Best Practices for Enforceability of Online Agreements

If you run a business, you probably want to make sure your website’s terms and conditions legally bind your online customers. While California law views this subject through the prism of contract formation principles, the evolving nature of the internet has made enforceability a moving target.

Why Do They Call It Wrap & What Types Are There?

Oh so many years ago, when people bought computer software in cardboard boxes from brick-and-mortar stores, those boxes came shrink-wrapped in plastic. To ensure they formed an enforceable agreement with users, software companies had to include a copy of their terms and conditions inside the shrink-wrap so that buyers would be sure to encounter the agreement after opening the package and before installing the software via a computer disc. These became known as Shrink-wrap agreements, and formed enforceable contracts between the company and consumer.

Now that we only leave the house in the direst of emergencies, companies have devised ways to alert their website users to terms and conditions. Of course, each company must weigh the risks of chasing off would-be users against the need for users to agree to company terms. This balancing has spawned a variety of so-called Wrap agreements, a throwback term inspired by their Shrink-wrap forefathers. To date, California courts have identified four types:

• A Browsewrap agreement is one where the website has a hyperlink to the company’s terms of use, and the user accepts those terms simply by browsing the site. These agreements are generally not enforceable because the user may be unaware of the terms.
• A Scrollwrap agreement requires the user to physically scroll to the end of the terms before being able to click an “accept” button. These are enforceable, though obviously more work for the user and might drive some users from the site.
• A Clickwrap agreement requires users to click “accept,” but does not force the user to scroll through the terms. These are also generally enforceable.
• A Sign-in Wrap agreement is a hybrid of Browsewrap and Clickwrap. It notifies users that the service or product they are purchasing is subject to hyperlinked terms. But it does not force the user to click “accept” to its terms. Because there’s no requirement for an actual click of acceptance, a Sign-in Wrap agreement’s enforceability turns on whether a reasonable user would be on notice of the terms. When litigated, determination of this user awareness becomes a fact-intensive inquiry for the court.

Is Your Wrap Agreement Enforceable?

Two recent cases shined light on the grey area occupied by Wrap agreements that don’t require website users to click acceptance of terms. In B.D. v. Blizzard Entertainment, Inc. (Blizzard), a California Court of Appeal held that an online gaming website’s terms and conditions—specifically the license agreement that included a mandatory arbitration provision—was enforceable as a Sign-in Wrap agreement.

The Court found it reasonable that the gamer should expect to be bound by terms in part because this was likely going to be a long-term relationship (indeed it was). This is akin to similar user agreements employed by Uber and other companies expecting repeat customers. Had this been a one-time, low-priced purchase, the Sign-in Wrap agreement may not have held up.

The Court also said that the agreement was enforceable because the user could easily find the hyperlink to the terms within two clicks. Even better, the website included a bold admonishment adjacent to the “continue” button telling the user to carefully read the agreement and not to install the game if he did not agree. Unfortunately for the gamer, he did not heed the warning. So when he and his father later sued the company for engaging in unlawful gambling under California’s Unfair Competition Law, the company could force arbitration against their wishes.

Things did not go so well for the defendant in another recent case, out of the Ninth Circuit Court of Appeals. Berman v. Freedom Financial Network LLC (Berman) involved users of a website offering gift cards and free product samples suing the company after their contact information was used for unsolicited marketing without consent. The company sought to force arbitration based on the users having accepted its terms by using the website. The panel found that the website failed to make its arbitration terms conspicuous. It also failed to ensure the users had to acknowledge that they had seen the terms before proceeding with their transactions.

Companies need to decide how important it is to them to ensure they have an enforceable online agreement with their website users. If they feel it’s important, they would do well to heed the warning by Judge Baker in his Berman concurrence: “website designers who knowingly choose sign-in wrap—to say nothing of browsewrap—over clickwrap and scrollwrap designs practically invite litigation over the enforceability of their sites’ terms and conditions.”

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