Landslide Digital Feature

Terms of Use Case Update

Francine D. Ward, Brian D. Sites, Michelle Gregory, Janice Phaik Lin Goh, and Timothy Lewis

©2015. Published in Landslide, Vol. 8, No. 1, September/October 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Everyone traverses the digital world with different expectations and technical abilities. When courts must adjudicate issues concerning a website’s promises to a user, they look to the terms of use agreement or privacy policy, which are found on practically every website on the Internet.1 These terms, when drafted properly, create a contract between the website and its users.2 Terms of use cover a wide range of topics spanning from intellectual property matters to dispute resolution and choice-of-law issues and back around to the website’s collection and use of personal information.3 Terms of use offer many advantages, including the ability to limit the site operator’s liability because the terms control the circumstances under which consumers can make use of that product.4 Although some of the case law governing terms of use is fairly well established, the contours and details continue to evolve with new technology and market developments. This article, after providing a brief introduction to terms of use topics, provides a map of that landscape by summarizing several important cases from the last four years.

Overview of Terms of Use

Terms of use are usually categorized as shrinkwrap, clickwrap, or browsewrap agreements.5 A shrinkwrap agreement is an agreement contained inside the product’s shrink-wrapped box, such as with a software program.6 A clickwrap agreement is usually electronically transmitted and requires an affirmative action like clicking on a button that indicates assent to the terms prior to accessing a website or installing software.7 A browsewrap agreement binds the users accessing a website by dictating that additional browsing constitutes acceptance of the contract.8 This type of agreement does not require the user to expressly manifest assent.9 Courts generally interpret these agreements as establishing, if anything, license agreements instead of ownership interests for users.10 This interpretation can provide developers strong protection.

In many terms of use cases over the last few decades, courts have considered what the parties objectively conveyed to each other,11 and in doing so, the problems of notice and manifested assent often arise.12 The enforceability of an agreement depends largely on the user’s “actual or constructive knowledge” of the terms and conditions that are employed.13 Users need not have “an actual meeting of the minds,” but rather reasonable communication of the terms will suffice.14 For some agreements—such as clickwrap agreements—notice is fairly easy to find because they require expressly agreeing to terms. For browsewrap agreements, however, notice is given less directly, and therefore browsewrap agreements can be more difficult to enforce.15 Once notice is found, however, courts typically enforce standard-form contracts subject to limited expectations, such as unconscionability.16 When adjudicating cases involving terms of use, courts tend to enforce clickwrap agreements (again, because they require affirmative assent) but shy away from enforcing browsewrap agreements as they require no outward manifestation of assent.17 However, recent cases have refined and expanded upon these and related issues.

Harris v. comScore

In Harris v. comScore, the plaintiffs were suing because the defendant’s user-tracking software was bundled with other software that the plaintiffs downloaded and installed.18 The plaintiffs alleged the software improperly obtained and sold their personal information. During the installation process for the free downloadable software, the user had to click a checkbox acknowledging that he or she had read the terms and conditions. The defendant moved to enforce a forum selection clause in the terms of service and to move the litigation to Virginia. The plaintiffs responded that, though they had clicked the box acknowledging the terms and conditions, the hyperlink to those terms was obscured and not readily available on the webpage when the user had to accept the terms. The court held that it would not “infer that clicking a box . . . indicate[d] that the agreement was reasonably available.”19

While the defendants cited prior case law where forum selection clauses in click-through agreements were enforced, the court identified the unique issue in comScore to be the allegation that the hyperlink to the agreement was obscured and therefore not readily available to the user at the time of acknowledgment. In prior cases, courts had found click-through agreements were not enforceable if the terms were not reasonably apparent to the user. The comScore court concluded it was not reasonable to expect a user to search for an agreement that was not immediately available or obvious and, therefore, the forum selection clause was not reasonably communicated.20

