conditions—usually in a drop-down box or a hyperlink—and must click that he agrees in order to continue. In a browsewrap agreement the terms are on a hyperlinked page, but no clicking to agree is required. Agreement is considered to have taken place when the user continues to use the website.

The Court’s Decision

In reviewing what happened between Nguyen and B&N, the court looked at whether Nguyen had “actual or constructive knowledge” of the agreement. Actual knowledge is usually obtained through reading the agreement. Constructive knowledge is obtained through circumstances such as being required to click on a Terms of Use hyperlink or on a button for the user to sign up, or in cases in which there is a full sentence stating that continuing to use the website constitutes agreement with the terms. Since none of these actions took place with the B&N agreement, the court looked at whether the website (as a whole) “puts a reasonably prudent user” on notice of the agreement.

The court noted that the link to the terms and conditions was placed on every page, including close to the button the user must click in order to complete a purchase. The court also noted that the link was in underlined, color-contrasted text. Both of these conditions can be compared with other cases in which browsewrap agreements were not enforced due to issues with the hyperlink, either at the bottom of long webpages (requiring scrolling to the bottom of the page) or in a difficult-to-locate text or font (e.g., dark gray text on a gray background).

However, the fatal flaw here was that there was nothing to prompt the user to “take any affirmative action to demonstrate assent. …” Because of this the court determined that there was no actual or constructive notice and that the terms and conditions—including the binding arbitration agreement—could not be enforced. The court went on to say that while failing to read a contract’s terms does not mean they can’t be enforced, “the onus must be on website owners to put users on notice” of the terms.

Implications for the Future

This decision could have far-reaching implications. As a federal appellate decision out of the U.S. Court of Appeals for the Ninth Circuit, which covers California, Washington, and many other western states, the decision may be considered binding for many of the web’s Silicon Valley and Silicon Forest heavyweights. The court also looked at New York state contract law in coming to its conclusions, which gives the decision further heft.

Does the decision go so far as to strike out browsewrap agreements entirely? Previous court decisions that rejected browsewrap agreements generally did so for one or more specific reasons, usually related to the location or conspicuousness of the terms and conditions link. The court did not find any problems with the location or conspicuousness of the link on B&N’s website, but still rejected the browsewrap agreement.

Similarly, previous court decisions that approved browsewrap agreements did so because of a specific action that the user needed to take, such as clicking on a button to review terms or sign up or providing the explanatory full sentence that continuing to use the website constitutes agreement with the terms. Those previous decisions, coupled with this latest decision from a high-profile court, suggests that the best solution for ecommerce is to do away with browsewrap alone and make users click their assent to terms and conditions.

George H. Pike is the director of the Pritzker Legal Research Center and a senior lecturer at the Northwestern University School of Law. He teaches legal research, intellectual property, and privacy courses at the School of Law in both the J.D. and Northwestern’s innovative Master of Science in Law program. Prof. Pike is a frequent lecturer on issues of First Amendment, copyright, and Internet law for library and information professionals. He is also a regular columnist and writer for Information Today, publishing a monthly column on legal issues confronting information producers and consumers. Previously, Prof. Pike was director of the Law Library at the University of Pittsburgh School of Law, and held professional positions at the Lewis and Clark Law School and at the University of Idaho School of Law, and was a practicing attorney in Idaho Falls, Idaho. Prof. Pike received his B.A. degree from the College of Idaho, his law degree from the University of Idaho, and his Masters in Library Science from the University of Washington. He is a member of the American and Idaho State Bar Associations, the American Association of Law Libraries, and the American Intellectual Property Lawyers Association.

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