UK: Terms and conditions on the Internet: guidance from US case law

Last Updated: 6 November 2001
Article by Rehman Noormohamed

There are very few laws directly designed to govern the Internet and there is certainly a shortage of helpful case-law – although this is growing all the time. Generally, practitioners will seek to apply existing law and adapt it to the distinct nature of Internet trading. It is always useful, therefore, to consider relevant case law in other similar common law jurisdictions, such as America and Australia.

In July 2001, the case of Christopher Specht v Netscape and AOL came before the federal district court of New York to deal with the question of whether a company trading on the Internet was entitled to rely on its terms and conditions. The central issues involved were whether the claimants had assented to the terms and conditions and what steps a company should take to ensure they are brought to the consumer’s attention.

Broadly, a number of individuals, including Christopher Specht, brought proceedings against Netscape alleging that usage of the Netscape "SmartDownload" software (which is a free of charge software programme that facilitates downloading of files from the Internet) transmitted to Netscape private information about the user’s file transfer activity on the Internet thereby effecting an electronic surveillance of the user’s activity in violation of two federal statutes, namely, the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act. Netscape sought to compel arbitration and stay the proceedings on the basis that the claimants were subject to a binding arbitration clause in Netscape’s ‘End User Licence Agreement’ – the agreement that Netscape claimed was created between the user of the software and Netscape as soon as the consumer used the SmartDownload software. In determining whether Netscape was entitled to rely on this clause, the judge essentially had to decide whether or not the claimants had agreed to the terms of the Licence Agreement to the effect that the parties had entered into a binding contract. The judge said that the case went to the heart of the issue of "what constitutes assent" - but in the context of free software on the Internet.

Although the software was offered free of charge, the court decided that the parties’ relationships were essentially that of a seller and a purchaser of goods. As far as the alleged creation of a contract, the main act carried out by the website user was to request Netscape’s product by clicking on an icon marked "Download" and Netscape would then provide the software. Netscape claimed that this act was enough to constitute the parties entering into a contract and that by clicking "Download" the users assented to being bound by the terms of the License Agreement. The judge had to consider whether sufficient notice of the existence and the terms were provided on the website and whether the act of downloading the software sufficiently manifested the user’s assent to be bound by the Licence Agreement.

It was pointed out that the primary purpose of downloading is to obtain a product, not to assent to an agreement. The judge contrasted this with the act of clicking on an icon which states "I assent" and which clearly has no other purpose or meaning than to indicate such assent. On the Netscape website, the only indication that a contract was being entered into was one small box of text on the bottom of the screen referring to the Licence Agreement. This text was below the screen used for downloading and there were no mechanisms in place to ensure that a user would read this box before using the product. The text itself provided a link to a completely separate screen containing the terms of the Licence Agreement and stated "Please review and agree to the terms…" The judge felt that is was not adequate to merely provide a voluntary link to another screen and that this language was "the language of invitation" and did not indicate that a user must agree to the terms before downloading and using the software. The judge decided that the language did not provide adequate notice either that a contract was being created or that the terms of the License Agreement would bind the user.

Applying broadly the same common law principles as apply in England, it was held that a company could not rely on the terms and conditions on its website unless the buyer had had the opportunity to read them. The judge felt that Netscape had not done enough to bring the terms of its Licence Agreement to the users’ attention and, accordingly, the users had not assented to the terms. Netscape was therefore not entitled to call for arbitration and stay the proceedings.

It follows that a company trading on the Internet may likely not be able to rely on its terms and conditions unless it can prove that the consumer must have read them. Practically, the best way to establish this will be to ensure that the consumer has no choice but to run through them even if they do not actually read them. No doubt the judge in the US case had regard to the fact that most people do not always read the complete content of websites, particularly things like lengthy terms and conditions. The judge felt that anything less than spelling out the existence of terms and conditions to the user in a very obvious manner ran the risk of being ignored.

It should be noted that the US legal principles in respect of contract terms differ to a certain extent from their English counterpart - in the US the incorporation and enforceability of contract terms are entwined in terms of reasonableness and fairness, whereas under English law a number of different factors come into play. For example, under English contract law, for a term to be incorporated the buyer should have had reasonable notice of the terms: (which is defined as meaning that the buyer should have had actual knowledge of the terms or ought to have known of them). Thus, in commercial contracts the buyer will normally be bound by ‘usual’ terms in that type of contract. This will also be the result if the buyer knows that there are terms in the contract but not what they are (Thornton v Shoe Lane Parking [1971] 2 QB 163; Interfoto Picture Library v Stiletto Visual Programmes [1988] 1 All ER 348). Where a clause is ‘non-standard’, whether it is incorporated is more likely to depend upon whether it has been brought to the buyer’s attention (i.e. is it buried in pages of small print?). As far as enforcing specific clauses is concerned, an English court will have regard to whether the clause was drafted clearly and unambiguously and certain clauses seeking to exclude or limit the seller’s liability will be subject to a test of "reasonableness" (or "fairness" when dealing with consumers) under UCTA 1977. In each case, however, the court will look at the individual facts, with the result that what may be enforceable for one company may not necessarily be enforceable for another company - even if the companies’ field of operation appears to be similar.

The importance of the decision in the Netscape case is that it would now appear that in the US, no matter how well drafted a company’s website’s terms of business are or whether they are ‘usual’ terms, they will likely not be enforceable unless the company takes some basic precautions to bring them to the consumer’s attention. For example, it appears not to be enough to have a link from one page to another page containing the terms and simply making a reference to terms without any link (even though terms and conditions referred to in such a way have been enforced in non-electronic dealings).

This case suggests that in order to enforce your terms of business it is necessary to demonstrate that buyers have to physically scroll through them. Of course in practice, even this will not guarantee that consumers will read them! One method adopted by some websites which ensures that the terms of business are read is to have a pop-up window containing the terms together with an "I accept" icon at the end. The window will not disappear until the consumer has either clicked on the "I accept" or "I do not accept" icon. Having the icon at the bottom of the window also requires the buyer to scroll down through the terms.

A Scottish case which also dealt with the enforceability of software contract terms (although in the context of business conducted over the telephone, rather than on the Internet), is Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd (1996 S.L.T. 604). This case was brought before Lord Penrose and dealt with a "shrink-wrapped" software licence contract for the supply of software. Lord Penrose held that the contract could not be concluded until the conditions imposed by the software licensor (who was a third party) had been produced and accepted which could not occur until the seller had delivered the software together with the shrink-wrapped licence. However, this case should be distinguished on the basis that it dealt with incorporation of a third party’s terms and it was specifically held that the case only concerned one particular type of software contract.

Although an English court is yet to rule on this issue, it may well be that the Netscape ruling could be followed in this jurisdiction. In the meantime, it can certainly be argued that it would be best practice to use it for guidance. It remains to be seen whether the courts will take the view that excessive restrictions should be imposed or whether they will have regard to commercial reality. Companies trading on the Internet will no doubt argue that there is no real reason as to why tougher standards should apply to Internet transactions than to non-electronic dealings; since away from the ether, it is possible to incorporate terms without their having been read. A question, which the law developing in this area will eventually have to determine is whether Internet transactions are essentially so different from ‘real world’ transactions that they ought to be treated with much more caution.

"© Herbert Smith 2002

The information contained in this article is of a general nature. and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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