If you spend any time reading the legal press (or even the mainstream press) you might come away thinking that the primary function of the Internet today is to breed intellectual property litigation. It is certainly true that websites that rely on user-generated content create unique intellectual property issues, but the vast majority of these disputes never make it to the courtroom: They are settled by a Digital Millennium Copyright Act (DMCA) takedown notice or other formal or informal process between the rights-holder and the service provider.

The more complicated cases in this area arise not between websites and third-party rights holders, but between websites and their own users. In those cases there is no simple, statutory fix (such as a takedown procedure) and courts often end up examining the complex “terms of use” that govern the intellectual property and other rights apportioned among the user and the website. But there is a threshold question in those cases: When should a user be bound by those terms of use in the first place?

Importance of “Terms of Use”

User-generated content services, including social networking sites (such as Facebook and Twitter) and content sharing sites (such as YouTube), define the Internet for many current users. Devotees of these websites cannot live without them (as alleged in the Fteja case, discussed below), but few users take the time to understand their legal rights and obligations when using these services. Those rights and obligations are typically set out in an agreement called the “Terms of Use” or “Terms of Service,” which the website considers a binding contract with the user. Who owns the pictures on my Facebook wall? Who (precisely) has the right to re-publish my Tweets and linked images? What rights do I retain in my Instagram stream? All of these questions are answered by the specific terms of use promulgated by the services at issue—and sometimes by other, partner services.

At the start, however, “terms of use” cases are complex because, as a practical matter, few users actually read those terms before using the service. Courts struggling with this issue have invented a host of new terms to describe the electronic contracting process: “shrinkwrap” contracts, “clickwrap” contracts and most recently “browsewrap” contracts. But as a recent decision from the district court in the Southern District of New York makes clear, this is an area where the law is struggling to keep up with the technology.

In Fteja v. Facebook Inc.,1 plaintiff was a Facebook user who alleged that Facebook had improperly disabled his account for discriminatory reasons—specifically because of his religion—causing him serious business and social damage, as well as grave emotional distress. He sued Facebook in New York State Supreme Court. Facebook removed the case to the Southern District, then moved to transfer the case to the Northern District of California pursuant to a forum selection clause in its Terms of Use. Fteja opposed the motion, but the court granted it.

The opinion is interesting because of its exhaustive treatment of the Facebook sign-up process and its discussion of exactly what is required to create a binding contract for a web-based service. It discusses in detail the line between enforceable and unenforceable “click-through” agreements, and as such offers a case study in the potential pitfalls inherent in creating those agreements and the supporting web structure around them. Although Facebook’s sign up procedure might seem bulletproof (even to a sophisticated practitioner in the area), Facebook came close to losing this one, and the detailed opinion is a rare look at a judge’s thought process in reaching what looks like the right result in a close case.

An Evolving Landscape

The terms “clickwrap agreement” and “browsewrap agreement” arise by analogy with so-called “shrinkwrap” agreements. A shrinkwrap agreement is one that arises when a user removes the shrinkwrap from a box of software and installs it on his or her computer, typically clicking through (or at least being presented with) a message that states that the software is sold or licensed on terms set out in an agreement to be found in the box. If those terms are not acceptable, the user is directed to remove the software and, in theory, return it. Of course few people read the insert in the box and it is unclear whether such returns would even be possible, but courts routinely uphold shrinkwrap agreements.2 Shrinkwrap agreements, though generally enforceable, do present an unusual set of circumstances: Prospective buyers must consent to the terms of a purchase or license agreement before they actually know what those terms are. They must buy the package, in essence, to find out what they are actually buying. Enforceability has therefore sometimes been found to turn on a “way out”—the ability to void the purchase once the box is open and the terms are available.

Of course, in the age of web-based services the concept of a shrink-wrapped box of software is positively quaint. Agreements on the web are commonly acknowledged by clicking a button marked something like “I Agree.” In the usual clickwrap case that button appears at the end of an agreement and the user must either scroll through the agreement to reach the button or at least click a checkbox to make it clear that he or she has read the terms. These kinds of extra indicia of assent are important, particularly in New York, because the U.S. Court of Appeals for the Second Circuit has been somewhat suspicious of clickwrap contracts.

In Specht v. Netscape Communications Corp.,3 the Second Circuit affirmed the lower court’s decision not to enforce an arbitration clause in a clickwrap license agreement for a browser plugin. Although the download page for the plugin referred to the license agreement, users would have had to scroll and click through pages of text and links to find the agreement and the relevant language. The court essentially found that there was no evidence they had done so, or could reasonably have been expected to do so, even though the download page did say (somewhere) that by clicking the “Download” button they assented to the terms of the license. The court wrote:

Mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract…. [A] consumer’s clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms.4

Cases decided after Specht (including one by the Second Circuit) have enforced website terms of service—even without an explicit click-through—where there is evidence that the user actually saw the terms and understood that use of the service implied acceptance of them.5 But the case law on this remains uneven in New York and counsels an approach that makes it absolutely impossible for a user to argue that he or she did not see the terms at issue. If a website employs a click-through process that ensures that users see the agreement they are accepting, New York courts are likely to enforce that agreement.

