Your website is essential to your online business. By developing and presenting an online presence, however, you take on legal obligations to your users. It is, therefore, a timely exercise to stop and take stock of your terms and conditions in light of recent developments in the law, consumer expectations, and your legal risk profile. The privacy policy has been getting a lot of attention lately as many websites, services and apps are rushing to get their new privacy policies in place in light of the California Online Privacy Protection Act (“CalOPPA”). But updating the privacy policy is only one step in protecting your business in this digital economy. Terms and conditions are an important tool for limiting a company’s exposure to the various legal risks inherent in conducting business online. Boilerplate provisions can leave you exposed and frustrate your customers. Companies should critically consider the nature and needs of the business and transactions that may occur on their websites to determine what types of provisions will be beneficial and best practices for creating a binding contract.

Terms and conditions generally specify the rules governing the use of a website or mobile application. Since every website is different, custom-drafted terms and conditions are necessary to protect a particular business. Well-crafted terms and conditions might address issues such as payment, taxes, refunds, gift certificates, accounts, disclaimers, user behavior on your site, warranties and limitations on liability.

Binding the Consumer

Online retailers must ensure that the necessary elements for a contract are satisfied. Assent by the customer may be manifested explicitly, such as by checking a box or clicking on a button, or impliedly through performance or other conduct. Express assent is not required. In most disputes, the most significant issue involves the existence of notice to the consumer and mutual assent. Many courts have concluded that the necessary elements of notice and mutual assent can be satisfied by properly drafted and presented terms and conditions.

The enforceability of terms and conditions may turn on whether they are displayed on the website in a way in which a reasonable user could be expected to notice them. “Browsewrap” and “clickwrap” agreements are two primary methods for setting forth terms and conditions. In “browsewrap” agreements, the terms and conditions are accessible on the website in case the user wishes to review them, but the user assents simply by using the website. “Clickwrap” agreements, on the other hand, require the user to expressly assent by clicking a button displayed next to or below a statement asking the user to accept the contract. Because there can be doubt with browsewrap agreements as to whether there is actual or constructive notice to users of their terms, clickwrap is a preferred method.

The Northern District of Illinois decision in Alan Ross Machinery Corp. v. Machinio Corp., No. 17-3569 (N.D. Ill. July 9, 2018), demonstrates the importance of requiring affirmative assent for the purpose of creating a binding terms and conditions. While terms and conditions can be an effective tool for business that wish to prohibit screen scraping, along with other online brand and data privacy protection, affirmative consent to an online contract can be paramount. In Alan Ross Machinery, Plaintiff alleged that defendant extracted data related to approximately 2,000 sales listings of certain machinery from the Alan Ross’ website and reproduced those listings on the Machinio website. Plaintiff brought several claims, including breach of contract claims alleging that defendant breached the website’s terms and conditions when it scraped the listings. The terms and conditions on Alan Ross’s website stated that visitors to the website “may not copy, reproduce, modify, create derivative works from, nor distribute content from this site without our prior written consent; and reproductions and derivatives are available for $500 US Dollars per asset.” Plaintiff’s terms and conditions were presented via browsewrap only. The court dismissed the breach of contract claims, finding that defendant did not have actual or constructive knowledge of the website’s terms and conditions because it did not require users to affirmatively assents to the terms by registering or otherwise clicking a box.

As a general matter, the terms and conditions must be presented in a manner that provides adequate notice to the user, focusing on the design and content of the website, and terms and conditions page. Simply posting the terms and conditions on the website is not enough; businesses should critically analyze the conspicuity of their sites’ notices of the terms and conditions, their accessibility and the timing of the notices. To maximize the likelihood of enforcement, the terms and conditions should not be buried in a hyperlink at the bottom of a webpage or require the user to click through a multi-step process to access them. Further, the text preceding the acceptance button should make clear that a user is accepting the terms of a contract and not merely signifying readiness to proceed to the next screen, enter a site, download software or otherwise undertake some task not necessarily involving acceptance of a contract. Instead, the terms should be clear and conspicuous, easily accessible and displayed in a sufficiently large viewing window to provide the user an adequate opportunity to review the terms, thereby eliminating any doubts that a reasonable user would have noticed them.

