The European Union (EU) has made reform of the e-commerce rules in Europe one of its main priorities for 2018.

The European Commission has already published two proposed Directives relating to cross-border e-commerce but legislative progress has been slow—a situation that the Commission plans to correct in 2018.

The Commission’s stated aim is to establish a more harmonised set of rules for the supply of digital content and sale of online goods across the EU, and to make it easier and less costly for businesses to engage in cross-border commerce. But what most e-commerce providers will focus on is the increased rights for EU consumers, particularly in the context of defects. The new rules will apply to online e-commerce providers, whether EU-based or not.

These changes are part of a wider programme of reform affecting all businesses operating in the Technology, Media and Telecoms (TMT) sectors in Europe.

Background

The European Union’s 2018 Work Programme sets out a challenging agenda of legislative and regulatory change for the TMT sectors, to be delivered in conjunction with the EU’s Digital Single Market (DSM) strategy. The Work Programme includes a list of the pending legislation that the Commission wants to have delivered most swiftly to European citizens as part of the DSM strategy. Any business with digital or technology operations in the EU will need to monitor and react to the EU’s planned changes.

The Commission launched its DSM strategy in May 2015. We have written a number of articles following the DSM’s progress: at its inception, one year in and in 2017 following a mid-term review. With the Commission still waiting for a number of its proposals to be delivered, 2018 is a key year in the life of the DSM.

The DSM strategy is broken down into three “pillars” and 16 Key Actions. The first “Key Action” is to develop rules to make cross-border e-commerce easier, including harmonised rules on contracts with consumers and other consumer protection when buying online. Two proposed Directives relating to cross-border e-commerce were issued relatively quickly – firstly, a proposed Directive on the supply of digital content (Digital Content Directive) and, secondly, a proposed Directive on online and other distance sales of goods (Online Goods Directive) (together, the “Proposed Directives”).

In a 2016 blog post we explored the scope, content and likely impact of the Proposed Directives across the EU generally (and in the UK and Germany specifically). In this alert, we review the progress that has been made so far and look ahead at the likely impact of these Directives in 2018.

The Digital Content Directive

At present, some EU Member States (such as the UK, the Netherlands and Ireland) have introduced legislation to govern the sale of digital content to consumers; other member states apply existing rules on the sale of goods or services that were not intended for digital content. That makes it very hard to apply EU-wide principles on the sale of digital content. Depending on the member state, the sales contract could be considered as a sales contract, as a services contract or as a rental contract. And then there’s the question of whether consumer sales law is applicable to digital content: in Germany and in Italy, a consumer is protected under consumer sales law when it comes to digital content, and the courts qualify intangible goods as a moveable object; whereas in Norway, the online supply of digital content is considered a service contract, and consumer sales law is not applicable.

The draft Digital Content Directive will harmonise the rules that apply to the provision of digital content to EU consumers, including rules on the remedies to which consumers are entitled for allegedly defective content. If any digital content is defective, firstly the EU consumer will be able to request that the defect be fixed – with no time limit on the ability to make that request—and, secondly, the burden of proof is reversed so that it will be the supplier’s responsibility to prove that the defect did not exist at the time of supply. See a more detailed summary here.

The rules would apply: (i) regardless of the method of sale, and (ii) to both digital content sold to the consumer (i.e., licensed on a perpetual basis) and digital content supplied under a temporary licence on a subscription basis. Currently, most EU Member States do not have national consumer protection legislation specifically concerning sales or subscription of digital content to consumers (the issue tends to be covered by sales of goods or services rules).

European Council: General Approach

After the Commission issued the draft Digital Content Directive in December 2015, there was steady progress through 2016 and various committees debated or “took stock” of the proposal.

In March 2017, the European Data Protection Supervisor raised concerns with the proposal – namely that the provision of data as “counter-performance” was problematic (as discussed further below) and that there was a potential overlap in scope with the incoming General Data Protection Regulation.

