Operators of social media platforms and other websites must manage a large number of risks arising from their interactions with users. In an effort to maintain a degree of predictability and mitigate some of those risks, website operators routinely present users with terms of use or terms of service (“Website Terms”) that purport to govern access to and use of the relevant website and include provisions designed to protect the website operators, such as disclaimers, limitations of liability and favorable dispute resolution provisions. But are such Website Terms enforceable against users and do they actually provide the protection that website operators seek? The answer may well depend on how the Website Terms are implemented.

Clickwrap vs. Browsewrap

Website Terms typically come in two flavors: “clickwrap” terms, where users are required to accept by taking some affirmative action such as checking a box or clicking an “I accept” button before using the website, and “browsewrap” terms that are provided to users through a link (often, but not always, at the bottom of the page) and purport to bind users even without any affirmative manifestation of acceptance. In determining whether Website Terms are enforceable against users, courts focus on whether users had notice of the terms and actually agreed to be bound by them. Not surprisingly, therefore, courts tend to look more favorably on clickwrap implementations as compared to browsewrap terms.

For example, in Fteja v. Facebook, Inc. (S.D.N.Y. 2012), the plaintiff claimed that Facebook disabled his Facebook account without justification and for discriminatory reasons, causing emotional distress and harming his reputation. Facebook moved to transfer the case to federal court in Northern California based on the forum selection clause in the Facebook terms of use, but the plaintiff claimed that he had never agreed to the terms of use. The court concluded that the plaintiff was bound by the Facebook terms, however, because he had checked a box indicating his acceptance when he registered for Facebook.

In contrast, Barnes & Noble had less luck enforcing its terms of use in Nguyen v. Barnes & Noble, Inc. (9th Cir. August 18, 2014). In Nguyen, the plaintiff ordered a tablet from Barnes & Noble at a discounted price but Barnes & Noble canceled his order. The plaintiff sued and Barnes & Noble moved to compel arbitration based on an arbitration clause included in its website’s browsewrap terms of use. The court held that Barnes & Noble’s terms could not bind the plaintiff, despite being presented through a “conspicuous” link during the checkout process, because Barnes & Noble did not prompt users to affirmatively assent to the terms.

Continue Reading Implementing and Enforcing Online Terms of Use

In Kevin Khoa Nguyen v. Barnes & Noble Inc., 2014 U.S. App. LEXIS 15868 (9th Cir. 2014), decided on August 18, 2014, the Ninth Circuit rejected an attempt to bind a consumer to an arbitration clause found in an online terms of use agreement not affirmatively “click accepted” by the consumer but readily accessible through a hyperlink at the bottom left of each page on the subject website.

The case arose from a “fire sale” by defendant Barnes & Noble of certain discontinued Hewlett Packard TouchPads. Plaintiff Nguyen had ordered two of the TouchPads, but received a notice from Barnes & Noble the following day that his order had been cancelled due to unexpectedly high demand. Nguyen sued Barnes & Noble in California Superior Court on behalf of himself and a putative class, arguing that he was forced to buy a more expensive tablet instead.

Barnes & Noble, after removing the suit to federal court, moved to compel arbitration under the Federal Arbitration Act, arguing that, by using the Barnes & Noble website, Nguyen had agreed to an arbitration clause contained in Barnes & Noble’s Terms of Use. Nguyen responded that he could not be bound to the arbitration clause because he had no notice of and did not consent to the Terms of Use. Barnes & Noble countered that the placement of the Terms of Use hyperlink on its website had given Nguyen constructive notice of the arbitration clause.

Continue Reading To Click or Not to Click? Ninth Circuit Rejects Browsewrap Arbitration Clause

Earlier this year, the French consumer association UFC-Que Choisir initiated proceedings before the Paris District Court against Google Inc., Facebook Inc. and Twitter Inc., accusing these companies of using confusing and unlawful online privacy policies and terms of use agreements in the French versions of their social media platforms; in particular, the consumer association argued that these online policies and agreements provide the companies with too much leeway to collect and share user data.

In a press release published (in French) on its website, UFC-Que Choisir explains that the three Internet companies ignored a letter that the group had delivered to them in June 2013, containing recommendations on how to modify their online policies and agreements. The group sought to press the companies to modify their practices as part of a consumer campaign entitled “Je garde la main sur mes données” (or, in English, “I keep my hand on my data”).

