By Karl S. Kronenberger | Thursday, February 09, 2017
Website terms and conditions (“T&Cs”) are often the primary contracts between web-based companies and their customers or website users. Accordingly, T&Cs are an invaluable tool for businesses and can establish agreements on a wide range of issues, including use of private information, dispute resolution, and intellectual property. Nonetheless, given the changing legal landscape and likely challenges to enforcing the terms, it is imperative that businesses draft, implement, and update clear and compliant T&Cs.
General Types of Website Terms & Conditions
Most T&Cs are either “browsewrap” or “clickwrap” agreements.
A “browsewrap” agreement typically involves inserting a link to the T&Cs on the website, such as on the footer. A browsewrap agreement generally seeks to impose contractual terms through use of the website and does not involve affirmative consent by the website user. The determination of whether a valid contract is formed depends on the facts, including the accessibility of the T&Cs, the user’s actual or constructive knowledge of the terms, and the terms themselves. Typical defenses to browsewrap agreements are lack of accessibility of the T&Cs and lack of the user’s knowledge of the T&Cs.
For example, in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014), the Ninth Circuit found that T&Cs were unenforceable when they were available through a hyperlink on the website’s footer and other locations, because there was insufficient constructive notice of the terms to consumers.
By contrast, a “clickwrap” agreement requires the user to affirmatively consent to terms, typically by requiring the user to scroll through T&Cs and then click a box stating, “I Accept” or a similar phrase. While the affirmative consent strengthens potential for enforcement, the T&Cs are still subject to attack, depending on the conspicuousness of the terms and the ambiguity regarding manifestation of assent to the terms.
For example, in Sgouros v. TransUnion Corp., 817 F.3d 1029 (7th Cir. 2016), the Seventh Circuit affirmed that a consumer did not assent to T&Cs, which contained an arbitration clause, by clicking an “I Accept” button on TransUnion’s website. In particular, the court highlighted that the arbitration clause was buried within ten pages of T&Cs and that, while the language above the “I Accept” button stated the user authorized obtaining the user’s credit information, it did not confirm the user accepted the T&Cs.
By contrast, in Selden v. Airbnb, Inc., No. 16-cv-00933, 2016 WL 6476934 (D.D.C. Nov. 1, 2016), the U.S. District Court for the District of Columbia recently found Airbnb’s T&Cs, which contained an arbitration clause, enforceable. The T&Cs, characterized as a “sign-in-wrap” agreement, were available through hyperlinks, and the user was required to click a button next to “clearly legible” text stating, “I agree to Airbnb’s Terms of Service.” The court considered the proximity of the links to the only button allowing continued use of the site, whether the terms were available on subsequent visits, and the visual elements, such as font size and color. The court also held that the arbitration clause was not unconscionable in part because the agreement was not unilateral and fees were to be paid by Airbnb, unless the claims were frivolous or for an improper purpose.
Given the above, businesses can strengthen enforceability of T&Cs by: (1) requiring a user to scroll through clear and concise terms; (2) inserting clear, bold language in close proximity to a check box stating, “I have read and agree to the terms and conditions” or “I Accept the Terms”; (3) requiring that the box is clicked before a user can complete transactions; (4) inserting links to the T&Cs (and other policies) on the homepage and other locations; and (5) improving the content of T&Cs (e.g., payment of arbitration fees could make an arbitration clause more likely to be enforced).
What to Include on Website Terms
While T&Cs ultimately depend on the type of website and business, companies should consider several important provisions.
First, terms concerning dispute resolution can provide substantial control over how, when, and where claims are brought, including by mandating arbitration or mediation, prohibiting class actions, requiring certain notice of claims, or requiring a specific venue or choice of law, all of which could potentially dissuade users from bringing frivolous and costly lawsuits. For example, in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the U.S. Supreme Court concluded that T&Cs can bind consumers to arbitration and prohibit class actions. Nonetheless, in drafting and modifying T&Cs, it is important to consult counsel, consider possible defenses, and take specific state laws into account.
Second, intellectual property provisions can establish who owns or licenses website content. For example, businesses can grant themselves licenses concerning user-generated content. Further, referencing the Digital Millennium Copyright Act may highlight immunity if users infringe on copyrighted content under certain conditions.
