Tag: arbitration

October 19, 2024 Contracts, Litigation

Online agreement to arbitrate not enforceable

website terms and conditions

Plaintiff sued defendant gaming company alleging violation of Washington state laws addressing gambling and consumer protection. Plaintiff claimed that after starting with free chips in defendant’s online casino games, users had to buy more chips to keep playing. Plaintiff had spent money on the games and argued that defendant’s practices were unfair.

Defendant moved to dismiss the case and asked the court to compel arbitration. Defendant argued that plaintiff had agreed to defendant’s terms of service, which included an arbitration clause. The company claimed that by playing the games, plaintiff was bound to these terms, even though plaintiff did not explicitly sign a contract.

The court denied the motion to dismiss. It found that defendant did not provide enough information to show that plaintiff had been given proper notice of the terms of service or that he agreed to them. The notice on the game’s homepage was not clear or conspicuous enough for a reasonable person to understand that they were agreeing to the terms, including arbitration, just by playing the games.

Three reasons why this case matters:

  • Consumer Protection: It highlights the importance of businesses providing clear and understandable terms to consumers.
  • Online Contracts: The case shows that courts are careful when it comes to online agreements, requiring companies to ensure consumers are fully aware of the terms.
  • Arbitration Clauses: This case reinforces that arbitration clauses must be clearly presented and agreed upon to be enforceable.

Kuhk v. Playstudios, Inc., 2024 WL 4529263 (W.D. Washington, October 18, 2024)

February 29, 2024 Contracts, Litigation

Nvidia forces consumer lawsuit into arbitration  

arbitration provisoin

Plaintiffs filed a class action suit against Nvidia alleging that Nvidia falsely advertised a game streaming feature for its Shield line of devices which was later disabled, thus depriving consumers of a paid feature and devaluing their devices. The suit included claims of trespass to chattels, breach of implied warranty, and violations of various consumer protection laws.

Nvidia filed a motion to compel arbitration, citing an agreement that users ostensibly accepted during the device setup process. This agreement provided that disputes would be resolved through binding arbitration in accordance with Delaware laws and that any arbitration would be conducted by an arbitrator in California.

The court looked to the Federal Arbitration Act, which upholds arbitration agreements unless general contract defenses like fraud or unconscionability apply. Nvidia emphasized the initial setup process for Shield devices, during which users were required to agree to certain terms of use that included the arbitration provision. In light of Nvidia’s claim that this constituted clear consent to arbitrate disputes, the court examined whether this agreement was conscionable and whether it indeed covered the plaintiffs’ claims.

The court found the arbitration agreement enforceable, rejecting plaintiffs’ claims of both procedural and substantive unconscionability. The court concluded that the setup process provided sufficient notice to users about the arbitration agreement, and the terms of the agreement were not so one-sided as to be deemed unconscionable. Furthermore, the court determined that plaintiffs’ claims fell within the scope of the arbitration agreement, leading to a decision to stay the action pending arbitration in accordance with the agreement’s terms.

Davenport v. Nvidia Corporation, — F.Supp.3d —, 2024 WL 832387 (N.D. Cal. Feb 28, 2024)

See also:

January 28, 2022 Contracts

Uber’s signup process did not create enforceable arbitration provision

After plaintiff Uber user was denied a ride because of her guide dog, she sued Uber for discrimination under Maine law. Uber sought to have the matter sent to arbitration and the court denied that motion. So Uber sought appeal with the Maine supreme court. That court affirmed the denial of the arbitration motion, finding that Uber’s terms of service were not binding on plaintiff.

First, plaintiff was not placed on reasonable notice that the terms existed. The hyperlink was not underlined and was muted by gray coloring. Its placement on the screen was “relatively inconspicuous.” There was a greater focus on entering payment information.

Second, the court found that even if the registration process had provided reasonable notice that the terms existed, the process was insufficient to place plaintiff on notice that her registration would constitute her assent to those terms. Merely clicking the “DONE” button in the signup process, in the court’s view, could merely have meant that plaintiff thought she was done entering her information, not signing up for an account. And that button appeared on the screen “as far as possible” from the notice and hyperlink to the terms, which were at the bottom of the screen.

