United States: Ninth Circuit Refuses To Enforce Arbitration Clause Contained In "Browsewrap"Agreement

Last Updated: December 17 2014
Article by David O. Klein
Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014)

Facts:

  • In response to an advertisement announcing a "fire sale," plaintiff visited Barnes & Noble's website and purchased two "Touchpads" (competitor to Apple's iPad) at a discounted rate, and received an email confirming the transaction.
  • A day later, plaintiff received notification that his order was cancelled due to unexpectedly high demand.
  • Plaintiff filed this lawsuit on behalf of himself and a putative class of consumers whose Touchpad orders had been cancelled.
  • Plaintiffs alleged that Barnes & Noble had engaged in deceptive business practices and false advertising in violation of New York and California law.
  • Defendant Barnes & Noble moved the case to federal court, and then moved the court to compel arbitration according to its website's Terms of Use (which included an arbitration clause).
  • The defendant's website featured a "Terms of Use" hyperlink which was located in the bottom left corner of each page.  
  • The named plaintiff did not click on the "Terms of Use" hyperlink, nor did he read the actual language of the Terms.  
  • Users who click on the link are taken to a webpage, which contains the full text of the company's Terms of Use.
  • Part of that language indicates that a user who visits any area of the website is deemed to have accepted the Terms of Use.
  • Plaintiff argued that he was not bound by the arbitration provision because he did not have notice of the Terms of Use and he did not assent to them.
  • Defendant argued that plaintiff was put on "constructive notice" of the Terms of Use by virtue of the placement of the hyperlink on the website.  Such notice, in addition to plaintiff's subsequent use of the website, should be deemed sufficient to have bound plaintiff (and the class) to the Terms of Use.
  • The trial court disagreed and Barnes & Noble appealed.

Ninth Circuit Decision:

  • In the course of discussing its reasoning behind the decision, the Court of Appeals addressed the way that contracts are primarily formed via the Internet: through "clickwrap" or "click-through" agreements and "browsewrap" agreements.
  • According to the Court, in "pure-form" browsewrap agreements, the website will include a notice that apprises users that by "merely using the services of, obtaining information from, or initiating applications within the website – the user is agreeing to and is bound by the site's terms of service."
  • The Court pointed out that, "the defining feature of a browsewrap agreement is that the user can continue to use the website or its services without visiting the page hosting the browsewrap agreement or even knowing that such a webpage exists."
  • A key aspect to the validity of the browsewrap agreement is whether the user has actual or constructive knowledge of a website's Terms of Use.
  • Constructive knowledge has been found to exist where the browsewrap agreement is similar to a clickwrap agreement, that is, where the user is required to affirmatively acknowledge the agreement before continuing with use of the website.
  • Here, the Court found no evidence that users had actual knowledge of the agreement, and therefore was required to determine whether constructive knowledge existed.  
  • Significantly, this latter issue depends on the design and content of the website and the agreement's applicable webpage.
  • Some of the relevant constructive knowledge factors include: the conspicuousness and placement of the Terms of Use hyperlink; other notices given to users of the Terms of Use; and the website's general design. 
  • In reviewing the factors and reaching its decision, the Court found that defendant had failed to provide persuasive legal authority that supported the position that proximity or conspicuousness of the hyperlink alone should be enough to give rise to constructive notice of the Terms of Use.
  • The Court noted that due to the lack of controlling authority on this issue, it would adhere to courts' traditional reluctance to enforce browsewrap agreements against individual consumers.
  • The Court held 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."

Take Away:

  • Courts take very seriously the imposition of Terms of Use to the individual consumer.
  • This decision highlights the increasing ineffectiveness of browsewrap agreements.  
  • There are certainly ways in which website operators can tailor their hyperlinks and notice provisions in order to help ensure their enforceability in the future.
  • If you have any questions about a website's design insofar as it relates to Terms of Use or Terms and Conditions, as applicable, be sure to retain an experienced Internet Marketing attorney.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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