According to the press release, the companies’ refusal to address UFC-Que Choisir’s concerns prompted it to initiate court proceedings. The group has requested that the court suppress or modify a “myriad of contentious clauses,” and alleged that one company had included 180 such “contentious clauses” in its user agreement.

The group has also invited French consumers to sign a petition calling for rapid adoption of the EU Data Protection Reform that will replace the current Directive on data protection with a Regulation with direct effects on the 28 EU Member States. UFC-Que Choisir published two possibly NSFW videos depicting a man and a woman being stripped bare while posting to their Google Plus, Facebook and Twitter accounts. A message associated with each video states: “Sur les réseaux sociaux, vous êtes vite à poil” (or, in English, “On social networks, you will be quickly stripped bare”). Continue Reading French Consumer Association Takes on Internet Giants

The latest issue of our Socially Aware newsletter is now available here. In this issue, we explore legal concerns raised by Google Glass; we provide an overview of the growing body of case law addressing ownership of business-related social media accounts; we take a look at two circuit court decisions addressing the interplay between social media usage and the First Amendment; we examine the trend toward collaborative consumption and associated legal issues; we discuss an important new decision regarding unilateral modifications to online terms of use; and we highlight an industry warning to website operators who collect data for purposes of online behavioral advertising.  For a free subscription to the newsletter, please email us at sociallyaware@mofo.com.

 

In November 2013, the Berlin District Court ruled that all of the 25 provisions in Google’s online terms of use and privacy policy that had been challenged by the German Federation of Consumer Associations (VZBV) are unenforceable.  In reaching its decision, the court found that German law applies to terms of use and privacy policies to the extent they are directed to German consumers.

Under German unfair contract terms legislation, clauses that contradict main elements of German law and unfairly disadvantage consumers are invalid.  In this respect, the court found that the German Federal Data Protection Act and the Telemedia Act constituted key elements of law to be considered in relation to standard terms, and hence considered these statutes irrespective of the fact that these statutes only apply to organizations established in Germany or using equipment in Germany.  Google has announced that it will appeal the decision, but, if the judgment is upheld, any online terms of use or privacy policy applicable to German consumers could be challenged under German law and in a German forum.

In the case, Google claimed that the unfair contract terms legislation was not applicable because its terms of use and privacy policy do not constitute contracts and the related Google services had been provided free of charge.  The court disagreed, observing that users were required to consent to these terms upon registration or use, and the services were not for “free” because of the commercial value of the personal data collected by Google and subsequently used for marketing purposes.

Among other clauses, the court found the following provisions in the terms of use to be invalid, many of which are relatively standard provisions in U.S. terms of use:

  • Google’s right to unilaterally terminate its services in the case of any breach of its terms of use or policies without prior notice that would allow users to remedy the breach;
  • Google’s right to monitor content for compliance with its policies;
  • Google’s right to alter its services at its discretion;
  • Google’s right to amend its terms of use without further notice or consent; and
  • The (mutual) liability limitation for bodily harm and life, or statutory product liabilities.

The court also found that Google had not obtained valid consent for the collection, use and sharing of personal data via its consent box (“I agree to the use terms and I have read the privacy policy.”).  German law requires that users be informed as to the specific data to be collected and how such data will be used and shared.  Google’s privacy policy, however, provided insufficient detail and relied on blanket statements to describe its rights, for example:

  • Google’s right to collect information (including device-type information) and location data “relating to the services”;
  • Google’s right to share data with organizations that “Google reasonably believes to have a need to know”;
  • Google’s right to share data in the context of a merger;
  • Google’s right to record phone calls without any specific notice;
  • Google’s right to merge data from different platforms without further notice or consent;
  • Google’s limitations on users’ rights to access data provided to Google; and
  • Google’s right to share data with law enforcement agencies without further notice or consent.

The court also objected to the privacy policy’s broad cookie language, including Google’s statement that only “cookies and other anonymous data” are collected by Google.  Cookie IDs and other tracking information were considered by the court to be personal data in this context.

The court’s judgment can be found (in German) here.

