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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS
Spotlight

Welcome to the third post in our Spotlight series, where we talk with a leader in a particular field or emerging area of interest to technology and sourcing lawyers and professionals.

Kristin Hadgis is a partner in Morgan Lewis’s litigation practice who counsels and defends retail and other consumer-facing companies in matters relating to privacy and cybersecurity, class actions, attorney general investigations and enforcement actions, the California Consumer Privacy Act, consumer protection laws, retail operations, loyalty and gift card programs, and commercial disputes. As a member of the firm’s retail and privacy and cybersecurity practices as well as its class action working group, she understands the unique issues and challenges facing retail, ecommerce and other consumer-facing companies, including ecommerce platforms, and regularly counsels clients on retail operations and compliance issues, such as online contracting and website terms.

With the recent growth in adoption of electronic contracting, Kristin shared with us her thoughts on key ecommerce and online contracting issues and trends.

What are your top considerations for creating an enforceable online contract?

As a general rule, enforceability of online consumer contracts tends to hinge on assent, which requires actual or constructive notice. You can have a well-written online contract with all of the right language but none of that matters if the consumer never actually agrees. Before a court is going to enforce a contract, it has to find that a contract was formed in the first place.

The most common types of online consumer contracts are (1) scrollwrap, (2) browsewrap and (3) clickwrap. A scrollwrap agreement requires the user to scroll through the relevant terms before signaling agreement to the terms. These agreements typically appear in a box that includes the full contract terms with a button at bottom with “I agree” or similar language. Because this method requires (or at least asks) a user to review and affirmatively assent to the terms, it is difficult for a user to later claim they were in the dark about the contract, or that they did not have a fair opportunity to review the terms.

With browsewrap agreements, the user does not click anything or otherwise affirmatively assent to the terms. Instead, the terms are accessible on the website itself (usually at the footer of the page, or, in the case of an app, in the settings) and the terms and conditions state that use of the website or service constitutes assent to the terms. When using browsewrap agreements, it can be difficult to show that the user had reasonable notice of its terms of use. For this reason, courts are generally reluctant to enforce browsewrap agreements.

Finally, a clickwrap agreement requires the user to affirmatively click a button signifying agreement (such as “I agree” or “I accept”), and provides the user an opportunity to review the terms by clicking on a hyperlink. Generally, the closer you get to the pure clickwrap or scrollwrap agreement—that is, the better the user’s opportunity to review the terms and the clearer it is that the user must accept the terms before continuing use of a site—the more likely that assent to the contract will be found.

In addition to the type of agreement, there are certain things you can do to further support the contract’s enforceability. First, focus on the “call to action” language, which is the language that lets the consumer know that by taking some step, they are agreeing to the terms. The language needs to clearly let the consumer know that by clicking on the “place order” or “confirm membership,” or “proceed” button—whatever it is—they are agreeing to terms, which should be clearly available in a hyperlink. Second, think about where you place the call to action language. It is really important that it be easily visible and accessible, so consider placing it somewhere the eyes will naturally find it so that it would be considered “conspicuous.” Typically, it is best to have it in close proximity to the button that the customer will select to indicate their consent. Third and finally, think about your font, both the size and color of the “call to action” language and button. It should be easily noticeable, such as in a larger font or in a contrasting color from the background or any other text on the page. These are all essential considerations in creating an enforceable contract.

We often hear about “unconscionability” playing a factor in the enforceability of online contracts. What do you think are some ways to mitigate this risk?

Yes, if a contract is found unconscionable, either procedurally or substantively, it is unenforceable. To avoid procedural unconscionability, which goes to how the contract is formed, the steps described above are crucial. On substantive unconscionability, which is whether the terms of the contract themselves are objectively unfair, it is important to make sure that you add consumer-friendly terms to your contract, particularly in connection with any arbitration provisions. For example, the US Supreme Court upheld the terms of an arbitration agreement in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) where the company would pay the entire cost of the arbitration, the arbitration would take place where the consumer was located or by phone or by written submission, and the arbitrator was given no limitation on damages. Small concessions and costs can make a big difference avoiding substantive unconscionability attacks.

What do you see as the key recent trends in litigation of online contracts?

Increasing internet usage and online transactions have resulted in increased litigation of online contracts over the last decade. We have seen that the successful defense of an electronic agreement typically involves screenshots, affidavits/declarations, and records showing the date of acceptance. In 2020, we specifically saw courts enforce online agreements, including arbitration clauses, where the notice of the agreement was provided in capital letters, hyperlinks were in a darker, bolder font than the rest of the text, and the user was required to click a box stating that she has reviewed the agreement and agrees to the contract before using the website or app. We also have seen recent decisions finding that the consumer did not manifest consent where the notice and hyperlinks were on a later-appearing screen or the bottom of the screen, the screen was dedicated to an unrelated topic (e.g., entering payment information), and the language in the call to action button was less than clear (e.g., stating “done” rather than “I agree”). These trends reiterate the importance of making sure at the outset that you are getting the language right and obtaining consent.

A big thank you to Kristin for sharing her insights. For a deeper dive on ecommerce and online contracting issues, check out this recent presentation by Kristin, Ezra Church, and Megan Suehiro. We look forward to further thought leadership from Kristin and her colleagues.