Avoiding Internet Litigation in Inconvenient Forums

In several recent decisions courts have reached far to assume personal jurisdiction over Internet businesses. These decisions demonstrate the substantial risk unwary Internet businesses face of being forced to litigate in inconvenient or inhospitable forums. Although the law in this area is rapidly developing, there are steps an Internet business can take to reduce this risk. On Aug. 7, 2001, a California appeals court assumed personal jurisdiction over an Indiana University college student whose only contact with California was posting material on a Web site that could be accessed by California Internet users. Pavlovich v. Superior Court (DVD Copy Control Assoc.), 109 Cal. Rptr. 2d 909, 916 (Cal. App. 6th Dist. 2001), cert. granted, 114 Cal. Rptr. 2d 611 (Cal. Dec. 12, 2001). The lawsuit alleged that the student violated California copyright law by allowing users to pirate films on digital versatile discs (“DVDs”). Pavlovich ran a Web site that allowed users to download a program that was designed to defeat the DVD Copy Control Association’s encryption-based copy protection system, known as the Content Scramble System, or CSS. Id. at 911. Using the “effects” doctrine, the California court held that because (1) Pavlovich admitted that he knew that his Web site allowed the illegal publishing and distribution of DVDs, (2) Pavlovich knew the motion picture industry is centered in California, and (3) the computer and telecommunication industries have a substantial presence in California, Pavolovich was subject to personal jurisdiction in California. [FOOTNOTE 1] The court reasoned: “[I]nstant access provided by the Internet is the functional equivalent of personal presence of the person posting the material on the Web at the place from which the posted material is accessed and appropriated. It is as if the poster is instantaneously present in different places at the same time, and simultaneously delivering its material at those different places.” Id. at 916. Foreign courts have also reached far to assume jurisdiction over Internet businesses. In Licra v. Yahoo! Inc., County Court of Paris, N (RG: 00/05308, May 2000, a French court assumed jurisdiction over U.S.-based Yahoo!, Inc. The court required Yahoo to “render impossible” access by persons in France to auctions featuring Nazi memorabilia on servers based in the United States. Although a U.S. federal court recently held that the French order in Yahoo is unenforceable in the United States because it is inconsistent with Yahoo’s First Amendment right to free speech, Yahoo!, Inc. v. La Ligue Contre Le Racisme et L’Antisemitisme, 169 F. Supp. 2d 1181, 1195 (N.D. Cal.,2001), that court decision did nothing to undermine the French court’s finding of personal jurisdiction. CAUTION FLAG These decisions should raise a bright red caution flag for Internet businesses — do business at your own risk, if appropriate precautions are not taken, you too could find yourself defending a lawsuit in a court a world away. Such precautions, at a minimum, include having users of Internet services or products enter into binding agreements before using the services or products in which they agree on how and where any dispute that arises will be resolved. For instance, an Internet business may want its users to agree that any dispute arising between them shall be resolved in the courts of the Internet business’s home state or city, or that it shall be resolved before an arbitration tribunal rather than a court, or that a judge rather than a jury will decide the case, or that the law of a particular state will govern the relationship. If enforced, such clauses will provide the business with a measure of predictability and control over any dispute resolution process. However, enforceability of such terms cannot be taken for granted. In the last several years, courts have struggled to determine under what conditions to enforce license agreements containing such clauses where the agreements are attached to Web sites. As the cases discussed below demonstrate, the enforceability of these agreements turns on the conspicuousness of the agreements and the degree to which users have manifested that they understand the agreements and consent to them before using the Internet service or product. Generally speaking, there are two types of Web site license agreements: a “browse-wrap” and a “click-wrap” agreement. A browse-wrap agreement is a license agreement set forth somewhere in the Web site; there is no need for a user to affirmatively manifest his consent to the terms of a license agreement prior to the use of a Web site’s services. In contrast, a click-wrap agreement requires, as a condition to use or acquisition of the product being sold or given away on a Web site, that the user manifest his or her assent to the terms of the license agreement by clicking on an icon prior to use. Several cases have considered the enforceability of browse-wrap licenses. In Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585, 596 (S.D.N.Y. 2001), a New York federal court refused to enforce an arbitration clause contained in a browse-wrap license agreement. In that case, Netscape, the defendant, was the distributor of the program SmartDownload, which it distributed without cost to users. Several of those users brought an action in federal court against Netscape, alleging that SmartDownload transmitted private information about their file transfer activity on the Internet in violation of two federal statutes. Netscape sought to compel arbitration, relying on