Internet marketing has become so popular that e-commerce retail sales in the United States are on pace to double between 2009 and 2018, with sales amounting to US$127.3 billion in just the second quarter of 2018, according to an August 2018 update from the U.S. Census Bureau.
The transaction value of e-commerce service industry contracts reached $600 billion in 2016. Despite the rush to digital commerce, the rules for business transactions are still the same, whether they are concluded on paper or electronically.
Essentially, that means legally valid sales agreements need to demonstrate clearly that both vendors and consumers are aware of — and consent to — the terms of the agreements. It is especially important for vendors to ward off expensive class action suits by including contract terms that prohibit such suits and instead rely on arbitration to resolve any issues with consumers.
Yet recent federal court cases indicate that poorly presented Internet contracts can result in the nullification of arbitration provisions and class action prohibitions — thus giving consumers greater leverage in legal disputes with vendors. Usually the breakdown occurs when vendors mismanage either the display or the content of their websites — and sometimes both.
Website Messages Must be Conspicuous
The most recent example is a June case in which the U.S. Court of Appeals for the First Circuit issued a decision. The case stemmed from complaints that Uber Technologies wrongly added the cost of local tolls in and around Boston to customers’ bills. In Cullinane v. Uber, a federal district court initially ruled in favor of Uber and dismissed the complaint.
However, such is the state of differing perspectives on applicable laws, that the appellate court overturned the district court and ruled against the company.
Uber failed to convince the appeals court that the website sales agreement properly displayed both an arbitration clause and a prohibition against litigation, because the notice was not “conspicuous” enough to be legally valid. Absent adequate notice to the customer, there could be no agreement between the parties over terms and conditions, the court said in denying Uber’s motion to compel arbitration.
The case provided insight into the importance to vendors of arbitration clauses as a way to fend off class action suits.
Compared to litigation, arbitration is a “speedy, fair, inexpensive, and less adversarial” process, the U.S. Chamber of Commerce said in an amicus brief in the Uber case. Members of the organization “have structured millions of contractual relationships — including enormous numbers of on-line contracts — around arbitration agreements.”
Similar suits dealing with the issue include a second case against Uber with a different plaintiff and over a different issue, as well as separate cases involving Amazon and Barnes & Noble.
In each case, courts have gotten into the weeds of website design, finding flaws in styles, the choice of colors, the size of printing fonts, and the use of hyperlinks.
For example, in Cullinane v. Uber, the appellate court noted that the website connection to the contract terms “did not have the common appearance of a hyperlink” because it was framed in a gray box in white bold text, rather than the normal blue underline style. Other screens on the site utilized similar highlight features causing the court to conclude that if “everything on the screen is written with conspicuous features, then nothing is conspicuous.”
Uber’s petition for a rehearing of the case was denied by the appeals court in a July 23, 2018, ruling. The company had no comment on the litigation, Uber spokesperson Alix Anfang told the E-Commerce Times.
Pulling the Trigger on Consent
Of equal importance with presentation is the vendor’s choice of using active or passive mechanisms to obtain customer consent to the terms and conditions of agreements.
In Nicosia v. Amazon, the U.S. Court of Appeals for the Second Circuit overturned a district court decision favoring the company, and instead ruled in favor of the consumer plaintiffs.
The Second Circuit described two major types of customer consent mechanisms. The first, called a “clickwrap” procedure, involves the use of an “I accept” button, which forces customers to “expressly and unambiguously manifest assent,” according to the court.
A more passive alternative is a “browserwrap,” which “involves terms and conditions posted via a hyperlink” and does not request an express showing of consent. “In a seeming effort to streamline customer purchases, Amazon chose not to employ a clickwrap mechanism,” the court noted in the August 2016 ruling.
Ultimately, the court based its decision not on the consent mechanism per se, but on Amazon’s failure to display its terms adequately. The result was that “reasonable minds could disagree” on the adequacy of the company’s notice to consumers.
Amazon declined to comment for this story, spokesperson Cecilia Fan told the E-Commerce Times.
The significant variance among federal courts on the validity of Internet contracts may be caused more by different judicial perceptions than by differing laws covering “conspicuous” or “reasonably communicated and accepted” terms.
While these cases have been brought in federal courts, there is no federal standard for what constitutes adequate notice. Thus, for procedural reasons associated with the Federal Arbitration Act, federal judges have relied on applicable contracting law in different states, including California, Massachusetts, Washington and New York.
“I do not yet see a majority of courts moving toward a single legal standard, especially not one that is adapted to today’s technology,” said Liz Kramer, a partner at Stinson, Leonard, Street.
The U.S. Appeals Court for the Second Circuit reached opposite results in recent cases “despite pretty similar circumstances,” she told the E-Commerce Times. One problem “is that state law applies, and the states are not consistent on what makes terms conspicuous enough to form part of the contract.”
“Different courts define the standard in different ways, but they all boil down to the principle that the arbitration clause — and the links to the clause — must be clearly presented to the consumer in order for there to be a meeting of the minds — in other words, an acceptance — of the arbitration clause,” said Mark Levin, a partner at Ballard Spahr.
“It is not so much the standard that is unsettled, but the application of the standard to the facts, since each website is unique and there are a multitude of factors, both in content and visual display, to consider in determining whether the consumer accepted the clause,” he told the E-Commerce Times.
“Even if there was a U. S. Supreme Court decision, or legislation that defined a single standard, there would still be a need to apply that standard to unique facts in virtually every case,” Levin said.
Web Designers Should Seek Legal Help
While vendors strive to create ever more attractive and compelling websites, designers and marketing staffs need to address the basic nuts and bolts of contract communications, said Levin.
For electronic documents, vendors should “refer to the arbitration clause near the beginning of the terms and conditions, make sure the link to the clause is obvious and clear, minimize the number of mouse clicks it takes for the reader to get to the clause, and refer to the arbitration clause again at the end, close to an electronic signature or ‘I agree’ button,” he advised.
The easiest way for e-commerce vendors to avoid trouble is to skip any indirect notification procedure, suggested Stinson’s Kramer. Deliberate downplaying of key contract terms is an invitation to legal challenge.
“The best way to ensure that an arbitration agreement is enforceable with customers who agree online, or through an app, is to have them actually click ‘I agree’ after reviewing the terms and conditions,” she said.
“Great care should be taken in designing and structuring a website arbitration clause, since courts scrutinize every detail, cautioned Levin.
“This is definitely an area where businesses should enlist legal counsel to help with the design, substance and placement of the clause to help ensure that a court will enforce it,” he said. “If adequate attention is not paid to these issues at the outset, the business could end up in a debilitating class action lawsuit.”