Website Terms of Use may be Unenforceable

Most websites contain Terms of Use (or “Terms of Service”) that govern the user’s conduct and the website owner’s liability.  A new case raises concerns that without an affirmative agreement from the user, the Terms of Use may be unenforceable.

Website operator normally post Terms of Use or other policies via hyperlink.  However, in the absence of requiring a user to engage in an affirmative act to demonstrate agreement to the Terms of Use, the design and content of their websites will be scrutinized in the event they seek to enforce any such terms against a website user.  Failure to put users on notice of the existence of terms to which operators seek to bind website users by doing something beyond placing the hyperlink conspicuously on every page of the website, or even in close proximity to buttons users must click to proceed with the relevant transaction occurring on the website (to establish an account, purchase a product, etc.), may result in a finding that the terms are unenforceable.

The Ninth Circuit’s recent opinion in Nguyen v. Barnes & Noble Inc., No. 12–56628, August 18, 2014, US 9th Circuit, provides insight regarding courts’ treatment of Internet-based contracts of interest to those operating in the e-commerce space or any website owner seeking to rely on provisions contained in the website’s Terms of Use or other posted policies.

In this case, the Barnes and Noble website contained its terms of Use by a hyperlink to the TOU at the bottom of each webpage on its site.  This is called a “browsewrap” agreement. (Compare that to what is known as a “clickwrap” agreement where a website user must engage in an affirmative act such as clicking “I Agree” after being presented with the terms).  A hyperlink to the Terms of Use appeared on the bottom left-hand corner of every page on the website alongside various other hyperlinks. This hyperlink was similarly posted on each page of the online checkout process required to consummate a transaction on the Barnes & Noble website. On at least some pages, the hyperlink to the Terms of Use was placed directly below or a few inches away from the button a website user was required to click in order to proceed with the commercial transaction. On others, no scrolling was required in order to bring the hyperlink within a website user’s immediate field of vision. Like typical browsewrap agreements, the terms provided that, among other actions, mere use of the Barnes & Noble website constituted the user’s agreement to the Terms of Use.  It was undisputed that Nguyen neither clicked the hyperlink to the Terms of Use nor actually read them.

In ruling on the enforceability of the arbitration agreement contained in the Terms of Use, the Ninth Circuit was required to answer the question of whether mere use of a website was sufficient to establish a user’s agreement to be bound by Terms of Use contained in a browsewrap agreement. The court answered this question in the negative, holding that Nguyen never assented to Barnes & Noble’s arbitration agreement.

Of significance to the court in arriving at this answer was the browsewrap nature of the Terms of Use. Due to the absence of any affirmative act on the part of the website user to manifest assent to the terms, the enforceability of such agreements turns on whether a website user’s actual or constructive knowledge of the terms can be established. Because the record contained no evidence that Nguyen had actual knowledge of Barnes & Noble’s Terms of Use, the court’s analysis centered on the constructive knowledge prong of the assent analysis and asked whether the Barnes & Noble website placed “a reasonably prudent user on inquiry notice of the terms of the contract.”

The Ninth Circuit ultimately found that the presentation of Barnes & Noble’s Terms of Use was insufficient to support a finding of constructive notice required for holding that Nguyen assented to the terms of the agreement, including the arbitration provision. The court found the following factors to be of significance in deciding whether a website user would have inquiry notice of the terms of a browsewrap agreement: (1) “the conspicuousness and placement of the ‘Terms of Use’ hyperlink, (2) other notices given to users of the terms of use, and (3) the website’s general design.” It is important to note that the court did not regard any of these factors as dispositive, and specifically held that conspicuous placement of a hyperlink to the Terms of Use on every page of a website, often in close proximity to buttons that users must click to engage in the relevant transaction, “without more” by way of putting users on notice of the terms, would not give rise to constructive notice.

Takeaway:  If you operate a website that sells products or engages in e-commerce, you should have all website users agree to the TOU before they are allowed to check out.

Nguyen v. Barnes & Noble Inc., 2014 WL 4056549 (9th Cir. Aug. 18, 2014).

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