Sarchi v. Uber Technologies, Inc., — A.3d —, 2022 WL 244113 (Maine, January 27, 2022)

June 8, 2021 Contracts

No contract formed via URL to terms and conditions in hard copy advertisement

Online terms of service found at URL in hard copy advertisement were not enforceable.

terms of service

Plaintiff visited a Subway restaurant. One of the Subway employees referred plaintiff to an in-store, hard-copy advertisement. On the advertisement, Subway offered to send special offers to plaintiff if she texted a keyword to a short code. Plaintiff sent the text message to Subway, and Subway began responding, including by sending her, via text message, a hyperlink to an electronic coupon.

Later, plaintiff wanted to stop receiving the messages, so she requested that the messages cease. But they kept arriving. Plaintiff then sued under the Telephone Consumer Protection Act (“TCPA”). Subway moved to compel arbitration, arguing that a contract was formed because the printed in-store advertisement that contained the keyword and short code to text included a reference to and URL for “terms and conditions”. Those terms and conditions required plaintiff to settle the dispute by arbitration.

The lower court denied the motion to compel arbitration. Subway sought review with the Second Circuit Court of Appeals. On appeal, the court affirmed the denial of a motion to dismiss, finding that plaintiff was not bound by the terms and conditions.

The appellate court held that plaintiff was not on notice of the terms and conditions, which contained the arbitration clause, because Subway failed to demonstrate that such terms and conditions would be clear and conspicuous to a reasonable person in plaintiff’s position. More specifically, the court held that the following facts showed plaintiff did not know what the terms said:

  • Subway failed to provide evidence regarding the size of the advertisement at issue, or the print size contained within that advertisement;
  • the reference to “terms and conditions” was buried on the advertisement in a paragraph that was printed in significantly smaller font relative to the other text on the advertisement, and the reference itself was surrounded by a substantial amount of unrelated information;
  • the advertisement only vaguely referenced “terms and conditions,” and did not state that a consumer would be agreeing to those terms if she sent a text message to Subway’s short code, nor did it otherwise direct the consumer to such terms;
  • access to the terms and conditions on the Subway website required plaintiff to type in the URL text provided on the hard-copy print advertisement into an internet browser on her cell phone or some other device with internet browsing capabilities; and
  • once linked to the Subway website, the heading stated that it contained “terms of use for this website,” thus potentially suggesting to a reasonable person (searching for conditions of the promotional offer) that the website did not contain any terms or conditions beyond those relevant to the use of the website.

This combination of barriers led the court to conclude that the terms and conditions were not reasonably conspicuous under the totality of the circumstances and, thus, a reasonable person would not realize she was being bound to such terms and conditions by texting Subway in order to begin receiving promotional offers.

Soliman v. Subway Franchisee Advertising Fund Trust, Ltd., — F.3d —, 2021 WL 2324549 (2nd Cir. June 8, 2021)

Related: Court finds clickwrap independent contractor agreement enforceable

May 18, 2021 Contracts

Murdered Uber passenger’s mom can keep her case in court and out of arbitration

An Uber driver murdered plaintiff’s son. So plaintiff – the Uber user’s mom – sued Uber for wrongful death. The lower court threw out the case, saying that the Uber terms and conditions required the matter to go to arbitration. Plaintiff sought review with the Georgia Court of Appeals. On review, the court reversed and sent the case back to the lower court.

The appellate court found that it was improper to dismiss the case because it was not clear that plaintiff’s son – the one killed by the Uber driver – actually agreed to the Uber terms and conditions that contained the provision requiring arbitration.

First, there was a dispute as to whether he even saw the link to the terms and conditions when he signed up for Uber in 2016. That’s because he was using an Android phone, and plaintiff alleged the on-screen keyboard within the app may have covered up the link to the terms and conditions.

Second, the court noted that even though Uber submitted evidence it emailed updated terms and conditions to plaintiff’s son, and that he continued using Uber thereafter (thereby binding him to the terms), it was unclear that the email was ever sent to plaintiff’s son. If the customer never saw those terms, they would not apply, and therefore arbitration would not be proper.

Thornton v. Uber Technologies, Inc., 2021 WL 1960199 (Ct. App. Ga. May 17, 2021)

March 26, 2020 Computer Crime, Cybersquatting, Trademarks

How companies can use their trademarks to combat COVID-19-related phishing

Straightforward out-of-court domain name proceeding can provide efficient relief against fraudulent websites and email.

