Courts Address Clickwrap and Electronic Contracting

Generally speaking, traditional clickwrap agreements have routinely been upheld by federal and state courts. A clickwrap agreement requires that the potential licensee (i.e., the end-user) consent to any terms or conditions by clicking on a dialog box on the screen to proceed with the transaction. To determine the enforceability of clickwrap agreements, courts apply traditional principles of contract law and focus on whether users had reasonable notice of and manifested assent to the agreement. See, Serrano v. Cablevision Sys., 863 F. Supp. 2d 157, 164 (E.D.N.Y. 2012) (http://bit.ly/ZdkAbW) ('[C]lick-wrap' contracts are enforced under New York law as long as the consumer is given a sufficient opportunity to read the end-user license agreement, and assents thereto after being provided with an unambiguous method of accepting or declining the offer.').

Alternatively, users might be presented with a browsewrap agreement, where Terms of Use are available as a hyperlink on the bottom of each Web page. Unlike a clickwrap agreement, which requires a user to tangibly assent to the terms, the user in a browsewrap agreement conveys assent simply by using the online service.

Under either scenario, however, the threshold issue is the same: Did the consumer have reasonable notice, either actual or constructive, of the terms of the putative agreement and did the consumer manifest assent to those terms? Indeed, in a strict browsewrap agreement, the website will contain a notice that, by merely using the services of, obtaining information from, or initiating applications within the website, the user is agreeing to and is bound by the site's terms of service. United States v. Drew, 259 F.R.D. 449, 462 n. 22 (C.D. Cal. 2009).

In practice, the enforceability of browsewrap agreements depends on the site architecture and the actions and knowledge of the user. For example, in Pollstar v. Gigmania, 170 F. Supp. 2d 974 (E.D. Cal. 2000) (http://bit.ly/YGa1OR), the court called into question a browsewrap agreement where a hyperlink to the terms appeared in small gray print on a gray background on the bottom of the Web page. On the other hand, in Register.com v. Verio, 356 F. 3d 393 (2d Cir. 2004) (http://bit.ly/YGai44), an appeals court held that the mere acceptance of a benefit from a website may constitute assent, but only where the user takes the benefit with actual or constructive knowledge of the terms of the offer. In Register.com, the defendant was deemed to have sufficient notice of the terms because it accessed the information from the plaintiff's website daily and was repeatedly confronted with the same terms. While a first-time user might have been unaware of the terms, the defendant in this case admittedly was aware on subsequent uses.

Enforcing Browsewrap Agreements

Most courts interpreting browsewrap agreements have held that to be enforceable, the website user must have had actual or constructive knowledge of the site's terms and conditions, and have manifested assent to them. Last year, in In re Zappos.com, 2012 WL 4466660 (D. Nev. Sept. 27, 2012), a court ruled that an arbitration clause contained in a browsewrap agreement that could be accessed via a link buried in the middle to bottom of every Web page, among many other similarly-looking links, was unenforceable. The court denied the defendant's motion to compel arbitration of a data security-related dispute because the Terms of Use were unenforceable.

The court found that the e-commerce site did not direct users to the browsewrap Terms of Use when users created an account, logged into an existing account, or made a purchase. As the court noted, 'a party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyper link buried among a sea of links does not provide such notice.' Alternatively, the court stated that the arbitration agreement was otherwise an unenforceable, illusory contract because the Terms of Use contained language that granted the site the unilateral, unrestricted right to revise the terms without notice.

Similarly, in Nguyen v. Barnes & Noble, 2012 WL 3711081 (C.D. Cal. Aug. 28, 2012) (http://bit.ly/10iibkY), the court held that a customer who had a dispute over a cancelled online sale could not be compelled to arbitrate his claims based upon a browsewrap agreement because the website failed to show that customer had notice of or assented to the Terms of Use, or that a reasonable user of the website would have at the time of purchase. The Terms of Use, which contained an arbitration clause, stated: 'By visiting any area on the Barnes & Noble.com Site, creating an account, [or] making a purchase via the Barnes & Noble.com Site, User is deemed to have accepted the Terms of Use.' The court found the Terms of Use were not positioned on the defendant's website in a location where users would necessarily see them, and certainly did not give notice that those Terms of Use applied to the sale, except within the terms themselves.