However, the first major development on the Digital Content Directive took place in June 2017, when the European Council clarified the EU’s position on the proposal as follows:

  • Scope. The scope of the Digital Content Directive includes so-called “over-the-top” interpersonal communication services (such as voice and video calling, text messaging, email and social networking), bundle contracts and the processing of personal data. However, the Council recommended that embedded digital content (meaning, digital content or services that are pre-installed in goods such as smart fridges) should be excluded, leaving these issues to be governed by the rules on the sale of goods. Additionally, the Council explicitly stated that the proposal would not affect existing national and EU laws on copyright and related rights.
  • Non-conformity. The Digital Content Directive, as initially drafted, allowed subjective conformity criteria (i.e., criteria that are agreed in an individual contract) to prevail over objective conformity criteria (i.e., criteria that are stipulated by law). The Council rejected the idea that subjective conformity takes priority, requiring compliance with both subjective and objective criteria for conformity, unless the latter is expressly waived in advance by the consumer.
  • Remedies. The Council suggests that suppliers should have a second chance to supply the digital content or service in certain situations and proposes eliminating the strict hierarchy of remedies for lack of conformity that were initially proposed by the Commission.
  • Time limits. The Council proposes both that there should be a one-year time limit in relation to the reversed burden of proof on suppliers and also that any warranty or limitation period relating to the liability of the supplier must be at least two years under applicable domestic law. It stopped short of suggesting that warranty periods should be mandatorily harmonised across the EU.

European Parliament: Joint Report

The next key development took place in November 2017 when the two committees within the European Parliament that are responsible for progressing the proposed Digital Content Directive (being the Internal Market and Consumer Protection Committee (IMCO) and Legal Affairs (JURI)) adopted a joint report on the proposal. A number of compromise amendments to the draft Digital Content Directive were prepared on the basis of the report, of which the main ones were:

  • Emphasis on data protection. The provisions on data protection in the draft Digital Content Directive should be prioritised over the contract law provisions.
  • Provision of data as counter-performance. The Digital Content Directive was drafted to cover digital content that is provided for non-monetary consideration, such as when a consumer provides his/her data to a supplier in exchange for access to content. The compromise amendment suggested in the report is to limit the provision of data as counter-performance to only personal data.
  • Latent defects. The draft provisions on a supplier’s liability for latent defects were removed, allowing Member States to retain or introduce domestic laws on liability for such defects.
  • Non-conformity. Consistent with the Council’s approach, the report suggests that all subjective and objective criteria for conformity must be met, unless the consumer expressly consents to waive compliance with such objective criteria in advance.
  • Time limits. Also in keeping with the Council’s approach, a time limit was introduced in connection with the proposed reversal of the burden of proof. However, the report suggests a time limit of two years (rather than the Council’s proposal of one year) and introduces an additional time limit relating to trader liability for defects of one or two years.
  • Embedded digital content. The scope of the draft Digital Content Directive was expanded to cover digital content embedded in tangible goods, in contrast to the amendment proposed by the Council.

Next Steps

The report was referred to the European Parliament, Council and Commission to commence informal trialogue talks, which are now expected to take place in the first part of 2018.

The Online Goods Directive

The draft Online Goods Directive will apply new rules to goods sold online or otherwise at a distance to EU consumers. Face-to-face sales are not covered, nor are contracts for the supply of services.

The key provisions of the Draft Online Goods Directive include a reversal of the burden of proof (i.e., the onus will be on the seller to prove that any defect didn’t exist at the time of sale) for two years; consumers won’t lose their rights if they don’t inform the seller of a defect within a certain period of time (as is currently the case in some Member States); if the seller is unable or fails to repair or replace a defective product, consumers will have the right to terminate the contract and be reimbursed also in cases of minor defects. See a more detailed summary here.

The draft Directive replaced the Commission’s previous attempt at harmonisation, which took the form of a proposed Regulation on a Common European Sales Law. The EU Parliament’s IMCO published its draft report on the Directive in November 2016, supporting the full harmonisation measures envisaged, but suggesting an expansion of the scope of the Directive to cover offline sales. This was driven by the desire for consistency – the idea that a common set of rules across Member States would be valuable for online, distance and face-to-face sales alike, rather than having a fragmented legislative framework that would vary depending on the method of sale.