Google has seen a steep rise amid the Coronavirus pandemic in new websites set up to engage in phishing (i.e. fraudulent attempts to obtain sensitive information such as usernames, passwords and financial details). Companies in all industries – not just the financial sector – are at risk from this nefarious practice. But one relatively simple out-of-court proceeding may provide relief.

Varieties of Phish Species

Phishing schemes can take a variety of forms. A fraudster may register a domain name similar to the company’s legitimate domain name and use it to send email messages to the company’s customers, requesting payment and providing wire instructions. Distracted or untrained customers who receive the email may unwittingly wire funds as instructed in the fraudulent email to an account owned by the criminal. Or the phishing party may set up a legitimate looking but fake website at a domain name similar to the company’s legitimate domain name, and direct users there to purportedly log in, thereby disclosing their usernames, passwords, and perhaps additional sensitive information.

Taking Sites Down with the UDRP

Everyone who registers a domain has to agree, by contract, to have disputes over the domain name’s ownership resolved through an administrative proceeding (similar to arbitration). The Uniform Domain Name Dispute Resolution Policy (UDRP) governs disputes over .com, .net, .org and many other domain name registrations. The World Intellectual Property Organization (WIPO) provides administrative panels who decide disputes under the UDRP. These are decided “on the papers” with each party having the opportunity to submit arguments and supporting documentation. The time and expense of a UDRP proceeding is a small fraction of what one sees in typical litigation – UDRP cases usually conclude within weeks, and generally cost a few thousand dollars.

The UDRP Frowns Upon Phishing

To be successful in bringing a UDRP proceeding, a party has to prove (1) that it owns a trademark that is identical or confusingly similar to the disputed domain name, (2) that the party that registered the disputed domain name has no rights or legitimate interests in the disputed domain name, and (3) that the disputed domain name was registered and has been used in bad faith.

UDRP panels typically show little tolerance for blatant phishing efforts. Companies bringing UDRP actions against registrants of domain names registered for phishing purposes enjoy a high rate of success. A good phishing effort (that is, “good” in the sense that the fake domain name succeeds in deceiving) will require using words similar to the company’s mark. So the first element is usually a low hurdle. On the second and third elements, UDRP panels are readily persuaded that a party using a disputed domain name for phishing gains no rights or legitimate interests, and demonstrates clear bad faith. “Using the disputed domain name to send fraudulent email is a strong example of bad faith under the [UDRP].” Samaritan’s Purse v. Domains By Proxy, LLC / Christopher Orientale NA, WIPO Case No. D2019-2403 

February 1, 2019 Contracts

Arbitration provision in web-based contract was not enforceable

Defendants moved to compel arbitration based upon a purported arbitration clause in an agreement between them and plaintiffs that plaintiffs electronically signed through defendants’ website.

The court found that defendants failed to meet their burden to show, by undisputed material facts, that the parties entered into an agreement to arbitrate the claims in the case. The court looked to the Ninth Circuit decision in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014) to support the idea that courts will enforce clickwrap-type agreements where the user indicates actual notice of the terms of the agreement or was required to acknowledge the terms of the agreement before proceeding with further use of the site. Enforcement of a browsewrap-type agreement, which lacks such an acknowledgment, will depend upon whether the website’s design and content would put “a reasonably prudent user on inquiry notice of the terms of the contract.” The conspicuousness of the terms and notices, as well as the overall design of the webpage, will contribute to the determination that a user was on inquiry notice.

In this case, according to the court, defendants had not offered evidence explaining the design and content of the webpage in question, or how the agreement appeared on the website. The court could not determine whether the terms of the agreement appeared on the registration page itself, or if a user would have had to click a link to see the full terms. Likewise, the court could not determine other factors that might contribute to determining plaintiffs’ notice of the terms, such as the size of the font or other aspects of the appearance and presentation of the terms online. The declaration offered by defendant did not provide evidence to show that: (1) either of the plaintiffs had actual knowledge of the arbitration agreement; or (2) whether the agreement was a clickwrap or a browsewrap agreement, how the website was designed and where these terms appeared, and whether plaintiffs assented by clicking an “I agree” box, or were deemed to agree by continuing in the registration process.

