New York District Court Articulates New Test for Assessing the Validity and Enforceability of Online Agreements
In April 2015, the United States District Court for the Eastern District of New York defined a new category of online agreement, the "sign-in-wrap" agreement, which it distinguished from clickwrap agreements. The court then formulated a new test to assess the validity of the sign-in-wrap agreement and, applying the test to the Gogo agreement, concluded it was invalid and unenforceable. While this is a federal district court decision and is not binding on state courts or other federal courts, the decision was drafted with the intent to provide guidance regarding the validity of such agreements. As a consequence, it is likely that the decisions of other courts may be influenced by the court's decision in Berkson v. Gogo LLC and Gogo Inc. 1
Defendants Gogo LLC and Gogo Inc. (collectively, "Gogo") provide airline passengers with Wi-Fi access. During the period at issue, Gogo's website advertised the cost of a monthly subscription and the cost of a single day pass. For potential customers who were interested in purchasing a monthly subscription, the only representation on Gogo's website regarding the price was the monthly charge of $34.95.
Electronic adhesion contracts
Before assessing the validity and enforceability of the Terms, the court defined four general types of online consumer contracts and summarized the court decisions that involved such agreements as follows:
- Browsewrap agreements. Browsewraps are agreements that provide that the user gives assent to the terms merely by using the site. The court noted that courts generally have enforced browsewrap agreements only against "knowledgeable accessors, such as corporations, not against individuals."2
- Clickwrap agreements. Clickwrap agreements require a user to affirmatively click a box on the website acknowledging awareness of and agreement to the terms of the agreement before he or she is allowed to proceed with further use of the website. Citing an article by Mark Lemley in the Minnesota Law Review, the court concluded that almost "[e]very [lower] court to consider the issue has found 'clickwrap' licenses … enforceable."3
- Scrollwrap agreements. Scrollwrap agreements require a user to physically scroll through an internet agreement and click on a separate "I agree" button in order to agree to the terms and conditions of the host website. Courts have found scrollwraps to be enforceable, although many have confused them with clickwraps.
Test for assessing validity and enforceability of electronic adhesion contracts
The court then set forth the following four factors to consider when analyzing sign-in-wraps specifically, and electronic contracts of adhesion generally:
- Is there substantial evidence from the website that the user was aware that she was binding herself to more than an offer of services or goods in exchange for money? A no answer to this question will tend to support a finding that the contract is not enforceable..
- Was the importance of the details of the contract (such as terms dealing with venue and arbitration) obscured or minimized by the physical manifestation of assent expected of a consumer seeking to purchase a product or subscribe to a service? A yes answer to this question will support a finding that the contract is not enforceable.
- Did the merchant clearly draw the consumer's attention to material terms that would alter what a reasonable consumer would understand to be her default rights when initiating an online consumer transaction from the consumer's state of residence, including the right not to have a payment source charged without notice (i.e. automatic payment renewal); the right to bring a civil action in the courts of her state under the laws of that state (i.e., the venue and choice of law provisions); and the right to participate in a class or collective action? A no answer to this question also supports a finding that the contract is not enforceable.
Applying the four factor test to Gogo's motion to transfer venue and compel arbitration premised on the Terms, the court concluded that Gogo had not demonstrated that plaintiff Berkson knew that he was binding himself to more than a one-time offer of service in exchange for money at the time he purchased the Gogo Wi-Fi service. First, there was no substantial evidence from the website that Berkson knew that he was binding himself to more than a one-time offer of service other than clicking a button to purchase the service. Second, the design and content of the Gogo website, including the homepage, did not make the Terms readily and obviously available to Berkson. Neither the text above the "NEXT" button when signing up, nor the text next to the "SIGN IN" button on the lower-left side of the page, were sufficient to give adequate notice because (1) the hyperlink to the Terms was not in large font, in caps, or in bold and (2) with regard to the sign-in process, the Terms were not accessible next to the other "SIGN IN" button in the upper-right side of the page. Third, the importance of the Terms was obscured by the physical manifestation of assent, in this case the clicking of the "SIGN IN" button, expected of a consumer seeking to purchase in-flight Wi-Fi service. After Berkson clicked "SIGN IN," the Terms did not appear in a screen or pop-up window on the same screen and Berkson was also not required to scroll through the contract. The site also failed the fourth prong of the test, since Gogo failed to clearly draw Berkson's attention to material terms that purported to alter Berkson's default rights.
Although the Berkson decision is not binding on state or other federal courts, it is a lengthy decision that was intended to be cited as precedent by courts that are asked to determine the validity of online contracts in the future. As a result, we recommend that companies review the manner in which they obtain user consent to their online agreements and consider making the following changes to enhance the likelihood that such agreements will be upheld.
- Disclose material unexpected terms in a conspicuous manner on the website. Consider including a separate disclosure of any terms which a court may consider to be a material unexpected term, such as terms providing for the automatic renewal of monthly charges, forced venue or compelled arbitration. For example, you may want to include a pop-up box that appears when a user scrolls over the link to the online agreement which warns users that the online agreement includes an arbitration clause and encourages them to read the agreement before proceeding. As another example, if your terms provide for automatic renewal of monthly charges, you may want to include an excerpt of the auto-renewal provision explicitly above the "I AGREE" button and bold any auto-renewal subscription cancellation requirements.
- Disclose material unexpected terms in a conspicuous manner within the online agreement. Consider highlighting any material unexpected terms to the user at the beginning of the agreement.
- Provide the user with an opportunity to download or print the online agreements. By providing users with the ability to print and/or save a copy of their online agreement, you will avoid user claims that they did not have any real opportunity to access or examine the details of these agreements.
- Berkson v. Gogo LLC and Gogo Inc., No. 14-CV-1199 (E.D.N.Y. April 9, 2015).
- Id. at 459.
- Berkson, supra note 1 at 30.