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The Business Lawyer

Winter 2022-2023 | Volume 78, Issue 1

Online Contracts

Nancy S. Kim


  • Most of the cases in the area of online contracts have been rendered by federal courts interpreting state law.
  • This year, there were significant cases from two states, Maine and California. In both states, the courts ruled that no contract was formed and expressed a view that websites should do more to make notices conspicuous instead of expecting vigilance on the part of the website user.
  • Generally, Clickwrap and scrollwrap agreements are presumptively enforceable as contracting forms, and browsewraps are presumptively unenforceable.
Online Contracts

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I. Introduction

This survey covers developments in online contract formation. As in the past few years, this year’s cases demonstrate that courts are focusing on website design and transactional context and expecting companies to do more to make notices on their websites conspicuous.

Surprisingly few state courts have addressed the issue of online contract formation. Most of the cases in this area have been rendered by federal courts interpreting state law. Thus, when a state court does consider the issue, it’s worth paying attention. This year, there were significant cases from two states, Maine and California. In both states, the courts ruled that no contract was formed and expressed a view that websites should do more to make notices conspicuous instead of expecting vigilance on the part of the website user.

These cases provide much needed clarity and guidance for companies and their attorneys. They all conclude that, generally, clickwrap and scrollwrap agreements are presumptively enforceable as contracting forms and browsewraps are presumptively unenforceable. Sign-in wrap agreements are dubious and require that notifying terms be conspicuous and expressly advise users that taking a specified action signifies assent.

As a preliminary matter, the use by courts of the word “terms” to refer to both the notice of terms and the terms themselves tends to confuse discussion in this already confusing area of the law. For the sake of clarity, this survey will refer to language that provides notice that terms and conditions apply as “notifying terms” and the terms and conditions themselves as “terms and conditions” or “terms of service.”

II. Conspicuousness Requires Considering the Context and the “Totality of the Circumstances”

In Soliman v. Subway Franchisee Advertising Fund Trust, Ltd., the U.S. Court of Appeals for the Second Circuit applied California law to determine whether a consumer was bound to the terms and conditions on a company’s website. The plaintiff, Marina Soliman, walked into a Subway sandwich shop where an employee referred her to an in-store, hard-copy advertisement in which the company proposed to send her weekly offers if she texted a keyword to a given code. Soliman sent the text and Subway sent her a hyperlink for a coupon. Subway did not stop sending the messages even after Soliman requested that it stop. Soliman sued, claiming a violation of the Telephone Consumer Protection Act (“TCPA”). Subway moved to compel arbitration, claiming that, because the in-store advertisement contained a reference to terms and conditions located on Subway’s website, a contract was formed including those terms. The website terms and conditions contained a mandatory arbitration clause.

The court first summarized California law and held that, “even where the offeree does not have actual notice of the contract terms, she will still be bound by such terms if a ‘reasonably prudent’ person would be on inquiry notice of those terms and she unambiguously manifested assent to those terms.” Thus, assent requires (a) actual notice or inquiry notice of terms and conditions and (b) unambiguous manifestation of assent to the terms. The court stated that “[i]nquiry notice is ‘actual notice of circumstances sufficient to put a prudent [person] upon inquiry.’” The court further stated that “[a] person is on inquiry notice of terms if they are presented in a clear and conspicuous manner.” Thus, the court appears to be distinguishing between two different types of terms: those terms that serve to notify a person that terms apply (i.e., the notifying terms) and the actual terms and conditions themselves. Soliman did not actually see the terms and conditions on the website. She did, however, see the advertisement that contained the notifying terms. She would be put on inquiry notice if those notifying terms were “clear and conspicuous.”

The court held that Soliman was not put on inquiry notice because Subway failed to demonstrate that the notifying terms were “clear and conspicuous to a reasonable person in Soliman’s position” for several reasons, including that they were “buried” in a paragraph printed in “significantly smaller font relative to the other text on the advertisement,” “required Soliman to type in the URL text,” and once linked, the heading stated that they were “terms of use for this website,” which might lead a reasonable person to think that they were relevant only to the use of the website. Of note, the court stated:

[C]ompanies relying on the mixed-media incorporation of contractual terms involving a combination of a print advertisement, text messaging, and a website (rather than a purely paper or purely web-based medium) must take into account the practical obstacles in each situation relating to the conspicuousness of the notice, as well as access to the terms and conditions, that may be created by the various modes of communication being utilized.

