I recently had the opportunity to speak on a panel at the State Bar of California Annual Meeting to discuss doing business online. As a technology lawyer practicing in the San Francisco Bay Area, I constantly advise clients on their online activities. One of the most common issues is creating terms of use, or terms of service, that are enforceable.
Many of us engage in day to day business online. Everything from ordering a shirt to buying the latest pop release are performed from our desktop, pad, or phone. As part of this, we often enter into agreements, often called terms of use, terms of service, or just licenses, which govern our activities. People like me want to make sure that these online agreements can be enforced.
For a long time, the court wrestled with the notion that providing sufficient notice of the terms under which someone could use a website would result in an enforceable agreement. So, if you want to make your online agreements are enforceable, you have to make sure you provide enough notice to make sure that someone knows they are entering into an agreement. Sounds simple, right?
Unfortunately, it’s not. Where trouble often occurs is in making sure the user knows they are entering into an agreement. The challenge faced in creating enforceable agreements lies not in the words that are used in the agreement, but, in many cases, the manner in which the user becomes aware of the agreement. This makes enforceability not necessarily a legal problem, but a website design problem. And this problem becomes even more acute when you are dealing with the reduced display of your average cell phone.
Two recent cases, each decided in July of this year and each dealing with the Uber ride service, illustrate the problem. In Cullinane v. Uber Techs., a Massachusetts court had to decide the enforceability of an online agreement to determine if a dispute had to be decided through arbitration. The court describes the account creation process as follows:
“below the credit card information input box, and above the keyboard, appear the words “By creating an Uber account, you agree to the Terms of Service and Privacy Policy”. . . . If a user clicks the button that says “Terms of Service & Privacy Policy”, the Terms of Service then in effect are displayed on the phone.”
In looking at the enforceability issue, the court went back to contracting basics: notice and consent. First, the court held that users were on notice. The language clearly says that “By creating an Uber account, you agree.” Second, the court held that, by clicking on the button, the users manifested intent.
By contrast is Meyer v. Kalanick, a New York case applying California law that was decided less than three weeks later. Same issue as in Cullinane, but different result. Why? Well, remember what I said about notice being important? Let’s look at the contracting process. On the screen where a user keyed in their credit card information, there was a “Register” button in the form of a banner spanning the entire screen. Underneath, in a size similar to the Register button, were buttons enabling payment by PayPal or Apple Wallet. The court goes on to say:
“Beneath these two buttons, in considerably smaller font, are the words “By creating a User account you agree to the “Terms of Service & Privacy Policy” …. “While the Terms of Service & Privacy Policy is in all caps, the key words “By creating a User account you agree to” are not in any way highlighted and, indeed, are barely legible…. A potential user may click on the Register button and complete the User registration process without clicking on the hyperlink.”
The court basically said because the notification of user account creation was “not in any way highlighted” and “barely legible”, the user was not put on notice they were entering into an agreement. Same language as the Cullinane case, but different result. The takeaway: Size Matters!
There are a number of other factors that lead to enforceability. Recent cases show, however, that the design of the contracting process is critical toward making online contracts enforceable.
Bob Hawn is a founding partner of Strategy Law, LLP in downtown San Jose, California. His practice focuses on emerging growth technology companies, technology licensing, angel and venture capital financing, business entity formation, corporate governance, mergers and acquisitions, and U.S. market entry. He speaks regularly on technology law related issues and was the 2014-15 Chair of the Business Law Section of the State Bar of California.
The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.
