Ninth Circuit Finds Browsewrap Arbitration Clause Unenforceable Despite Conspicuous Link

A recent Ninth Circuit decision highlights the importance of obtaining affirmative user assent to online Terms of Use. In Nguyen v. Barnes & Noble Inc., 2014 WL 4056549 (Aug. 18, 2014), the Ninth Circuit concluded that a conspicuous link to the site’s Terms of Use posted throughout the site and in close proximity to a checkout button was insufficient to find an arbitration agreement enforceable in the absence of a user’s express agreement to the online Terms. In Nguyen, an online retailer advertised a liquidation sale for certain discontinued products. The plaintiff purchased two products and received an email confirmation. The following day, the retailer canceled the order via email due to unexpectedly high demand. The plaintiff filed a putative class action, alleging that the retailer engaged in deceptive business practices and false advertising. The retailer moved to compel arbitration, pursuant to its website’s Terms of Use.  The plaintiff opposed, arguing that he never clicked on the “Terms of Use” hyperlink nor actually read the Terms of Use, and that he therefore could not be bound by the Terms. The trial court agreed with the Plaintiff and denied the retailer’s motion to compel arbitration.

The Ninth Circuit affirmed the district court’s decision and concluded that the plaintiff was not bound by the arbitration clause in the online Terms. Although the circuit court reached its decision under New York law, it noted that “both California and New York law dictate the same outcome.”

The Ninth Circuit explained that contracts formed on the internet typically are of two types – “clickwrap” agreements, where users are required to click “I agree” after being presented with the terms, and “browsewrap” agreements, where the website’s terms are generally posted on the website as a hyperlink at the bottom of the screen.

When a site uses a browsewrap agreement, “the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of a website’s terms and conditions” because the user is not required to take any affirmative action to agree to the terms, other than his or her use of the website. If there is no evidence of actual notice, “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” The Ninth Circuit explained that courts generally refuse to enforce browsewrap agreements “[w]here the link to a website’s terms of use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it;” but that courts have enforced browsewrap agreements “where the website contains an explicit textual notice that continued use will act as a manifestation of the user’s intent to be bound.”

In Nguyen, the retailer’s website used a browsewrap agreement. There was no evidence that the user had actual notice of the Terms, so the Court proceeded to analyze whether the user had constructive knowledge of the website’s Terms. The “Terms of Use” were hyperlinked in the bottom left-hand corner of every page on the website and in close proximity to the buttons a user must click on to complete an online purchase. On some pages, the user could view the link without scrolling; and on other pages, the link was so close to the “Proceed with Checkout” button that user would have the link “within his field of vision” when completing the order. According to the Ninth Circuit, “proximity or conspicuousness of the hyperlink” was not sufficient to give rise to constructive notice when the site did not prompt the user to review the Terms during the checkout process.

The Ninth Circuit clearly stated its holding:

“We . . . hold that where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice. While failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract, the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers. . . . Consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.” (Slip Op. at 15-16.) (internal citation omitted).

The Ninth Circuit also explained that the plaintiff’s general familiarity with browsewrap agreements on other sites had no bearing on whether the plaintiff had constructive notice of the browsewrap agreement on the site at issue.

The Nguyen decision demonstrates the importance of obtaining assent to website Terms and Conditions, Terms of Use, or similar documents – according to the Ninth Circuit, merely posting such documents on a website will not be sufficient in most cases. Although the Nguyen court only addressed the enforceability of the arbitration clause due to the posture of the case, the court’s reasoning would likely lead to the conclusion that the entirety of the retailer’s Terms and Conditions is unenforceable against the plaintiff because the plaintiff did not assent to any portion of the Terms. Therefore, retailers should review their websites to ensure that they are obtaining appropriate assent to their online Terms.