UNITED STATES – Online merchants often use click-wrap agreements to set the terms and conditions for the use of their sites, providing an “I Agree” button that a would-be user must first click before using the site or doing business with the merchant. When presented in an abbreviated or referenced fashion, using a link to the agreement or a scrolling window, these agreements allow companies to set fairly specific terms, including class action waivers and agreements to arbitrate, without bombarding the user with pages of contractual language that may persuade him or her to visit a competing site.
But abbreviation has its limits. On March 25th, the Seventh Circuit affirmed a decision of the Northern District of Illinois holding that a website’s click-wrap agreement to arbitrate was not binding upon a user because the site did not clearly indicate what the user would be agreeing to by clicking an “I Agree” button found below the agreement.
The case was initially brought by an online purchaser of a credit report product, who claimed that the credit information the vendor provided was inaccurate. The vendor responded to the purchaser’s lawsuit by moving to compel arbitration under a Services Agreement; it claimed that the purchaser agreed to the Services Agreement when purchasing the credit information online. Specifically, the vendor’s online ordering page consisted of (1) a form where the purchaser could enter his payment information for the purchase of the report, (2) the initial text of the Services Agreement, presented in a scrollable window, (3) a statement that the purchaser authorized the vendor to obtain his personal information, and (4) a button that read, simply, “I Accept”—in that order.
The District Court denied the vendor’s bid to compel arbitration primarily because the button on its webpage did not inform users that, by clicking, they were agreeing to the terms of the Services Agreement. In the District Court’s view, the placement of this authorization statement between the “I Agree” button and the Services Agreement made it unclear what the purchaser and other users were agreeing to.
In a somewhat cynical opinion, the Seventh Circuit affirmed the District Court. The Court noted that the requirement of mutual assent, a hallmark of any legally binding contract in Illinois, Texas, New York, and other major jurisdictions, was missing in this case, as users did not knowingly agree to be bound by the arbitration clause or the other terms of the click-wrap agreement. The vendor’s first problem, per the Court, was that it did not ensure that the purchaser would see language apprising him of the fact that his purchase was subject to any terms and conditions before signifying his agreement. As the opinion notes:
The scroll box contained the visible words “Service Agreement” but said nothing about what the agreement regulated. The hyperlinked version of the Service Agreement was not labeled “Terms of Use” or “Purchase” or “Service Agreement,” but rather just “Printable Version.”
But the Court went further. In its view, not only did the vendor fail to inform the purchaser that it intended the purchase to be governed by the Services Agreement, “the site actively misleads the customer.” By placing the Authorization Paragraph between the Services Agreement and the Button, the vendor “distracted the purchaser from the Service Agreement by informing him that clicking served a particular purpose unrelated to the Agreement.”
The tone of the 7th Circuit’s opinion perhaps even more enlightening than its content. The Seventh Circuit, and other Circuit courts, have looked with some skepticism upon click-wrap agreements such as this one, and a website owner who finds itself defending against a class of users is likely to find little sympathy from a Court. That said, the path to avoiding this vendor’s fate seems fairly obvious—as the Court directs, mutual assent “is not hard to accomplish.” Some precautions a company might take include (1) choosing a more descriptive name for one’s agreement, such as “Terms of Use” (which the Court itself suggests), thereby informing the user that the site is governed by certain terms; and (2) ensuring that any “I agree” button appears directly below the “Terms of Use,” and that no other terms appear between the agreement and the button which could confuse the user.
Above all, however, the critical step toward obtaining an enforceable click-wrap agreement in a situation like this vendor’s is ensuring that a user clicking an “I Agree” button can understand from the page itself that he or she is agreeing to terms governing either the use of the website or the purchase at issue.
