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In a recent blog post, we wrote about how
the Second Circuit found the arbitration clause in a web
service's terms and conditions unenforceable because the
user did not have reasonable notice of the terms that were
communicated via a hyperlink in a post-sale email. In contrast, a
New York district court recently upheld an arbitration clause in
Coinbase's account registration process and granted its motion
to compel arbitration concerning claims brought by a user (Sultan v. Coinbase, Inc.,
No. 18-934 (E.D.N.Y. Jan. 24, 2019)).
This case sheds further light on the do's and don'ts of
online electronic contracting and the enforceability of app-based
terms and conditions. The decision reinforces the point that for
purposes of establishing a binding agreement with a user –
particularly in the context of a mobile app – simplicity and
clarity of the user interface is desired. And, in particular, this
case reinforces the point that has been illustrated in many cases
before that the design of user registration pages should be done
with the input of legal analysis as to likely enforceability.
In this dispute, the plaintiff alleged that the digital currency
exchange Coinbase negligently failed to prevent a scam that allowed
a third party hacker to steal more than $200,000 in Litecoins from
his account. Specifically, the plaintiff stated that he called what
he believed was Coinbase's customer support phone number to
inquire about a pending transaction, but that the supposed Coinbase
representative he spoke to was, in fact, a hacker, and that
plaintiff disclosed enough information to allow the hacker to
siphon digital currency from his account. Subsequently, the
plaintiff filed suit, claiming that stronger security measures by
Coinbase would have prevented the theft. Interestingly, the
complaint asserted that Coinbase allegedly failed to comply with
certain sections of the New York BitLicense regulation involving
cybersecurity and fraud prevention, among others.
In response, Coinbase moved to compel arbitration pursuant to a
provision in its user agreement. The district court granted the
motion and held that plaintiff had inquiry notice of the terms,
including its mandatory arbitration provision, and that he
manifested his assent to that agreement.
As seen in the screenshot below, when the plaintiff created his
Coinbase account he was required to input basic registration
information and also click a box that acknowledged agreement with
the user agreement: "I certify that I am 18 years of age or
older, and I agree to the User Agreement and Privacy Policy"
(where both applicable agreements were hyperlinked).
If the box was not checked, a user was prevented from completing
registration and prompted to agree to the terms [see below
screenshot].
Generally speaking, when assessing whether a user agreed to the
a web service's terms (and ultimately agreed to arbitrate
claims), the Second Circuit has stated that it looks to the design
and content of the relevant interface to determine "if the
contract terms were presented to the offeree in [a] way that would
put her on inquiry notice of such terms." In validating
Coinbase's "minimalist" interface, the court held its
process for gaining user assent to its terms was enforceable:
"The account creation screen contains only five fields and
two checkboxes. As in Meyer, the 'entire screen is
visible at once,' with a minimalist layout and no distractions.
The request to agree to the user agreement and privacy policy
appears to be in a slightly smaller font than other text on the
screen, but it is immediately above the 'Create Account'
button and 'provided simultaneously to enrollment.'"
[citations omitted].
Like all online businesses, digital currency platforms and other
similar entities count on certain provisions in their user
agreements in managing liability and risk, making it vital that
such agreements are enforceable. As such, the Sultan case and other
recent Second Circuit decisions on the issue of electronic
contracting are a must-read. Design, consumer interface and
placement decisions are more than just an aesthetic issue, but are
important to the enforceability of user terms and conditions,
particularly in the context of a mobile app, where simplicity and
clarity are desired. Lawyers should be part of these creative and
business decisions to ensure that design issues do not affect the
enforceability of user terms.
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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