Contractual provisions giving a website operator the unilateral right to change its end user terms of service are ubiquitous and appear in the online terms of many major social media sites and other websites, including Facebook, Twitter, Instagram and Google. Although amendments to terms of service quite often cause consumers to complain, litigation regarding such changes is relatively rare. A recent decision from the U.S. District Court in the Northern District of Ohio, however, challenges the enforceability of unilateral amendments to online terms of service in at least some circumstances.

In Discount Drug Mart, Inc. v. Devos, Ltd. d/b/a Guaranteed Returns, Discount Drug Mart, a distributor of pharmaceuticals, sued Guaranteed Returns, a company that processes pharmaceutical product returns, for Guaranteed Returns’ failure to remit credits due under a written distribution agreement between the parties. Guaranteed Returns pointed to the forum selection clause on its website, which it argued required the parties to bring suit in either Nassau or Suffolk County in the State of New York. This provision appeared in Guaranteed Returns’ online “standard terms and conditions,” which Guaranteed Returns claimed were incorporated into the parties’ written distribution agreement.

The court held otherwise, citing the Sixth Circuit case Int’l Ass’n of Machinists and Aerospace Workers v. ISP Chemicals, Inc. and stating that “[i]ncorporation by reference is proper where the underlying contract makes clear reference to a separate document, the identity of the separate document may be ascertained, and incorporation of the document will not result in surprise or hardship.” The court also pointed out that Guaranteed Returns’ purported right to change its standard terms and conditions unilaterally could result in Discount Drug Mart being subject to surprise or hardship. Further, the court noted that there was no evidence that the forum selection clause had been included in the standard terms and conditions at the time the distribution agreement was signed (and Guaranteed Returns did nothing to try to prove this fact). Thus, the court concluded that the standard terms and conditions were not properly incorporated into the distribution agreement (although the court ended up finding in favor of Guaranteed Returns on other grounds).

It is difficult to say what, if any, precedential force Discount Drug Mart will have. Putting aside the facts that the case was brought in the Northern District of Ohio and was ultimately dismissed on grounds unrelated to this holding, the underlying background of the case was nuanced. First, although the court stated in dicta that “one party to a contract may not modify an agreement without the assent of the other party,” a statement that could be interpreted to mean that unilateral amendment of contracts is never permitted, the holding itself was limited to situations in which terms and conditions are incorporated by reference. That said, even this limited holding may be relevant to many website operators in the social media world, as the larger social media sites often use a network of contracts that reference each other (for example, Facebook’s “Platform Policies” requires developers to agree to the company’s “Statement of Rights and Responsibilities,” which are “requirements for anybody who uses Facebook” and which can be unilaterally modified by Facebook).

Second, the Discount Drug Mart court did not elaborate on the “surprise or hardship” standard, so it is possible that unilateral changes to end user terms would be upheld if the website operator gave proper notice to its end users of such changes in order to avoid causing surprise or hardship. The leading social media platforms currently have different approaches to providing notice of changes to their online terms of use. For example, Facebook provides seven days’ notice (although “notice” here includes posting on Facebook’s site governance page); Twitter will notify users of changes to its terms of service via an “@Twitter” update or through email (but only for changes that Twitter deems to be material in its sole discretion); and Instagram notifies users of its changes to its terms of use by posting them on Instagram. A court could find that notification of changes using one or more of these methods is sufficient to avoid subjecting an end user to surprise or hardship.

Finally, the court seemed to give weight to the lack of any evidence that the forum selection clause was included in Guaranteed Returns’ standard terms and conditions at the time that the parties entered into the distribution agreement. Today, however, most Internet service providers include “last modified” dates in their terms of use. Recording version dates and keeping copies of older terms of use could help a website operator show that a particular provision existed in terms of use at the time that the parties entered into an agreement referencing such terms (although these practices could also provide evidence to the contrary).

Discount Drug Mart is not the first decision to challenge a company’s right to unilaterally modify its online terms and conditions. In the 2007 case Douglas v. Talk America, the Ninth Circuit Court of Appeals held that Talk America could not enforce an arbitration clause against an individual who had initially accepted the applicable terms of service prior to Talk America’s unilateral addition of the arbitration clause. Although Talk America posted the amended terms online, the court noted that the individual’s assent to the new terms could only be inferred “after [the individual] received proper notice of the proposed changes.” Discount Drug Mart seems consistent with this decision to the extent that the case suggests that failure to provide adequate notice to end users of changes to online terms may invalidate such changes.

