Recent Court Decisions Shed Light on Enforceability of Electronic Contracts in the U.S.

Introduction

A number of U.S. state and federal courts have recently considered whether the manner in which companies presented to their users a variety of electronic contracts (e.g., terms of service) was sufficient to form an enforceable contract with the website or app user.¹ While there are no bright-line rules, the general consensus is that so-called “browsewrap” agreements are unenforceable, “sign-in wrap” agreements fall into a gray area in which courts carefully analyze the manner in which the contractual terms were presented to determine enforceability, and both “clickwrap” and “scrollwrap” agreements are generally enforceable. In any case, care must be taken to ensure that even the types of acceptance methods found generally enforceable are implemented in a way that increases the likelihood the agreement will actually be found enforceable if challenged. 

Each of these courts evaluated what is commonly referred to as a “sign-in wrap” agreement, and in each case the court held that the manner in which the applicable terms were presented to the user or the manner in which the user assented to them was not sufficient to form an enforceable contract. In this alert, we provide (1) an overview of what courts are considering when determining whether an electronic contract presented to users is enforceable and (2) practical guidance to assist you in considering whether your company’s electronic contracts, the manner in which they (and future amendments to them) are presented to users, and the methods by which you obtain user assent to your electronic contracts should be updated in order to increase the likelihood of enforceability.

Background on Electronic Contracts

No matter the jurisdiction, in order to have an enforceable contract the mutual assent or consent of the parties to the terms of the agreement is essential. This is no less true with electronic contracts, such as website terms of use or the terms and conditions of an app. Because users of websites and apps typically do not receive a physical copy of the contractual terms relating to their use of such sites and apps, courts typically analyze whether the user has engaged in conduct that manifests their acceptance of the applicable terms. The company must show that the contractual terms were presented to the user in a manner that made it apparent the user was assenting to those terms when doing something on the site or app like checking a box or clicking a button. 

The courts in each of the recent decisions discussed, to varying degrees, the following commonly used classifications of electronic contracts:

• “Browsewrap” agreements: The applicable terms are disclosed only through a hyperlink (often in the footer of a website), and the user assents to the terms by merely browsing the site or using the app. No clicking or other action is required to accept the terms.
• “Sign-in wrap” agreements: The website or app includes a textual notice that indicates a user is required to agree to certain terms before accessing the site or service. However, the user is not required to review those terms or to expressly manifest their assent to those terms by checking a box. Rather the user is asked to click something else like a sign-in or registration button, and notice of the terms is presented near that button. 
• “Clickwrap” agreements: The user accepts the applicable terms by checking a box that states that the user agrees to the terms before the user can continue using the site or app or complete the applicable user flow. 
• “Scrollwrap” agreements: The user is presented with the entire set of terms upfront and must physically scroll to the bottom of them to find the checkbox or “I AGREE” or similar button, which they must check or click (as applicable) to continue with the applicable user flow.

Likelihood of Enforceability of Electronic Contracts

These recent cases appear to signal a general trend among U.S. courts regarding the relative enforceability of the four electronic contract classifications outlined above. However, it’s important to note that the enforceability of an electronic contract does not depend on its classification within a given category. Rather, courts focus on whether the interface provides the user with reasonable notice of the terms of the contract and if and how the user manifests assent to them.

Browsewrap Agreements

Courts are reluctant to enforce "browsewrap" agreements because users are frequently left unaware that contractual terms were even offered by the company, much less that the user’s continued use of a website or app will be deemed to constitute acceptance of those terms.² Where a website owner makes its terms of use available via a conspicuous hyperlink on every page of the website, but does not otherwise provide notice to the user of the terms or prompt the user to take any affirmative action to demonstrate assent to them, even close proximity of the hyperlinked terms to buttons the users must click on — without more — has been found insufficient to find the user was constructively on notice of those terms.³ We recommend avoiding "browsewrap" agreements.

Sign-in Wrap Agreements

Determining whether a sign-in wrap agreement is enforceable is a fact-intensive exercise for courts, and as we have seen from these recent cases there is substantial risk of presenting the terms in a manner that results in a court finding them unenforceable.⁴ Each of the courts in these recent decisions evaluated sign-in wrap agreements, and in each case the court held that the manner in which the applicable terms were presented to the user or the manner in which the user assented to them was not sufficient to form an enforceable contract. When considering whether a sign-in wrap agreement is presented in a way that formed an enforceable contract with the user, courts typically evaluate two factors: (1) whether the website or app provides reasonably conspicuous notice of the terms to which the user will be bound and (2) whether the user takes some action that unambiguously manifests their assent to those terms.⁵

Conspicuous Notice of Terms
The more likely that the user must at least view, if not read, the terms themselves as a condition of utilizing the website or app, the more likely that a court will hold that the terms are binding.⁶ When determining whether a textual notice regarding the applicable terms is sufficiently conspicuous, courts have considered numerous factors, including:⁷

• Font size, including the size of the notice text itself (whether it is legible) and the notice text’s size as compared to other textual elements on the page;⁸
• The color of the text compared to the background against which it appears;
• The location of the text and its proximity to any box or button the user must click;
• The obviousness of any associated hyperlink, including whether the hyperlink is underscored and whether a contrasting font color (typically blue) and capital letters are used, with an eye to whether the hyperlink text differs from other plain text (indicating it provides a clickable pathway to another webpage);⁹ and
• Whether other elements on the screen clutter or otherwise obscure the textual notice.

