Barnes & Noble faces class action lawsuit over ‘browsewrap’ arbitration agreements

Posted
by Eric Pearson

The notion of a “binding contract” once conjured notions of two parties negotiating back and forth until finally reaching a compromise of some sort. Then, they put it all in writing and both signed their names to indicate precisely what terms they were both agreeing to. That is of course still one way of creating a contract.

In the digital age, courts have at times been quick to find binding contracts in a variety of increasingly less traditional contexts. For example, a “clickwrap” agreement (sometimes called “clickthrough” agreement or “clickwrap license”) is a commonly used in connection with software licenses. For example, a clickwrap agreement is commonly part of the online download and installation process of software. A typical clickwrap agreement requires the consumer to indicate agreement to all of the terms by clicking an “ok” or “agree” button before the consumer is allowed to install or use the software.

“Clickwrap” owes its name to a predecessor variant, so-called “shrink wrap contracts” which were (and are) commonly used in boxed software purchases that were far more common before the rise of the download era. In a shrinkwrap contract, the packaging contains a notice that by merely tearing open the shrinkwrap, the consumer agrees to any and all fine print included within.

Increasingly, Internet websites are trying to create binding contracts by including language along the lines of “[b]y using this website you agree ….” and then setting out or referencing whatever terms are involved. Our courts are still just beginning to fully consider the extent to which such “browse wrap” agreements should be considered binding on website users. Unlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent to the terms. Rather, a party supposedly gives his assent simply by using the website.

The Ninth Circuit Court of Appeals was recently called upon to consider the enforceability of a browsewrap agreement in Nguyen v. Barnes & Noble Inc., No. 56628 (9th Cir. Aug. 18, 2014). Siding with consumers and with the traditional concept of a contract, the court of appeals refused to enforce an alleged arbitration agreement within a browsewrap agreement.

The plaintiff Kevin Khoa Nguyen (“Nguyen”) purchased two HP Touchpads on Barnes & Noble’s website in August of 2011, and received an email confirming the transaction. The following day, Nguyen received another email informing him that his order had been cancelled due to unexpectedly high demand. Nguyen filed a class action lawsuit against Barnes & Noble alleging that, as a result of “Barnes & Noble’s representations, as well as the delay in informing him it would not honor the sale,” he was “unable to obtain an HP Tablet during the liquidation period for the discounted price,” and was “forced to rely on substitute tablet technology, which he subsequently purchased … [at] considerable expense.”

Barnes & Noble moved to compel arbitration under the Federal Arbitration Act, arguing that Nguyen was bound by the arbitration agreement in the website’s Terms of Use. The website’s Terms of Use are available via a “Terms of Use” hyperlink located in the bottom left-hand corner of every page on the Barnes & Noble website, which appears alongside other hyperlinks labeled “NOOK Store Terms,” “Copyright,” and “Privacy Policy.” These hyperlinks also appear underlined and set in green typeface in the lower lefthand corner of every page in the online checkout process.

Nguyen neither clicked on the “Terms of Use” hyperlink nor actually read the Terms of Use. Nguyen contended that he couldn’t be bound to the arbitration provision because he neither had notice of nor assented to the website’s Terms of Use. Barnes & Noble argued that the placement of the “Terms of Use” hyperlink on its website put Nguyen on constructive notice of the arbitration agreement. According to Barnes & Noble, this notice, combined with Nguyen’s subsequent use of the website, was enough to bind him to the Terms of Use.
The district court refused to compel arbitration and Barnes & Noble appealed.

The issue before the court was simply whether a valid arbitration agreement existed between Nguyen and Barnes & Noble. The Ninth Circuit began by noting “[w]hile new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.” Nguyen, supra quoting Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir.2004). “One such principle is the requirement that ‘[m]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.’” Nguyen, supra quoting Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 29 (2d Cir. 2002).

Turning specifically to the browsewrap context, the Ninth Circuit noted that courts have enforced browsewrap agreements where the user had actual notice of the agreement. However, where there is no evidence that the website user had actual knowledge of the agreement, “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” Nguyen, supra (citations omitted). Whether a user has inquiry notice of a browsewrap agreement, in turn, depends on the design and content of the website and the agreement’s webpage. Id.

Barnes & Noble argued that the placement of the “Terms of Use” hyperlink in the bottom left-hand corner of every page on the Barnes & Noble website, and its close proximity to the buttons a user must click on to complete an online purchase, is enough to place a reasonably prudent user on constructive notice. The Ninth Circuit disagreed, stating that “the proximity or conspicuousness of the hyperlink alone is not enough to give rise to constructive notice, and Barnes & Noble directs us to no case law that supports this proposition.” Id. The court held that “where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.” Id. In other words, the website did not state that by merely using the site you were agreeing to terms and conditions.

Finding Nguyen had insufficient notice of Barnes & Noble’s Terms of Use, the Ninth Circuit ruled that Nguyen did not enter into an agreement with Barnes & Noble to arbitrate his claims. The court emphasized that “[w]ere there any evidence in the record that Nguyen had actual notice of the Terms of Use or was required to affirmatively acknowledge the Terms of Use before completing his online purchase, the outcome of this case might be different.” Id.

Heygood, Orr & Pearson Guides its Clients through the Complex World of Class Action Lawsuits

A class action lawsuit is a lawsuit brought by a group of people who have suffered similar harm from similar actions of a particular defendant. The lawsuit is filed is by one or sometimes more “class representatives” who ask the court for permission to represent the interests of the entire class, i.e., all those other people who were treated and injured in much the same way.

Class action lawsuits are subject to their rules and often expensive to pursue. There is a great difference to corporations between paying damages to a few victims and paying damages to every victim. Not surprisingly, corporations fight hard to defend themselves against class actions.

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