Enforcing Hybrid Agreements

In recent years, hybrid clickwrap agreements have become more common, where the user must take an affirmative action ' such as clicking a dialog box. Similar to a browsewrap agreement, the Terms of Use do not appear on the same screen as the 'I accept' button, but are available for viewing via a conspicuous blue hyperlink located alongside the 'I accept' button. Under this hybrid arrangement, the user is informed that clicking 'I agree' will signal assent to the applicable terms and is also placed on notice of how or where to obtain a full understanding of the terms. In such agreements, while the user clicks 'Sign Up' to assent to the Terms of Use, the sign-up process and registration page do not present the terms or contain any other mechanism that forces the user to actually examine the terms before assenting.
Courts interpreting hybrid agreements have addressed the following issue: Is it enough that an online service informs its users that they will accept terms if they execute a clickwrap agreement where the terms are only viewable via a conspicuous hyperlink?

Most recently, in Fteja v. Facebook, 841 F. Supp. 2d 829 (S.D.N.Y. 2012) (http://bit.ly/ZTqSyl), the plaintiff brought claims against a social network for allegedly disabling his account without justification. The defendant moved to transfer the action to California based upon a forum selection clause in the Terms of Use to which the plaintiff purportedly agreed during the sign-up process, which contained a dialog box that indicated 'By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service,' with the phrase 'Terms of Service' underlined in blue as a hyperlink. In finding the online agreement enforceable, the court distinguished browsewrap cases where courts declined to enforce terms that appeared as a link buried at the bottom of the Web page. The court held that the plaintiff was adequately informed of the consequences of his assent and was shown, immediately below the dialog box, where to click to understand those consequences. Looking to other case law, the court agreed that, in the context of online registration, blue hyperlinks were akin to a multi-page written contract because the hyperlink simply takes a user to another page of the contract, as if turning the page or turning over the backside of a ticket to read the fine print restrictions.

Other courts have also enforced similar hybrid agreements. For example, in Major v. McCallister, 302 S.W.3d 227 (Mo. App. 2009) (http://bit.ly/ZTr29c), the user of a construction contractor referral website purportedly assented to terms and conditions that included a forum selection clause. As part of the website's registration process, the user clicked a button to submit the registration, and next to the button was a blue hyperlink to the website terms and a notice ('By submitting you agree to the Terms of Use'). A second link to those terms was visible on the same Web page without scrolling, and similar links were on every other website page. In upholding the online agreement, the court rejected the user's contention that the website terms were so inconspicuous that a reasonably prudent user could not have seen the link and reviewed the terms before clicking on the acknowledgment icon. See also, Swift v. Zynga Game Network, 805 F. Supp. 2d 904 (N.D. Cal. 2011) (http://bit.ly/ZTraW9) (finding formation of a valid contract where the software in question involved a 'modified clickwrap' process in which the terms of service were not visible on the page but were accessible via a hyperlink).

Best Practices

While courts have generally held clickwrap agreements to be enforceable, some website providers shy away from a formal clickwrap 'I Accept' process for fear of alienating consumers or ruining the user experience. However, the recent Second Circuit case of Schnabel v. Trilegiant, 697 F.3d 110 (2d Cir. 2012) (http://bit.ly/1006k8I), reminded website operators using alternate contracting methods to be exceedingly careful in assuring that an agreement has been formed.

In Schnabel, the dispute involved consumers' alleged unknowing enrollment in a monthly membership program in conjunction with an ordinary e-commerce transaction. The defendants countered that the plaintiffs enrolled in the program during the process of completing online purchases when they were presented with separate 'enrollment offer' pages after clicking on a hyperlink inviting users to receive 'Cash Back' on their purchase and then entering personal information into fields on those pages.

The enrollment page did not plainly indicate that the offer was from the defendant, rather than the original merchant with whom the user had just completed a purchase. After inserting information on the enrollment screen, the user was compelled to click on a 'Yes' button agreeing that the vendor could transmit credit card data to the enrollment program provider and was then sent an e-mail outlining the terms and conditions of the membership program. The enrollment page did not include an 'incorporation clause' incorporating into the contract any terms that might follow by e-mail.

The court found that the contract was formed at the moment the plaintiffs entered their information into the online enrollment screen, but that the follow-up e-mail was not sufficient to add additional terms, such as the arbitration clause. The court declined to take up the issue of the enforceability of hyperlinked terms on the Web page because the defendant failed to raise such issue on appeal. Regarding the e-mailed terms, the court concluded that even if the plaintiffs received the terms and conditions (including the arbitration provision at issue) by e-mail, the terms did not form a part of a binding agreement between the parties. The court held that an e-mail sent after a user signed up for a third-party marketing program following an online purchase did not provide sufficient notice of an arbitration provision, and users could not have assented to it solely as a result of their failure to cancel their enrollment in the defendants' service.

