Small Business Websites Beware: Terms of Use May Not Be Effective, Says Court

A recent legal decision should spur small businesses to be on the lookout for a hidden pitfall in their websites regarding their terms of use (“TOU”).  The 9th Circuit Court of Appeals in Nguyen v. Barnes & Noble, Inc. 763 F.3d 1171 (9th Cir. 2014) ruled that hyperlinked terms of use (“TOU”) on websites may not provide consumers with adequate notice of their provisions and therefore could be ineffective.

A so-called “browse-wrap” agreement used on the Barnes & Noble website with a provision to arbitrate claims was held ineffective against a consumer. “Browse-wrap” agreements provide consumers with an opportunity to view a site’s terms of use but do not require them to affirmatively assent to any conditions. In contrast, “click-wrap” agreements require consumers to manifest assent to a site’s TOU by clicking a box.

The court said that because browse-wrap agreements do not require users to expressly manifest assent, their validity “depends on whether the user has actual or constructive knowledge of a website’s terms and conditions.” In this case, no evidence of actual knowledge was presented, and despite conspicuous hyperlinks to the TOU, the site's failure to require any action or provide further notice of the terms resulted in a finding of no constructive knowledge either.

What This Decision Means for Small Businesses

In light of the Nguyen case, small businesses operating websites should do two things:

  1. Review Current Terms of Use: Small businesses should have their TOU reviewed by counsel, as well as their site flow, to determine if current opportunities for consumer assent rise to the levels required by the Nguyen court for enforceability.
  1. Revamp Site Flow if Current TOU Assent is Deficient: If counsel determines that current site flow is deficient under the Nguyen standards, your small business website’s TOU process may need to be revamped. Particularly, if your website currently uses a hyperlinked “browse-wrap” agreement, consider implementing a “click-wrap” function that requires consumers to affirmatively assent to your TOU to avoid a Nguyen-like situation.
Gavel graphic by Glentamara (Own work) [Public domain], via Wikimedia Commons.

Comments are closed.