United States: To Click Or Not To Click? Ninth Circuit Rejects Browsewrap Arbitration Clause

Kevin Khoa Nguyen v. Barnes & Noble Inc., 2014 U.S. App. LEXIS 15868 (9th  Cir. 2014), decided on August 18, 2014, the Ninth Circuit rejected an attempt to bind a consumer to an arbitration clause found in an online terms of use agreement not affirmatively "click accepted" by the consumer but readily accessible through a hyperlink at the bottom left of each page on the subject website.

The case arose from a "fire sale" by defendant Barnes & Noble of certain discontinued Hewlett Packard TouchPads. Plaintiff Nguyen had ordered two of the TouchPads, but received a notice from Barnes & Noble the following day that his order had been cancelled due to unexpectedly high demand. Nguyen sued Barnes & Noble in California Superior Court on behalf of himself and a putative class, arguing that he was forced to buy a more expensive tablet instead.

Barnes & Noble, after removing the suit to federal court, moved to compel arbitration under the Federal Arbitration Act, arguing that, by using the Barnes & Noble website, Nguyen had agreed to an arbitration clause contained in Barnes & Noble's Terms of Use. Nguyen responded that he could not be bound to the arbitration clause because he had no notice of and did not consent to the Terms of Use. Barnes & Noble countered that the placement of the Terms of Use hyperlink on its website had given Nguyen constructive notice of the arbitration clause.

The district court agreed with Nguyen, Barnes & Noble appealed, and the Ninth Circuit affirmed.

We have previously surveyed the law in this area here (regarding the Nguyen district court decision) and here (regarding other decisions involving online arbitration clauses). The Ninth Circuit's opinion in Nguyen is generally consistent with the existing caselaw, which suggests that, absent evidence of affirmative consent, courts are reluctant to find that parties—especially consumers—are bound by arbitration clauses contained in online terms of use agreements.

In Nguyen, it was established that Barnes & Noble made available a hyperlink to its Terms of Use at the bottom left corner of each page on its website. Further, on each page of the website's online checkout process, Barnes & Noble presented, underlined and in green type, a hyperlink to its Terms of Use. However, it was apparently undisputed that Nguyen had neither clicked on the Terms of Use hyperlink nor actually read the Terms of Use.

To determine whether a valid arbitration clause exists, courts apply ordinary state law principles of contract formation. Interestingly, in Nguyen, the Ninth Circuit applied New York law as provided in the Barnes & Noble Terms of Use even though the question was whether such Terms of Use were a valid agreement in the first instance. The Ninth Circuit noted, however, that its analysis would be the same under California law as under New York law.

Applying New York law, the Ninth Circuit examined the law of "clickwrap" and "browsewrap" agreements and commented that "[t]he defining feature of browsewrap agreements is that the user can continue to use the website or other services without visiting the page hosting the browsewrap agreement or even knowing that such a web page exists." Thus, the Ninth Circuit observed, the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of the website's terms and conditions.

The Ninth Circuit noted that courts have consistently enforced browsewrap agreements where the user had actual notice of the agreement but pointed out that courts are more willing to enforce browsewrap agreements where the browsewrap agreement resembles a clickwrap agreement, i.e., where the user is required to affirmatively acknowledge the agreement in some way.

The Ninth Circuit further stated that where, as in the case of Nguyen, no evidence exists that the user had any knowledge of a browsewrap agreement, the validity of such agreement turns on whether the disclosure of the agreement on the website is sufficient to put a reasonably prudent user on notice of the terms and conditions of such agreement. This inquiry turns on the design and content of the website. Where the link to the terms of use is hidden at the bottom of the page or tucked away in obscure corners of the website, notice is not sufficient.

The Ninth Circuit's analysis in Nguyen relies heavily on the Second Circuit's decision in Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002), in which the Second Circuit had rejected an arbitration clause in a terms of use agreement for inadequate notice. The Ninth Circuit acknowledged that Barnes & Noble's placement of the link to its Terms of Use at the bottom left of every page and also close to the buttons a user must click to complete a transaction distinguished the case from Specht, in which the link at issue was on a submerged screen that could not be seen unless the user scrolled past the button that initiated the relevant transaction. However, the Ninth Circuit held that the proximity or conspicuousness of the hyperlink alone was not enough to give rise to constructive notice. Rather, the Ninth Circuit said, the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers.

What then must a website owner do to provide the requisite notice? A clear manifestation of consent is the safest way to ensure enforceability—for example, by requiring the user to check an unchecked box before allowing the user to complete a transaction.

The Ninth Circuit also suggests in Nguyen that a clear textual notice on the website that continued use will act as a manifestation of the user's intent to be bound by the terms of use may also result in an effective agreement.

It also noted in a footnote that the standard may be higher where agreements are being enforced against consumers than against business entities.

In any event, Nguyen is a wake-up call for website operators for whom it is critical that an arbitration clause embedded in their website terms of use is enforceable; serious consideration needs to be given to how best to strengthen the enforceability of such clause in the wake of the Ninth Circuit's decision.

More generally, Nguyen is a reminder for all website operators that those ubiquitous browsewrap terms of use—found on nearly every website big and small across the entire span of the Internet—have serious limitations as a tool for legally binding site visitors and mitigating risks.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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