Hyped up over Hyperlinks: Court Decisions Tackle Enforceability of Online Terms and Conditions
Corporate Services Law Update 03/16/10 Melissa McCord
Click-Wrap and Browse-Wrap Agreements
Courts consider both click-wrap and browse-wrap forms of agreement under traditional contract law. In determining whether the electronic terms and conditions form part of an agreement, the courts principally analyze whether the user had reasonable notice of the terms and conditions. Because click-wrap agreements require some type of assent from users, such agreements historically have been upheld by the courts. Browse-wrap cases, in contrast, have produced a mix of outcomes.
Recent Browse-Wrap Cases
Two recent federal court decisions highlight the thorny issue of browse-wrap agreements' enforceability, and signal the need for companies to take care when opting to post their terms and conditions online as browse-wrap agreements.
In Hines v. Overstock.com, Inc., decided in September 2009, the United States District Court for the Eastern District of New York refused to enforce an arbitration provision in a company's browse-wrap agreement because its customer did not have actual or constructive notice of the terms.
The customer filed a class action lawsuit against Overstock.com over a $30 restocking fee that the company claimed after she returned a vacuum cleaner bought over the company web site. Overstock.com sought to compel arbitration of the issue based on a mandatory arbitration provision in its online terms and conditions, accessed through a browse-wrap hyperlink located at the bottom of its web page. The company argued that its customers accept the terms simply by accessing the site. The plaintiff argued that she never saw the hyperlink and therefore was not bound by the arbitration provision.
The court refused to enforce the arbitration provision because the company's web site did not prompt the customer to review the terms, and the hyperlink to those terms was not conspicuous enough to provide the customer reasonable notice. "Very little is required to form a contract nowadays - but this alone does not suffice." Hines, No. 09 CV 991, 2009 U.S. Dist. LEXIS 81204, at *9 (E.D. N.Y. Sept. 8, 2009).
In contrast, the United States District Court for the Central District of Illinois (in August 2009) held that a limitation of damages clause in a company's online terms was enforceable against another company that made a purchase over the web site. The buyer company in PDC Laboratories, Inc. v. Hach Co. claimed that the seller's product was defective, and it alleged damages of at least $75,000 stemming from use of the product. The online terms limited damages to the product's purchase price, which was about $6,000.
The buyer claimed that the online terms were not sufficiently conspicuous, and therefore the limitation was unenforceable. The court held that the terms were conspicuous enough because buyers could access them via a blue underlined hyperlink of contrasting text found on three separate pages of the order form, including the last page, which told buyers to review the terms before submitting their orders. The court stated that whether the buyer had actual notice of the agreement did not matter because of the conspicuousness of the terms.
The two courts focused their analysis on the conspicuousness of the terms, with differing results based on the facts of the case. The decisions also illustrate that courts appear more willing to enforce browse-wrap agreements when both parties are businesses, such as in PDC Laboratories, Inc., than when one party is a consumer, such as in Hines.
As the two decisions show, companies that want to use a browse-wrap agreement must take care to make their terms and conditions as conspicuous as possible. The following are some guidelines, as discussed by courts:
- Post the terms and conditions using a blue underlined hyperlink, instead of a black or gray link, to better distinguish it from surrounding black text and against a white- or light-colored background.
- Use language of incorporation, such as "I agree that the Terms and Conditions form part of the agreement," with an accompanying blue underlined hyperlink to make clear to users that the terms and conditions form part of the agreement.
- Place the hyperlink so users can see it without having to scroll down through pages of material. Ideally, the link should appear at the top of the page.
- Avoid a label with "small print." Use as large a typeface as possible.
We can help you update your particular web site by implementing these suggestions and others or address concerns you may have on this topic. For more information, please contact Melissa McCord at [email protected] / (414) 277-3079 or your Quarles & Brady attorney.