Lessons can be learned from the Schnabel dispute. To avoid the risk of a court refusing to enforce terms and conditions, a clickthrough agreement with an electronic signature should be mandatory and nonporous and have the following additional characteristics:

1. Mandatory. Users on the website cannot proceed to the next stage of the transaction without going through a screen soliciting their consent to the terms and conditions and any other necessary documents. Thus, a customer who enrolls in a program, completes a purchase, or downloads software cannot finalize the enrollment/checkout process without clicking 'I Agree' in a dialog box on the Web page.
2. Nonporous. There are no alternative ways that users can finalize the transaction and consent to the terms. For example, if a user account is initially set up manually with a company representative over the phone, the mandatory process may become porous if the user can finish the transaction on the website without going through the mandatory consent process.
3. Clickthrough. The user exhibits consent to the contract by clicking, and the user is told that the click signifies consent.
4. Presentation. While courts have upheld so-called 'hybrid' clickwrap agreements where the terms are offered to the user through a conspicuous hyperlink, website operators might also consider having the user scroll through the terms and conditions contained in a separate dialog box before affirmatively clicking 'I Accept.' Case law suggests that such procedures make the terms more likely to be enforceable than browsewrap or other similar agreements. Such a procedure ensures that potential licensees are presented with the proposed license terms and forced to expressly and unambiguously manifest either assent or rejection prior to finalizing the transaction or being given access to the downloaded software.
5. Certification. The user is asked to check an additional box as a certification that the user has read the agreement.
6. Authorization. In a commercial business-to-business transaction, the process might contain an additional box to confirm that the user representative executing the agreement is authorized to contractually bind the licensee.

Richard Raysman, a partner based at Holland & Knight's New York City office, and Peter Brown, a partner based at Baker & Hostetler's New York City office, are coauthors of Computer Law: Drafting and Negotiating Forms and Agreements (Law Journal Press) (http://bit.ly/GCg8hQ).

With downloadable software, e-commerce and streaming media services commonplace, individually negotiated consumer contracts have largely'been abandoned for practical reasons. Web pages or pre-installation screens typically contain standardized clickwrap agreements, which are intended to take the place of any direct bargaining between the parties. These agreements generally require online users to indicate their assent to the terms of an online agreement by means of conduct, such as by clicking on an 'I agree' button before accessing content, completing a purchase, enrolling with a service provider, or installing software.

This article reviews the various types of online agreements, including the more modern hybrid clickwrap transactions, as well as the characteristics of enforceable online agreements.

Clickwrap and Browsewrap Agreements

Generally speaking, traditional clickwrap agreements have routinely been upheld by federal and state courts. A clickwrap agreement requires that the potential licensee (i.e., the end-user) consent to any terms or conditions by clicking on a dialog box on the screen to proceed with the transaction. To determine the enforceability of clickwrap agreements, courts apply traditional principles of contract law and focus on whether users had reasonable notice of and manifested assent to the agreement. See , Serrano v. Cablevision Sys. , 863 F. Supp. 2d 157, 164 (E.D.N.Y. 2012) ( http://bit.ly/ZdkAbW ) ('[C]lick-wrap' contracts are enforced under New York law as long as the consumer is given a sufficient opportunity to read the end-user license agreement, and assents thereto after being provided with an unambiguous method of accepting or declining the offer.').

Alternatively, users might be presented with a browsewrap agreement, where Terms of Use are available as a hyperlink on the bottom of each Web page. Unlike a clickwrap agreement, which requires a user to tangibly assent to the terms, the user in a browsewrap agreement conveys assent simply by using the online service.

Under either scenario, however, the threshold issue is the same: Did the consumer have reasonable notice, either actual or constructive, of the terms of the putative agreement and did the consumer manifest assent to those terms? Indeed, in a strict browsewrap agreement, the website will contain a notice that, by merely using the services of, obtaining information from, or initiating applications within the website, the user is agreeing to and is bound by the site's terms of service. United States v. Drew , 259 F.R.D. 449, 462 n. 22 (C.D. Cal. 2009).

