Browsewrap Arbitration? Enforcing Arbitration Provisions in Online Terms of Service By Sherman Kahn and David Kiferbaum Companies that provide services to consumers have posing arbitration to put the making of that agreement ‘in often sought to reduce the risk of class action lawsuits issue.’”4 Having satisfi ed this showing, courts then “apply by requiring that their customers agree to arbitrate any ordinary state-law principles that govern the formation of disputes. Such arbitration agreements may require cus- contracts” in deciding whether the agreement to arbitrate tomers to arbitrate on an individual basis only, with cus- is enforceable.5 tomers being obligated to waive any rights they might Courts have struggled to conform “ordinary state-law otherwise have to pursue claims through class actions. In principles” to agreements in the digital age—for example, recent years, many such arbitration provisions, particular- agreements presented to consumers over the Internet ly those that included class action waivers, had been held or through other digital means, or those which, by their unenforceable under state law contract doctrine.1 In April terms, are accepted through the continued use of a prod- 2011, however, the U.S. Supreme Court held in AT&T uct or service.6 Over time, courts began to distinguish Mobility v. Concepcion that the Federal Arbitration Act pre- between two common types of agreements: “clickwrap” empts most state law challenges to class action waivers, agreements, which digitally present the applicable terms including challenges on grounds of unconscionability.2 and require consumers to affi rmatively indicate their as- How broadly lower courts will interpret the Concepcion sent, e.g., by checking a box or clicking a button stating decision remains to be seen. For example, on February “I agree” to such terms prior to permitting the use of a 1, 2012, the Second Circuit held in In re American Express product or service; and “browsewrap” agreements, the Merchants’ Litigation that the AT&T decision did not pre- terms of which are made available to users on the subject clude invalidation of an arbitration waiver where the product or service’s website, and which provide that us- practical effect of enforcement would impede a plaintiff’s ers assent to the terms through the users’ continued use of ability to vindicate his or her federal statutory rights.3 the product or service.7 Nonetheless, in the wake of Concepcion, many compa- nies that provide online products or services to consum- ers are exploring whether to include an arbitration clause “Courts have struggled to conform and class action waiver in their online Terms of Service. ‘ordinary state-law principles’ to Moreover, it is increasingly common for business-to- agreements in the digital age.” business agreements to be documented based on agree- ments contained in online Terms of Service. Enforceability of online arbitration agreements is thus likely to be an New York courts have held that in either case, the increasingly important issue both in the commercial and same contract principles apply; to be an enforceable consumer contexts. contract, consumers must have reasonable notice of the terms of the agreement, and must manifest assent to Assessing the enforceability of arbitration provisions those terms. In a landmark 2002 ruling by then-Judge in online Terms of Service requires two further inquiries: Sotomayor in Specht v. Netscape Communications Corp., the Second Circuit denied Netscape’s motion to compel arbi- 1. What online contract principles do courts use to tration under a browsewrap software license agreement, determine whether a user of an online product or holding that users of Netscape’s software did not have service has validly agreed to the provisions of an reasonable notice of the license agreement containing the enforceable contract governing his or her use of agreement to arbitrate.8 As such, plaintiffs have had suc- such product or service? cess in challenging the enforceability of similar browse- 2. How have courts applied these online contract wrap agreements; conversely, clickwrap agreements that principles in determining whether online agree- clearly present their terms have more often been held to ments containing arbitration provisions and/or be enforceable.9 class action waivers may withstand state law chal- Applying these same principles, courts have enforced lenges to their enforcement? agreements against plaintiff consumers in scenarios that A. Online Contract Principles challenge the clickwrap/browsewrap distinction, such as the Facebook Terms of Use at issue in a January, 2012 In order to compel arbitration under Section 4 of case, Fteja v. Facebook.10 There, the Southern District of the Federal Arbitration Act (“FAA”), the moving party New York upheld the forum selection clause in Face- “must make a prima facie showing that an agreement to book’s Terms of Use, which were “click accepted” during arbitrate existed before the burden shifts to the party op- registration for the online social network by clicking a NYSBA New York Dispute Resolution Lawyer | Fall 2012 | Vol. 5 | No. 2 33 “Sign Up” button that was immediately followed by hy- provided the signature.18 The court rejected this argu- perlinked text providing: “By clicking Sign Up, you are ment because the user who signed was an authorized indicating that you have read and agree to the Terms of user of the plaintiff’s account.19 A second co-plaintiff had Service.”11 Because the plaintiff user had been “informed accepted the Terms of Service by pressing a button on of the consequences of his assenting click” by the hyper- his mobile phone’s keypad; the court held that this ac- linked text (which directed users to the applicable terms), ceptance was valid even though the co-plaintiff could not the court deemed such notice “enough” to have resulted recall whether he had seen the AT&T Mobility Terms of in a contract enforceable against Facebook’s users.12 It is Service.20 possible that courts will extend the reasoning of this deci- These principles were extended more explicitly into sion to a provision providing for arbitration and there is the online realm in Vernon v. Qwest Communications Int’l, no reason to think that under ordinary state law contract Inc., decided in March 2012, when the District of Colorado principles, the enforceability of an arbitration agreement granted defendant Internet service provider Qwest’s mo- should be treated any differently. tion to compel arbitration under arbitration and class ac- tion waiver provisions of its Subscriber Agreement with “Courts have enforced arbitration the plaintiff Internet service subscribers.21 The subscribers provisions contained in online Terms of had enrolled in Qwest’s “Price for Life” Internet service by initially placing orders with Qwest over the phone Service in commercial transactions.” or Internet.22 When ordering the service over the phone, subscribers were informed of the governing Subscriber B. Enforcing Online Arbitration Provisions Agreement and its availability online; when ordering over the Internet, subscribers were required to click-accept a Courts have enforced arbitration provisions in online Terms and Conditions referencing the Subscriber Agree- Terms of Service agreements where the party sought to ment.23 In either case, all subscribers were subsequently be bound clearly assents to the terms and conditions of provided with necessary computer software which, the agreement. during installation, required click-acceptance of terms Courts have enforced arbitration provisions con- referencing the Subscriber Agreement.24 Furthermore, all tained in online Terms of Service in commercial transac- subscribers received a “Welcome Letter” informing sub- tions. For example, in Spartech CMD, LLC v. International scribers of the Subscriber Agreement and the arbitration Automotive Components, the Eastern District of Michigan provision thereunder.25 Challenging the validity of a $200 upheld an agreement to arbitrate in the online Terms and fee Qwest imposed under the Subscriber Agreement fol- Conditions governing purchase orders by defendant for lowing plaintiffs’ early termination of the “Price for Life” plaintiff’s chemical products.13 Because the defendant’s Internet service, plaintiffs argued that (a) they did not electronically submitted purchase orders contained text assent to the Subscriber Agreement, and (b) the arbitra- explicitly referencing the applicability of defendant’s on- tion and class action waiver provisions were “unenforce- line terms governing its purchases, including a URL link- able, violate[d] public policy, and are unconscionable.”26 ing to these terms, the court held that the plaintiff could Citing Blau and Fteja, the court found that plaintiffs had not claim it lacked notice of the terms, and was bound ample notice of the existence of the Subscriber Agree- by the agreement to arbitrate.14 However, such a deter- ment and its arbitration provision; by affi rmatively click- mination still hinges on fundamental online contracting accepting terms referencing the Subscriber Agreement, principles discussed above; other courts have declined to they could not disclaim assent to its terms.27 Following enforce online agreements governing business-to-busi- Concepcion, the court rejected plaintiffs’ unconscionability ness transactions where the online terms mentioned in arguments.28 transaction documents are not made readily accessible by The enforceability of an arbitration provision be- reference