After publishing its draft report, IMCO tabled over 200 amendments to the draft Online Goods Directive during a committee meeting in January 2017, and more in July 2017 (mostly relating to the expansion of the scope of the draft Directive to offline sales).

The Commission subsequently released an amended proposal on 31 October 2017. Although the main elements of the Online Goods Directive were unaltered, the amended proposal did provide for the following noteworthy changes:

  • Offline sales. In alignment with the suggestions in the draft report, the scope of the proposed Directive was expanded to cover offline sales. As a result, Directive 1999/44/EC on consumer sales and guarantees would be fully repealed (whereas before, it would have been only partially amended).
  • Second-hand goods. Member States will have the option of narrowing the scope of the Online Goods Directive to exclude contracts for the sale of second-hand goods sold at public auction.

Next Steps

The amended proposal has been resubmitted to the European Parliament and Council. We await a decision from the European Economic and Social Committee, after which the European Parliament will need to vote on the proposal at first reading.

What Should We Expect in 2018?

We will be keeping tabs on the Proposed Directives as they progress under the ordinary legislative procedure, although, because there is no time limit on the first reading stage, it is difficult to predict exactly when we will see movement.

It is also difficult to predict the impact of the Proposed Directives on the UK. The UK is, of course, due to leave the EU in March 2019, which is likely to be before the Proposed Directives are implemented. It will therefore be for the UK to decide the extent to which it wishes to reflect the provisions of the final Proposed Directives in national law, if at all. The commercial benefits of harmonisation with EU Member States will need to be weighed carefully against the drawbacks of overhauling consumer laws so soon after the changes introduced by the UK Consumer Rights Act 2015.

Searching “millennials killed…” on the Internet returns over 1.5 million results in .65 seconds. Commentators have blamed the generation raised by tablets, smartphones, and apps for killing everything from marriage to brunch, often deriding today’s youth for being too opinionated and too obnoxious. It is a bit ironic, then, that the right to complain was almost a casualty of the technology generation.

Today, ecommerce and social media are ubiquitous and intertwined. For example, any ecommerce site worth its salt will include interactive user comments that enable purchasers to praise or critique products. Moreover, the power of online review sites, such as Yelp and Rotten Tomatoes, to set consumer tastes is only increasing. For example, a study conducted at Harvard Business School concluded that a one-star improvement on Yelp would lead to a roughly 9% increase in revenue for restaurants. Considering how thin profit margins are in the restaurant sector, 9% could make or break a small business.

In response to the growing significance of user reviews, some companies sought to protect their revenue streams by including non-disparagement clauses in form contracts, such as terms of service and other click-through agreements. Retailers, studios, restaurants and even hotels used these gag clauses to suppress bad reviews by levying fines and imposing other penalties on consumers. Continue Reading Get Your Gripe On: The Consumer Review Fairness Act Is Live

ARKANSASLast year, this blog raised concerns regarding the TCCWNA, its growing popularity with plaintiffs’ lawyers and the implications for online retailers. At a high level, the TCCWNA is a New Jersey consumer protection law that focuses on contractual terms (including online terms of service) governing transactions between sellers/service providers and New Jersey consumers. It prohibits sellers/service providers from including certain common provisions in their contracts with New Jersey consumers, and provides aggrieved New Jersey consumers with the right to recover from the seller/service provider a civil penalty of not less than $100 per violation. The TCCWNA applies even if the relevant contractual terms are expressly governed by the laws of a state other than New Jersey. Continue Reading E-tailers Rejoice as Decisions Limit Suits in Federal Court for Alleged Violations of N.J.’s Controversial Consumer Protection Law

The Internet Movie Database (IMDb) has filed suit to overturn a law that requires the popular entertainment website to remove the ages or birth dates of people in the entertainment industry upon request.

Vine might not be history after all.

Twitter users posted more than one billion election-related tweets between the first presidential debate and Election Day.

Facebook is testing a feature that allows company Page administrators to post job ads and receive applications from candidates.

People who create or encourage others to use “derogatory hashtags” on social media could be prosecuted in England and Wales.

A new “tried it” checkmark on pins will allow Pinterest users to share the products and projects they’ve purchased or attempted.