A decision in the Northern District in the U.S. District Court of Texas in 2009, Harris v. Blockbuster Inc., went further than the Douglas court by holding an arbitration clause in Blockbuster’s online terms of use rendered the terms of use illusory and unenforceable. The court’s holding was based on the fact that Blockbuster could, in theory, unilaterally modify the arbitration provisions and apply those modified provisions to earlier disputes. Harris cited the Fifth Circuit case, Morrison v. Amway Corp., in which the court had held an arbitration clause in online terms of use to be illusory under Texas law when defendant Amway attempted to apply arbitration terms that been had modified after the plaintiff had agreed to Amway’s standard terms. Although limited to the Northern District of Texas (for now), the implications of Harris could be troubling to online service providers, as the case suggests that if a company includes language allowing it to make unilateral changes to its terms by simply posting the revised terms on its website, those terms could be deemed invalid. In fact, at least one legal scholar has suggested that companies should not include such language in their online terms. For more on Harris, see our client alert here.

Discount Drug Mart does not necessarily provide any clear guidelines that online service providers must follow for their online terms to be valid and enforceable. Because the court based its holdings on specific factual circumstances and provided little insight into its reasoning, it is unclear at this point whether other courts will follow this opinion and impose limitations on companies’ rights to unilaterally change their online terms of service under different circumstances. However, given the legal precedent on the subject, it will likely behoove companies that incorporate their online terms into other documents to consider re-evaluating their amendment and notification practices to minimize any chance of subjecting end users to “surprise or hardship.”

Morrison & Foerster’s Sherman Kahn Interviews American Arbitration Association Vice President, Sandra Partridge

Many companies are providing for arbitration of disputes in their terms of service agreements governing use of their websites or other online or mobile services. Arbitration clauses in online terms of service agreements should be carefully drafted in order to ensure that they are enforceable, particularly when arbitrations under the agreement may be conducted between the business and a consumer. It is also important to design the presentation of the clause so that the counterparty is aware of the clause and consents to it. We have previously written about these issues in Click-Accept Arbitration: Enforcing Arbitration Provisions in Online Terms of Service.

One of the decisions that must be made when drafting an arbitration clause is which organization will administer the arbitration. One of the organizations frequently chosen to administer arbitrations arising from online terms of service agreements is the American Arbitration Association (AAA). We are pleased to publish here a discussion with Sandra Partridge of the AAA. Ms. Partridge is the Commercial Vice President for the AAA in New York. She shares practical advice in the interview regarding how to provide for arbitrations in connection with your terms of service agreements.

Ms. Partridge, can you tell us about the AAA and its administration of arbitrations arising from online terms of service?

The AAA administers two types of arbitrations arising from online terms of service agreements—business-to-business and business-to-consumer. Business-to-business agreement disputes are heard under the AAA Commercial Arbitration Rules and proceed the same way as any other business-to-business arbitration. The AAA is prepared to handle both large and small business-to-business disputes. The AAA’s Commercial Rules include Expedited Procedures to govern the arbitration where the amount in dispute is under US$75,000. The AAA Expedited Procedures provide parties with a fast, cost-efficient method for resolving less complicated disputes.

Can you explain how the AAA’s approach differs when it is administrating a business to consumer dispute?

Pre-dispute arbitration clauses (i.e., agreements entered into before a dispute arises), such as clauses in online terms of service agreements, that may result in arbitration between the business and a consumer require additional scrutiny. This is because when businesses enter a pre-dispute arbitration agreement with consumers, a greater level of due process protection is required in order to ensure fairness. The AAA, in conjunction with a variety of other organizations, jointly developed a Consumer Due Process Protocol that addresses issues such as locale for arbitration hearings, cost-shifting and allocation, legal representation and access to remedies. Businesses considering adding pre-dispute arbitration clauses to terms of service agreements would find it advisable to become familiar with the Consumer Due Process Protocol. The AAA has also developed supplementary procedures for the conduct of consumer arbitrations. It is helpful to review those procedures before preparing a consumer-directed arbitration provision. In addition, the AAA has dedicated a section of its website to disputes between businesses and consumers that provides a variety of helpful material for the arbitration clause drafter.

