Companies that provide services to consumers have often sought to reduce the risk of class action lawsuits by requiring that their customers agree to arbitrate any disputes.  Such arbitration agreements may require customers to arbitrate on an individual basis only, with customers being obligated to waive any rights they might otherwise have to pursue claims through class actions.  In recent years, many such arbitration provisions, particularly those that included class action waivers, had been held unenforceable under state law contract doctrine.  In April 2011, however, the U.S. Supreme Court held in AT&T Mobility v. Concepcion that the Federal Arbitration Act preempts most state law challenges to class action waivers.

How broadly lower courts will interpret the AT&T decision remains to be seen.  For example, on February 1, 2012, the Second Circuit held in In re American Express Merchants’ Litigation that the AT&T decision did not preclude invalidation of an arbitration waiver where the practical effect of enforcement would impede a plaintiff’s ability to vindicate his or her federal statutory rights.

Nonetheless, in the wake of AT&T, many companies that provide online products or services to consumers are exploring whether to include an arbitration clause and class action waiver in their online Terms of Service.  For those companies that decide to adopt an arbitration provision, whether with or without a class action waiver, it is important to ensure that such arbitration provision will not be invalidated on the ground that no contract was formed with the consumer.

Courts have enforced the arbitration provision in an online Terms of Service agreement where the consumer clearly assents to – or “click-accepts” – the terms and conditions of such agreement, e.g., by checking a box stating “I agree” to such terms and conditions.  For example, in Blau v. AT&T Mobility, decided in December 2011, the plaintiff consumers, who were arguing that AT&T Mobility’s network was not sufficiently robust to provide the promised level of service, had specifically assented to AT&T Mobility’s Terms of Service, which included an arbitration clause.  One of the plaintiffs was bound by an e-signature collected by AT&T Mobility at a retail store.  He asserted that he was not bound because another user of his account had provided the signature.  The court rejected this argument because the user who signed was an authorized user of the plaintiff’s account.  A second co-plaintiff had accepted the Terms of Service by pressing a button on his mobile phone’s keypad; the court held that this acceptance was valid even though the co-plaintiff could not recall whether he had seen the AT&T Mobility Terms of Service.

The enforceability of an arbitration provision becomes more problematic where there is evidence that the consumer did not affirmatively assent to the agreement containing such provision.  In Kwan v. Clearwire Corp., decided in January 2012, the Western District of Washington denied the defendant’s motion to compel arbitration in a putative class action against Clearwire, an Internet service provider, under a variety of state and federal consumer protection statutes in connection with allegedly poorly performing modems.  Clearwire sought to compel arbitration based on an arbitration provision in its online Terms of Service.  Two named plaintiffs, Brown and Reasonover, argued that they could not be bound by the arbitration provision because they had never agreed to the Terms of Service.  The court held that an evidentiary hearing would be required to determine whether an arbitration agreement had been formed with respect to Brown after she introduced evidence that a Clearwire technician who installed her modem, and not Brown, had click-accepted the Clearwire Terms of Service.  Likewise, an evidentiary hearing was required as to Reasonover because Clearwire could not produce a record of a click-acceptance for Reasonover, who testified that she had “abandoned” the Clearwire website without click-accepting the Terms of Service.

What lessons can be drawn from the Blau and Kwan decisions?  First, for an arbitration provision contained in an online Terms of Service agreement to be enforceable against a consumer, there should be clear consent by the consumer to be bound by the agreement.  If the arbitration provision is contained in a passive “browsewrap” Terms of Service, requiring no affirmative consent from the consumer, this may be insufficient – absent other factors – to bind the consumer with respect to arbitration.  In addition, an online Terms of Service containing an arbitration provision should be presented to customers in a reasonably conspicuous manner before the consumer click-accepts the Terms of Service; the agreement should not be “submerged” within a series of links, placed on a part of the screen not visible before the consumer reaches the “I accept” button or buried in small print at the footer of a long email message.

Second, robust records documenting individual consumers’ “click-acceptances” of an online Terms of Service agreement incorporating an arbitration provision will substantially improve the likelihood that such agreement (and the incorporated arbitration provision) will be enforced.  A click-accept record that is linked to the individual who actually click-accepted the agreement is best.  Moreover, the Terms of Service agreement should be drafted to make clear that it applies not only to the individual who originally click-accepted such agreement, but also to other users to whom the individual provides access to his or her account.