Enforcement of Contractual Terms in Clickwrap Agreements

• Citation: Vol. 3 No. 3
• Publication year: 2007

Shidler Journal of Law, Commerce & Technology 3 Shidler J. L. Com. & Tech. 11 Volume 3, Issue 3, Winter 2007

Corporate and Commercial

Cite as: Rachel Cormier Anderson,Enforcement of Contractual Terms in Clickwrap Agreements, 3 Shidler J. L. Com. & Tech. 11 (Feb. 14, 2007), at [http://www.lctjournal.washington.edu/Vol3/a011Cormier.html]

Enforcement of Contractual Terms in Clickwrap Agreements: Courts Refusing to Enforce Forum Selection and Binding Arbitration Clauses

Rachel Cormier Anderson [fn1]

Abstract

In three recent cases, courts have invalidated portions of consumer clickwrap agreements containing either forum selection or binding arbitration clauses. In the first case, the Washington State Court of Appeals invalidated a forum selection clause found in a clickwrap agreement because the clause was contrary to state consumer protection policies. In the second case, the California Court of Appeals rejected a clickwrap agreement calling for binding arbitration in a specified forum when the plaintiff sought to bring a class action claim. Finally, the U.S. Court of Appeals for the Fifth Circuit recently declared a binding arbitration clause because it was unconscionable. Although these cases address a relatively new form of contracting known as "clickwrap agreements," the essential issue in each case was not new. These cases suggest that courts are willing to accept the validity of clickwrap agreements in general, but have invalidated specific clauses based on traditional contract doctrines such as unconscionability and public policy. This Article examines these recent cases in light of existing precedent concerning the enforceability of clickwrap agreements.

Table of Contents

Introduction Clickwrap Agreements in Context History of Arbitration and Forum Selection Clauses Historical Examples of Forum Selection and Arbitration Clauses in Clickwrap agreements Emerging Issues in Clickwrap Agreements Containing Forum Selection Clauses and Arbitration Clauses Conclusion

Introduction

[1] Three recently decided cases appear to question the enforceability of consumer clickwrap agreements - electronic boilerplate contracts requiring electronic consent from the consumer - containing forum selection and binding arbitration clauses. In late 2005, the Washington Court of Appeals decided Dix v. ICT Group Inc., [fn2] and invalidated a forum selection clause found in America Online, Inc.'s user agreement. The California Court of Appeals, in Aral v. EarthLink Inc., [fn3] invalidated a binding arbitration clause that contained a forum selection clause and a waiver of class action rights. Finally, in 2004, the U.S. Court of Appeals for the Fifth Circuit invalidated one telecommunications company's binding arbitration clause in Iberia Credit Bureau v. Cingular Wireless LLC. [fn4] . These cases involve contracts that were formed through clickwrap agreements, whereby consumers entered into the contracts online and assented to standard terms and conditions by clicking a button or icon marked "I agree".

[2] Although several courts refused to enforce terms contained in clickwrap agreements, these cases do not call into question the enforceability of clickwrap agreements. Rather, they illustrate the fact that courts will look at the actual terms of such agreements and may invalidate specific terms based on traditional contract concepts and their application to a new generation of contracts.Clickwrap Agreements in Context

Clickwrap Agreements in Context

[3] The term "clickwrap" refers to electronic contracts requiring users to express their consent by clicking on an "I accept" button, or an equivalent, before completing their purchase, accessing the material they want to download or installing software they have purchased. [fn5] Clickwrap agreements are standardized contracts whereby consumers assent to a boilerplate set of terms and conditions. Even if consumers take the time to read the agreement, they must assent to the terms if they want to consummate a particular transaction online, such as downloading software, or purchasing goods or services. [fn6] As with traditional contracts of adhesion, clickwrap contracts provide an efficient way for those selling downloadable products or services to provide online contracts to their customers.

[4] The first case in which a court upheld the validity of clickwrap agreements was Hotmail Corp. v. Van$ Money Pie Inc. [fn7] This case arose when Hotmail brought suit in federal court against customers who were sending spam messages and falsifying e-mails to make it appear that the spam originated from a Hotmail account. Hotmail alleged in part that these actions were a violation of the Terms of Service agreement that each customer must assent to when opening an email account. In granting the injunction in favor of Hotmail against the consumers, the court found that Hotmail was likely to succeed on its breach of contract claims. Although the court's treatment of the merits was limited, this case was important because it held that a Terms of Service contract in clickwrap format could be enforceable in court. [fn8]

[5] Another court was more explicit in its reasoning relating to the validity of clickwrap agreements. In i.LAN Systems, Inc. v. Netscout Service Legal Corp. [fn9] , a federal district court upheld a clickwrap contract. In this case, i.LAN provided a network monitoring service to customers and purchased software from Netscout. Netscout and i.LAN signed an agreement allowing i.LAN to resell Netscout's software to customers. However, i.LAN wanted to rent the software to customers: a practice Netscout claimed was not allowed under the clickwrap license contained in the software itself. In reaching its decision, the court focused on whether clickwrap licenses as a rule were enforceable. [fn10] The court held that they were and that by clicking on "I agree," i.LAN had overtly consented to the terms. [fn11] This explicit assent was key to the court's determination that the clickwrap agreement was not invalidated by the earlier purchase order agreement between the parties. [fn12]

[6] In addition to acceptance among courts, state and federal legislation gives statutory support to these new contract forms. This movement is evidenced in the federal Electronic Signatures in Global and National Commerce Act ("E-Sign") as well as in the Uniform Electronic Transaction Act...