Have You Thought About Your Online Terms of Use Recently?

Nearly every website, app or online service posts a set of Terms of Use outlining company policies for users (sometimes called Terms of Service) (“Terms”), but many companies do not know if their Terms are enforceable in court. Do you? Online platform use has increased quickly, and companies have tried a variety of methods to present these Terms to users. Not every method works—some companies have been dragged into unfavorable litigation when courts hold their Terms unenforceable, a situation which can result in a tremendous drain on time and resources. Today, appropriate website design and Terms content are crucial for addressing the enforceability of your company’s policies, reducing uncertainty, and minimizing future costs.

I. Importance of Terms of Service

Clearly communicating Terms of Use to users is critical to reducing liability and demonstrating transparency to customers. Terms of Use outline a company’s expectations and the types of penalties that can be imposed for violations. If a third party brings a claim against your company based on their or another’s use of your service, Terms can serve to protect your interests and reduce litigation costs by designating on the front end which state’s laws will apply or possibly requiring arbitration. When properly coordinated with a Privacy Policy, your company can also minimize liability involving use by children, copyright or intellectual property infringement, and the performance or security of your service.

II. Types of Online Contracts

Online contracts developed from shrink-wrap agreements – the paper license agreements found inside tight plastic packaging of a product box. Today, these online contracts tend to come in two major forms: click-wrap and browse-wrap. Click-wrap agreements require a user’s assent to Terms through an affirmative action, such as clicking an “I Agree” button or similar. In contrast, a browse-wrap agreement does not require a click – a user passively consents simply by using the website or app. Generally, we see the Terms for online contracts are posted via hyperlink at the bottom of the webpage.

    a. Click-Wrap Enforceability

In terms of enforceability, click-wrap agreements are the safest bet. A user is presented either with a link to the Terms or the Terms are displayed directly to users on a screen. Only by affirmatively “clicking” are users permitted to proceed to using the service being offered (e.g., paying for an item, downloading software, or even just using your company’s website). These agreements align with traditional contract principles – it is easy to see whether a user (i) had reasonable notice of, and (ii) manifested assent to the Terms because of the affirmative clicking action. Keep in mind that a user’s click of an “I Agree” button will show these elements only when the design of a webpage or app makes it clear that clicking signifies assent to the Terms.

    b. Browse-Wrap Enforceability

Browse-wrap agreements are upheld less often. Showing a user (i) had reasonable notice of, and (ii) manifested assent to the Terms can be more difficult without an affirmative action such as a click. An oft-cited case involves Barnes & Noble’s browse-wrap agreement where the website’s Terms were located in a hyperlink at the bottom left-hand corner of every webpage. The court held the Terms unenforceable because a reasonable user would not have had notice. Proximity or conspicuousness of the hyperlink alone, such as underlined, color-contrasting text, was not enough to infer notice and enforce the arbitration provision without more effort to give customers notice of the Terms.

III. Making Your Online Agreements Enforceable

    a. Design

Where possible use a click-wrap model for your Terms of Use which allows users to have the opportunity to both review the Terms and affirmatively consent to them. One model includes requiring a user to scroll through the Terms in their entirety and presenting the option to click a clear “I Agree to the Terms of Use” button before moving onto the next step. This button should be close enough to the Terms that it is obvious what it references. If for some reason a browse-wrap model must be used, the Terms’ hyperlink should be conspicuous – for instance, constantly visible on every webpage, color-contrasted, and underlined. Importantly, there should be explicit text referencing the Terms that tell users they are giving assent to agreements by navigating the website.

    b. Content

Even if you are able to demonstrate a valid contract with users through the design of your webpage or app, enforcement of every provision is not guaranteed. Particularly sensitive terms might be more difficult for a company to enforce without additional action. These terms might include forum selection clauses, arbitration provisions, class action waivers, or statements about data collection and use. Depending on the state, most forum selection and arbitration clauses are upheld, however, companies should strive to give as full and clear a disclosure about these types of provisions. Strategies include:

• requiring specific consent to these provisions through multiple clicks,
• using headers,
• avoiding boilerplate language or legalese,
• using highly readable font,
• adding spaces between paragraphs and sections,
• allowing printing or saving, and
• using easy or limited scrolling.

Lastly, it is critical to maintain a digital record of each individual user’s click-wrap acceptance to provide evidence necessary to enforce the contract in its entirety.