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“Wrap” Your Head Around Online Terms of Service Agreements

Today, a well-maintained and user-friendly website is critical not only to the growth of your business but often to its very survival. Consumers of all demographics find information, check and compare prices, and purchase services and products online. What is more, the ubiquity of smartphones and the explosion of social media platforms in the last 5–10 years mean that a business’ mobile-friendly presence will become increasingly vital to its success.

It is just as important in this online environment (as it is in the world of brick-and-mortar stores) for a business to establish the legal relationship between itself and its customers and online browsers.

Known variously as “terms of service,” (TOS) “terms of use,” (TOU) or “terms and conditions,” these online agreements cover a wide range of topics from intellectual property issues to privacy matters to dispute resolution. Unfortunately, too many businesses overlook the significance of properly drafted and properly presented Terms of Service.

Shrinkwrap and Clickwrap and Browsewrap, OH MY!

The legal nomenclature for online terms of service agreements comes via an (unfortunate) analogy to a non-internet source: the shrinkwrap license agreements that used to be inside the plastic packaging on physical software boxes. These license agreements set forth the terms and conditions for licensee-purchasers to use the software.

When first used, these agreements were a bit controversial. Licensees questioned the enforceability of the license agreements because, they claimed, they hadn’t agreed to the terms in advance of buying the software package.

As every first-year law student learns, formation of a valid contract requires three basic elements:

  1. an offer,
  2. acceptance of that offer, and
  3. mutual promises (also known as consideration).

Acceptance of an offer must be through an affirmative act. In enforcing these agreements, courts determined that the user’s act of opening the box with the license and installing the software constituted the user’s affirmative acceptance of the license, thus forming the “shrink-wrap” license agreement.

Once e-commerce began to boom, online user agreements were needed. The courts generally divide these online contracts into two varieties: “browsewrap” and “clickwrap” agreements. Though the names themselves were driven by the common basis of computer technology, these terms were never really suited to the online world. As a result, the legal definitions are somewhat muddled. Most often the two kinds are kept entirely separate, but occasionally they bleed into one another like overlapping circles in a Venn diagram (so-called “sign-in-wraps” or “modified clickwraps”). Be that as it may, it seems that we are stuck with this -wrap suffix.

The courts will continue to consider and refine the proper definitions of “browsewrap,” “clickwrap,” and others. But until then, it’s important for you to know what these terms mean and what type of terms of service agreement is suitable for your website.

Browsewrap, aka Not-a-Contract

Every single reader of this article has entered into a browsewrap agreement with a website in the past. Not sure?

Well, allow me to present Exhibit A:

browsewrap

 

This is a screenshot from Wikipedia’s homepage. The particular section is at the very bottom of the page, and the font is much smaller than the surrounding font.

How likely do you think it is that a user would scroll to the bottom of the page and notice a hyperlink in a small font that’s buried between other hyperlinks? Not very, I would guess.

 

This is a textbook example (if such a thing exists) of a browsewrap agreement. As you can see, the user doesn’t need to take any affirmative action to indicate that she accepts the terms. Rather, the provider assumes that the user assents to the terms of use simply by using the website.

Because of the lack of affirmative action and thus lack of manifest assent, courts have been disinclined to treat browsewrap agreements as binding contracts.

Importantly, at risk here are all the provider protections that are typically included in the terms of service. If a court finds a company’s terms of service agreement does not constitute an enforceable contract, the company is naked, legally speaking, because it cannot rely on those protections. It may be subject to class action suits or the laws of different states or localities.

Zappos.com

This has not stopped many companies—even quite sophisticated ones!—from using browsewrap agreements, often to their peril. One (in)famous example is Zappos.com, an online shoe retailer, who suffered a massive data breach in January 2012, and was subsequently inundated with lawsuits. Zappos tried to invoke the arbitration clause in its terms of use, which could have saved it from this class action suit.

However, a federal court struck down Zappos.com’s terms of use agreement because it was presented to users as a browsewrap. The court did not mince words in its evaluation of Zappos’ implementation of its Terms of Use:

“The arbitration provision found in the Zappos.com Terms of User purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance, no meeting of the minds, and no manifestation of assent. A party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyperlink buried among a sea of links does not provide such notice. Because Plaintiffs did not assent to the terms, no contract exists, and they cannot be compelled to arbitrate.” (emphasis mine)

That second sentence is so important, I had to emphasize it.