Nguyen v. Barnes & Noble

In a similar case, Nguyen v. Barnes & Noble, the plaintiff unsuccessfully attempted to purchase merchandise from the Barnes & Noble website.21 The plaintiff filed suit, and Barnes & Noble attempted to enforce an arbitration agreement that was part of the website’s terms of use. The terms of use were available via a hyperlink found at the bottom left-hand corner of every page, along with other hyperlinks, but the plaintiff neither clicked on the link nor actually read the terms. The Barnes & Noble website, as a browsewrap-style website, did not require the user to make any assent to the terms of use to continue the ordering process.22 As noted earlier, to enforce a browsewrap agreement, courts look to whether the website gave adequate notice to users, which depends on the design, content, and layout of the pages. In particular, courts may consider whether the plaintiff was on “inquiry notice” of the terms, which is defined as “[n]otice attributed to a person when the information would lead an ordinarily prudent person to investigate the matter further.”23 In Barnes & Noble, the court held:

[W]here 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 on—without more—is insufficient to give rise to constructive notice.24

The court further found the onus is on the website operator to put users on notice of binding terms.

Friedman v. Guthy-Renker

In a subsequent case, Friedman v. Guthy-Renker, a California federal district court applied the Barnes & Noble standards and found that even when a website requires a user to click a checkbox acknowledging the terms and conditions, the user may not have received inquiry notice.25 In that case, the plaintiffs were suing on a claim of defective products, and the defendant sought to enforce an arbitration and class action waiver clause found in the terms of use. When checking out on the website for a purchase, the user was required to check a box acknowledging the terms of use. At issue was whether the link to the terms was associated with the checkbox or conspicuously located on the webpage.

In reviewing the website at the time of the first plaintiff’s purchase, “with a particular focus on hyperlink placement, terminology, and clarity,” the court concluded the layout did not meet the standards of putting a reasonable user on inquiry notice of the terms.26 For instance, the checkbox and the link were not consistently labeled with letter casing, the link was third in a list at the bottom of the website, and the layout seemed to indicate the checkbox was related to the credit card purchase. When the second plaintiff later made a purchase from the website, the site’s new design brought the website into alignment with the Barnes & Noble standards.27 The checkbox text was now consistent and hyperlinked to the terms and conditions, and other text on the webpage was moved to make the layout clearer to the reasonable user. Thus, the court found the second plaintiff did have inquiry notice of the terms and conditions and was therefore bound by the arbitration clause.28

Rodriguez v. Instagram

Notice to users has also arisen as an important issue in other recent contexts, such as in a second case from the California district courts, Rodriguez v. Instagram.29 In December 2012, Instagram announced an update to its terms of use that would be effective in January 2013. Those terms included an arbitration agreement and a new choice of law provision, and Instagram had modified the license/ownership rights it claimed over user-generated content, among other changes. Users were notified via e-mail that if they did not wish to be subject to the new terms, they should not access or use the service after the January 2013 effective date and, instead, should deactivate their account; use of the service after the effective date would purportedly indicate acceptance of the new terms.30

Instagram had attempted to pave the way for such changes by including in the original terms of service a modification clause that said in part, “We reserve the right to alter these Terms of Use at any time.”31 The plaintiff opted out of the arbitration agreement in the new terms, but continued to use the service after the January 2013 effective date, thereby accepting the new terms as expressed in the terms of service. The cause of action was ultimately dismissed for a variety of reasons.

Facebook v. Grunin

Other recent cases have reiterated core concepts. For example, Facebook v. Grunin held that in creating an account, the terms and conditions, if violated, can be used as an element in the prima facie case for breach of contract.32 The defendant created over 70 user accounts and used other fraudulent means to obtain over $340,000 worth of advertising on Facebook. The court found that each time the defendant created a new account, he violated the terms and conditions barring: (1) posting pornographic images, (2) creating accounts in a name other than your own, and (3) providing false information.33 This was sufficient to support a claim for breach of contract.