A court’s analysis of the above factors is largely subjective, and any given court may reach different results when analyzing whether the same notice is sufficiently conspicuous to bind a user. Courts also often consider these factors from the perspective of a reasonably prudent Internet user, while also noting that there is a broad range of technological savvy and ages among those users, which also lends itself to more subjectivity.¹⁰ Even small differences in implementation of a textual notice as compared to implementations previously evaluated by courts in light of the above factors may be sufficient to render a textual notice insufficiently conspicuous.¹¹

Unambiguous Manifestation of Assent
The more obvious a user’s assent to the terms presented to them, the more likely the court will find them to be binding.¹² A clear and specific description of the effect of clicking on a button or a link is more likely to bind a user than a description that is vague.¹³ A user’s click of a button can be construed as an unambiguous manifestation of assent only if the user is explicitly advised that the act of clicking will constitute assent to the applicable terms.¹⁴ For example, an agreement is more likely to be enforceable if the button to be clicked clearly signals assent to the applicable terms, by using button text like “I AGREE” rather than button text like “CONTINUE”, “REGISTER”, or “DONE”.¹⁵ In addition to the button text itself, the text notifying the user of the legal significance of the action of clicking that button (and which contains the hyperlink to the applicable terms) is also important.¹⁶

Companies utilizing sign-in wrap agreements should thus place a conspicuous notice regarding the terms (and containing a conspicuous hyperlink thereto) in close proximity to the applicable button that moves the user forward in or completes the applicable user flow, the button text should use terminology clearly indicating assent instead of simply signifying forward progression within the user flow, and the notice text should clearly explain the legal significance of clicking on that button to proceed.

However, even if a company heeds the above advice, a court may still find the terms unenforceable with respect to its users. This is because when considering matters of contract formation, courts will take into account particular features of the individual doing the contracting, including their age.¹⁷ This may lead to disparate conclusions regarding enforceability among a company’s user base, especially with respect to minors.¹⁸

Scrollwrap and Clickwrap Agreements

Courts have consistently found "scrollwrap" agreements enforceable because the contractual terms are placed directly in front of the user (i.e., they have actual notice of them), and they are required to scroll through the terms and then take some action (like clicking a button or checking a box) to indicate their assent to them.¹⁹ We have noticed a general trend over the years of companies moving away from "scrollwrap" agreements because mandatory scrolling can impact the user experience. However, a "scrollwrap" agreement, when implemented correctly, remains the most bulletproof and likely to be held enforceable.

Courts also generally consider "clickwrap" agreements to be enforceable because this type of agreement necessitates an active role by the user of a website or app in assenting to the applicable terms, for example by checking a box that indicates a user agrees to the applicable terms.²⁰ Requiring this kind of expressly affirmative act puts the user on notice that they are entering into a contract.²¹ A "clickwrap" agreement, if implemented correctly, also gives companies a high likelihood of their terms being enforceable.

As noted above, the enforceability of a contract depends more on its implementation than its classification. Utilizing a "clickwrap" or "scrollwrap" contract without careful thought as to the manner in which they are implemented could still lead to a finding that the terms are unenforceable. 

If a company does not wish to utilize a "scrollwrap" agreement, in light of these recent court decisions, to increase the likelihood of enforceability they should utilize a "clickwrap" agreement utilizing a two-click process, like the following:

1. A checkbox that must be clicked by the user in order to continue or complete the applicable user flow (the first click);
2. The checkbox and related notice are located above and in close proximity to the separate button the user must also click in order to continue or complete the user flow (e.g., the button to finish an account registration or place an order) (the second click);
3. A conspicuous notice next to the checkbox with wording that clearly manifests a user’s consent to the applicable terms and conditions, which terms themselves are hyperlinked in a conspicuous manner (e.g., blue and underlined) within such notice; and
4. With respect to the separate button the user must click in order to continue or complete the user flow, the use of button text that clearly indicates assent. 

Conclusion

Because companies have full control over the design of their websites and apps, courts put the onus on them to provide adequate notice of the contractual terms and obtain user assent in a way that forms an enforceable contract. The most protective and well-drafted electronic contracts will not mean much, if anything, if they are not actually enforceable.

Given this trend for U.S. courts to strictly analyze the way in which electronic contracts are presented to users, we generally recommend using a "clickwrap" or "scrollwrap" agreement and carefully considering how those agreements are presented to users. If you are using a "sign-in wrap" agreement and wish to continue doing so, we recommend carefully scrutinizing the manner in which the notice of the terms is presented to your users, your site and app page layouts, and the manner in which you obtain user assent to your terms, all in light of your particular user base. 

Please contact your Goodwin lawyer to discuss your current electronic contract user flow and how it can be improved to increase the likelihood of enforceability of your electronic contracts with users.