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Posted September 12th, 2014 in Top Stories

Major Decision Impacting the Enforceability of Websites’ Terms of Use

The U.S. Court of Appeals for the Ninth Circuit* has handed down a decision that could impact the enforceability of companies’ online terms of use. In the August 18, 2014 case, Nguyen v. Barnes & Noble Inc., the Ninth Circuit ruled that companies cannot rely on hyperlinked terms of use, even where such hyperlinks are made conspicuous throughout the website. Accordingly, companies throughout the country, and certainly those falling under the jurisdiction of the Ninth Circuit, should reexamine their website terms of use in light of the decision.

In Nguyen, Barnes & Noble defended against a claim arising out of an online consumer transaction. Barnes & Noble sought to compel arbitration pursuant to terms of use it made available through a hyperlink—presented in underlined and colored text—on every page of the company’s website, and which hyperlink was visible during the customer checkout process. In response, the plaintiff successfully argued that an enforceable contract was never formed between the parties because “he neither had notice of nor assented to the website’s Terms of Use.” In its holding the court summarized that:

Where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.

Many companies and website owners follow the same approach as Barnes & Noble. It is clearly time to rethink that approach. In the wake of  Nguyen v. Barnes & Noble, companies must be especially careful to ensure that website users affirmatively assent to the desired terms of use or be able to prove that users are put on additional notice that use of the website is subject to the terms in question.  We note that the court specifically indicated that its decisions was, to some degree, predicated on judicial reluctance to enforce website terms of use against individual consumers and therefore leaves open the issue of enforceability in transactions among commercial users. However, in the absence of further guidance, prudence dictates that all companies should evaluate their online terms of use.

If you have any questions regarding terms of use or any other business law issue, please contact, Tyler Adams.

*  The Ninth Circuit has jurisdiction over the following states and territories: California, Oregon, Washington, Idaho, Montana, Nevada, Arizona, Hawaii, Alaska, Guam and the Northern Mariana Islands.

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