In practice, the enforceability of browsewrap agreements depends on the site architecture and the actions and knowledge of the user. For example, in Pollstar v. Gigmania , 170 F. Supp. 2d 974 (E.D. Cal. 2000) ( http://bit.ly/YGa1OR ), the court called into question a browsewrap agreement where a hyperlink to the terms appeared in small gray print on a gray background on the bottom of the Web page. On the other hand, in Register.com v. Verio , 356 F. 3d 393 (2d Cir. 2004) ( http://bit.ly/YGai44 ), an appeals court held that the mere acceptance of a benefit from a website may constitute assent, but only where the user takes the benefit with actual or constructive knowledge of the terms of the offer. In Register.com, the defendant was deemed to have sufficient notice of the terms because it accessed the information from the plaintiff's website daily and was repeatedly confronted with the same terms. While a first-time user might have been unaware of the terms, the defendant in this case admittedly was aware on subsequent uses.

Enforcing Browsewrap Agreements

Most courts interpreting browsewrap agreements have held that to be enforceable, the website user must have had actual or constructive knowledge of the site's terms and conditions, and have manifested assent to them. Last year, in In re Zappos.com, 2012 WL 4466660 (D. Nev. Sept. 27, 2012), a court ruled that an arbitration clause contained in a browsewrap agreement that could be accessed via a link buried in the middle to bottom of every Web page, among many other similarly-looking links, was unenforceable. The court denied the defendant's motion to compel arbitration of a data security-related dispute because the Terms of Use were unenforceable.

The court found that the e-commerce site did not direct users to the browsewrap Terms of Use when users created an account, logged into an existing account, or made a purchase. As the court noted, 'a party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyper link buried among a sea of links does not provide such notice.' Alternatively, the court stated that the arbitration agreement was otherwise an unenforceable, illusory contract because the Terms of Use contained language that granted the site the unilateral, unrestricted right to revise the terms without notice.

Similarly, in Nguyen v. Barnes & Noble, 2012 WL 3711081 (C.D. Cal. Aug. 28, 2012) (http://bit.ly/10iibkY), the court held that a customer who had a dispute over a cancelled online sale could not be compelled to arbitrate his claims based upon a browsewrap agreement because the website failed to show that customer had notice of or assented to the Terms of Use, or that a reasonable user of the website would have at the time of purchase. The Terms of Use, which contained an arbitration clause, stated: 'By visiting any area on the Barnes & Noble.com Site, creating an account, [or] making a purchase via the Barnes & Noble.com Site, User is deemed to have accepted the Terms of Use.' The court found the Terms of Use were not positioned on the defendant's website in a location where users would necessarily see them, and certainly did not give notice that those Terms of Use applied to the sale, except within the terms themselves.

Enforcing Hybrid Agreements

In recent years, hybrid clickwrap agreements have become more common, where the user must take an affirmative action ' such as clicking a dialog box. Similar to a browsewrap agreement, the Terms of Use do not appear on the same screen as the 'I accept' button, but are available for viewing via a conspicuous blue hyperlink located alongside the 'I accept' button. Under this hybrid arrangement, the user is informed that clicking 'I agree' will signal assent to the applicable terms and is also placed on notice of how or where to obtain a full understanding of the terms. In such agreements, while the user clicks 'Sign Up' to assent to the Terms of Use, the sign-up process and registration page do not present the terms or contain any other mechanism that forces the user to actually examine the terms before assenting.
Courts interpreting hybrid agreements have addressed the following issue: Is it enough that an online service informs its users that they will accept terms if they execute a clickwrap agreement where the terms are only viewable via a conspicuous hyperlink?

Most recently, in Fteja v. Facebook , 841 F. Supp. 2d 829 (S.D.N.Y. 2012) ( http://bit.ly/ZTqSyl ), the plaintiff brought claims against a social network for allegedly disabling his account without justification. The defendant moved to transfer the action to California based upon a forum selection clause in the Terms of Use to which the plaintiff purportedly agreed during the sign-up process, which contained a dialog box that indicated 'By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service,' with the phrase 'Terms of Service' underlined in blue as a hyperlink. In finding the online agreement enforceable, the court distinguished browsewrap cases where courts declined to enforce terms that appeared as a link buried at the bottom of the Web page. The court held that the plaintiff was adequately informed of the consequences of his assent and was shown, immediately below the dialog box, where to click to understand those consequences. Looking to other case law, the court agreed that, in the context of online registration, blue hyperlinks were akin to a multi-page written contract because the hyperlink simply takes a user to another page of the contract, as if turning the page or turning over the backside of a ticket to read the fine print restrictions.