The “combination of barriers” led the court to find that the terms and conditions “were not reasonably conspicuous under the totality of the circumstances” and a “reasonable person would not realize she was being bound to such terms and conditions by texting Subway in order to begin receiving promotional offers.”

The court distinguished this case from Meyer v. Uber Technologies, Inc. by noting the specifics of the way the notifying terms were presented in the latter case, including a “clear prompt” to the terms and conditions. It also likened the Subway notice to other cases where the notifying terms were on “cluttered websites” and were thus “insufficiently conspicuous to provide inquiry or constructive notice to the consumer.” Finally, the court noted that the “panoply of technological variations . . . as it relates to the form and content of communication interfaces with consumers, makes any bright-line rule for reasonable conspicuousness in this arena extremely difficult,” and that each situation will require “careful examination on a case-by-case basis.”

III. Two-Step Inquiry: Notice and Manifestation of Assent

In Sarchi v. Uber Technologies, Inc., the Supreme Judicial Court of Maine, for the first time, addressed the formation of online contracts, and, in doing so, provided a useful summary of the current state of wrap contract formation. The plaintiff, Patricia Sarchi, was denied Uber’s ride-sharing service because she had a guide dog. Sarchi filed a complaint against the company for violating the Maine Human Rights Act. Uber moved to compel arbitration pursuant to its terms and conditions. The lower court found that Sarchi was not bound by the terms and conditions.

When Sarchi created her rider account, she interacted with a series of screens that contained text that referenced Uber’s terms and conditions. The court noted that users can complete the registration process for creating a rider account without having to click on the hyperlink to the terms and conditions and without reading or affirmatively acknowledging them. Uber also sent its riders, including Sarchi, an email notifying them of updates to its arbitration provision. The email did not require the user to expressly assent to the updated terms and conditions but stated that continued use of Uber’s services constituted assent.

The court identified the four basic types of wrap contracts—browsewrap, clickwrap, scrollwrap, and sign-in wrap—and stated that scrollwraps and clickwraps are generally enforceable while browsewraps are “often unenforceable.” Sign-in wrap agreements are a hybrid of clickwrap and browsewrap agreements and required a “fact-intensive inquiry.” The court noted that courts in other jurisdictions focused on three primary “variables” in assessing the presentation of terms and conditions: (1) “[c]onspicuous terms or access to terms”; (2) “[u]ncluttered screen”; and (3) “[e]xplicit manner of expressing assent.” Based on these criteria, the court explained, “[B]rowsewrap agreements occupy one end of the spectrum of enforceability, clickwrap (and scrollwrap) agreements occupy the other, and sign-in wrap agreements fall somewhere in the middle, with their precise location on the spectrum almost entirely dependent on the features of the interfaces on which they appear.”

The court noted that the “basic question” is “what level of notice and assent is required in order for a court to enforce an online adhesion contract?” The answer to this question required a “two-step inquiry”:

The first step focuses on whether a user had reasonable notice of the online contract terms “consider[ing] the perspective of a reasonably prudent . . . user” of online technology . . . . The requirement of reasonable notice is necessarily satisfied if the user has actual notice of the terms . . . . “Absent actual notice, the totality of the circumstances must be evaluated in determining whether reasonable notice has been given . . . .” If the user received reasonable notice of the terms of the online contract, the analysis moves to the second step—whether the user has manifested assent to the terms. Under Maine law, a party’s assent to the terms of a contract can be express, as through words of agreement, or implied, as through conduct, but the words or conduct must objectively indicate an intent to be contractually bound. In the context of online contracts, the question of assent often comes down to whether the website adequately informs the user that conduct such as clicking on a button constitutes assent to contract terms so as to justify an inference that the user intends to be bound.

