Companies typically include a “Terms of Use” on their websites, which essentially serves as a contract between the company and the website user regarding the user’s use of the website.  Online Terms of Use are typically presented to consumers in a couple of different forms (more on that below). Companies with websites targeted to U.S. users should be aware of a recent Ninth Circuit decision that has shed light on the enforceability of certain provisions contained in one of the forms – the so-called “browse-wrap” Terms of Use.  In light of this decision, companies may wish to consider using the so-called “click-wrap” Terms of Use instead, which may be more likely to be enforceable, at least with respect to certain provisions.

As background, Online Terms of Use (or other online agreements) generally exist in two forms (1) “click-wrap” and (2) “browse-wrap.”  With click-wrap agreements, users must provide express agreement or assent to online agreements by clicking “I agree,” checking an unchecked box, or performing some other affirmative action.  Most times, a hyperlink to the text of the agreement is next to an “I agree” button, or in some cases, users are required to scroll through the terms of an online agreement prior to clicking “I agree.”  In contrast, with browse-wrap agreements, no affirmative action is required by users.  Rather, a link to the online agreement is passively placed somewhere on the website (usually at the bottom of a page), and users have the option to read the agreement but are not required to do so before they can browse the website or use the services provided therein.  Typically, browse-wrap agreements contain clauses stating that a user’s use of the website or the website’s services constitutes assent to the terms of the agreement.

In Nguyen v. Barnes & Noble Inc., the Ninth Circuit held that the presence of hyperlinks directing users to a website’s Terms of Use alone (even when in close proximity to buttons on which users must click, such as a “checkout” button) — without more — was insufficient to give constructive notice to users of those Terms of Use.  In light of this lack of notice, the Ninth Circuit held Barnes & Nobles’ arbitration provision unenforceable due to the absence of users’ express agreement to the online Terms of Use.

More specifically, following a dispute and class action lawsuit with the plaintiff over the unavailability of certain advertised goods, Barnes & Noble moved to compel arbitration, pursuant to a provision in its website’s Terms of Use.  Plaintiff argued that he was not bound by the Terms of Use because he never clicked on the Terms of Use hyperlink and never actually read the Terms of Use.  The District Court found in the plaintiff’s favor and denied Barnes & Noble’s motion to compel arbitration.  As mentioned above, the Ninth Circuit affirmed the district court, holding that plaintiff was not bound by the arbitration clause in the online Terms of Use because he never provided his affirmative assent to the agreement.

Since there was no evidence that the plaintiff had actual notice of Barnes & Noble’s Terms of Use, the Court’s analysis centered on whether the plaintiff has constructive knowledge of the agreement.  Barnes & Noble placed a hyperlink to its Terms of Use in the bottom left-hand corner of every page on its website as well as in close proximity to the “Proceed with Checkout” button that the plaintiff needed to click on to complete his order.  Despite the hyperlinks being within the plaintiff’s “field of vision,” the Ninth Circuit held that “proximity or conspicuousness of the hyperlink” was insufficient to provide constructive notice when the website did not go so far as to prompt users to read the online agreement.

This case makes clear the importance of obtaining a user’s affirmative assent to online Terms of Use or other agreements entered into online, at least with respect to certain provisions.  As seen in Nguyen, the use of browse-wrap agreements may not be the most effective means of obtaining the needed user assent.  No matter how conspicuous a hyperlink to online terms may be or how much opportunity a user may have to review those terms, the lack of affirmative action by users to provide their assent leaves open the possibility that an online agreement may be held to be unenforceable.  For this reason, if possible, it is better to rely on click-wrap agreements over browse-wrap agreements, as the former provides website owners with evidence that a user has given some form of assent to an online agreement.  Even when using a click-wrap agreement, it is best to ensure that the hyperlinks to online agreements are conspicuous and easy to access.  A clear and conspicuous textual notice that continued use of the website will constitute the user’s intent to be bound by the Terms of Use may also be effective.