What additional steps should the arbitration clause drafter take if the drafter expects that arbitrations under the agreement may include arbitration of disputes between the business and consumers?

As mentioned above, the drafter should refer to the Consumer Due Process Protocol when drafting the arbitration clause. In addition, where a clause may result in arbitration with consumers, the AAA requires that the clause drafter submit the clause to the AAA for review and approval in advance of the administration of any arbitration under the clause.

Why does the AAA require pre-arbitration review of arbitration clauses?

The AAA requires that a consumer-directed pre-dispute arbitration clause be in compliance with the Consumer Due Process Protocol before it can administrate cases brought under that clause. The AAA only administrates cases between businesses and consumers arising from pre-dispute arbitration provisions that are in compliance with the Protocol in order to ensure fairness and a level playing field for both sides. Consumers and businesses can expect a fair process and enforceable awards. Pre-approval also allows the AAA to administrate any cases that are filed pursuant to the clause without delay.

How would the AAA proceed if presented with a consumer arbitration filing based upon an arbitration clause that the AAA had not pre-approved?

When a case is submitted based on a compliant but not previously approved pre-dispute arbitration clause, the AAA’s consumer department will conduct an immediate review, approve the clause, and contact the business to arrange for administration of the case.  However, if a clause is not pre-approved, the business runs the risk that the clause will not be approvable as written, causing the AAA to reject the filing.

Some companies are concerned that the pre-review will take substantial time and effort, and potentially require major changes to clauses that have already been approved by top management. Can you respond to those concerns?

The AAA is able to approve a compliant clause in a matter of days. If a clause is not compliant, the AAA will notify the drafter of the specific reasons why; allowing the drafter to promptly correct those concerns. This can also be done in a matter of days. Top management’s concerns may be assuaged by the realization that a compliant clause contributes to both fairness and enforceability.

How can companies get in touch with the AAA to discuss potential administration of an arbitration program?

Neil Currie, the AAA Vice President who oversees the consumer area, is the best individual to contact for information, answers to questions and ultimate approval of an arbitration program involving consumers. His email is Currien@adr.org and his phone number is 213-362-1900.

As social media matures and users become more concerned about the privacy of the information they publish online, New Zealand-based search engine app company Profile Technology, Inc. and Facebook are engaged in a legal battle stemming from a dispute over the right to use certain user data. The story first came to light in October 2012, when Profile Technology filed a complaint against Facebook alleging that the social media giant had, after entering into a contract with Profile Technology, breached the contract; interfered with Profile Technology’s business relationships; defamed Profile Technology; and committed unlawful, unfair and fraudulent business practices.

Profile Technology’s complaint sets forth a narrative beginning in 2008, when Facebook and Profile Technology entered into a contract that, according to Profile Technology, was partially written and partially implied by the conduct of the parties. This contract allowed Profile Technology to “crawl” Facebook’s public data in order to create what eventually became “Profile Engine,” a website that allows users to scan through public data of over 420 million Facebook users (making it, according to Profile Technology, “the second-largest social media network in the world”). Profile Technology’s “about” section of the site notes that, on Profile Engine, you can “chat to Facebook friends, browse your newsfeed, meet new people or find a date, all while listening to your favourite music and your friends’ playlists, completely free of charge!”

Profile Technology claims that, around October 13, 2010, Facebook terminated Profile Technology’s contract without notice; cut off Profile Engine’s access to Facebook data; and even de-friended Profile Technology’s founder, Christopher Claydon, from Facebook. This caused Profile Technology to lose business and lose value in the eyes of potential investors. The complaint alleges that Facebook’s actions were part of Facebook’s plan (with several other unnamed defendants) to “impede, interfere with, and expropriate the benefits of the Profile Engine developed by Plaintiffs without regard to Plaintiffs’ legal rights and to exclude Plaintiffs from their use and profit therefrom.” Profile Technology also claimed that Facebook defamed the company by telling Facebook users that links to Profile Engine were “spammy and unsafe,” adding that “Plaintiffs’ Profile Engine is safe and has nothing to do with spam and Facebook knows it.”

