How many times have you registered or signed up for something online and came across a Terms of Service agreement? The answer is a lot, because vendors want to make sure we agree to their terms before providing a product or service. These days every app we use, every service we enroll in online, and every time we make a one-time online purchase, we are made to enter information about ourselves and our credit card before clicking that button that completes the entire process. And that process almost always comes with some form of notice warning that by clicking that button, you agree to the “Terms and Conditions”.
Whether these terms are enforceable or not depends, in large part, on whether they are conspicuous on the site and whether the user is required to agree to them before getting the product or service ordered. Meyer v. Uber Technologies, Inc. , decided by a Federal Appeals Court in August of this year, illustrates the need for properly designing the process by which the user agrees to terms. Although the case was heard in New York, it was decided under California law.
The plaintiff filed a class action lawsuit against Uber, specifically former CEO Travis Kalanick, although Uber was later joined as a defendant, in the U.S. District Court for the Southern District of NY. The plaintiff alleged that Uber’s ride-sharing application allowed drivers to illegally fix prices individually. The defendants filed a motion to compel arbitration under Uber’s Terms of Service agreement. On appeal, the defendant argued that the Terms of Service was unenforceable.
The primary issue around enforceability was whether the Terms of Service was visible and noticeable enough, or reasonably conspicuous, so that the user knew it was entering into an agreement. If so, the agreement will be enforced against the user even if the user didn’t read the agreement. “While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice,” wrote Judge Chin in the decision of this case.
Although the determination of whether the Terms of Service is “reasonably conspicuous” requires considering many factors, the analysis focuses primarily on the design of site where the contract is formed. The three appellate judges reviewed the screen size of the plaintiff’s Samsung Galaxy S5 and how the screenshot of the final step of the registration process appears on that screen, the presence of words and other things in close proximity to the “agree” button, and the appearance, location, and interpretive function of the agree button itself. “Clarity and conspicuousness are a function of the design and content of the relevant interface,” wrote Chin.
Notwithstanding, Meyer declared that he was not on actual notice of the hyperlink, that when he was signing up he was not aware of the existence of the Terms of Service. There is no evidence that Meyers had actual notice of the Terms of Service, and the defendants did not point to any evidence from which a jury could infer otherwise. According to Judge Chin, however, California contract law measures assent by an objective standard that takes into account both what the person or entity seeking service said, wrote, or did, and the transactional context in which the person or entity verbalized or acted. California contract law is clear that “an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.”
Using California’s concept of measuring assent by an objective standard, Judge Chin introduces the notion of a reasonably prudent smartphone user: “Precedent and basic principles of contract law instruct that we consider the perspective of a reasonably prudent smartphone user”. Because of the nature of the design of the contract formation process, the Appeals Court held that “a reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account.” Even if a reasonably prudent user was indeed not aware of the conditions that would be set forth by their clicking of a button, the court held that the user would be “still bound if a reasonably prudent user would be on inquiry notice of the Terms of Service.”
In explaining his decision, Judge Chin further observed “inasmuch as consumers are regularly and frequently confronted with non-negotiable contract terms, particularly when entering into transactions using the internet, the presentation of these terms at a place and time that the consumer will associate with the initial purchase or enrollment… from which the recipient benefits at least indicates to the consumer that he or she is taking such goods or employing such services subject to additional terms and conditions that may one day affect him or her.”
In holding for the defendant, the Appeals Court noted that the “registration process allowed Meyer to review the Terms of Service prior to registering, included a reasonably noticeable hyperlink, and expressly warned the ‘reasonably prudent smartphone’ user that by creating an Uber account, the user was agreeing to be bound by the linked terms.”
This case is very helpful for operators of ecommerce websites, particularly those in California, because it clearly outlines the design parameters required of a website enabled contract formation process. For those creating click through agreements, these guidelines are invaluable.