the arbitration clause in Netscape’s license agreement. To access the license, a user had to scroll to the bottom of the web page where he could download the SmartDownload program and click on a link to the license agreement. Just below the link Netscape requested the user to “Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using this software.” Id. at 588. The license agreement did not, however, require the user to click on an icon to express assent to the license, or even to view its terms, before proceeding to download the program from Netscape’s Web site. Id. at 595. The court termed this arrangement a “browse-wrap” license. Id. The Southern District of New York, applying California law, refused to compel arbitration. It found that the users had not assented to the license containing the arbitration provision before downloading the program. The court found that the statement at the bottom of the screen was “a mere invitation, not … a condition,” and that this “language of the invitation” did not require the reading of the license terms or provide adequate notice either that a contract is being created or that the terms of the License Agreement would bind the user. Id. at 596. Users did not know that they were assenting to a contract by downloading Netscape’s software because “the primary purpose of downloading is to obtain a product, not to assent to an agreement.” Id. at 595. Consequently, the browse-wrap license agreement was unenforceable and the court refused to compel arbitration. In Pollstar v. Gigmania Ltd., 170 F. Supp. 2d 974, 980-981 (E.D. Cal. 2000), small gray print on a gray background informed users of the Web site that provided concert information that the use of information offered on the Web site was “subject to license agreement.” As in Specht, clicking on the notice caused the full license agreement to appear on the screen. Although the Pollstar court did not rule on the validity of the license, it expressed concern that “many visitors to the site may not be aware of the license agreement.” Id. In Ticketmaster v. Tickets.com, No. CV 99-7654 HLH (BQRx), 2000 WL 525390 (C.D. Cal., March 27, 2000), a license agreement setting forth “terms and conditions” governing the use of the Ticketmaster Web site was on the Ticketmaster homepage. A disclaimer on the homepage notified users that anyone going beyond the Ticketmaster homepage agrees to the terms and conditions. Id. at 3. The court refused to enforce the license agreement, however, because to find the agreement the user had to scroll down the homepage. Id. The court was concerned that “many customers are likely to proceed to the page of interest rather than reading the ‘small print,’” and concluded that “it cannot be said that merely putting terms and conditions in this fashion necessarily creates a contract with any one using the web site.” Id. In Register.com v. Verio, 126 F. Supp. 2d 238 (S.D.N.Y. 2000), the court enforced a browse-wrap license agreement that conditioned access to an Internet database on assent to its terms, even though there was no requirement that the users expressly manifest his assent. In particular, the terms of use stated, “by submitting this query, you agree to abide by these terms.” The court found that the license agreement’s terms of use were clearly posted on the Web site and that “there can be no question that by proceeding to submit a [query], Verio manifested its assent to be bound by Register.com’s terms of use, and a contract was formed . …” Id. at 248. Whereas courts have given browse-wrap agreements a lukewarm reception at best, they have uniformly expressed approval of click-wrap agreements. In Specht, the court noted, “the few courts that have had occasion to consider click-wrap contracts have held them to be valid and enforceable.” 150 F. Supp. 2d at 594. For example, in Groff v. America Online, No. PC 97-0331, 1998 WL 307001 (R.I. Super. May 27, 1998), America Online required all members to click twice on “I agree” buttons to manifest assent to a clause stating that Virginia law would govern all disputes under the membership agreement. The court ruled that the clause was “prima facie valid.” Id. at 8. Users also had the option to click on a “read now” button to review the agreement and could decline to accept the membership agreement altogether. Id. at 14. See also Hotmail v. Van Money Pie, No. C-98 JW PVT ENE, 1998 WL 388389 at 6 (N.D. Cal. April 16, 1998). In brief, courts appear to uphold click-wrap agreements because the click feature ensures that users consciously and affirmatively assent to a license agreement. Legislation and proposed uniform codes have also lent support and sanction to the enforceability of click-wrap agreements. [FOOTNOTE 2] CONCLUSION In light of the expansive approach courts around the world are taking to personal jurisdiction issues in the Internet context, Internet businesses are well advised to become familiar with the growing body of case and statutory law that deal with the enforceability of Web site license agreements. By carefully drafting such agreements, making them easy to find and to read, and requiring that users of the Web sites manifest assent to them before using the service or product by clicking “I agree,” Internet businesses can reduce the risk of exposure to litigation in inconvenient or inhospitable forums. Robert Y. Lewis is a partner with Freeman Lewis in New York. Alexander T. Linzer, a third-year law student at Fordham University School of Law, contributed to the preparation of this article.

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