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Online Contract Formation: Are your “Terms of Use” binding?

Many companies have their “terms of use” posted on their websites, but are they binding? The Ninth Circuit Court of Appeals recently decided a case addressing this specific issue and providing guidance to businesses that use websites and/or mobile applications in transacting with customers.

Facts of the case

In Nguyen v. Barnes & Noble Inc., the plaintiff alleged, among other things, that the operator of the website engaged in deceptive business practices when it cancelled an order he placed and was confirmed by Barnes & Noble, Inc. In response, the website operator filed a motion to compel arbitration as required under the terms of use (TOU) posted on its website. The plaintiff argued that he should not be bound by the arbitration requirement because he did not have notice of, nor did he agree to, the TOU.

The TOU on the website were accessible through underlined, green hyperlinks located in the bottom corner of each page of the website. The hyperlinks were located beside other legal notices and near buttons a user had to click on to complete an online purchase. The website operator claimed this gave the user constructive notice of the TOU and the plaintiff continued to use the website after such notice.


The Court of Appeals for the Ninth Circuit sided with the plaintiff. The court reasoned that although the hyperlinks to the TOU were conspicuous on every page of the website, the user was never prompted to agree to them. Even having the hyperlinks located close to other buttons the user must click on, without more, is insufficient to give constructive notice. As a result, the plaintiff did not accept the TOU, did not enter into a binding agreement with the website operator, and therefore arbitration was not required to address plaintiff’s claims.


This decision demonstrates that the rules of contract formation still apply to website agreements and terms of use. It also highlights the importance of requiring the user to take an affirmative action to accept the TOU. As Nguyen indicates, you should require the user to click on an “I Agree” box before allowing the user to complete a transaction.

Courts are reluctant to bind individual consumers to agreements or terms of use contained in browsewrap contracts. In fact, the Ninth Circuit commented in a footnote that the standard may be higher where agreements are being enforced against consumers than against business entities. Regardless, this decision should serve as notice to all website operators that browsewrap terms of use have serious limitations.

Remember, you can have the most solid and protective TOU possible, but if they are not enforceable, they do you no good.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.


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