The worst part is that not only are the mistakes that Zappos.com made in implementing its terms of use common across the internet, they are also easily avoidable.

Clickwrap or Clickthrough Agreements

The other type of Terms of Service agreement is called a “clickwrap” or “clickthrough” agreement.

I’m also fairly certain that we have all been forced at one time or another to read a website’s terms of service before clicking an “I agree” box (whether we actually read what we are agreeing to is another issue—my anecdotal evidence suggests that the vast majority of people do not).

Unlike browsewrap terms, clickwrap agreements require a user to take some action, usually scrolling through the terms of services and clicking a box signifying that you are aware of and agree to the terms of the terms of service. The click signifies the user’s assent to the terms and to the contract. Because of the manifestation of assent, courts have been inclined to enforce clickwrap agreements as legally binding contracts.

Having a leakproof clickwrap agreement in place is fundamental to retaining the legal protections that are written into the agreement. The Zappos.com debacle that we looked at above could have been avoided had they used a clickwrap agreement at check out. It would’ve been as simple as requiring the purchaser click a box next to a message, “By checking this box you agree to the Zappos.com Terms of Use,” and then providing a conspicuous link to the actual document.

Berkele v. Lyft

A similar issue arose in a case against Lyft, a ride-sharing app similar to Uber.

In 2016, Lyft was sued by some of its drivers and attempted to invoke the arbitration clause in its user agreement. In deciding whether the user agreement constituted an enforceable contract, the court held that Lyft’s sign up process presented the terms of service clearly to the user and that the implications of clicking “I accept” were unambiguous. Lyft’s sign-up process resulted in the user clearly manifesting assent to the terms of the contract.

In other words, Lyft’s sign-up process was a leakproof clickwrap agreement.

Browsewraps, Just Say NO!

Even though the internet has changed our world immensely, it hasn’t changed the fundamental tenets of contract law. The requirements that have been applied regularly to physical contracts apply to online contracts too.

(I’ve discussed these here and here and here)

At the most fundamental level, you cannot unilaterally form a contract between two parties; both parties must manifest assent to the terms of the contract for that contract to be enforceable. Courts have confirmed this opinion in numerous cases.

How Do I Make Sure My Terms of Service Are Binding?

If you expect the users of your website to abide or be bound by certain provisions, two things must happen. First, those provisions must be conspicuously available for the user to read. Second, the user must actively agree to them before they can access any content or make a purchase.

You can’t rely on a browsewrap statement for your website’s Terms of Service. It doesn’t matter if you sell products, services, or access to information through your website. You must require the purchaser to affirmatively agree to the terms of service (i.e. by clicking a box) before the payment is received, the service is booked, or the information is accessed. Whatever is gained in user experience by avoiding a pop-up or required click-assent, is lost because your terms of service are not binding.

Even if your website is not monetized, implementing a legally binding clickthrough agreement is simple, if you have an account sign-up process. At the final step of the account registration, display a message that says, “By creating an account, I agree to the Terms of Service,” and make sure the Terms of Service are linked to that message.

If you don’t have an account registration process and don’t sell anything through your website—e.g. if you’re a professional service or blog that allows third-party posting—you may still want to include a clickthrough agreement on your website. But this will depend both on your business and also on the functionality of your website and the information hosted on it.

At the very least, you should make sure your Terms of Service are easily identifiable and accessible to users. You may also want to actively direct users to the Terms of Service.

Are You Protected?

When is the last time you looked at your website’s Terms of Service? Are you using a browsewrap or a clickwrap? Is the link to the Terms of Service conspicuous? Would a reasonable user be on notice that they are entering into an agreement with your website?

Remember, users have (widely) different levels of technological know-how. Just because you would know to look for the Terms of Service at the bottom of the website between the “privacy policy” and the “disclaimer,” doesn’t mean a 75-year old grandmother would as well.

How Can We Help You?

Here at Alexander Abramson, we focus exclusively on business-related legal matters. We would love to help you protect your business in the online world with Terms of Service or Terms and Conditions agreements.

We have advised closely held businesses and business professionals for years on everything from partnership arrangements to raising startup equity to selling a business. Our staff strives to create a wonderful client-experience by actively listening and maintaining open lines of communication, consistently meeting deadlines, and being upfront about our pricing and services. Don’t trust the legal needs of your business to an attorney that can’t or won’t offer you the best service possible.

We would love to speak with you directly about how we can help you buy or sell a business.

Call us 407-649-7777 to set up an initial consultation!

 

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