Did social media ads allow political campaigns to circumvent state laws prohibiting the visible promotion of candidates within a certain distance of polling places?

The Eight Circuit held that a college has the right to expel a student from its nursing program for inappropriate social media posts about his classmates, including the suggestion that he would inflict on one of them a “hemopneumothorax”—a lung puncture.

Law enforcement officials are increasing their use of social media to locate missing persons.

An unemployed single mother in California is facing several misdemeanor charges for selling her ceviche over social media.

Coming soon to a vending machine near you: Snapchat Spectacles (but only if you live in a densely populated area like New York or Los Angeles).

Social media analytics firms claim that social media did a better job at predicting Trump’s win than the polls.

As part of the European Commission’s Digital Single Market initiative, the European Commission has published a draft Regulation aimed at preventing traders from discriminating against customers located in other EU Member States by denying those customers access to e-commerce sites, or by redirecting those customers to websites that offer inferior goods or sales conditions—a practice known as geo-blocking. The proposed new rules will benefit both consumers and businesses that purchase goods or services within the EU (excluding resellers).

The European Commission believes that geo-blocking and discriminatory practices undermine online shopping and cross-border sales within the EU.

The Regulation, which must still undergo review by the European Parliament and the Council of the EU, may change and is expected to be in force in 2017 (except the ban on discriminating against customers of electronically supplied services, which is expected to be effective beginning July 2018). When it is adopted, the Regulation will automatically take effect in all Member States without each Member State having to implement it into national law. Continue Reading European Commission Publishes Draft Regulation Prohibiting Geo-Blocking by Online Traders and Content Publishers

CaptureThe latest issue of our Socially Aware newsletter is now available here.

In this issue of Socially Aware, our Burton Award winning guide to the law and business of social media, we discuss the impact online trolls are having on social media marketing; we revisit whether hashtags should be afforded trademark protection; we explain how an unusual New Jersey law is disrupting the ecommerce industry and creating traps for the unwary; we explore legal and business implications of the Pokémon Go craze; we examine a recent federal court decision likely to affect application of the Video Privacy Protection Act to mobile apps; we discuss a class action suit against an app developer that highlights the legal risks of transitioning app customers from one business model to another; and we describe how Europe’s Right to Be Forgotten has spread to Asia.

All this—plus infographics illustrating the enormous popularity of Pokémon Go and the unfortunate prevalence of online trolling.

Read our newsletter.

Welcome to New Jersey state concept on road sign

If your company is involved in selling products or services to consumers in New Jersey over the web or through mobile apps, you’ll want to read this blog post.

In what amounts to a feeding frenzy, plaintiffs’ lawyers are working overtime bringing class action suits against e-commerce companies, alleging that their online terms and conditions violate New Jersey’s unusual Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”). Some of the online retailers to have been sued include Victoria’s Secret, Bed Bath & Beyond and TOYS ‘R’ US, with more suits being filed every day.

Unlike most consumer protection laws, the TCCWNA focuses specifically on the contractual terms governing certain transactions with consumers, imposing limitations on such terms even if such contractual terms are governed by the law of a state other than New Jersey—creating a potential gotcha for e-tailers who are based outside of New Jersey and who traditionally have their online terms and conditions reviewed only by lawyers admitted to practice in the state whose laws govern such terms and conditions.

Although the TCCWNA was enacted in 1981, it has only recently achieved notoriety, as more and more plaintiffs’ lawyers have embraced the statute due to its broad scope and its statutory penalty of not less than $100 per violation without the need to prove actual harm.

Overview of the TCCWNA

 New Jersey adopted the TCCWNA over 30 years ago not to create new rights for consumers, but rather to “bolster[] rights and responsibilities established by other laws,” particularly those established by New Jersey’s Consumer Fraud Act (“CFA”). Observers have noted that the number of TCCWNA cases has been increasing in the last few years, particularly since 2013 when the Supreme Court of New Jersey in Shelton v. Restaurant.com, Inc. found that online certificates or coupons were subject to TCCWNA rules and opened the door to TCCWNA class actions stemming from e-commerce.