The court also noted that “courts are more likely to enforce clickwrap contracts, which require explicit assent to contract terms, than browsewrap and sign-in wrap contracts, which do not.” The court concluded that Uber’s registration process for riders was a sign-in wrap and that the interface did not provide Sarchi with reasonable notice of the “content” of the terms and conditions. In reaching its conclusion that Uber did not provide reasonable notice, the court focused on features of the interface, such as the “muted gray coloring” of the hyperlink, the lack of underlining, the sequence in which the hyperlink was presented, and the placement on the screen relative to the other features on the same page. It concluded that, “[b]ased on the totality of the features of the Uber interface,” Uber failed to provide a prudent user with reasonable notice.

Significantly, the court stated that, even if the Uber registration process had provided its users with reasonable notice, the process was nevertheless insufficient to place her on notice that registration would constitute assent to the terms and conditions. The court stated that a reasonably prudent user would have thought that clicking “DONE” indicated the user had correctly inputted payment information and not that the user was agreeing to terms and conditions. The second step of the two-step inquiry requires unambiguous language that a given action constitutes assent, such as “By clicking DONE, you agree to the Terms.” The court also noted the “distance” between the notice and the button was “problematic.”

The court then turned to the email that Uber sent to its users and concluded that there was no need to apply the online contract analysis because there was no evidence that Sarchi “ever became aware of or interacted with Uber’s November 2016 email” and she had “no reason to pay attention to an email from Uber because she was unaware of the original Terms or that Uber deemed her to have assented to them.” The court stated that, although the email provided that continued use of the app indicated acceptance of the updated Terms, the fact that Sarchi was able to retain her status as a registered Uber rider without opening the email message meant “that the email lacked even the limited indicia of notice and assent associated with a browsewrap contract.”

The Sarchi case thus reiterates the two-step inquiry for digital contract formation and provides more guidance on how to apply it. First, online contract formation requires that the seller communicate reasonable notice of the terms to the user. Reasonable notice requires either actual notice or notifying terms that are presented so that a reasonably prudent user would have been aware of them given the totality of the circumstances (including consideration of the website features, interface, and website interaction). Second, reasonable notice is not sufficient to form a contract; the user must also have manifested assent to the terms. Manifestation of assent requires unambiguous language that indicates that a given action constitutes assent. Although the court did not rule that any given category of wrap contract was unenforceable, it clearly stated that browsewraps and sign-in wraps were less likely to be enforceable than clickwraps and scrollwraps because the former lack a clear and unambiguous manifestation of assent by the user.

IV. More Clarity in California

In Sellers v. JustAnswer LLC, a California appellate court, for the first time, considered the enforceability of a “sign-in wrap” agreement. Customers of JustAnswer, a question-and-answer website, brought a class action alleging that JustAnswer enrolled them in auto-renewing memberships without providing “clear and conspicuous” disclosures and obtaining “affirmative consent” as required by California’s Automatic Renewal Law. The lower court denied JustAnswer’s request to compel arbitration and the company appealed.

Users of the website entered their payment information and then clicked a button that read “Start my trial.” Below this button were the notifying terms, “By clicking ‘Start my trial’ you indicate that you agree to the terms of service and are 13+ years old.” The words “terms of service” constituted a hyperlink to a webpage that contained the terms and conditions. The plaintiffs argued that they were not bound by the terms and conditions (including the arbitration clause) because the notifying terms were not sufficiently conspicuous to establish that plaintiffs had constructive notice of the terms and conditions.

The court noted that the “full context of any transaction is critical” in assessing the sufficiency of notice. In this case, the transaction was a trial that automatically enrolled consumers in a “more expensive recurring monthly membership” and was “precisely the type of transaction” addressed by the California law. The court included screenshots of the transaction process and noted that, while the user must click to acknowledge certain disclaimers, the user was not required to actually view the hyperlinked terms of service in order to use JustAnswer’s service. The arbitration clause did not appear unless the user clicked on the hyperlinked terms of service.

After stating that the same law of contracting applies regardless of the medium used for the transaction, the court explained that, “when transactions occur over the internet, there is no face-to-face contact and the consumer is not typically provided a physical copy of the contractual terms.” The court noted other differences that arise from the difference in the transactional medium, including the prevalence and voluminousness of terms for even minor sales. Accordingly, mutual assent to an Internet contract requires that the provider “first establish the contractual terms were presented to the consumer in a manner that made it apparent the consumer was assenting to those very terms when checking a box or clicking on a button.”