In February 2013, Facebook countered with a complaint of its own, which filled in some of the gaps missing from Profile Technology’s otherwise epic tale, and explained some of the facts from a different point of view. In Facebook’s complaint, Facebook notes that Profile Technology agreed to Facebook’s terms of use for both Facebook users and developers (there is no mention of any “implied” contracts). Further, Facebook does not mention terminating Profile Technology’s access in October 2010, but rather points out that Profile Technology claimed to have stopped accessing Facebook’s development platform at that time, due to a refusal to agree to a modification of Facebook’s developer terms of use concerning automated data collection. Facebook points out that, despite this claim, the Profile Engine has posted Facebook user data retrieved subsequent to October 2011. Facebook also notes that after October 2011, Profile Technology continued to make available to the public outdated Facebook user data, which is a violation of Facebook’s terms of use.

As Facebook describes, Profile Technology, while publishing Facebook user data, was not keeping this data current. This meant that pictures a user had deleted from Facebook remained viewable to any Internet user, links to websites with which users no longer wanted to be affiliated remained posted on users’ Profile Engine pages, and certain postings that users had wanted to erase from the Facebook world were memorialized forever. In November 2011, after receiving complaints from its users, Facebook revoked Profile Technology’s license to Facebook and demanded the deletion of all Facebook user information in its possession. As of the date of Facebook’s complaint over a year later, Profile Technology had yet to remove the outdated Facebook user information from its website, causing Facebook to seek an injunction for such removal.

As of this writing, neither case has been dismissed, although the parties may be negotiating a settlement. Whatever the outcome of the cases, it should come as some comfort to Facebook users that the company is fighting to keep its users’ private data out of the public realm. Nonetheless, cases such as this reinforce what should now be ubiquitous advice from parents, teachers and friends: don’t post anything online unless you want the entire world to be able to access it forever. After all, it should come as no surprise how few people and companies actually read and abide by online terms of use.

In a recent case of first impression, the National Advertising Division of the Council of Better Business Bureaus (“NAD”) – an industry forum for resolving disputes among advertisers – addressed an advertiser’s use of Facebook’s “like” feature in connection with an online promotion.  Such promotions – referred to as “like-gated” promotions, typically ask a Facebook user to “like” the advertiser’s Facebook page in order to receive a discount, rebate or other deal.  If the user chooses to “like” such page or content, this information will appear on such user’s Facebook wall and possibly his or her Facebook news feed, where it can be viewed by the user’s Facebook friends.  Moreover, the user’s name and image may be displayed in connection with the “liked” page or content.  As a result, Facebook’s “like” feature can generate invaluable exposure for an advertiser, transforming a user’s interest in the advertiser into a public endorsement of such advertiser’s products and services. 

In the NAD case, Coastal Contacts, Inc., offered a free pair of glasses to each person who “liked” its Facebook page.  A competitor, 1-800 Contacts, Inc., challenged the offer, alleging that Coastal Contacts had failed to adequately disclose the offer’s material terms.  1-800 Contacts also charged that, on account of that failure, the “likes” that Coastal Contacts received were not legitimate, and the company’s use and promotion of such “likes” on the Facebook platform and in press releases were therefore fraudulent.  1-800 Contacts urged the NAD to recommend that Coastal Contacts remove and stop promoting the “likes” that it received via the allegedly misleading promotion, in order to remedy its allegedly unfair social gain.

The NAD agreed with the challenger that Coastal Contacts had failed to clearly and conspicuously disclose the terms of its free offer; however, the NAD did not agree that such failure rendered the resulting “likes” invalid, and it therefore declined to recommend that Coastal Contacts remove or stop promoting those “likes.”  The NAD explained that, although Coastal Contacts’ promotion required modification, there was no evidence showing that participants were denied free pairs of glasses because they failed to understand the offer terms.  In the NAD’s view, because actual consumers “liked” Coastal Contacts’ Facebook page and the consumers who participated in the offer received the benefit of such offer, Coastal Contacts did, in fact, have the general social endorsement that the “likes” conveyed. 

What About the Endorsement Guides?

