Recent Cases Emphasize Clickwrap Basics

Two court decisions in the past couple of months, both from federal courts in California, involving arbitration clauses in clickwrap agreements make clear that the manner in which affirmative assent to website terms is sought from a site’s users makes all the difference when enforceability of those terms is at issue.

In early February, the U.S. District Court for the Northern District of California held in Savetsky v. Pre-Paid Legal Services, Inc. d/b/a LegalShield, Case No. 14-03514 SC  (N.D. Cal. Feb. 12, 2015), that merely alerting a site user prior to online checkout that the user can obtain more information from links labeled “Learn More” or “More Plan Details” is insufficient to put the user on notice of the applicable terms governing the subject transaction. After the plaintiff, Savetsky signed up for a pre-paid legal service plan, he pursued a class action against LegalShield for certain violations of California law. LegalShield sought to compel arbitration and thereby defeat the effort at class certification. The court’s ruling: no deal, because the relevant terms were not conspicuous and did not require an affirmative acknowledgment.

Following close on the heels of Savetsky, the U.S. District Court for the Central District of California in Friedman et al. v. Guthy-Renker, LLC, Case No. 2:14-CV-06009-ODW (C.D. Cal. Feb. 27, 2015), reached a similar result. The case involved claims made by online purchasers of products from Guthy-Renker and the applicability of an arbitration clause in the website terms. Unlike in the situation involved with Savetsky, the purchasers on Guthy-Renker’s site had to affirmatively agree to specific terms by clicking a checkbox (clickwrap agreement). That seems pretty good. However, for some of the purchasers, the checkbox only referenced a credit card authorization accompanied by a nearby and vague “Agree to Terms” and without a link.  At some point, the company updated its site and later purchasers had to check a more prominently placed box stating “Agree to Terms and Conditions”, which was also linked to the site’s terms. The result:  the earlier purchasers, who saw only the ambiguous “Agree to Terms” checkbox, were not bound by the arbitration clause, while the later purchasers, who used the updated site checkout procedures, were subject to arbitration.

The takeaway: even though all the essential elements for an online contract may be present on a website, the manner (e.g., prominence, positioning, specific wording, clarity and links) in which those elements are presented to site users can make a dramatic difference in the terms that will govern subsequent disputes between those users and the site’s operator.

For more information on clickwrap agreements, contact your Technology Law counsel at Smith, Gambrell & Russell.

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