Clickwrap Agreement – The Right Way To Handle Terms for Websites

The age old question on the web has been how does one form a contract? Clickwrap agreements offer one solution to the problem, but most sites use them incorrectly.Click Wrap Agreement for websites

Contracts

When a person uses a website, makes a purchase from it or takes some other action, said action constitutes a legal transaction. You, the website owner, want to form a contract with the visitor to protect your rights. This is accomplished through terms and conditions for your website.

Why is this important? Well, consider a simple scenario. Let’s assume you work out of Los Angeles. A visitor to your site buys a product, claims it doesn’t work and decides to sue you for it. The visitor lives in Chicago. Where should the lawsuit be heard?

If you are smart, the terms and conditions for your website should include a forum choice clause. This language would detail that any legal dispute could only be filed in Los Angeles and decided pursuant to California law.

If the terms are found to be binding on the visitor, they will have to travel from Chicago to Los Angeles to pursue you legally. This alone will probably end the lawsuit in your favor.

Acceptance

To form a contract with your site visitors, you need to use something known as a clickwrap agreement. This agreement is written out on a stand-alone page of the site. The visitor is then required to click an “I Agree” box indicating they have read and agreed to the agreement.

Most websites fail utterly in this regard. They simply embed a small “terms” link at the bottom of their site and assume it binds the users of the site. This approach is known as a browsewrap agreement. It is frowned on by most courts.

Why is a clickwrap agreement valid when a browsewrap agreement is not? It has to do with a legal concept known as acceptance. Acceptance boils down to whether there is an indication the visitor to a site has affirmatively indicated their acceptance of the terms. In the case of the clickwrap agreement, their click on the “I agree” box is an affirmative action. There is no such action with the browsewrap agreement, so it gets short shift.

Zappos.com recently learned a painful lesson regarding the need for a clickwrap agreement instead of a browsewrap agreement. Zappos suffered a security breach in January of 2012. Lawyers filed a class-action lawsuit against the company. Zappos argued the case should be sent to arbitration pursuant to a clause in the terms of use on its site. Zappos used the browsewrap approach, which was baffling since they could have easily incorporated a check the box function into the ordering process for their products.

In ruling the terms of Zappos invalid, the judge in the case noted:

A court cannot compel a party to arbitrate where that party has not previously agreed to arbitrate. The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance… A party cannot assent to terms of which it has no knowledge…and a highly inconspicuous hyperlink buried among a sea of links does not provide such notice. Because plaintiffs did not assent to the terms, no contract exists.

[In Re Zappos, p. 14]

Zappos now faces a class action lawsuit. It will end up spending millions to settle the case.

Amendments

If you are feeling smug because you already are using a clickwrap agreement, you might want to take a deep breath. The use of this type of contract does not mean you can just go nuts with the language included in it.

One area where clickwrap agreements are running into problems is with language regarding amendments. Most include clauses indicating the site has the right to change the terms whenever it likes.

This type of language will invalidate a contract. Why? If you can modify the terms of a contract at any time, you don’t have a contract. A contract is a set transaction. When the terms are not set in concrete, courts will rule the agreement is “illusory” and invalidate it. An example can show how this might play out in the real world.

Imagine you sign up for an app for your phone. Now image the app was allowed to change the price at any time, including AFTER you purchased the app. How would you react to getting a notice a month after buying the app that you owed another $90? Probably not well. This is exactly what is occurring when a site claims the right to amend its terms whenever it likes.

In Closing

A clickwrap agreement now represents the standard for online contracting. If you own a website, drop me a note to learn more about how to implement one on your site as well as the language you can and cannot include.

Richard A. Chapo, Esq.

The content on this website is intended to be educational and is not specific legal advice for your situation. The information is not updated. This site and blog constitutes a communication, solicitation and advertisement pursuant to relevant rules of professional conduct and professional codes in California.