December 02, 2015 Practice Points

Wi-Fi Company Cannot Enforce Clickwrap Agreement to Arbitrate Against a Consumer

By Brian Farkas

In Berkson v. Gogo LLC, Case No. 14-CV-1199 (April 8, 2015), the defendant moved to compel arbitration based upon an arbitration clause in an online “terms of use” agreement. The United States District Court for the Eastern District of New York denied that motion, holding that, “the average internet user would not have been informed, in the circumstances present in this case, that he was binding himself” to arbitration. The case is currently on appeal to the Second Circuit.

Gogo LLC provides in-flight Wi-Fi to travelers in a variety of airports and airlines. Plaintiffs Adam Berkson and Kerry Welsh sued Gogo, claiming that the company improperly increased its sales by misleading customers into purchasing a service that charged a customer’s credit card, on an automatically-renewing continuing monthly basis, without adequate notice or consent. Gogo charged Berkson and Welsh between $35 and $40 per month for three and 16 months, respectively. Gogo moved to compel arbitration pursuant to the terms and conditions agreement; the plaintiffs countered that they lacked notice of the terms and conditions at the point of sale.

In a lengthy opinion, U.S. District Judge Jack B. Weinstein surveyed the law relating to Internet-based contracts of adhesion, sometimes referred to as clickwrap agreements. Clickwrap agreements require a user to click a box on the website acknowledging agreement to certain terms and conditions before making a transaction. These sorts of agreements are generally enforceable, since it would be impossible for companies to negotiate them with each end-user. Therefore, terms and conditions are presented as a contract of adhesion—take it or leave it. In digital commerce, courts generally hold that such contracts of adhesion are enforceable only to the extent that their terms are reasonable and that end-users have manifested their assent to be bound in a meaningful manner. Typically, the manifestation of assent involves forcing the user to see (or scroll through) the full terms, and then click “accept.” Courts have further held that the terms must be presented clearly at the point of sale—not hidden in a tiny font on an obscure page of the site.

The court ultimately held that Gogo failed to bring the arbitration clause to a user’s attention and that it could not fairly bind users to its terms. The judge found that Gogo did not do enough during the sign-up process to draw users’ attention to the terms and conditions hyperlink containing the arbitration clause.

“The design and content of the website, including the homepage, did not make the “terms of use” readily and obviously available to [users],” the court held. “The hyperlink to the “terms of use” was not in large font, all caps, or in bold. Nor was it accessible from multiple locations on the webpage. By contrast, the “SIGN IN” button is very user-friendly and obvious, appearing in all caps, in a clearly delineated box in both the upper right hand and the lower left hand corners of the homepage.”

Moreover, Gogo did not e-mail or physically mail a copy of the terms of use to consumers, as some other companies employing these agreements do. The court noted that this further supports the plaintiffs’ argument that there was not sufficient notice of the terms. Gogo also did not require users to scroll through the terms and conditions before accepting them (known as a “scrollwrap agreement”). This, too, weighed against enforcement.

Practice Pointer: Companies cannot rely upon arbitration agreements hidden in “terms and conditions” on websites—especially if users are not required to scroll through the terms first. For an arbitration clause to be enforced against a consumer in an internet-based contract, the clause must be physically prominent, perhaps in bold lettering or in a large font. Intentional or even unintentional “burying” of the clause will render it unenforceable. Courts will examine the point-of-sale page to determine whether a reasonable Internet user would have been on sufficient notice of any terms to the agreement.

Keywords: alternative dispute resolution, adr, waiver, litigation, arbitration, clickwrap, scrollwrap

Brian Farkas is with Goetz Fitzpatrick LLP in New York, New York.

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