The TCCWNA applies where a company is a “seller, lessor, creditor, lender or bailee,” offering its services to a “consumer” or “prospective consumer” in New Jersey. A “consumer,” under the TCCWNA, is defined as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” Indeed, courts have emphasized that the TCCWNA is inapplicable unless the plaintiffs are consumers.

The text of the TCCWNA prohibits three types of provisions in consumer contracts, warranties, notices and signs.

First, it prohibits provisions violating “clearly established” legal rights of a consumer or responsibilities of a seller, lessor, creditor, lender or bailee. These rights and responsibilities may arise from federal or state law. For example, one court found that provisions restricting limitations periods for initiating lawsuits, asserting counterclaims or raising affirmative defenses violate consumers’ rights under federal and New Jersey procedural rules.

Second, the TCCWNA prohibits provisions waiving a consumer’s rights under the TCCWNA. In Johnson v. Wynn’s Extended Care, Inc., for example, the U.S Court of Appeals for the Third Circuit held that a provision in a service contract that prevented the recovery of attorneys’ fees and costs constituted a waiver of a consumer’s rights under the TCCWNA, and was therefore prohibited.

Note, however, that at least two cases have found that a claim under the TCCWNA cannot be based merely upon an omission. As one court noted, the statute’s use of the term “includes” suggests that only a statement affirmatively “included” in the consumer contract, warranty, notice or sign should give rise to liability; in addition, the legislative history does not include any examples of an omission triggering liability.

Third, the TCCWNA prohibits blanket “inapplicable in some jurisdictions” savings clauses (e.g., phrased “void where prohibited”)—though, notably, it does not prohibit such savings clauses in any warranty. In order for a savings clause to be acceptable under the TCCWNA, the statute requires the clause to specify which provisions, if any, are unenforceable in New Jersey.

In one recent case, Martinez-Santiago v. Public Storage, the following language was found to be in violation of the TCCWNA’s prohibition against overly broad savings clauses: “If any provision of this [agreement] shall be invalid or prohibited under [the law of the state where the applicable premises are located], such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions.”

Certain courts, however, have refused to find such a violation of the TCCWNA when the consumer contract, notice or sign is only available within New Jersey, or when the clause uses the alternative “to the extent permitted by law” phrasing, as discussed below.

TCCWNA’s Potential Danger to Online Companies

The TCCWNA is potentially dangerous for companies operating online for at least three reasons.

First, plaintiffs’ lawyers are pushing for an extremely broad application of the statute. They argue that the TCCWNA applies to almost every company providing consumer products online that are available to New Jersey residents, and to any “written consumer contract” and “written consumer warranty, notice or sign” made available to these residents—presumably encompassing nearly all material displayed or offered by a company online.

Second, as noted above, the TCCWNA may expose companies located outside of New Jersey (but whose online websites can be accessed within the state) to claims stemming from any applicable “clearly established” federal or New Jersey state right or responsibility, effectively requiring companies based outside of New Jersey to develop expertise on all potentially applicable New Jersey laws (even if their website terms of use purport to be governed by another state’s laws and have been carefully drafted and reviewed by lawyers admitted to practice in such state).

Think about it: If every state had a law similar to the TCCWNA, every e-tailer would need to have its online Terms of Use reviewed by as many as 50 different lawyers. The result would essentially be a full employment act for attorneys across the country.

Third, the TCCWNA is potentially dangerous for companies because it provides an “aggrieved consumer” with the option to seek recovery of a civil penalty of not less than $100. This means the penalties in class actions—especially the penalties in class actions over online terms and conditions—could add up quickly. The text of the statute also allows for actual damages, reasonable attorneys’ fees and court costs in addition to the civil penalty, and further states that such remedies are cumulative and do not preclude recovery available under other laws.

Some Guidance for Online Companies From Emerging TCCWNA Case Law

Because claims arguing that online terms and conditions violate the TCCWNA have been filed only recently, there is only sparse guidance from the courts on how online companies selling into New Jersey can protect against these lawsuits.

Moreover, any such company, if it has not already done so, should promptly contact New Jersey counsel for advice on how to ensure its online terms and conditions are compliant with the TCCWNA.

With those important caveats in mind, recent court decisions applying the TCCWNA do highlight some potential precautionary measures for website operators.