Third, clauses that specifically prohibit activity can create binding agreements not to engage in the activity, such as spamming, republishing, scraping, trespassing, unauthorized use, or commercial use of website content. These T&Cs are typically fortified through cease-and-desist notices and, ultimately, legal action.
Finally, industry-specific provisions may be appropriate. For instance, businesses may want to include prior authorization for emails, phone calls, or SMS messages (however, there are regulations requiring businesses to permit an opt-out of advertising messages in certain circumstances). For health-related sites, T&Cs should include disclosures required by the U.S. Food and Drug Administration. Moreover, e-commerce sites should follow marketplace rules and include terms on shipping and refunds.
Placement of T&Cs is also important. For example, the Federal Trade Commission (“FTC”) Act requires “clear and conspicuous” disclosure of “material” terms, which are relevant to a consumer’s purchasing decision. Likewise, the Restore Online Shoppers Confidence Act (“ROSCA”), which applies to negative option billing (i.e., billing if you do nothing), requires clear and conspicuous disclosure of material terms before billing information is submitted and simple explanations for stopping automatic billing.
What to Omit From Website Terms
In general, companies should avoid certain terms to ensure enforceability of T&Cs.
First, gag clauses, which prohibit consumer reviews, should be avoided. In fact, California Civil Code §1670.8 makes gag clauses in T&Cs unlawful and subjects violators to fines of $2,500 (or $10,000 if the inclusion of a gag clause was willful).
Second, companies should be careful in drafting liquidated damages clauses, which determine the specific amount of money that must be paid for breach of the agreement. Many states have specific requirements for such provisions, which are typically only enforceable if damages are difficult to estimate and the amount is reasonable.
Third, clauses absolving all liability should be avoided. For example, the New Jersey Truth in Consumer Contract Warranty & Notice Act protects consumer rights in contracts, and large companies have been sued for trying to eliminate all liability for manufacturing or selling dangerous or substandard products. Overbroad or unreasonable indemnity provisions can likewise violate specific state and other laws.
Finally, hidden provisions and terms defeating the remedial purpose of state statutes should be carefully researched and drafted. For example, some arbitration clauses that prohibit statutory attorney’s fees or punitive damages may be held invalid.
Drafting Website Terms
The best way to draft website T&Cs is to consult with legal counsel that draft and litigate similar T&Cs and understand the nuances of the business. Counsel will typically have templates (to avoid starting from scratch) and will be able to incorporate applicable and pertinent terms (e.g., specific requirements for the industry and location).
By contrast, copying competitors’ terms, using overbroad online terms generators, or even using a friendly company’s terms are not recommended. First, businesses could be subjected to copyright infringement claims, end up republishing bad ideas (including inapplicable or outdated clauses or too much legalese), look unprofessional, and be unable to support potential claims. Further, these methods will not result in T&Cs that are tailored to the business and legal objectives and could lead to wasted time and money in litigation.
Finally, in drafting T&Cs, companies should consider how the terms will interact with other agreements, such as privacy policies and marketing agreements.
Implementing Website Terms
When implementing new or modified T&Cs, companies should create a clear and organized record. A GitHub repository of terms is helpful for maintaining the date and time of each update. The record should also include a chain of custody of the terms (e.g., attorney to company-recipient to webmaster and on what dates). Checklists are also helpful as are archives of records for each change and update.
Further, companies should create records of users’ acceptance of terms, especially with clickwrap agreements. While not required, model records also include users’ IP addresses, account identifiers, and time stamps. Having a clear and accessible record is especially important if litigation arises and the parties go to court.
Best Practices for Website Terms
The following are best practices for website T&Cs: (1) make T&Cs and “I Accept” language clear, concise, and unambiguous; (2) require scrolling through, and affirmative consent to, terms; (3) tailor terms to the business and location; (4) comply with FTC guidelines, ROSCA, and any other applicable laws; (5) maintain organized records of changes and user agreements; and (8) consult with experienced legal counsel before implementing terms and periodically as the business and the legal landscape change.
This entry was posted on Thursday, February 09, 2017 and is filed under Website Agreements, Internet Law News.