Browse-Wrap Has Its Day in Court

Are Website Terms of Service Enforceable?

In the footer of nearly every website, you’ll find a link to Terms of Service. In my last post, I gave a brief outline of the history of online Terms of Service, and how they came to be such a fixture of the online landscape.

Now I want to consider a more important question: Are online Terms of Service a legally binding contract?

What is a contract?

In law school, they teach us that a contract is an agreement between two parties (i.e., adults or companies) to exchange something of value. We’re also taught that in order for a contract to be binding under the law, it’s necessary to show that the original offer was accepted.

Put in those terms, it sounds dead simple. In real life, though, there are plenty of open questions about whether a deal has been struck, and what the terms are. Even where a contract is clearly binding, it might not be legally binding if it offends a public interest—such as a contract that is obtained through fraud or coercion.

Shrink-wrap agreements.

When off-the-shelf software was sold in boxes at bookstores, it usually contained a long, ugly, legalese document inside that spelled out the user’s license to the software and other terms. Not surprising, no one looked at those agreements.

When software developers sued to enforce the terms, defendants argued that they couldn’t have accepted the agreement since the terms weren’t even visible until after they had opened the shrink-wrapped box. The courts were sympathetic to this argument, up to point.

The general rule that arose from cases dealing with so-called ‘shrink-wrap’ agreements was that the end user had a right to review and accept the terms of a license agreement before those terms would be binding. If the user didn’t want the software after reading the agreement terms, they could return it for a refund.

Click-wrap agreements.

Over time, software publishers got more and more sophisticated at making binding contracts with their users. They introduced the ‘click-wrap’ or ‘click-through’ agreement, which presented the contract terms on screen, and required the user to click “I Agree” before proceeding. The click-wrap agreement became the dominant vehicle for end user licensing during the 1990s.

Browse-wrap agreements.

By the 1990s, the Internet was in full-swing, and consumer-oriented websites were serving bigger and bigger audiences. It was all about ‘getting eyeballs’ onto your site. No one wanted to exclude users by requiring them to click through obnoxious legal agreements. As a result, a new form of online contract emerged: the ‘browse-wrap’ agreement. A play on the old ‘shrink-wrap’ contracts, the browse-wrap agreement appears behind a link at the bottom of the page. It usually starts with language that purports to bind anyone who uses the website:

By using the website, you are agreeing to be bound by the following terms and conditions. If you do not agree to these terms, you may discontinue use of the website at any time.

The typical browse-wrap agreement then goes on to impose a collection of fairly one-sided, anti-consumer disclaimers, limitations of liability, license restrictions, termination rights, dispute resolution mechanisms, etc.

Case law on Browse-wraps.

In 2012, Zappos faced an onslaught of class action and other lawsuits stemming from a data security breach that exposed data on more than 20 million users. Zappos argued that its terms of service included a mandatory arbitration clause. The court refused to enforce the arbitration clause, adding:

The Terms of Use is inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use. No reasonable user would have reason to click on the Terms of Use.

The Zappos case is fairly rare, in that most of the case law for online contracts deals with users who have affirmatively registered for a website. Most website registration processes include a step that is more like the click-though model than the browse-wrap.

Some courts (including the very recent May 2013 Massachusetts holding in Ajemian v. Yahoo!) have refused to enforce click-wrap agreements against registered users on the basis that the website operator did not meet the burden of showing that the terms were adequately communicated and accepted.

It seems safe to conclude that any court that would invalidate a click-wrap agreement on these grounds would look even less favorably on a browse-wrap.

Shifting sands.

My law firm recently undertook an effort to review a few hundred online Terms of Service from leading web services. Almost all of the agreements in our comparison group had:

1. A mandatory arbitration clause, mandatory venue in California, choice of California law, a waiver of the right to a jury trial, and a waiver of the right to participate in class action lawsuits.

2. A provision to allow the website operator to unilaterally change the Terms of Service without notifying the end user.

While there can be no definitive answers yet, the case law suggests that clauses limiting a consumer’s right to seek remedies in court are among the least likely to be enforced by a court. After all, there’s a strong public interest in giving consumers access to meaningful remedies in the courts, especially in the face of the website operator’s relatively weak claim that browse-wrap Terms of Service constitute a binding contract.

Likewise, by reserving a right to unilaterally change the Terms of Service at any time without notice, the website operator seriously undermines the enforceability of the browse-wrap terms. The courts have been clear that “conspicuous” notice of the terms is a key factor for enforceability.

Fairness is the watchword.

When looking into the enforcement of browse-wraps, it’s important to keep fundamental fairness in mind. For example, it seems unlikely that a court would hold a consumer in breach of a browse-wrap contract that purports to severely limit the consumer’s remedies for the website operator’s obvious wrongdoings. However, it doesn’t follow that the same court would allow the same user to make deliberate, excessive use of the service in violation of the same Terms of Service.

At the end of the day, courts should always put weak contract claims below the public’s interest in fairness. Where no public interest is involved (e.g., where the only harm is suffered by the website operator), then the court should be more inclined to enforce the browse-wrap contract.