Savetsky v. LegalShield

In yet another case from the Northern District of California, Savetsky v. LegalShield, the court reiterated the importance of notice in a case involving whether an arbitration provision in LegalShield’s “member contract” was enforceable.34 The court found that the provision was unenforceable due to the relatively inconspicuous nature of the member contract on the website. When a prospective customer entered LegalShield’s website, he or she could choose to either “Buy Now” or “Learn More.” If the customer chose “Buy Now,” he or she had the option of reviewing “More Plan Details,” which led to a link to access the member contract containing the contested arbitration clause. LegalShield argued that customers assented to forming an agreement to arbitrate because its website adequately put customers on notice of the member contract and arbitration provision. The court disagreed, finding no evidence that the plaintiff had actual notice of the sample member contract or could acknowledge the existence of contract; a customer could simply check services, click “Buy Now” without viewing “More Plan Details,” and not be aware that a contract existed.35

The court also found that LegalShield’s arbitration clause was inconspicuous; to access this provision, consumers had to click two optional links and scroll to page seven before locating the arbitration provision. Finally, the court also found that the context in which LegalShield’s member contract appeared did not put users on “inquiry notice” of the contract because customers had to go to “More Plan Details” to find the contract, which did not clearly indicate that a contract was present.

In re Zappos.com Data Breach Litigation

In the next case, In re Zappos.com Data Breach Litigation out of a Nevada federal district court, Zappos moved to compel arbitration on the grounds that its terms of use bound the plaintiffs to its arbitration clause.36 Once again, the court found that Zappos’s terms of use did not constitute a binding agreement given the inconspicuous nature of the link’s positioning on the webpage. Although the link to the terms of use appeared on every page, the website did not direct users to the terms of use when creating an account, logging in, or making a purchase. The court found instead that the terms of use were buried at the bottom of every webpage, and thus no reasonable user would have reason to click on them. That meant there was no acceptance of the terms by the plaintiffs, no meeting of the minds, no manifestation of assent, and no contract under Nevada law. In addition, the court also found that Zappos’s terms of use constituted an illusory contract given that they gave Zappos the right to change its terms without any notice to the customer. While the terms would be binding on a customer, Zappos was not bound as it could change the terms of use at any time.37 Like Savetsky, the ruling in Zappos demonstrates the importance of prominently displaying online agreements such that a reasonable user would be on notice.

Knutson v. Sirius XM Radio

The Ninth Circuit has also recently weighed in on the topic of terms of use. In a recent class action against Sirius XM Radio, that court considered whether Sirius’s customer agreement was an enforceable contract that bound customers to its arbitration provision.38 The plaintiff had purchased a vehicle that included a trial subscription to Sirius satellite radio, and after his trial was activated, he received a “Welcome Kit” from Sirius that contained a customer agreement.39 The plaintiff alleged that during the trial subscription he received three unauthorized calls from Sirius, but that there was no mutual assent to enter into the customer agreement because he was never given the opportunity to accept or reject the agreement. Sirius responded that the plaintiff had the opportunity to review the customer agreement upon receipt and could contact them to cancel the subscription, which he chose not to do.40 The Ninth Circuit disagreed, finding that when the plaintiff purchased the vehicle, he did not receive any documents from Sirius and did not know he was entering into a contractual relationship with Sirius. Instead, the plaintiff thought that the subscription was a complimentary service.41

The court also found nothing indicated that Sirius’s offer was clearly and effectively communicated to the plaintiff; by mailing the customer agreement, the plaintiff would have only had notice of the opportunity to cancel the subscription by opening the welcome kit, which he had no reason to do given his lack of awareness of the contractual relationship with Sirius. Because Sirius’s offer was not effectively communicated, there was no knowing consent to the customer agreement and its arbitration clause. Thus, the Ninth Circuit held that the clause was unenforceable and reversed the district court’s grant of Sirius’s motion to compel arbitration.42

