The Ninth Circuit’s recent opinion in Nguyen v. Barnes & Noble Inc., No. 12–56628, August 18, 2014, US 9th Circuit, provides insight regarding courts’ treatment of Internet-based contracts of interest to those operating in the e-commerce space or any website owner seeking to rely on provisions contained in the website’s Terms of Use or other posted policies.

Website operators posting Terms of Use or other policies via hyperlink should be aware that in the absence of any website functionality requiring a user to engage in an affirmative act to demonstrate assent, the design and content of their websites will be scrutinized in the event they seek to enforce any such terms against a website user. Failure to put users on notice of the existence of terms to which operators seek to bind website users by doing something beyond placing the hyperlink conspicuously on every page of the website, or even in close proximity to buttons users must click to proceed with the relevant transaction occurring on the website (to establish an account, purchase a product, etc.), may result in a finding that the terms are unenforceable.

Background

The dispute in Nguyen centered around the enforceability of the Terms of Use appearing on the Barnes & Noble website. Kevin K. Nguyen, the plaintiff in the underlying district court action on appeal before the Ninth Circuit, used the Barnes & Noble website to purchase two Hewlett-Packard Touchpads that Barnes & Noble was offering for sale at a heavily discounted price. After his order was cancelled due to unexpectedly high demand for the products, Nguyen initiated suit in California State Court on behalf of himself and a class of similarly situated consumers, prompting Barnes & Noble to remove the action to federal court and thereafter move to compel arbitration pursuant to a provision in the Terms of Use set forth on its website. The provision at issue required any claim arising out of the Terms of Use, the Barnes & Noble website or any barnesandnoble.com service to be resolved through arbitration.

In determining whether to affirm the district court’s denial of Barnes & Noble’s motion to compel arbitration against Nguyen, the Ninth Circuit was required to decide whether Nguyen was bound by the arbitration agreement contained in the website’s Terms of Use. As distinguished from a “clickwrap” Internet agreement, requiring a website user to engage in an affirmative act such as clicking “I Agree” after being presented with the terms, Barnes & Noble presented its website’s Terms of Use as a “browsewrap” agreement. A hyperlink to the Terms of Use appeared on the bottom left-hand corner of every page on the website alongside various other hyperlinks. This hyperlink was similarly posted on each page of the online checkout process required to consummate a transaction on the Barnes & Noble website. On at least some pages, the hyperlink to the Terms of Use was placed directly below or a few inches away from the button a website user was required to click in order to proceed with the commercial transaction. On others, no scrolling was required in order to bring the hyperlink within a website user’s immediate field of vision. Like typical browsewrap agreements, the terms provided that, among other actions, mere use of the Barnes & Noble website constituted the user’s agreement to the Terms of Use. It was undisputed that Nguyen neither clicked the hyperlink to the Terms of Use nor actually read them.

The Ruling

In ruling on the enforceability of the arbitration agreement contained in the Terms of Use, the Ninth Circuit was required to answer the question of whether mere use of a website was sufficient to establish a user’s agreement to be bound by Terms of Use contained in a browsewrap agreement. The court answered this question in the negative, holding that Nguyen never assented to Barnes & Noble’s arbitration agreement.

Of significance to the court in arriving at this answer was the browsewrap nature of the Terms of Use. Due to the absence of any affirmative act on the part of the website user to manifest assent to the terms, the enforceability of such agreements turns on whether a website user’s actual or constructive knowledge of the terms can be established. Because the record contained no evidence that Nguyen had actual knowledge of Barnes & Noble’s Terms of Use, the court’s analysis centered on the constructive knowledge prong of the assent analysis and asked whether the Barnes & Noble website placed “a reasonably prudent user on inquiry notice of the terms of the contract.”

The Ninth Circuit ultimately found that the presentation of Barnes & Noble’s Terms of Use was insufficient to support a finding of constructive notice required for holding that Nguyen assented to the terms of the agreement, including the arbitration provision. The court found the following factors to be of significance in deciding whether a website user would have inquiry notice of the terms of a browsewrap agreement: (1) “the conspicuousness and placement of the ‘Terms of Use’ hyperlink, (2) other notices given to users of the terms of use, and (3) the website’s general design.” It is important to note that the court did not regard any of these factors as dispositive, and specifically held that conspicuous placement of a hyperlink to the Terms of Use on every page of a website, often in close proximity to buttons that users must click to engage in the relevant transaction, “without more” by way of putting users on notice of the terms, would not give rise to constructive notice.

Summary

While the law relating to Internet-based activities, including contract formation, remains in flux, website operators have attempted to govern conduct through contractual obligations set forth in posted policies appearing on their websites. Whether through browsewrap agreements, clickwrap agreements or hybrids, website operators often use lengthy agreements to deliver content, products or services on terms favorable to them that might otherwise be rejected by a party in a different environment. While the law continues to develop, website operators should remain current on recent decisions shedding further light on what courts will require before upholding the enforceability of such terms.

Website operators seeking to eventually rely on provisions contained in a traditional browsewrap agreement presented on their website should be aware that this decision, together with the historic reluctance of courts to enforce such agreements against individual website users, counsels in favor of evaluating and perhaps revamping website design and content to provide users with more readily apparent notice of such terms in accordance with the Ninth Circuit’s directives.