02 July 2018

First Circuit’s Decision Provides Guidance on Creating Enforceable Website Terms and Conditions

On June 25, the United States Court of Appeals for the First Circuit in Cullinane v. Uber Technologies, Inc., __ F.3d __, 2018 WL 3099388 (1st Cir. 2018), evaluated the enforceability of arbitration provisions in online contracts. The First Circuit found Uber’s arbitration provision, which contained a class action waiver, unenforceable because Uber did not make its terms of service sufficiently conspicuous. Cullinane highlights the importance of obtaining customers’ affirmative consent to an online contract and reaffirms that conspicuousness of the arbitration agreement and the form of assent that retailers require from consumers remain paramount.

In Cullinane, the registration process required users to go through three different screens. Of particular concern to the three-judge panel in Cullinane was the last screen, the “Link Card” or “Link Payment” screen, which contained a link to the terms of service and the arbitration provision. The Uber application did not require the user to click on the terms of service button to complete the registration process, nor did it require a user to affirmatively check a box indicating that the customer agreed to the terms of service.

The terms of service contained a broad arbitration provision requiring any disputes arising out of or relating to the terms of service; the breach, termination, enforcement, interpretation or validity thereof; or the use of the service or application to be settled by binding arbitration. The arbitration provision also contained a class action waiver.

Applying state-law contract principles, the Cullinane court held that the plaintiffs were not reasonably notified of the terms of service, and the embedded arbitration provision, for two reasons.

First, Uber did not use a common method of conspicuously informing users of the existence and location of terms and conditions, that is, requiring users to affirmatively click a box stating that they agreed to a set of terms, provided by hyperlink, before continuing to the next screen. Instead, Uber displayed a notice of deemed acquiescence and a link to the terms that did not look like a traditional blue and underlined hyperlink.

Second, the overall design of the “Link Card” and “Link Payment” screens rendered the “Terms of Service & Privacy Policy” hyperlink inconspicuous. The panel noted that the features of the “Terms of Service & Privacy Policy” hyperlink may have been sufficient to accentuate a hyperlink found within a registration process interface with a plain design and limited content. However, Uber’s “Link Card” and “Link Payment” screens had other, more attention-grabbing features or other terms that were similar or larger in size and more noticeable attributes that diminished the “Terms of Service & Privacy Policy” hyperlink’s ability to grab the user’s attention.

Because the panel found that the plaintiffs were not reasonably notified of the terms of the arbitration agreement and did not provide their unambiguous assent to those terms, the First Circuit reversed the district court’s grant of Uber’s motion to compel arbitration.

Guidance for Creating Conspicuous Notice

As explained in Cullinane, the conspicuousness of the arbitration agreement (or the terms of service where the arbitration provision is contained) is contextual and ultimately turns on the conspicuousness of the notice regarding the presence of terms of service relative to other information on the same screen. As the panel noted, “[i]f everything on the screen is written with conspicuous features, then nothing is conspicuous.”

It is important to note that in Cullinane, Uber made no claim that any of the plaintiffs actually saw the arbitration clause or even clicked on the “Terms of Service & Privacy Policy” hyperlink. The key insight from Cullinane is that when it comes to creating enforceable arbitration agreements, retailers and practitioners would do best to follow the path of what has worked in the past: Use “traditional” methods of obtaining consent, and use hyperlinks that look like traditional hyperlinks.

Suggestions that increase the likelihood that e-commerce arbitration agreements will be enforced include these:

  • Use a check box that users must click adjacent to an affirmation similar to “By clicking on the box, you are indicating that you have read and agree to the Terms of Service,” “By checking the box, I agree to the Terms of Service” or “I agree to the Terms of Service.” Such a sentence requires a customer to affirmatively manifest consent to being bound by the terms of service.
  • Make it clear the “Accept” button relates to the agreement to the terms rather than something else. Any hyperlink to the terms should be obvious (e.g., “Terms of Use” is underlined and has decent-size lettering and visible coloring).
  • Any hyperlink to the terms should have a central or obvious location on the webpage (e.g., the hyperlink is directly above or adjacent to the “I Agree” button).

To create binding arbitration agreements with consumers, businesses must ensure that the necessary elements for a contract under state-law principles are satisfied. In disputes with consumers, whether the consumer was provided reasonable notice of and gave assent to an arbitration provision remains a significant issue. While the above suggestions may not be required for enforceability, businesses with an online presence should strive to make sure their terms of service are conspicuously displayed relative to other information on the same screen. They should also ensure that their website or application is designed to require consumers to affirmatively demonstrate assent to the terms of a contract as this may mean the difference between an individual consumer arbitration and a class action litigation.

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