In re Google Gmail Litigation

In In re Google Gmail Litigation, the ever-present Northern District of California considered non-Gmail users’ lawsuit against Google alleging a violation of state and federal antiwiretapping laws (18 U.S.C. § 2511).43 The lawsuit centered on Google’s technology that scanned e-mails from the nonusers that were sent to Gmail users. The court held that Google’s terms of service and privacy policies did not create express or implied consent to Google intercepting incoming e-mail, which Google used to create profiles to send targeted advertising.44 There were two sets of terms of service at issue: one effective from April 2007 to March 2012, and one that had been in effect since March 2012. The 2007 terms stated that Google reserved the right to:

pre-screen, review, flag, filter, modify, refuse or remove any or all Content from any Service. For some Services, Google may provide tools to filter out explicit sexual content. These tools include the SafeSearch preference settings. . . . In addition, there are commercially available services and software to limit access to material that you may find objectionable.45

The 2012 terms of service deleted such language, saying that users gave Google a “worldwide license to use[,] create derivative works[,] and distribute such content.”46 Both terms referenced Google’s privacy policies stating that Google could collect information that users provided to Google, cookies, log information, user communications, etc.

Google asserted that by agreeing to its terms of service and privacy policies, Gmail users expressly consented to the interception of their e-mails. Google also alleged that because of its nature of operation, non-Gmail users knew that their e-mails would be intercepted. The court disagreed, finding that none of Google’s agreements explicitly notified the plaintiffs that Google would intercept users’ e-mails for the purposes of creating user profiles or providing targeted advertising. Though the terms of service stated that Google’s advertisements could be targeted to the content of information stored on Gmail’s services, this demonstrated only that Google had the capacity to intercept communications, but not that it would intercept communications. The court also found that the language in the terms of service established only that Google’s advertisements were based on information stored on the services or queries made through the services, not information in transit via e-mail. Thus, the court found that Google’s 2007 terms of service did not establish consent.47

As for the 2012 terms, the court found that the new policies did not specifically mention the content of users’ e-mails to each other or to or from nonusers; the new policies were not broad enough to encompass such interceptions and did not put users on notice that their e-mails were intercepted to create new profiles. Therefore, based on Google’s terms of service and privacy policies, the court found it did not have express or implied consent within the meaning of 18 U.S.C. § 2511(2)(d) to intercept e-mail to create profiles and send targeted advertising.48

In re Yahoo Mail Litigation

A similar class action targeted Yahoo and also involved scanning and analyzing e-mails (of non-Yahoo e-mail users).49 The plaintiffs there claimed such acts violated federal and California antiwiretapping laws as well as were a violation of privacy under the Electronic Communications Privacy Act (ECPA), California’s Invasion of Privacy Act (CIPA), and the California Constitution. Yahoo moved to dismiss, and the district court held that (1) users explicitly consented under the Wiretap Act to Yahoo’s practices, (2) senders of e-mails sufficiently alleged a violation of the Stored Communications Act (SCA), and (3) senders failed to allege an invasion of a protected privacy interest under the California Constitution.50

Before signing up for a Yahoo account, users must provide personal information such as their name, birthday, phone number, and account information. To keep its service free, Yahoo charged advertisers to display advertisements on Yahoo Mail webpages. There were three relevant agreements at issue: (1) the Yahoo terms of service (TOS), (2) the Yahoo global communications additional terms of service (ATOS) for Yahoo Mail and Yahoo Messenger, and (3) the Yahoo privacy policy. When users created a Yahoo Mail account, Yahoo directed users to view the ATOS and privacy policy via hyperlinks. The “I agree to Yahoo Terms and Privacy” link appeared above the button for creating an account, and the “Yahoo Terms” and “Privacy Policy” hyperlinks directly linked to the respective agreements. Section 1(c) of Yahoo’s ATOS mentioned Yahoo’s e-mail scanning practices and obligated Yahoo Mail users to notify nonusers about these practices. The TOS provided that use of Yahoo services constituted a user’s consent to the collection and use of data, and it referenced Yahoo’s privacy policy that stated that Yahoo collected personal information upon registration or use of Yahoo products or services, and that it covered only how Yahoo treated personal information that Yahoo collected and received.51