The Rise of the “Browsewrap”

Against this background, courts in a number of jurisdictions, including New York, have examined a third variety of Internet contract: the “browsewrap” agreement. A browsewrap agreement describes the case in which the terms of use are included on a website only under a link (perhaps labeled “legal” or “terms of use”) and the user is deemed to have accepted them simply by visiting the website and using the service—perhaps via a launch page that includes some reference to the terms, but without any explicit agreement to them.

Browsewrap agreements represent the far end of the continuum in terms of indicia of user assent. In a shrinkwrap agreement, the paper contract is included in the box and the user must buy the product, install it, read an electronic warning and use the product to be deemed to have accepted the contract. In the typical clickwrap case, the user has been presented with the terms in a scrolling window and has clicked a button indicating agreement. In the browsewrap case, there is no indication at all that users have seen the terms, or even that they know they exist.

The cases that uphold substantive browsewrap agreements are generally based either on the fact that the user actually knew of the terms at issue, or on the assumption that Internet users should know their interactions are governed by terms of use and would be well served by finding them. New York courts, however, have not taken that view. In Hines v. Overstock.com Inc., for example, the court declined to enforce the forum selection clause in Overstock.com’s “Terms and Conditions” because there was no evidence that plaintiff had ever seen those terms or been prompted to look for them. Merely using the site, the court held, was not enough to bind the user to its terms and conditions: “Very little is required to form a contract nowadays,” the court wrote, “but this alone does not suffice.”6

Examining Facebook

With this in mind, the Fteja court examined Facebook’s sign-up procedures to try to determine whether they were sufficient to create a binding contract out of Facebook’s terms of use. Facebook’s sign up process, as described by the court, is not unusual: Users must fill out several fields of personal information, click a button marked “Sign Up,” go on to another page that presents security questions and click another button marked “Sign Up.” The court noted that the second page states: “By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service.” The court also noted:

The phrase “Terms of Service” is underlined, an indication that the phrase is a hyperlink, a phrase that is “usually highlighted or underlined” and “sends users who click on it directly to a new location—usually an internet address or a program of some sort.”7

The court thus held that Fteja must have seen this second page and that by clicking the “Sign Up” button he indicated that he had read and agreed to the terms.

The court, however, did not consider this dispositive. It found that Facebook did not present “a pure-form clickwrap agreement” because the terms did not appear on the same page as the sign-up button but rather required the user to click a link to read them. The court therefore spent substantial time reviewing the law of browsewrap agreements and discussing the possibility that the Facebook signup procedure presented some kind of hybrid between the clickwrap and browsewrap cases.

In the end, however, the court noted that although “[t]he mechanics of the Internet surely remain unfamiliar, even obtuse to many people,” an experienced Internet user should be able to click a link to read the terms of use. The court analogized the case to decisions that have enforced contract terms printed on the backs of cruise line tickets, noting that, for Internet users, clicking on a link is the equivalent of “turning over the ticket.” Having found that plaintiff agreed to the terms of use, including the forum selection clause, and having addressed the other potential barriers to transfer (including the convenience of witnesses and the plaintiff’s alleged disability), the court granted Facebook’s motion to transfer the case.

Lessons From Facebook

The most interesting thing about the Fteja opinion may be its length. Facebook has what most practitioners would consider a bullet-proof clickwrap signup system, but the court saw it differently and ended up doing an extensive analysis reflecting substantial discomfort with the process. Although the court eventually reached what appears to have been the right conclusion on the facts, Facebook might have avoided the issue by making its terms of use more present at signup. Plaintiff in this case was a pro se litigant, so the court may have been inclined to be especially careful, but the lesson is that web services doing business in New York must be careful to stay firmly on the “clickwrap” side of the line. New York courts simply are not yet comfortable with the idea of implied acceptance of contract terms—at least in the Internet context.

Stephen M. Kramarsky, a member of Dewey Pegno & Kramarsky, focuses on complex intellectual property litigation.

Endnotes:

1. No. 11 Civ. 918 (RJH), 2012 WL 183896 (S.D.N.Y. Jan. 24, 2012).

2. The seminal shrinkwrap agreement case is probably Judge Frank H. Easterbrook’s opinion in ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). New York courts have also upheld these kinds of agreements. See, e.g., Brower v. Gateway 2000 Inc., 246 A.D.2d 246, 251, 676 N.Y.S.2d 569, 572 (1st Dept. 1998).

3. 306 F.3d 17, 29-30 (2d Cir. 2002).

4. Id. at 29-30.

5. See, e.g., Register.com Inc. v. Verio Inc., 356 F.3d 393 (2d Cir. 2004).

6. 668 F. Supp. 2d 362, 367 (E.D.N.Y. 2009) aff’d, 380 F. App’x 22 (2d Cir. 2010).

7. Fteja, 2012 WL 183896, at * 5 (quoting United States v. Hair, 178 F. App’x 879, 882 n.3 (11th Cir. 2006)).