During recent terms, the U.S. Supreme Court has repeatedly embraced mandatory arbitration and class action waivers contained in a wide variety of consumer contracts.  The Court has sided with corporate defendants and elevated the requirements of the Federal Arbitration Act above other legal and policy interests advanced by would-be class representatives and their class action counsel.  And yet, all of this case law takes as a starting point that a valid, enforceable contract has been formed under state contract law.  Given the increasingly online nature of consumer transactions, this means that companies offering their goods and services via website or app need to assure that their terms and conditions will be recognized later by a reviewing court as a binding contract in order to get the benefit of this pro-arbitration case law.  Those counseling companies must, therefore, closely watch court decisions – particularly federal appellate authority – that do or do not enforce online terms of use.  One such decision issued earlier this week.

On August, 18, the Ninth Circuit affirmed the district court’s denial of Barnes & Noble, Inc.’s motion to compel arbitration, finding that plaintiff did not have sufficient notice of Barnes & Noble’s Terms of Use agreement, and thus, could not have unambiguously manifested assent to the arbitration provision contained in it.  See Nguyen v. Barnes & Noble, Inc., Case No. 12-56628, 2014 WL 4056549, *1 (9th Cir. Aug. 18, 2014).  In Nguyen, the plaintiff brought a putative class action against Barnes & Noble after it had cancelled his purchase of two heavily discounted tablet computers during an online “fire sale.”  The plaintiff alleges that Barnes & Noble engaged in deceptive business practices and false advertising in violation of California and New York law.

In affirming the district court’s ruling, the Ninth Circuit found that the plaintiff did not have constructive notice of the arbitration clause in it, despite the fact that Barnes & Noble’s Terms of Use was available through a hyperlink at the bottom left of every page of its website (i.e., as a “browsewrap” agreement) and was in proximity to relevant buttons the website user would have clicked on.  Id. at *5-6.  The Ninth Circuit held that the onus was on website owners to put users on notice of the terms to which they wish to bind consumers, and that this could have been done through a “click-wrap” agreement where the user affirmatively acknowledged the agreement by clicking on a button or checking a box.  Id. at *5-6.  Indeed, the decision expressly states that had there been evidence of this, the outcome of the case may have been different.  Id. at *4.

In light of this decision, website owners utilizing a “browsewrap” terms of use agreement should consider incorporating some type of “click-wrap” method for garnering the affirmative consent of its users.  Otherwise, they will run the risk that courts, like the Ninth Circuit, will deny their enforceability.