Internet purchasing has experienced explosive growth as online and brick-and-mortar retailers expand their online strategies. In 2014, goods and services worth $1.5 trillion were bought globally by consumers shopping on their desktops, tablets, and smartphones, according to analysis from Criteo. With tremendous opportunity, however, comes potential risk. Most websites try to remove those risks by posting “terms of use” hyperlinks, which companies expect will bind their users. 
 
These terms of use cover all manner of topics including copyright, trademark and other intellectual property information; privacy and data collection information; returns, warranty and customer service information; payment and shipping information; and provisions limiting the company’s liability, prohibiting class action lawsuits, and requiring use of private dispute resolution services instead of courts. 
 
American courts often uphold website terms and conditions as valid contracts between the user and company. Some, however, have refused to enforce them, instead concluding no contract actually exists because there was no proof the consumer actually reviewed and agreed to the website’s terms and conditions. This article discusses two recent cases in which courts refused to enforce arbitration provisions found in a website’s terms of use, and provides some best practices to improve the chances that your website’s terms and conditions will bind users.
 
Contracts formed on the Internet fall primarily into two categories: 1) “clickwrap” or “click-through” agreements where users must click on an “I Agree” box after being presented with a list of terms and conditions of use; and 2) “browsewrap” agreements where the terms and conditions of use are accessible through a hyperlink at the bottom of the page. Unlike clickwrap agreements, a browsewrap agreement does not establish proof that a user actually read (or had the opportunity to read) a website’s terms of use and actually agreed to be bound by those terms in connection with the transaction; instead, agreement is inferred by the mere fact a consumer used the website.
 
Conspicuous Hyperlinks
On March 17 a California Court of Appeals ruled as a matter of state law that a business could not require purchasers to arbitrate consumer fraud claims based on arbitration language in browsewrap terms of use accessible through a hyperlink at the bottom of each webpage. Specifically, in Long v. Provide Commerce, Inc. (Appellate Case No. B257910), the court adopted much of the reasoning of a Federal Court of Appeal (the 9th Circuit) and held that the “Terms of Use” hyperlink alone on the www.proflowers.com website did not adequately notify consumers that they would be bound by arbitration merely by using the website.
 
At issue in Long was whether www.proflowers.com could force a consumer to arbitrate his consumer fraud claims based on a browsewrap agreement. The court held that the hyperlink alone was not enough to constitute an enforceable agreement: “In our view, the problem with merely displaying a hyperlink in a prominent or conspicuous place is that, without notifying consumers that the linked page contains binding contractual terms, the phrase ‘terms of use’ may have no meaning or a different meaning to a large segment of the Internet-using public. In other words, a conspicuous ‘terms of use’ hyperlink may not be enough to alert a reasonably prudent Internet consumer to click the hyperlink.”  (Emphasis added.) 
 
The Long court concluded that to enforce a browsewrap agreement, websites must prominently notify users that continued use of the website will constitute an agreement to be bound by the site’s terms of use: “Online retailers would be well-advised to include a conspicuous textual notice with their terms of use hyperlinks going forward.”
 
Binding Agreements?
More recently, a federal trial court in North Carolina highlighted the challenges of even trying to enforce click-through agreements, including those seeking to compel arbitration. The court in Dillon v. BMO Harris Bank, et al. (Case No. 1:13-cv-897), noted that: “Clickwrap agreements … pose special risks of fraud and error. When one of the contracting parties has exclusive control of the electronic record, which is the case in many consumer online transactions, that party is in a position to produce a document that meets its current preferences and needs. Even absent fraud, there is risk of error in the production of a document from the bowels of an electronic record-keeping system, which may include agreements whose terms and electronic click-through procedures vary over time. The risk is even higher when the party maintaining the records and the party producing the records are not the same.” 
 
The defendant bank in Dillon tried to compel arbitration based on a provision contained in an online loan contract. The borrower claimed there was no proof that the click-through contracts contained an arbitration agreement and denied he agreed to arbitrate his claim.
 
The bank submitted to the court statements under oath by customer service employees of a third party loan servicing business that worked for the lender to prove the plaintiff agreed to arbitrate disputes. Each statement described the online loan application process through which the borrower provided personal and financial information, checked boxes, clicked buttons, and confirmed that the loan application and associated agreements required arbitration.
 
But the Dillon court found this evidence insufficient because the witnesses could not confirm that the loan documents submitted to the court were the same documents presented and agreed to by the plaintiff, could not explain how the online documents were created, preserved, presented to loan applicants, and could not describe the banks’ online lending procedures and document preservation practices.  The court concluded that click-wrap agreements pose special risks of fraud and error, particularly when there was no evidence that the documents were properly stored and retrieved in their original form without alteration. The fact that the Bank produced agreements with arbitration provisions which were created at some unknown time and for some unknown purpose did nothing to prove that this particular plaintiff agreed to arbitrate.

The Long decision puts companies doing online business with consumers on notice that simply including a hyperlink to a website’s terms of use does not create a binding agreement with users. Dillon shows that companies using clickwrap or click-through agreements must keep adequate, admissible, and trustworthy evidence that a consumer has agreed to the actual agreement the website wants to enforce.
 
Best Practices
The following are suggested best practices which, if adopted, should help you enforce the terms and conditions set forth on your website.
 
1) Be sure your website includes hyperlinks to complete and comprehensive terms and conditions setting forth all of the conditions you seek to impose on website users.
 
2) Require consumers who use your website to acknowledge, through use of a clickwrap or click-through box, that they have reviewed and agree to be bound by the terms and conditions. The acknowledgement can either come in the form of a clickwrap agreement that pops-up immediately upon the opening of the website (best) or it can appear before the check-out or purchase of goods or services from the website.
 
3) Keep documents showing the date different consumer agreements and terms of use were created, went online, and were in use, including copies of each agreement.  This same information should be kept for every change to these agreements. While your third party vendors providing electronic payment, collection, accounting and other web services may keep this information themselves, you should not rely on others to do it properly or have readily available when you need to prove a user’s agreement. 
 
4) Given the ever growing privacy concerns and the proliferation of comprehensive privacy laws around the world, it is advisable to adopt the same practice for posting, keeping, documenting, and seeking agreement to your website’s privacy policy.

---

Matthew I. Kaplan is a partner and co-chair of the Food, Cosmetics and Nutritional Supplements Group located in the Los Angeles office of Tucker Ellis LLP. He can be reached at matthew.kaplan@tuckerellis.com.
 
Ronie M. Schmelz, counsel in the Los Angeles office of Tucker Ellis and co-chair of the firm’s Food, Cosmetics and Nutritional Supplements Group, is a seasoned litigator who counsels clients on litigation-avoidance strategies and ensuring compliance with state and federal laws, including regulations enforced by the Food and Drug Administration (FDA), Federal Trade Commission (FTC), and other regulatory agencies. She can be reached at ronie.schmelz@tuckerellis.com.