The overwhelming majority of Americans now conduct business over the internet – whether making purchases, ordering services, or participating in online hosted forums.  When visiting websites, consumers are often presented with contractual terms and conditions intending to govern the relationship between the consumer and the business hosting the website. These online agreements are used by businesses for various reasons including, for example, to disclaim implied warranties, limit financial liability, specify governing law and venues for disputes, etc.

The manner in which these terms are presented to the user, and how the user demonstrates their agreement to the terms, can substantially affect the legal enforceability of contracts formed online. The various methods employed by website owners have been categorized into several general categories, namely, “browsewrap”, “clickwrap”, and “scrollwrap.” The “wrap” portion of the names come from the historical use of “shrink wrap contracts” common in boxed software purchases, which contain notices that by tearing open the shrink wrap packaging, the user is deemed to assent to the software terms enclosed within that packaging.

For example, some service providers require a user to click an “I Agree” button after displaying or providing access via hyperlink to the agreement governing the terms of use for the website (“clickwrap”), whereas other service providers try to characterize a user’s simple use of the website as “agreement” to a set of terms and conditions located within the site (“browsewrap”). Another type of these agreements is a where a user has to physically scroll through the terms of the agreement in a box on the screen, and only when the user gets to the bottom of that agreement can the user click on an “I Agree” button indicating agreement to the terms (“scrollwrap”).

Recently, the United States District Court for the Eastern District of New York has defined, and called into question, another type of these online agreements called the “sign-in-wrap” agreement.[1]  Like a clickwrap agreement, the sign-in-wrap includes text which states that acceptance of the “terms of use” is required in order to continue. Unlike a clickwrap agreement, however, the sign-in-wrap does not require the user to click on a box showing acceptance of the “terms of use,” but instead includes a statement such as, “By clicking ‘NEXT’ I agree to the terms of use and privacy policy.” In other words, the sign-in-wrap agreement ties a user’s assent to the website terms of use with signing up for use of the site’s services.

In its decision, the court stated that sign-in-wrap agreements are “a questionable form of internet contracting” because they do not require the user to click on a box showing acceptance of the terms of use in order to continue, but only notify the user of the existence and applicability of the terms as the user is proceeding through the website’s sign-in process.

In the case, Defendants Gogo LLC and Gogo Inc. (collectively, “Gogo”), a provider of Wi-Fi access on airplanes, had a website that advertised the cost of a monthly subscription and the cost of a single day pass. For potential customers interested in purchasing a monthly subscription, the only representation on Gogo’s website regarding the price was the monthly charge of $34.95. Plaintiff Berkson and another named plaintiff filed a class action in which they asserted that the design and content on Gogo’s website led consumers to believe they were only buying a one-month pass when they signed up for in-flight Wi-Fi through Gogo. Gogo argued that in signing up for their Wi-Fi accounts, the plaintiffs consented to the terms of use agreement posted on the website, which provided for automatic renewal of the monthly charge, as well as mandatory arbitration and waiver of venue.  The court found the Gogo terms of use to be a contract of adhesion, and not binding.

Test for assessing validity and enforceability of electronic adhesion contracts

The court enumerated four factors to analyze the enforceability of sign-in-wraps specifically, and website agreements, generally:

1.  Aside from clicking the equivalent of a sign-in button (e.g., log-in, buy-now, purchase, etc.), is there substantial evidence from the website that the user was aware that she was binding herself to more than an offer of services or goods in exchange for money?

2.  Did the design and content of the website, including the homepage, make the terms of use (i.e., the contract details) readily and obviously available to the user?

3.  Was the importance of the details of the contract (such as terms dealing with venue and arbitration) obscured or minimized by the physical manifestation of assent expected of a consumer seeking to purchase a product or subscribe to a service?

4.  Did the merchant clearly draw the consumer’s attention to material terms that would alter what a reasonable consumer would understand to be her default rights when initiating an online consumer transaction from the consumer’s state of residence, including the right not to have a payment source charged without notice (i.e. automatic payment renewal); the right to bring a civil action in the courts of her state under the laws of that state (i.e., the venue and choice of law provisions); and the right to participate in a class or collective action?

The court applied the four factor test to Gogo’s website and concluded, first, that there was no evidence from the website that the users knew they were binding themselves to an agreement that reflected more than a one-time offer of service other than clicking a button to purchase the service.  Second, the design and content of the Gogo website did not make the terms readily and obviously available. Most importantly, the physical manifestation of assent (the clicking of the “SIGN IN” button) obscured the importance of the terms.  Finally, the court found, Gogo failed to clearly draw users attention to material terms that would differ from a default rights.

As a result of this decision, companies should undertake a review of the manner in which users of their websites interact and with and assent to online agreements. Specifically, the following best practices should be considered to enhance the enforceability of these agreements:

    • Clickwrap or preferably Scrollwrap – users on the website cannot proceed to the next destination without going through a screen soliciting their consent to the terms and conditions, ideally making the user scroll through the actual terms before a button to click an “I Agree” box appears (e.g., a customer who enrolls in a program, completes a purchase, or downloads software cannot complete the enrollment/checkout process without clicking “I Agree” after scrolling through the terms of service or sale).

    • Make Terms Available for Download – allow users to download or print the terms and conditions or provide an e-mailed copy to the user at the completion of the purchase or registration process.

    • Conspicuously Disclose Material Unexpected Terms – terms providing, for example, recurring subscription charges, mandatory arbitration or non-local governing law or venues should be called out to ensure that users are fully aware these terms are in the agreement (e.g., Separate pop-up box as user scrolls through the agreement or warnings at the top, “Pay Attention to Section 2, 5 and 6 of this Agreement”)