The case raises an issue that the NAD did not address:  Should an advertiser be required to disclose that the Facebook “likes” received through a like-gated promotion were received in exchange for consideration?  Under the Federal Trade Commission’s (“FTC”) Endorsement Guides, an advertiser is required to disclose any material connection between itself and a consumer who endorses its business.  So, should a “like” given in exchange for a discount or other deal be accompanied by a disclosure of the connection?  Is such a disclosure even possible? 

To our knowledge, the FTC has not publicly addressed this issue, but we think that it could challenge an advertiser’s failure to disclose the consideration received in exchange for an endorsement conveyed by a “like.”  Any disclosure that the FTC would seek to prescribe in connection with “likes” displayed within the Facebook platform would most likely have to be built into Facebook’s “like” feature itself – something that is not within advertisers’ direct control.  This does not rule out an FTC action, as the FTC could take the position that advertisers should not use like-gated promotions if they are unable to make the disclosures required under the Endorsement Guides.  The FTC may also assert that corporate Facebook users have the power to impress upon Facebook the need to modify the “like” feature to allow for necessary disclosures. 

An advertiser considering a like-gated Facebook promotion should keep these issues in mind (and keep an eye out for further developments).  It should also ensure compliance with the FTC’s Endorsement Guides to the extent possible (i.e., where it can make required disclosures), such as on its own Facebook page and in other online and offline media in which it promotes the “likes” that it has received as a result of any promotion.

Don’t Forget the Facebook Promotions Guidelines.

When structuring a contest, sweepstakes or similar promotion using Facebook, an advertiser must also comply with the Facebook Promotions Guidelines, which Facebook revises from time to time.  Among other things, the Guidelines set limits on a promotion sponsor’s use of Facebook’s “like” feature.  For instance, while “liking” a sponsor’s own Facebook page is a permissible requirement under the Guidelines for a user’s participation in a promotion, the act of “liking” such a page cannot function to automatically register the user for the promotion.  Further, if a sponsor does condition participation on “liking” the sponsor’s Facebook page, the sponsor must extend eligibility for the promotion to users who previously “liked” the page, as well as to users who “like” the page from the first time in connection with the promotion. 

Sponsors of promotions are also prohibited under Facebook’s Guidelines from requiring prospective participants to take any action using any Facebook features or functionality other than either “liking” the sponsor’s own Facebook page, checking into a particular location or connecting to the sponsor’s Facebook app.  Nor may a sponsor require prospective participants to “like” any content other than the sponsor’s own Facebook page – for example, a sponsor may not condition a user’s participation on “liking” a specific wall post or any other particular piece of content.  The Guidelines do not explain the reason for this distinction; however, it may be that the “News Feed” and other posts that result when a user “likes” particular content (as opposed to a Facebook page generally) may often constitute “unauthorized commercial communications,” which are prohibited by Facebook’s Statement of Rights and Responsibilities

All this serves as an important reminder that running a successful and legally compliant promotion requires the promotion’s sponsor to be familiar with applicable laws, the social media platform provider’s various guidelines and contractual terms, and emerging best practices.

The Superior Court of New Jersey recently revisited the enforceability of online contracts and the importance of how terms and conditions are displayed on websites, in Hoffman v. Supplements Togo Management LLC, et al. In so doing, the court addressed a line of cases reaching back to the Second Circuit’s 2002 landmark decision in Specht v. Netscape, where Circuit Judge (now Justice) Sotomayor wrote that, unless a reasonably prudent Internet user would have learned of and unambiguously assented to terms governing an online commercial transaction, an online contract cannot be formed.  In Hoffman, the court seized the opportunity to clarify how the law’s view of a “reasonably prudent Internet user” has evolved over the intervening nine years in light of the rapid growth in Internet use and online transactions.  As it turns out, the answer is . . . not by much.