The California court also noted the four types of wrap contracts and observed that courts have reached “consistent” conclusions, “generally finding scrollwrap and clickwrap agreements to be enforceable and browsewrap agreements to be unenforceable.” While other courts have been reluctant to pronounce enforceability categorically for different types of wrap contracts and have danced around this issue, the California court, after discussing existing case law, made a refreshingly clear statement:

On one end of the spectrum, a browsewrap agreement . . .—in which the website provider assumes assent is given by mere use of the website, based exclusively on the existence of a hyperlink that takes the consumer to the applicable set of contractual terms—is not sufficient to bind the consumer.

By contrast, the court stated that “there should be little doubt scrollwrap agreements are enforceable under California law.” Sign-in wrap agreements, however, are somewhere in the middle as they include a textual notice but do not require the consumer to review the terms or expressly manifest assent to terms and conditions.

The court observed that federal courts have a tendency to find “nearly any textual notice sufficient to bind a consumer, while also applying largely subjective criteria that, at times, results in inconsistent conclusions.” It noted, however, that those cases “mostly involve a consumer signing up for an ongoing account and, thus, it is reasonable to expect that the typical consumer in that type of transaction contemplates entering into a continuing, forward-looking relationship.” The court distinguished the case before it as one where consumers often do not expect to enter into an ongoing relationship and thus distinguished it from federal court cases upholding sign-in wrap agreements.

The court made two important observations. First, it noted that, although conspicuousness is characterized as a question of law, courts considering the issue actually conduct a “fact-intensive inquiry” and concluded that the federal court precedents upholding sign-in wraps were inconsistent and failed to provide certainty. Second, it noted that there is little consensus regarding the “reasonably prudent user.” Accordingly, it stated:

[I]t is more appropriate to focus on the providers, which have complete control over the design of their websites and can choose from myriad ways of presenting contractual terms to consumers online . . . . We therefore agree with the courts in Long and Nguyen that “the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers. Given the breadth of the range of technological savvy of online purchasers, consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.”

The court emphasized the expectations of the consumer and that consumers who were offered a $5 trial did not anticipate that they would enter into an ongoing relationship governed by a contract. Finally, it noted that the Automatic Renewal Law was intended to address specifically this type of situation and establishes clear notice requirements for businesses to present service terms to customers in a “clear and conspicuous manner” and “in visual proximity . . . to the request for consent to the offer.” Under the California law, in order to be “clear and conspicuous,” the notice must be in “larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size . . . in a manner that clearly calls attention to the language.” The court stated that enforcing a mandatory arbitration clause with textual notices less conspicuous than the statutorily required notice “would permit JustAnswer to end-run around legislation designed to protect consumers in these specific transactions.” The court concluded that the “textual notices” (i.e., the notifying terms) not only “circumvent” the statutory requirements but “also fail to provide sufficient notice when considering the overall context of the transaction” and the relevant criteria to assess conspicuousness.

The court emphasized that, because website providers have “full control over the design of their websites, the onus is on them to provide adequate notice of contractual terms.” The court’s analysis of different textual notices is lengthy, but some of the highlights provide useful guidance and are summarized below:

  • “[T]ext that is just slightly smaller, or slightly further away from the box or button the consumer must click on must, at some point, exceed the limits of what constitutes adequate notice.”
  • Notice must be in “visual proximity” and should appear prior to the request for consent.
  • Hyperlinks to terms and conditions should be easy to find, lead to the actual terms and conditions, and should be clearly worded to indicate the consumer will be bound by them.

The U.S. Court of Appeals for the Ninth Circuit relied upon the Sellers case a few months later in Berman v. Freedom Financial Network, LLC, a case involving a digital marketing company’s alleged violation of the Telephone Consumer Protection Act. The plaintiffs visited websites operated by the defendant, which then used the plaintiffs’ contact information for unsolicited telephone calls and text messages. The issue before the court was “[u]nder what circumstances can the use of a website bind a consumer to a set of hyperlinked ‘terms and conditions’ that the consumer never saw or read?” The plaintiffs had used the defendants’ websites which contained notifying terms that stated “I understand and agree to the Terms & Conditions which includes mandatory arbitration.” The defendants moved to compel arbitration but the district court denied the motion, finding that the plaintiffs did not unambiguously manifest their assent to the terms and conditions. The Ninth Circuit affirmed.

