“Clickwrap” Arbitration Agreement in Email’s Hyperlink Unenforceable

In Starke v. SquareTrade, Inc., 2019 WL 149628 (2d Cir. Jan. 10, 2019), the 2nd Circuit affirmed a district court ruling that a “clickwrap” arbitration agreement in an email’s hyperlink was unenforceable because it did not give reasonable notice. While “shrinkwrap” was the name given to contracts on the box of tangible products, “clickwrap” is the name for agreements formed when a user clicks a link as opposed to opening some packaging. In Starke, following the consumer’s purchase of a service contract, the seller sent an email to the consumer with a hyperlink that was “inconspicuously placed” at the bottom, according to the court. The court provided guidance as to what can in future transactions be done to ensure the transaction process results in a binding agreement.

Check out Proskauer Rose’s article on Starke for a detailed discussion of the reasoning, images of the screens at issue and a list of the factors the court provided.

A couple weeks later in Sultan v. Coinbase, Inc.,  2019 WL 319391 (2d Cir. Jan 24, 2019), the 2nd Circuit case found enforceable an arbitration agreement that a user agreed to when signing up to use the digital currency exchange Coinbase. Proskauer Rose discusses Sultan and outlines how some of the same factors mentioned in Starke led to enforcement.

I posted on the issue of ‘clickwrap’ agreements previously when discussing what is required to manifest assent. I excerpted an article written by Widener University Law Professor Juliet M. Moringiello entitled “Notice, Assent, and Form in a 140 Character World.”

Arbitration Clauses and Other Online Contract Terms

Interesting and well written article, Notice, Assent, and Form in a 140 Character World, by Widener University Law Professor Juliet M. Moringiello. 

She writes

From the earliest days of internet contracting disputes, courts and scholars used the terms “clickwrap” and “browsewrap” to describe the different types of electronically presented terms, with clickwrap referring to terms to which party could accept only by clicking a web site button and browsewrap denoting terms for which no click was required and which often provided that a web site user accepted them merely by browsing the web site....
The recent opinion in Tompkins v. 23andMe, Inc., Case No. 5:13-CV-05682-LHK, N.D. Cal., June 25, 2014. illustrates both the doctrinal confusion that can result from adherence to a electronic contracting lexicon that is limited to the terms “clickwrap” and “browsewrap” and the tendency of courts to hold that so long as there is notice of the notice of contract terms, a contract will be formed when the web site user takes the requested acceptance action. The dispute involved a personal genetics company that provided individuals with a genome profile developed from a DNA sample. Numerous customers of 23andMe filed class action complaints against the company alleging various false advertising and consumer protection claims, and the company moved to compel arbitration, citing the plaintiffs’ agreement to arbitrate.

Social Networking Users Routinely Agree to Arbitrate

Suffolk University Law Professor  Michael Rustad writes here that users of social network sites "around the world are required to agree to predispute mandatory arbitration as a condition of joining social networking communities. Consumers who enter into “clickwrap” or “browsewrap” terms of service agreements waive their right to a jury trial, discovery, and appeal, without reasonable notice that they are waiving these important rights." 

For my views on the enforceability of these and other consumer arbitration clauses, see The Case for Enforcing Adhesive Arbitration Agreements