For over a decade I have been advising clients and teaching seminars about strategies for making sure online contracts are enforceable. It's not rocket science. You just have to take traditional contract principles and apply them online. Yet, businesses (and courts) are still struggling with how to do this properly. Given that the consequences of not being able to enforce a contract can be disastrous for a business, you would think that they would take the time to get things right on their websites.
Two recent cases illustrate the problems that the courts are having in determining whether a contract was made in the first place. In one case, the court decided that it would enforce a contract that was accepted when the user clicked a "Sign Up" box, immediately below which was a hyperlink to the terms and conditions. In the other case, the court refused to enforce an agreement where the terms were accessible only after several clicks through some hard-to-find and less-than-obvious links.
Fjeta v. Facebook
In the Fjeta case, Fteja brought a lawsuit against Facebook, claiming that Facebook discriminated against him and disabled his account improperly because he is a Muslim. Although Facebook's Terms of Use require that lawsuits be brought in a state or federal court located in
One would expect that Facebook has a good sign-up process in place, although the process described by the court is different from the one currently in place on its website. According to the court, the user is asked to fill out several fields containing personal and contact information, then click a button that reads "Sign Up." After clicking this initial "sign up" button, the user sees another page entitled "Security Check" that requires the user to re-enter a series of letters and numbers displayed on the page. Below the box where the user enters the information, the page displays a second "Sign Up" button similar to the button the user clicked on the initial page. The following sentence appears immediately below that button: "By clicking Sign Up, you are indicating that you have read and agree to the "Terms of Service." The phrase "Terms of Service" is underlined and is linked to another page with the Terms. [John's Note: Facebook may have changed its Sign Up protocol in the interim. Now, the initial "Sign Up" button is immediately below the following sentence: "By clicking Sign Up, you agree to our Terms and that you have read and understand our Data Use Policy." The phrases "Terms" and "Data Use Policy" are linked to the applicable provisions.]
Although this method of obtaining assent has been upheld in a number of cases, the hyperlink to the Terms of Use gave Judge Holwell reason to pause. Because the terms of use were not displayed on the same page as the "Sign Up" button, but were only available through the link, the judge likened Facebook's Terms of Use to a "browsewrap" agreement, where the terms and conditions are posted on the website as a hyperlink at the bottom of the screen. But then he reasoned that the terms of use were still more like a "click-wrap" agreement, because the user had to "Sign Up" and affirmatively click the button to manifest agreement to the Terms of Use. Eventually, the judge concluded that the link to the terms of use is no different than having terms and conditions printed on the reverse side of a cruise ticket or a paper contract, found that Facebook's terms were enforceable, and ordered the case transferred to
This case involves a dispute over the purchase of 50,000 pairs of white tube socks. Mr. Jerez, a
Here, the court refused to enforce the forum selection clause. After reviewing a number of cases enforcing and refusing to enforce online terms and conditions (including the Fjeta case above), the court found that this case was more like the situation in Specht v. Netscape Communications Corp. , "where 'submerged' website provisions were found insufficient to bind the company's customers." The court found that in this case the existence of the forum selection clause was not "reasonably communicated" to the buyer through a printed contract, a confirming letter agreement incorporating the terms by reference, or a "click-through" acceptance of hyperlinked terms and conditions. Because the forum selection clause was buried and submerged on a webpage that could only be found by clicking on an inconspicuous link on the seller's "About Us" page, the court refused to enforce the forum selection clause.
Analysis
Both courts seem to have reached the correct result. Facebook could have been a little safer by having the terms and conditions on the same page as the "Sign Up" button rather than a hyperlink. But the practice of disclosing the terms through a hyperlink is not uncommon, and so long as the hyperlink reasonably lets the purchaser know that there are terms and conditions that he or she should read, then courts will generally find an enforceable contract in this situation. The terms in the
The judge in the Facebook case seemed to have a hard time classifying the contract as a "click-wrap," a "browse-wrap," or a hybrid. In actuality, he need not have spent so much time, because the same contract formation rules apply no matter the classification.
Several colleagues and I wrote a paper a few years ago entitled “Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements” (59 Business Lawyer 279 (2003)), in which we set forth a four-part test for courts to use in determining whether a user has validly assented to the terms of a browse-wrap agreement: (1) the user is provided with adequate notice of the existence of the proposed terms; (2) the user has a meaningful opportunity to review the terms; (3) the User is provided with adequate notice that the taking of a specified action manifests assent to the terms; and (4) the user takes the action specified in the notice. Subsequently, we have determined that the test applies not only to browse-wrap agreements, but is applicable to determining valid assent for ALL agreements, whether on-line or in the physical world.
While the two court decisions discussed above did not cite our article or explicitly use our test, maybe they will do so in the future if the decisions are appealed.
These cases and others like it remind us of the importance of certainty in business transactions. It is not difficult to set up Terms and Conditions that are enforceable. Because JD Closeouts did not take the time to make sure the notice of its terms of sale were prominent, the company now is forced to defend a lawsuit in New York instead of in Florida.
Update: Added WL cite for the Jerez decision.
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