On August 18, 2014, the Ninth U.S. Circuit Court of Appeals published its opinion in Nguyen v. Barnes & Noble, Inc. affirming the trial court’s denial of Barnes & Noble’s motion to compel arbitration pursuant to the terms of use (TOU) on the Barnes & Noble website. The court found that the TOU were part of a “browsewrap” agreement, where the website’s terms and conditions of use were generally posted on the website via a hyperlink at the bottom of the screen.

The court explained, “Unlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent to the terms and conditions expressly . . . [a] party instead gives his assent simply by using the website.” The court continued, “Because no affirmative action is required by the website user to agree to the terms of a contract other than his or her use of the website, the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of a website’s terms and conditions.”

The court agreed there was no evidence that the website user had actual knowledge of the agreement, thus the validity of the browsewrap agreement turned on whether the website put a reasonably prudent user on inquiry notice of the terms of the contract. The three-judge panel held that the plaintiff had insufficient notice of Barnes & Noble’s TOU, and thus did not enter into an agreement with Barnes & Noble to arbitrate his claims. The panel held there was no evidence that the website user had actual knowledge of the agreement. The panel further 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 – without more – is insufficient to give rise to constructive notice.

The court did point out that were there any evidence in the record that Nguyen had actual notice of the TOU or was required to affirmatively acknowledge the TOU before completing his online purchase, the outcome of the case might have been different.

The takeaways from this case are two-fold: First, businesses should review their online TOU and the need for users to affirmatively acknowledge the TOU, or display the TOU conspicuously enough to put users on inquiry notice. Second, in the context of litigation defendants must develop the record sufficiently enough to support their contentions. In Nguyen, there was evidence that the plaintiff was familiar with passive TOU on other websites, but that did not carry enough weight with the appeals court to establish that the plaintiff was aware of the TOU on Barnes & Noble’s website.