The plaintiffs alleged that Yahoo’s e-mail scanning practices violated federal antiwiretapping laws, which impose liability for the interception of certain electronic communications while they are in transit.52 The Wiretap Act, however, also includes various exemptions for such interceptions, providing that it is not unlawful to intercept a wire, oral, or electronic communication where one of the parties to the communication has given prior consent to the interception.53 The court found that the language in the ATOS sufficiently established consent and, combined with the visibility of hyperlinks to the ATOS and privacy policy, that Yahoo obtained consent from one party to the electronic communications. The court also found that even though the ATOS did not explicitly reference the “collection and storage” of users’ e-mail communications until later on in the class action, a reasonable user would know that Yahoo engaged in the collection and storage of e-mail content given the language of Yahoo’s ATOS. The court also disagreed with the plaintiffs’ argument that they were not on notice for any “future” conduct by Yahoo to collect and store information given that Yahoo’s ATOS explicitly stated that Yahoo scanned and analyzed e-mail content to provide personal product features and targeted advertising and detect spam and abuse.54

Song fi v. Google

In our final case update, the Northern District of California found in Song fi v. Google that YouTube’s terms of service were enforceable and binding on the plaintiffs.55 This case involved a class action lawsuit against YouTube and parent company Google over the removal of the plaintiffs’ video from the YouTube website.

In order to post a video to YouTube, a user had to create a user account: in doing so, users were shown a link to the YouTube terms of service agreement, which would not be activated unless the user checked a box stating that the user agreed to the terms of use and privacy policy. Part of the terms of use prohibited manipulating a video’s view count. In February 2014, Song fi uploaded a video called “LuvYa LuvYa LuvYa” onto YouTube that featured the group Rasta Rock Opera, Joseph Brotherton, and his son. YouTube removed the video stating that it violated YouTube’s terms of service because Song fi or its agents had attempted to manipulate the video’s view count. Song fi filed a complaint against Google and YouTube alleging breach of contract, libel, and tortuous interference with business relationships. The defendants moved to remove the case to Santa Clara County, California, under the forum selection clause set forth in YouTube’s terms of service.56

The court first considered whether the plaintiffs were all bound by YouTube’s terms of service, finding it was immaterial that the plaintiffs did not personally upload the LuvYa video to the YouTube website. The plaintiffs were closely related to Song fi: they shared an office, had the same registered agent, Brotherton was the president of Song fi, and his son starred in the LuvYa video. By virtue of their close relation to Song fi, which had agreed to the terms of service, the other plaintiffs were also bound.57

Then, the court considered whether the terms of service and forum selection clause were void for being unconscionable. The court did not find that the clauses rendered the contract unconscionable given that the plaintiffs could have uploaded their video onto another website, and the mere fact that they did not have bargaining power did not render the entire contract or forum selection clause procedurally unconscionable. Finally, the court found that YouTube’s terms of service were not obscured or hidden, giving the plaintiffs a clear opportunity to understand the terms, which weighed against a finding of procedural unconscionability.58

Conclusion

As these cases show, there are many pitfalls that must be avoided when drafting a terms of use, not the least of which is ensuring that the user is sufficiently on notice of the existence and contents of the agreement. However, thanks to the increasing variety of factual cases that have wound through the court systems, attorneys are at least now themselves on notice as to what the courts are looking for.

Endnotes

1. McVicker v. King, 266 F.R.D. 92, 95–96 (W.D. Pa. 2010).

2. Woodrow Hartzog, Website Design as Contract, 60 Am. U.L. Rev. 1635 (2011).

3. Id. at 1656.

4. Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 460 (2006).

5. Nancy S. Kim, Clicking and Cringing, 86 Or. L. Rev. 797 (2007).

6. Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239, 1241 (1995).

