A recent U.S. Court of Appeals decision (Ninth Circuit, August 18, 2014) is a reminder to any of us seeking to impose contractual terms on our website users and online customers.  Nguyen sued Barnes & Noble in federal court, but Barnes & Noble was seeking to enforce the arbitration clause in their website terms and conditions, to move the proceedings out of the court.

The case arose from the liquidation by Barnes & Noble of its inventory of discontinued HP “Touchpad” tablets, which were an unsuccessful competitor to the iPad.

Barnes & Noble advertised the fire sale of Touchpads at a heavily discounted price.  Nguyen acted quickly and purchased two units on their website and received an email confirming the transaction.  But the following day he received another email from Barnes & Noble informing him that his order had been cancelled due to unexpectedly high demand.

Nguyen’s lawsuit alleged that Barnes & Noble had engaged in deceptive business practices and false advertising.

Barnes & Noble asked the court to move the action from federal court to the arbitration under their terms and conditions.

There was no explicit acceptance by Nguyen of the website terms, and therefore the contract, if there was one, was considered a “browsewrap” agreement.

The court summarized the differences between clickwrap agreements, where users explicitly click “I agree” or otherwise clearly accept the terms, and browsewrap agreements where a website’s terms and conditions are posted on the website and a user is found to give their consent simply by using the site.

However, since no affirmative action is required by a website user to agree to the terms under a browsewrap agreement, a determination of whether it binds the user depends on whether the user has actual or constructive knowledge of its terms and conditions.

In this case there was no evidence that Nguyen had actual knowledge of the website terms, and so the question was whether the website put a reasonably prudent user on notice of the terms.

The court looked at prior decisions which provided some guidance. For example, where the link to the website terms is buried at the bottom of the page or tucked in obscure corners of the site, courts are unlikely to enforce the browsewrap agreement.  However, if a website contains an explicit textual notice that continued use will act to indicate the user’s intent to be bound by the terms, then the courts are more amenable to enforcing the browsewrap agreement.

Barnes & Noble argued that their terms and conditions were sufficiently brought to the attention of users by a hyperlink at the bottom left corner of every page on their site, and in close proximity to the buttons that a user must click on to complete a purchase.

But the court found that the proximity or conspicuousness of the hyperlink alone is not enough to give rise to the required constructive notice.

The court held that where a website makes its terms of use available via conspicuous link on every page but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate acceptance, then even close proximity of the hyperlink to the relevant buttons, without more, is insufficient to give rise to constructive notice.

The striking result in this case is that it is unclear how any website operator or online merchant can be certain that a user is bound by the website terms, absent clear acceptance through some affirmative action.  Aside from terms and conditions found at a website, we must also wonder whether other provisions such as a privacy policy can bind a user without clear acceptance.

Despite this case being a fairly high level American decision, Canadian companies, especially those doing business in USA, should pay close attention to the ruling, and indeed a Canadian court could come to a similar result.