For example, as a first line of defense, it may be prudent for companies to include, and seek to bolster the enforceability of, an arbitration provision and a related class action waiver clause in their online terms and conditions. As an example, in one TCCWNA case, the Supreme Court of New Jersey indicated that an arbitration provision would have been enforceable if it had clearly and unambiguously notified the consumer that she was waiving her statutory right to seek relief in the court of law. While there is no prescribed wording for a valid arbitration provision, one New Jersey court found the following arbitration notice to be acceptable:

The parties to this agreement agree to arbitrate any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the [subject matter of the agreement]. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes.

As a second line of defense, it may be prudent for companies, working with New Jersey counsel, to review and potentially revise their online contracts, warranties and notices in light of TCCWNA cases to date. One approach suggested by existing TCCWNA case law is that businesses can avoid violating the TCCWNA’s prohibition on blanket “inapplicable in some jurisdictions” savings clauses by using different language in their savings clauses to achieve the same result. As noted above, the text of the TCCWNA prohibits savings clauses that state that certain terms “may be void, unenforceable or inapplicable in some jurisdictions” if such clauses do not identify which terms are or are not void, unenforceable or inapplicable in New Jersey. In Kendall v. CubeSmart L.P., however, the United States District Court for the District of New Jersey found that companies could use savings clauses that “attempt…to conform to New Jersey law.” Citing several cases, it held that the phrases “to the extent permitted by law,” “in the manner permitted by applicable law,” “allowed by applicable law” and “or as otherwise permitted by applicable law” were acceptable in savings clauses under the TCCWNA.

Continue Reading Controversial New Jersey Consumer Protection Law Creates a Potential “Gotcha” for E-Commerce Companies

Snapchat has caught on with “oldies” (that’s people 35 and older, FYI).

Facebook Messenger is testing “Secret” mode, a feature that allows some messages to be read only by the recipient.

A South Korean copy of Snapchat has taken off in Asia.

Using social media to help promote your brand? Here’s a list of top Facebook marketers and some advice on how to get your customers to make social platforms their point of purchase.

Meet MikMak, the mobile shopping network that sells via video.

A 14-year-old and his mother are suing Snapchat, claiming the app regularly exposes him to sexually explicit content.

Dieters are flocking to Instagram.

Twitter is looking to ink more NFL-style streaming deals.

Young performers are trying to achieve stardom by broadcasting on apps, such as YouNow. Perhaps they should go old school, and follow this advice on building the perfect YouTube channel.

The Wall Street Journal profiles Instagram’s founder, Kevin Systrom.

China is reportedly launching a crackdown on “fake news” spread on social media sites.

Snapchat’s new feature, “Memories,” will allow users to retain some content.

terms and conditionAs we have noted before, if you want to increase the likelihood that your website terms of use are enforceable against users, you need to do two things. First, you need to display the terms to users in a conspicuous way, and second, you need to require users to affirmatively accept the terms. Sgouros v. Transunion Corporation, a recent Seventh Circuit case, demonstrates that half measures won’t cut it.

Gary Sgouros, the plaintiff in Sgouros, alleged that Transunion had sold him an inaccurate credit report through Transunion’s website. Transunion filed a motion to compel arbitration based on an arbitration provision contained in the website’s terms of use. In discussing whether that arbitration provision was enforceable against Sgouros, the court goes into considerable detail regarding the ordering process on Transunion’s site.

Specifically, to complete his purchase of a credit report on Transunion’s site, Sgouros was required to complete several steps:

  1. Click on a large “Click Here” button on the website’s homepage under the heading “Get Your Credit Score & Report.”
  2. Furnish identifying information, and click “yes” or “no” to Transunion’s offer to send offers from its “trusted partners,” and then click a large orange button labeled “Submit & Continue to Step 2.”
  3. Create a user account name and password, input credit card information and click a “yes” or “no” bubble in answer to a question about whether the user’s billing information is the same as his or her home address.
  4. Click a button stating: “You understand that by clicking on the ‘I Accept & Continue to Step 3’ button below, you are . . . authorizing TransUnion Interactive, Inc. to obtain information from your personal credit profile . . .”