The plaintiff in Hoffman, an attorney with an alleged history of suing online retailers for deceptive practices, purchased a dietary supplement called “Erection MD” through a website operated by defendant Supplements Togo Management LLC (“Togo”).  The product in question was advertised on Togo’s site with a variety of claims, such as, “Enhances Sex Drive,” “Maximum Performance,” “Instantly Boost Testosterone Levels,” and “Ultimate Stamina.” Four days after receiving his shipment, the plaintiff filed a lawsuit in the Superior Court of New Jersey alleging violations of New Jersey’s Consumer Fraud Act (“CFA”) and claiming that Togo made false and exaggerated representations about the product that allegedly lacked scientific and objective support.  (New Jersey’s CFA essentially requires advertisers to substantiate with written proof any claims made concerning “the safety, performance, availability, efficiency, quality or price of the advertised merchandise,” and to keep such written proof on file for at least 90 days after the effective date of the advertisement.) In lieu of filing an answer to the complaint, Togo moved to dismiss Hoffman’s suit, arguing that Hoffman failed to state a claim under the CFA and was barred from suing Togo in New Jersey in light of the forum selection clause contained in Togo’s “website disclaimer,” which only permitted actions to be brought in Nevada.  The lower court, in addressing whether the clause was enforceable, dismissed Hoffman’s suit on the grounds of improper forum.

On appeal, the Hoffman court focused on the same key principles of notice and assent discussed in Specht, and in particular, on whether “a reasonably prudent [person] in these circumstances would have known of the existence of [the] license terms.” In this case, the disclaimer containing the forum selection clause was displayed “below the fold” (that is, on a “submerged” portion of the website to which a visitor needed to scroll down in order to see).  Hoffman stated that when he visited Togo’s website, Erection MD was the first product displayed, listed among other Togo products and supplements and appearing next to a box that read “ADD TO SHOPPING CART,” and that when he clicked to add the product to his cart, he was taken directly to the site’s checkout page.  Hoffman argued that because subsequent pages—including the one on which he consummated his purchase—did not contain the same disclaimer, he was never put on notice of those additional terms and, therefore, that Togo’s forum selection clause was unenforceable.  Applying New Jersey precedent, the court agreed with Hoffman and overturned the lower court’s dismissal.  The forum selection clause was ruled “presumptively unenforceable,” on the grounds that it was “proffered unfairly, or with a design to conceal or de-emphasize its provisions.” Persuaded by Hoffman’s argument, the judge emphasized that because the forum selection clause was “submerged” on the web page that listed Togo’s products, it was “unreasonably masked from the view of the prospective purchasers because of its circuitous mode of presentation,” which prevented Hoffman (or any customer) from being put on notice.

The analysis in Hoffman mirrors Specht where Justice Sotomayor noted that the fact that an unexplored portion of a web page could contain additional terms and conditions, does not mean that a reasonably prudent Internet user should assume the existence of—or be compelled to look for—those terms.  Rather, it should be the website operator’s responsibility to put Internet users on notice of applicable terms and to obtain their assent, in order to preserve the integrity and credibility of electronic “bargaining” and mutual assent necessary to establish a contract.  In applying the same logic, the court in Hoffman signaled that the view of what an Internet user (whether or not he or she is an attorney) should be responsible for today has not changed much since Specht, despite the fact that the majority of Internet  users have made purchases online.

Similar to previous clickwrap cases (including Specht), Judge Sabatino also made a point of noting that “if defendants establish on remand that Hoffman had actually read the forum selection clause before purchasing the product,” his ruling on the enforceability of the clause might have been different.  Additionally, on the issue of assent, the Hoffman court stopped short of ruling (as Hoffman had argued) that a website user must be made to expressly click an “I Agree” button or check-box in order to form a binding agreement; although the user’s “unambiguous manifestation of assent” is required, New Jersey’s courts, like others, remain hesitant to prescribe the means or technology that a website operator needs to use to obtain that assent.  (The Hoffman opinion did not address the fact that Togo’s website disclaimer was a browsewrap rather than a clickwrap agreement.) Hoffman is a reminder to website operators everywhere of the continuing importance of highlighting website terms and conditions, and making sure that visitors are on notice that their activities— including purchases—are governed by those terms.  As the line of clickwrap cases from Specht through Hoffman makes clear, this entails, at a minimum, notifying users of the existence of such terms on the site’s home page (for example, through a clearly marked link to such terms), in a manner that is conspicuous and easily viewed by site visitors.  Moreover, when goods and services are available for purchase, it is recommended that website owners require customers to affirmatively acknowledge their acceptance of applicable terms before a purchase is completed.