7. Hartzog, supra note 2, at 1642.

8. Kim, supra note 5, at 846; Michael Terasaki, Do End User License Agreements Bind Normal People?, 41 W. St. U. L. Rev. 467, 472 (2014).

9. Kim, supra note 5, at 846.

10. SoftMan Prods. Co. v. Adobe Sys. Inc., 171 F. Supp. 2d 1075, 1083 (C.D. Cal. 2001).

11. Hartzog, supra note 2, at 1643.

12. Burcham v. Expedia, Inc., No. 4:07CV1963 CDP, 2009 WL 586513, at *2 (E.D. Mo. Mar. 6, 2009).

13. Id. at *3 n.5.

14. Restatement (Second) of Contracts § 17 cmt. c (1981); Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 429 (2d Cir. 2004).

15. Ian Rambarran & Robert Hunt, Are Browse-Wrap Agreements All They Are Wrapped Up to Be?, 9 Tul. J. Tech. & Intell. Prop. 173, 176 (2007).

16. Juliet M. Moringiello, Signals, Assent and Internet Contracting, 57 Rutgers L. Rev. 1307, 1314–15 (2005).

17. Hartzog, supra note 2, at 1644.

18. Harris v. comScore, Inc., 825 F. Supp. 2d 924, 926 (N.D. Ill. 2011).

19. Id. at 927.

20. Id.

21. Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1173 (9th Cir. 2014).

22. Id. at 1176–77.

23. Notice Definition, Black’s Law Dictionary (10th ed. 2014); see also Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 30 n.14 (2d Cir. 2002) (defining “inquiry notice” as “actual notice of circumstances sufficient to put a prudent man upon inquiry”).

24. Barnes & Nobel, 763 F.3d at 1178–79.

25. Friedman v. Guthy-Renker LLC, No. 2:14-CV-06009-ODW, 2015 WL 857800, at *3 (C.D. Cal. Feb. 27, 2015).

26. Id. at *3, *5.

27. Id. at *6.

28. Id.

29. Rodriguez v. Instagram, LLC, No. C 12-06482 WHA, 2013 WL 3732883 (N.D. Cal. July 15, 2013).

30. Id. at *1.

31. Id.

32. Facebook, Inc. v. Grunin, No. C 14-02323 WHA, 2015 WL 124781, at *3 (N.D. Cal. Jan. 8, 2015).

33. Id.

34. Savetsky v. Pre-Paid Legal Servs., Inc., No. 14-03514 SC, 2015 WL 604767 (N.D. Cal. Feb. 12, 2015).

35. Id. at *3–4.

36. In re Zappos.com, Inc., Customer Data Sec. Breach Litig., 893 F. Supp. 2d 1058 (D. Nev. 2012).

37. Id. at 1063–66.

38. Knutson v. Sirius XM Radio Inc., 771 F.3d 559 (9th Cir. 2014).

39. Id. at 562.

40. Id. at 563–65.

41. Id. at 566.

42. Id. at 567–70.

43. In re Google Inc. Gmail Litig., No. 13-MD-02430-LHK, 2013 WL 5423918 (N.D. Cal. Sept. 26, 2013).

44. Id. at *12–15.

45. Id. at *2.

46. Id. at *3.

47. Id. at *12–15.

48. Id.

49. In re Yahoo Mail Litig., 7 F. Supp. 3d 1016 (N.D. Cal. 2014).

50. Id. at 1020.

51. Id. at 1021-22.

52. Id. at 1020; see also 18 U.S.C. § 2511(1)(a).

53. In re Yahoo Mail Litig., 7 F. Supp. 3d at 1026; see also § 2511(2)(d).

54. In re Yahoo Mail Litig., 7 F. Supp. 3d at 1026–32.

55. Song fi Inc. v. Google Inc., No. CV 14-283 (RMC), 2014 WL 5472794 (D.D.C. Oct. 29, 2014).

56. Id. at *1–2.

57. Id. at *4.

58. Id. at *5–6.