United States: Browsewrap Agreement Held Unenforceable – Website Designers Take Note!

Nghiem v Dick's Sporting Goods, Inc.

, No. 16-00097 (C.D. Cal. July 5, 2016), the Central District of California held browsewrap terms to be unenforceable because the hyperlink to the terms was "sandwiched" between two links near the bottom of the third column of links in a website footer.  Website developers – and their lawyers – should take note of this case, part of an emerging trend of judicial scrutiny over how browsewrap terms are presented. Courts have, in many instances, refused to enforce browsewraps due to a finding of a lack of user notice and assent. In this case, the most recent example of a court's specific analysis of website design, a court suggests that what has become a fairly standard approach to browsewrap presentment fails to achieve the intended purpose.   

In Nghiem, the plaintiff brought claims under the Telephone Consumer Protection Act (TCPA) seeking statutory damages and an order certifying a class action.  The defendant Dick's Sporting Goods (DSG) moved to compel arbitration based upon the DSG's website terms of use.  The court denied the defendant's motion, ruling that the plaintiff had no knowledge of the website terms and was not bound by the arbitration clause contained in DSG's browewrap agreement.

The terms of use on DSG's website were not presented in the typical clickthrough arrangement, where users are expressly presented with and required to assent to the terms before completing a purchase or registration.  Rather, DSG's terms were presented as a browsewrap agreement, where a website's terms and conditions are posted on the website via a hyperlink at the bottom of the screen and users are presumed to manifest assent to the terms by use of the website.

The district court noted that browsewrap agreements are enforced with "reluctance," and only when a consumer has "actual or constructive knowledge of a website's terms and conditions."  Interestingly, DSG argued that because the plaintiff was an attorney whose former firm handled TCPA cases (including litigation against DSG), he should be charged with knowledge of the terms and arbitration clause.  The court rejected the argument that the plaintiff should be deemed to have actual knowledge of its terms based upon his vocation:

"[A]ctual knowledge is not something to be 'safely assumed,' as Defendants would have it, based on a plaintiff's occupation. Instead, Defendants were required to put forth 'evidence' that Plaintiff had 'actual knowledge of the agreement' at issue. Defendants' speculation regarding whether Nghiem reviewed, at some point in the past, DSG's website Terms of Use is insufficient to meet this standard." [citations omitted].

The court performed a detailed review of the website design to determine whether the plaintiff gained constructive knowledge of the website terms based upon, among other considerations, the placement of the link to the terms.  The court noted that DSG's terms appeared at the bottom in the website footer of the home page (and on the page about its mobile alerts), and within a grouping of 27 other hyperlinks arranged in four columns that covered a variety of diverse topics (e.g., careers, gift cards, find a store, etc.).  The court noted that the hyperlink to the terms was "sandwiched between 'Only at DICK's' and 'California Disclosures', near the bottom of the third column of links."  As such, the court ruled that the placement was not conspicuous enough alone to put consumers on inquiry notice of the terms.

The ruling was not necessarily surprising in light of other recent decisions examining browsewrap agreements. For example, a recent California appellate court decision affirmed a ruling denying a motion to compel arbitration based upon website terms that were only viewable at the bottom of each page via a capitalized and underlined hyperlink ("TERMS OF USE").  The hyperlink was displayed in a light green typeface on the site's lime green background, and was among 14 other hyperlinks of the same color, font and size. (See Long v. Provide Commerce, Inc., 200 Cal. Rptr. 3d 117 (Cal. App. 2016)). The appellate court followed well-known precedent in reaching its holding.  See e.g., Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1178-79 (9th Cir. 2014) ("[W]here 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"); Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002) (declining to enforce an arbitration provision contained in a software licensing browsewrap agreement where the hyperlink to the agreement appeared on "a submerged screen" below the "Download" button that the plaintiffs clicked to initiate the download).

These recent cases should prompt companies to reexamine electronic contracting practices to ensure that consumers are offered notice sufficient to understand that use of a website will constitute agreement to the terms. One solution is the use of clickthrough agreements, which are generally upheld based upon now fairly-standard procedures for gaining notice and assent during user registration or purchase confirmation.  Ultimately, however, in designing a site, companies must balance concerns for user flow with the protections that come with an enforceable terms of use (though, it should be noted that in May 2016 the CFPB proposed a rule that would prohibit mandatory arbitration clauses that prevent class actions).

In any case, this is yet another example of why lawyers should be part of the website design process.

Browsewrap Agreement Held Unenforceable – Website Designers Take Note!

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