Given the lack of evidence of how the registration process appeared on its website, how one of the plaintiffs had declared that he did not see an arbitration agreement, and the reasonable doubts and inferences that must be drawn in that plaintiff’s favor under the applicable standard, the court found that plaintiffs had presented a genuine issue of fact concerning notice of, and assent to, the arbitration agreement here. The court could not find that plaintiffs were reasonably on notice of the agreement to arbitrate, and the accordingly the motion to compel was denied.

Chen v. Premier Financial Alliance, Inc., 2019 WL 280944 (N.D. Cal. Jan. 22, 2019)

February 16, 2017 Contracts

Florida court rules that online seller’s terms and conditions were not enforceable

ignore_this_text

Beware the browsewrap.

A Florida state appellate court recently held that an online seller’s terms and conditions, appearing in a “browsewrap” agreement linked-to from the bottom of its web pages, were not enforceable.

Plaintiff, an online purchaser of defendant’s dietary supplements, sued defendant seller over liver damage plaintiff allegedly sustained from the products. Defendant filed a motion with the trial court seeking to enforce an arbitration clause in its online terms and conditions. Plaintiff objected to that motion, arguing that he never agreed to the arbitration clause contained in the browsewrap agreement.

The lower court denied defendant’s motion to compel arbitration, finding that the terms of the browsewrap agreement were not incorporated into the sales agreement. Defendant sought review with the Florida appellate court. On appeal, the court affirmed the denial of the motion to compel.

This was a case of first impression in the Florida state courts.

The court observed that in other jurisdictions, browsewrap agreements have generally been enforced only when the hyperlink to the terms and conditions is conspicuous enough on the web page to place a user on inquiry notice of their terms. (Inquiry notice, simply stated, is, as its name suggests, notice sufficient to make the user aware enough of the terms that their natural inclination is to inquire further as to what the particular terms are.)

The court distinguished this case from the case of Hubbert v. Dell Corp., an Illinois case in which the court found a browse-wrap agreement to be enforceable.

Here, unlike in the Hubbert case, the defendant’s website allowed a purchaser to select a product and proceed to checkout without seeing the hyperlink to the terms and conditions. The website user could complete the purchase without scrolling to the bottom of the page where the link to the terms and conditions appeared.

In this situation the court found that the online seller’s website failed to advise the plaintiff that his purchase was subject to the terms and conditions of the sale, and did not put him on the required inquiry notice of the arbitration provision.

Vitacost.com, Inc. v. McCants, — So.3d — 2017 WL 608531 (Fla.Ct.App. Feb. 15, 2017)

Evan_BrownAbout the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

March 19, 2016 Contracts

Court holds browsewrap agreement not enforceable

server_wrap

Plaintiff filed a consumer fraud class action lawsuit against defendant, the operator of an ecommerce website. Defendant moved to have the case heard by arbitration, arguing that the arbitration provision in its website’s terms of use required the dispute to be arbitrated instead of heard in court. The terms of use were in the form of a “browsewrap” agreement — viewable by a hyperlink displayed at the bottom of each page of defendant’s website.

The court denied the motion, finding that the hyperlink to the terms of use (containing the arbitration provision) was too inconspicuous to put a reasonably prudent internet consumer on inquiry notice. Since the agreement was not enforceable, plaintiffs were not bound by the arbitration provision. Defendant sought review with the California Court of Appeal. On appeal, the court affirmed the lower court.

It observed that for a browsewrap agreement to be enforceable, a court must infer that the end user assented to its terms. This may be more difficult to show than in situations involving “clickwrap” agreements, which require the user to affirmatively do something, such as check a box, to indicate his or her assent to the terms of use.

In this case, the court held that although an especially observant internet consumer could spot the defendant’s terms of use hyperlinks on some checkout flow pages without scrolling, that quality alone was not all that was required to establish the existence of an enforceable browsewrap agreement. Rather, as the Second Circuit observed in Specht v. Netscape, 306 F.3d 17 (2d Cir.2002), “[r]easonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.”

Here, the defendant’s terms of use hyperlinks — their placement, color, size and other qualities relative to defendant’s website’s overall design — were simply too inconspicuous to meet that standard.

Long v. Provide Commerce, Inc., — Cal.Rptr.3d —, 2016 WL 1056555 (Cal Ct. App., March 17, 2016)

About the Author: Evan Brown is a Chicago attorney advising enterprises on important aspects of technology law, including software development, technology and content licensing, and general privacy issues.

Photo courtesy Flickr user Patrick Finnegan under this Creative Commons license.

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