The argument that the user received adequate notice is most persuasive if the user was required to take affirmative steps to express assent to the terms and conditions. Courts have been more willing to find notice of terms and conditions communicated through clickwrap agreements that require the user to affirmatively accept, provided that the text preceding the acceptance button makes clear that the user is accepting contractual terms and not merely requesting the user’s readiness to proceed to the next step in the transaction.

Reduce Exposure Through an Arbitration Provision and Class Action Waiver

One way to reduce a company’s exposure to these risks is to include an arbitration clause and class action waiver in the website’s terms and conditions, prohibiting users from litigating en masse. Arbitration agreements require the parties to resolve disputes out of court, often via a more streamlined procedure. One way to help streamline the arbitration process is to make sure your terms and conditions include a delegation clause to the arbitrator. On January 8, 2019, the U.S. Supreme Court released its decision in Henry Schein, Inc. v. Archer and White Sales, Inc., No. 17-1272. The Federal Arbitration Act (FAA) allows parties to agree by contract that an arbitrator decides threshold questions of arbitrability, rather than a court. In a unanimous decision, the Supreme Court held that a court may not override the contractual agreement that delegates arbitrability questions to the arbitrator and rejected the “wholly groundless” exception to the contractual delegation of arbitrability questions. The key takeaway is that Schein gives online businesses an even greater ability to limit the power of the court, and should consider vesting an arbitrator with the power to decide both substantive and threshold questions affecting the parties’ rights to litigate. Given the magnitude of issues often at stake, business should make sure to expressly authorize an arbitrator to resolve gateway issues, including the existence, validity and scope of the arbitration agreement.

A class action waiver limits lawsuits to the particular parties in the transaction and can avoid the risk that a single class action will result in substantial damages to the company. Those with an online presence can include an arbitration provision that limits the arbitration to the particular parties in the transaction, which can avoid the risk that a single class action jury verdict will result in substantial damages. While most well-drafted arbitration agreements have included an express class action waiver since AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), there was some residual confusion over agreement that were unclear about whether parties intended to foreclose class proceedings. The recent Supreme Court case Lamps Plus, Inc. v. Varela, 587 U.S. ___ (No. 17-988), will dispel that confusion going forward. The Supreme Court held on April 25, 2019, that under the FAA an ambiguous contract could not compel parties to submit to class arbitration. Nevertheless, best practices for those wishing to avoid class arbitration is still to include explicit waivers in their arbitration agreements at the first opportunity, especially given other decisions that make clear the placement of the arbitration provision is paramount.

The terms and conditions can ensure sufficient notice of the arbitration agreement by:

  • Alerting users of the existence of the arbitration clause by including a statement up front, or an arbitration notice stating that the terms and conditions contain a binding arbitration clause that will impact the users’ rights about dispute resolution
  • Describing what arbitration is and its limited scope, and stating unequivocally that the parties have agreed to binding arbitration
  • Explaining how an arbitration proceeding can be commenced
  • Informing users of their right to bring claims in small claims court in lieu of arbitration under certain circumstances

Avoid Unconscionable Provisions

Another significant issue in the enforceability of class action waivers is the consideration of allegedly unconscionable provisions in the arbitration agreement. In deciding whether to enforce an arbitration agreement, courts often examine whether the terms are both procedurally and substantively unconscionable. Procedural unconsionability centers around oppression or surprise due to unequal bargaining power, and substantive unconsionability focuses on overly harsh or one-sided results. Accordingly, in addition to presenting the arbitration provision in a manner that provides adequate notice to the user, companies should assess whether their arbitration provision includes easily understandable, balanced provisions so that the agreement is not overly one sided.

Conclusion

Appropriate terms and conditions, along with privacy policies, are critical to every website and mobile application. A terms and conditions agreement and privacy policy is only good to the extent it can be enforced. Accordingly, Sidley works with its clients to implement their website agreements, as well as privacy and DMCA policies, in the way most likely to permit their enforcement.