Other courts have also enforced similar hybrid agreements. For example, in Major v. McCallister , 302 S.W.3d 227 (Mo. App. 2009) ( http://bit.ly/ZTr29c ), the user of a construction contractor referral website purportedly assented to terms and conditions that included a forum selection clause. As part of the website's registration process, the user clicked a button to submit the registration, and next to the button was a blue hyperlink to the website terms and a notice ('By submitting you agree to the Terms of Use'). A second link to those terms was visible on the same Web page without scrolling, and similar links were on every other website page. In upholding the online agreement, the court rejected the user's contention that the website terms were so inconspicuous that a reasonably prudent user could not have seen the link and reviewed the terms before clicking on the acknowledgment icon. See also , Swift v. Zynga Game Network , 805 F. Supp. 2d 904 (N.D. Cal. 2011) ( http://bit.ly/ZTraW9 ) (finding formation of a valid contract where the software in question involved a 'modified clickwrap' process in which the terms of service were not visible on the page but were accessible via a hyperlink).

Best Practices

While courts have generally held clickwrap agreements to be enforceable, some website providers shy away from a formal clickwrap 'I Accept' process for fear of alienating consumers or ruining the user experience. However, the recent Second Circuit case of Schnabel v. Trilegiant , 697 F.3d 110 (2d Cir. 2012) ( http://bit.ly/1006k8I ), reminded website operators using alternate contracting methods to be exceedingly careful in assuring that an agreement has been formed.

In Schnabel, the dispute involved consumers' alleged unknowing enrollment in a monthly membership program in conjunction with an ordinary e-commerce transaction. The defendants countered that the plaintiffs enrolled in the program during the process of completing online purchases when they were presented with separate 'enrollment offer' pages after clicking on a hyperlink inviting users to receive 'Cash Back' on their purchase and then entering personal information into fields on those pages.

The enrollment page did not plainly indicate that the offer was from the defendant, rather than the original merchant with whom the user had just completed a purchase. After inserting information on the enrollment screen, the user was compelled to click on a 'Yes' button agreeing that the vendor could transmit credit card data to the enrollment program provider and was then sent an e-mail outlining the terms and conditions of the membership program. The enrollment page did not include an 'incorporation clause' incorporating into the contract any terms that might follow by e-mail.

The court found that the contract was formed at the moment the plaintiffs entered their information into the online enrollment screen, but that the follow-up e-mail was not sufficient to add additional terms, such as the arbitration clause. The court declined to take up the issue of the enforceability of hyperlinked terms on the Web page because the defendant failed to raise such issue on appeal. Regarding the e-mailed terms, the court concluded that even if the plaintiffs received the terms and conditions (including the arbitration provision at issue) by e-mail, the terms did not form a part of a binding agreement between the parties. The court held that an e-mail sent after a user signed up for a third-party marketing program following an online purchase did not provide sufficient notice of an arbitration provision, and users could not have assented to it solely as a result of their failure to cancel their enrollment in the defendants' service.

Lessons can be learned from the Schnabel dispute. To avoid the risk of a court refusing to enforce terms and conditions, a clickthrough agreement with an electronic signature should be mandatory and nonporous and have the following additional characteristics:

1. Mandatory. Users on the website cannot proceed to the next stage of the transaction without going through a screen soliciting their consent to the terms and conditions and any other necessary documents. Thus, a customer who enrolls in a program, completes a purchase, or downloads software cannot finalize the enrollment/checkout process without clicking 'I Agree' in a dialog box on the Web page.
2. Nonporous. There are no alternative ways that users can finalize the transaction and consent to the terms. For example, if a user account is initially set up manually with a company representative over the phone, the mandatory process may become porous if the user can finish the transaction on the website without going through the mandatory consent process.
3. Clickthrough. The user exhibits consent to the contract by clicking, and the user is told that the click signifies consent.
4. Presentation. While courts have upheld so-called 'hybrid' clickwrap agreements where the terms are offered to the user through a conspicuous hyperlink, website operators might also consider having the user scroll through the terms and conditions contained in a separate dialog box before affirmatively clicking 'I Accept.' Case law suggests that such procedures make the terms more likely to be enforceable than browsewrap or other similar agreements. Such a procedure ensures that potential licensees are presented with the proposed license terms and forced to expressly and unambiguously manifest either assent or rejection prior to finalizing the transaction or being given access to the downloaded software.
5. Certification. The user is asked to check an additional box as a certification that the user has read the agreement.
6. Authorization. In a commercial business-to-business transaction, the process might contain an additional box to confirm that the user representative executing the agreement is authorized to contractually bind the licensee.

Richard Raysman, a partner based at Holland & Knight's New York City office, and Peter Brown, a partner based at Baker & Hostetler's New York City office, are coauthors of Computer Law: Drafting and Negotiating Forms and Agreements (Law Journal Press) (http://bit.ly/GCg8hQ).