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October 2018 Issue

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Saying "I Do" - Contract Formation in the E-Commerce Space

James Hill, Greenberg Glusker Fields Claman & Machtinger LLP

With an increasing number of customers turning to e-commerce companies for shopping, transportation, banking, and more, the classic model of contract formation—in which both parties sign on the dotted line—is becoming a thing of the past.  Today, most online retailers include “terms and conditions” on their website or app, setting forth the details of their agreement with their customers.  This method of contracting has led to numerous cases across the country addressing the issue of how to validly form such an online contract.  As a general matter, courts consider whether a retailer’s online terms and conditions are sufficiently “conspicuous” during the checkout or registration process to put a customer on notice that they are entering a contract.[1]  Application of this test, however, has led to mixed results, as illustrated by two recent United States Court of Appeals cases involving the ridesharing company Uber.  Nonetheless, these cases can provide guidance to companies looking to increase the likelihood of a court enforcing their online terms and conditions. 

In the first case, Meyer v. Uber Technologies, the Second Circuit Court of Appeals held that Uber’s registration process was sufficient to bind its customers to its “Terms of Service.”[2]  There, the plaintiff, Spencer Meyer, brought a putative class action against Uber alleging that Uber’s ridesharing app allowed drivers to fix prices.  Uber moved to compel arbitration according to its Terms of Service, which contained an arbitration clause and class action waiver.  The District Court for the Southern District of New York held that Meyer lacked notice of Uber’s Terms of Service, finding that Uber did not present them in a reasonably conspicuous manner.  Uber appealed, and the Second Circuit Court of Appeals reversed, holding that Uber had validly formed a contract with Meyer.  The court explained that Uber’s user registration process provided notice of its terms and conditions because Uber’s payment screen was “uncluttered, with only fields for the user to enter his or her credit card details, buttons to register for a user account or to connect the user's pre-existing PayPal account or Google Wallet to the Uber account, and the warning that ‘By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.’”[3]  The court further noted that, by placing a hyperlink to the terms beneath the button users tapped to register for Uber’s services, Uber provided users access to its terms just before the users completed the registration process.  The court also held that Uber’s app made it clear that, by registering, users were manifesting their assent to these terms.  Accordingly, the court held that Uber and Meyer formed a binding contract when Meyer registered to use Uber’s app.

The second case, Cullinane v. Uber Technologies, reached the opposite result—even though Uber’s registration screen there was substantially similar to the one approved in Meyer.[4]  Plaintiffs in Cullinane filed a putative class action against Uber, alleging that Uber violated Massachusetts consumer protection laws.  Uber filed a motion to compel arbitration, which the District Court for the District of Massachusetts granted.  Plaintiffs appealed, and the First Circuit Court of Appeals reversed, holding that Uber’s Terms of Service were not reasonably communicated to plaintiffs during registration.  As in Meyer, the appellate court noted that the pertinent question was whether Uber “reasonably communicated” its Terms of Service to its users during the registration process in a “conspicuous” manner.[5]  The court nevertheless found that Uber’s interface did not meet this standard.  The court noted “at the outset that Uber chose not to use a common method of conspicuously informing users of the existence and location of terms and conditions: requiring users to click a box stating that they agree to a set of terms, often provided by hyperlink, before continuing to the next screen.”[6]  Instead, Uber placed a link to its terms on registration pages where users were prompted to enter their payment information.  The court then noted several factors about these pages that made Uber’s terms insufficiently conspicuous, including: (1) the hyperlink to the terms was presented in a grey box, rather than the usual underlined text; (2) the hyperlink was presented amongst several other prominent buttons and links that could distract users; and (3) the statement notifying users that they were agreeing to the terms was in small, grey font, making it less prominent.

Meyer and Cullinane represent just two possible approaches courts may take when faced with the question of whether an e-commerce company has formed a contract with its customers.  The differing outcomes suggest that conspicuousness of terms and conditions is in the eyes of the beholder—namely, the judge viewing a screenshot of the company’s checkout or registration page.  That said, there are a few things an e-commerce company can do to increase the likelihood that a court will enforce its terms and conditions.  First, companies can opt to have all customers or registrants check a box next to a statement indicating that, by checking the box, the customers agree that they accept the terms and conditions.  The phrase “terms and conditions” should be hyperlinked and lead customers to a page where they can view the agreement.  Second, a company can provide a clear statement adjacent to or below the “register” or “place order” button stating that, by clicking, the customer agrees to the terms and conditions.  This phrase should be in sufficiently large text, with easily-visible coloring, and the phrase “terms and conditions” should offer a clear, underlined hyperlink to the relevant agreement.  Third, companies should avoid website or app layouts that bury the link to their terms and conditions in an obscure location, without indicating that a customer’s use is subject to any agreement (often called “browse-wrap” agreements).[7]

While these measures may exceed what is required to form an enforceable online contract, companies in the e-commerce space should consider them just one part of a series of “best practices” to promote the enforceability of their online agreements.  Of course, each website or app will likely differ in its layout, aesthetic, and checkout flow.  Nonetheless, companies should strive to make their terms and conditions conspicuous to customers, and require customers to manifest their assent to these terms.  Doing so will increase the chances that the online agreement is enforceable.



[1] Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175-78 (9th Cir. 2014) (citation omitted).

[2] Meyer v. Uber Techs., Inc., 868 F.3d 66, 77-80 (2d Cir. 2017).

[3] Id. at 78.

[4] Cullinane v. Uber Techs., Inc., 893 F.3d 53, 62-64 (1st Cir. 2018)

[5] Id. at 62.

[6] Id.

[7] See e.g. Nguyen, 763 F.3d at 1178–79; Specht v. Netscape Commc'ns Corp., 306 F.3d 17, 30-35 (2d Cir. 2002)

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James Hill is a litigation attorney at Greenberg Glusker Fields Claman & Machtinger LLP.  His practice focuses on complex commercial litigation in state and federal court.  He can be reached at jhill@greenbergglusker.com.


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