That was all Sgouros needed to do to purchase the credit report—at no point was he required to review or expressly accept the website’s terms of use.

The “I Accept & Continue to Step 3” button was, however, located below a rectangular scroll window with the words “Service Agreement” at the top, and the small hyperlinked words “Printable Version” appeared beneath the scroll box. The 10-page printable version of the Service Agreement in the scroll box did mention the arbitration provision on its first page and did include that arbitration provision in full on its eighth page. But the scroll window allowed Sgouros to view only three lines of text at a time, and no mention of the arbitration provision appeared in the immediately visible text.

Most significantly, the “I Accept & Continue to Step 3” button did not require Sgouros to first click on the scroll box or to scroll down to view its complete contents, nor did it call Sgouros’s attention to the arbitration provision in any way. The court detailed the shortcomings of Transunion’s implementation as follows:

[T]he web pages on which Sgouros completed his purchase contained no clear statement that his purchase was subject to any terms and conditions of sale. The scroll box contained the visible words “Service Agreement” but said nothing about what the agreement regulated. The hyperlinked version of the Service Agreement was not labeled “Terms of Use” or “Purchase” or “Service Agreement,” but rather just “Printable Version.” And . . . the visible words “This Service Agreement . . . contains the terms and . . . conditions upon which you . . . may access and use . . . ” fall short of providing notice that the purchase of a consumer credit score is subject to the agreement.

On these facts, the Seventh Circuit held that Sgouros’s click on the “I Accept & Continue to Step 3” button did not bind Sgouros to the arbitration provision in the terms of use because “this type of electronic ‘click’ can suffice to signify the acceptance of a contract” only “as long as the layout and language of the site give the user reasonable notice that a click will manifest assent to an agreement.” The opinion also notes that “[n]o court has suggested that the presence of a scrollable window containing buried terms and conditions of purchase or use is, in itself, sufficient for the creation of a binding contract.”

Sgouros is not the first case to demonstrate how crucial it is to implement website terms of use in a way that clearly connects the user’s affirmative actions to acceptance of the terms. The user must know exactly what he or she is doing by clicking the button or checking the box. Transunion had a terms of use, and Transunion required the user to click a button. But Transunion’s implementation failed to clearly connect those two things:

[W]hat cinches the case for Sgouros is the fact that TransUnion’s site actively misleads the customer. The block of bold text below the scroll box told the user that clicking on the box constituted his authorization for TransUnion to obtain his personal information. It says nothing about contractual terms. No reasonable person would think that hidden within that disclosure was also the message that the same click constituted acceptance of the Service Agreement.

Accordingly, the court denied Transunion’s motion to compel arbitration, adding one more entry to the list of companies that have lost the protection of their carefully crafted terms of use solely due to a poorly-implemented website checkout process.

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For more on website Terms of Use, please see the following Socially Aware posts:

Three Steps to Help Ensure the Enforceability of Your Website’s Terms of Use

Implementing and Enforcing Online Terms of Use

Please also check out Aaron Rubin’s video series regarding online Terms of Use:

Website Terms of Use: Are They Really Necessary?

Website Terms of Use: Check That Box!

Website Terms of Use: Out With the Old

04_21_Apr_SociallyAware_v6_Page_01The latest issue of our Socially Aware newsletter is now available here.

In this issue of Socially Aware, our Burton Award winning guide to the law and business of social media. In this edition, we discuss what a company can do to help protect the likes, followers, views, tweets and shares that constitute its social media “currency”; we review a federal district court opinion refusing to enforce an arbitration clause included in online terms and conditions referenced in a “wet signature” contract; we highlight the potential legal risks associated with terminating an employee for complaining about her salary on social media; we explore the need for standardization and interoperability in the Internet of Things world; we examine the proposed EU-U.S. Privacy Shield’s attempt to satisfy consumers’ privacy concerns, the European Court of Justice’s legal requirements, and companies’ practical considerations; and we take a look at the European Commission’s efforts to harmonize the digital sale of goods and content throughout Europe.

All this—plus an infographic illustrating the growing popularity and implications of ad blocking software.

Read our newsletter.