Retailers Beware: “Browsewrap” Agreements Threaten Enforcement of Website Terms of Use (Or, Back to Contract Basics)

As Black Friday and Cyber Monday approach, a word of caution for online retailers: your website’s terms of use may be a “browsewrap” agreement, which could jeopardize its enforceability.  By now, most attorneys are familiar with the legal issues surrounding “clickwrap” agreements, which require users of software, websites, and the like to expressly assent to an agreement’s terms by clicking a button (often “I Accept” or “Agree”).  “Browsewrap” agreements go one step further, and require no affirmative action on the part of the user whatsoever.  These types of agreements came under fire recently in the District of Nevada, where a court refused to compel arbitration of a dispute between Zappos.com, Inc. (“Zappos”) and its customers.  In In re Zappos.com, Inc., Customer Security Breach Litigation, 3:12-cv-00325 (D. Nev. Sept. 27, 2012), several customers sued Zappos after hackers successfully accessed certain information the customers provided when purchasing goods on two Zappos-owned websites.  Zappos then moved to compel arbitration pursuant to its terms of use policy.  The court denied this motion despite the broad federal policy favoring arbitration as a venue for dispute resolution.

In striking down the terms of use agreements, the court noted that even the most basic of contract formation principles – acceptance – was not met.  The websites failed to effectively notify users that the agreements existed, and the agreements required no action on the part of the user to agree to be bound.  Without a manifestation of intent, the court reasoned, there could be no acceptance of their terms, and therefore no valid contract existed.  In addition to finding the agreement lacked acceptance, the court also found it was illusory.  By its terms, Zappos.com could change the terms and conditions at any time.  Not surprisingly, the customer could not.   Reserving such a unilateral, unrestricted right once again rendered the contracts unenforceable.

The court’s decision is simple enough, but it has broad implications for retailers and customers alike.  Given the proliferation of online shopping, retailers would be wise to consult with legal counsel when drafting terms of use agreements for their sites.  In addition, customers should not let the promise of clothing, digital cameras, and high-definition televisions blind them to any terms and conditions that would be disadvantageous should a legal issue arise.

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Posted on November 20, 2012, in IP Contracts, State Law and tagged . Bookmark the permalink. Comments Off on Retailers Beware: “Browsewrap” Agreements Threaten Enforcement of Website Terms of Use (Or, Back to Contract Basics).

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