Case Alert: Ninth Circuit Rejects Enforceability of Website’s “Terms of Use”

Case Alert: Ninth Circuit Rejects Enforceability of Website’s “Terms of Use”

On August 18, 2014, the Ninth Circuit refused to enforce an arbitration clause located in the Terms of Use posted on the website via a hyperlink at the bottom of the screen.

In Nguyen v. Barnes & Noble, Inc., No. 12-56628 (9th Cir., August 18, 2014), plaintiff sued Barnes & Noble when his order for an H-P Touchpad was cancelled, causing him to have to buy a more expensive product.  Barnes & Noble moved to compel arbitration, based on language in its Terms of Use providing that any dispute must be resolved through binding arbitration.  The Terms of Use on the Barnes & Noble website were available via a hyperlink in the bottom left-hand corner of the company website; those hyperlinks also appeared — underlined and in green typeface — in the lower left-hand corner of every page in the online checkout process.   Barnes & Noble contended that this was sufficient to place plaintiff on notice of the Terms of Use (even though Nguyen never clicked the “Terms of Use” hyperlink, nor actually read the Terms of Use); the district court disagreed, and the Ninth Circuit affirmed.

Reaffirming that commerce on the Internet has not altered basic contract law principles, the Ninth Circuit explained that “mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.”  It then went on to explain that, in situations where a website owner wishes to bind a user to the terms in a browsewrap agreement, “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract” and that, in turn, “depends on the design and content of the website and the agreement’s webpage.”

The Ninth Circuit’s analysis of the issue makes clear that district courts should be reluctant to enforce browsewrap agreements against individual consumers in the absence of evidence that the website owners took steps to make sure that users became aware of the terms being enforced against them.   In fact, the Ninth Circuit explicitly held that making the Terms of Use available for review via a conspicuous hyperlink is insufficient to create constructive notice:

[W]e therefore hold that where 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. While failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract … 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 placed the burden on website owners to give users notice of the site’s terms and conditions, especially if the users are individual consumers.    Thus, website owners should ensure that users of their site are at least given explicit notice of such terms, or better still, required to affirmatively click a button or check a box indicating agreement to the terms.