The Ninth Circuit noted that courts have routinely enforced clickwrap agreements but were more reluctant to enforce browsewrap agreements, which were at the “other end of the spectrum” of wrap contract enforceability. It then stated that online contract formation required either (a) actual knowledge of the agreement or (b) inquiry notice. An enforceable contract under the latter theory requires (i) “reasonably conspicuous notice of the terms to which the consumer will be bound” and (ii) that “the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.”

Reasonably conspicuous notice requires that the notice (i.e., the notifying terms) be “displayed in a font size and format” that a “reasonably prudent Internet user” would have seen, which means that important provisions will be “prominently displayed, not buried in fine print.” The court stressed that “the onus must be on website owners” to design the web pages in a way that puts users on notice. If a website designer chooses to disclose the terms and conditions through a hyperlink, the hyperlink must be “readily apparent” and requires more than “[s]imply underscoring words or phrases.” It should include design elements, such as contrasting font color, “typically blue,” and the “use of all capital letters,” indicating that the text is a hyperlink.

As to the manifestation of assent, the user’s click of a button constitutes assent only if the user is “explicitly advised that the act of clicking will constitute assent to the terms and conditions of an agreement.” The court emphasized that “an explicit textual notice that continued use will act as a manifestation of the user’s intent to be bound” was “critical.” In this case, the notifying terms were in close proximity to the “continue” buttons that the user clicked; however, the court stated that close proximity alone was insufficient to constitute constructive notice. The notifying text stated “I understand and agree to the Terms & Conditions,” but, because it did not explicitly state what action constituted assent to those terms and conditions, it failed to provide adequate notice. The court stated that this “defect” could have been remedied by including language such as “By clicking the Continue >> button, you agree to the Terms & Conditions.”

The defendants argued that the inclusion of the reference to mandatory arbitration in the notifying text should bind the plaintiffs; however, the court rejected the argument, stating that the issue wasn’t whether the plaintiffs should have been aware of the mandatory arbitration clause “in particular,” but “rather whether they can be deemed to have manifested assent to any of the terms and conditions in the first place.”

Because the textual notice was not conspicuous and did not explicitly inform Hernandez and Russell that by clicking on the “continue” button they would be bound by the terms and conditions, the presence of the words “which includes mandatory arbitration” in the notice is of no relevance to the outcome of this appeal.

The court’s opinion thus makes clear that inquiry notice requires more than reasonably conspicuous notice; it also requires explicit textual notice of the action by the consumer that will constitute assent.

Of note in this case is the lengthy concurring opinion, which was even more straightforward about the non-enforceability of sign-in wrap and browsewrap agreements. It states:

[P]ending further word from the California appellate courts, browsewrap agreements are unenforceable per se; sign-in wrap agreements are in a gray zone; and clickwrap and scrollwrap agreements are presumptively enforceable. And in the gray zone of sign-in wrap agreements, enforceability requires conspicuous textual notice that completing a transaction or registration signifies consent to the site’s terms and conditions.

V. Conclusion

The trend of cases shows that courts are increasingly adopting an ex ante approach by emphasizing what the drafter should have done to make the terms prominent and noticeable, given the totality of the circumstances, when the offeree initially encountered them, instead of what courts did in the past, which is determine conspicuousness by examining terms ex post on a static page. Generally, online contract formation requires notice and manifestation of consent. In the absence of actual notice of terms and conditions, the drafter should put the offeree on inquiry notice. Inquiry notice requires that the terms be “clear and conspicuous” to a “reasonable person” or a “reasonably prudent consumer” in the offeree’s position and depends on the totality of the circumstances. The user must also manifest consent unambiguously, meaning that there should be text explicitly stating that a specified action (such as clicking) means that the user is assenting to the terms and conditions. Attorneys for companies seeking to impose terms and conditions or terms of service on their website visitors would be wise to take note of the clear guidance from these cases and employ either a clickwrap or scrollwrap instead of a browsewrap or a sign-in wrap form.