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How to “Wrap” Contract Formation Online

Posted by James Juo | Apr 21, 2022 | 0 Comments

The Ninth Circuit recently revisited the contract formation question of when a website's terms and conditions are binding on an online user who interacts with that website in Berman v. Freedom Financial Network, LLC, No. 20-16900 (9th Cir. Apr. 5, 2022).

Whether a website user legally assents to a website's terms and conditions typically fall in one of four categories of online “wrap” agreements:

A “browsewrap” agreement is one in which an internet user accepts a website's terms of use merely by browsing the site.

A “clickwrap” agreement is one in which an internet user accepts a website's terms of use by clicking an ‘I agree' or ‘I accept' button, with a link to the agreement readily available.

A “scrollwrap” agreement is like a “clickwrap,” but the user is presented with the agreement and must physically scroll to the bottom of it to find the “I agree” or “I accept” button.

Sign-in wrap” agreements are those in which a user signs up to use an internet product or service, and the sign-up screen states that acceptance of a separate agreement is required before the user can access the service. While a link to the separate agreement is provided, users are not required to indicate that they have read the agreement's terms before signing up.

In the concurring opinion in Berman, Judge Baker characterized the present state of the law in California as follows:

[B]rowsewrap agreements are unenforceable per se; sign-in wrap agreements are in a gray zone; and clickwrap and scrollwrap agreements are presumptively enforceable. And in the gray zone of sign-in wrap agreements, enforceability requires conspicuous textual notice that completing a transaction or registration signifies consent to the site's terms and conditions. Whether such notice is sufficiently conspicuous will turn on the transactional context, the notice's size relative to other text on the site, the notice's proximity to the relevant button or box the user must click to complete the transaction or register for the service, and whether the notice's hyperlinks are readily identifiable.

The dispute in Berman concerned a sign-in wrap agreement (as characterized by the concurrence, but the majority opinion did not actually use that term). In particular, the case involved two related websites which both contained a set of hyperlinked terms and conditions that included a mandatory arbitration provision which the websites' owner sought to enforce. Copies of the webpages from the opinion's appendix are reproduced at the end of this blog entry.

To avoid the unfairness of enforcing contractual terms that consumers never intended to accept, courts confronted with online agreements such as those at issue here have devised rules to determine whether meaningful assent has been given. Unless the website operator can show that a consumer has actual knowledge of the agreement, an enforceable contract will be found based on an inquiry notice theory only if: (1) the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.

The Court found that there was neither conspicuous notice nor a clear manifestation of intent.

“First, to be conspicuous in this context, a notice must be displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.” Here, the printed text was “in a tiny gray font considerably smaller than the font used in the surrounding website elements” that the Court found was “barely readable.”

Website users are entitled to assume that important provisions—such as those that disclose the existence of proposed contractual terms—will be prominently displayed, not buried in fine print.

As noted by Professor Eric Goldman, “the call-to-action should never be the smallest font on the page.”

Moreover, because they control the design of their website, “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.” See Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1179 (9th Cir. 2014).

The Court also criticized the fact that the hyperlink to the website's terms and conditions was not more conspicuous.  Although the text was underscored, it was not sufficiently “set apart” from the surrounding text such as by a contrasting font color or by using all capital letters.

Second, clicking a button is an unambiguous manifestation of assent “only if the user is explicitly advised that the act of clicking will constitute assent to the terms and conditions of an agreement.” Here, the text concerning the terms and conditions was not clearly associated with the “continue” buttons to be clicked. The webpages also included fields for entry of other information by the website user such as address information. The purpose of the “continue” button in context of the websites was ambiguous, which was fatal to the arbitration term that the website owner sought to enforce.

The Court also noted that “[t]his notice defect could easily have been remedied by including language such as, ‘By clicking the Continue >> button, you agree to the Terms & Conditions.' ” See also Meyer v. Uber Technologies, Inc., 868 F.3d 66, 78–80 (2d Cir. 2017) (concluding that an enforceable agreement was formed where the mobile app explicitly warned, “By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY”).

As the concurring opinion in Berman noted:

[W]ebsite designers who knowingly choose sign-in wrap—to say nothing of browsewrap—over clickwrap and scrollwrap designs practically invite litigation over the enforceability of their sites' terms and conditions, . . .

For the terms and conditions of a website to be enforceable on its users, care should be taken with respect to the “wrap” being used.

The attorneys at Thomas P. Howard, LLC are experienced in litigating contractual and commercial disputes.

About the Author

James Juo

James Juo is an experienced intellectual property attorney. He has successfully litigated various intellectual property disputes involving patents, trademarks, copyrights, and trade secrets. He also has counseled clients on the scope and validity of patent and trademark rights.


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