Ensuring Enforceability Of Online E-Commerce

Online terms of service, terms of use or "terms and conditions" ( collectively, "TOS") are ubiquitous-rarely do we see a website without some form of TOS, typically accessed through a link at the bottom of a site's home page. This runs the gamut from sites that are purely informational and passive, having no end-user interactions and posting no third party content, to those focusing on user-generated content ("UGC") and e-commerce, be it at the consumer or business-to-business level. But merely posting TOS on a site does not make them enforceable. To ensure enforceability, an end-user must either provide clear affirmative electronic assent to the TOS or have actual or constructive notice of conspicuously posted TOS before proceeding to interact with a site. Specific provisions of TOS, particularly waivers of material rights, must also pass muster under applicable state law.

In this context, online TOS are no different than any other form of contract, which, as we all learned in our first year of law school, requires both a clear offer and acceptance under applicable state law.1 As the Second Circuit has observed: "While new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract."2 In the context of the Internet, this "meeting of the minds" must occur digitally, such that courts can unequivocally conclude that a user had at least constructive, if not actual, notice of the TOS and an opportunity to review them before taking action on a website or in connection with an online purchase.3 Even if TOS are deemed "accepted" by end-users, they still can be challenged-and often are from the defense side-as contracts of adhesion or as being unconscionable, either in whole or as to specific terms, such as forum selection and liability limitation clauses.

For a purely passive informational site, TOS typically only need to provide basic disclosures, including notice of intellectual property rights, company contact details and site administration information. Enforceability is therefore not a major concern. But once a site becomes interactive in any way, those TOS sitting at the bottom of a web page are meaningless unless they are reasonably communicated to, and form a legally binding contract with, end-users.

Among the most critical provisions in TOS from the provider's perspective are those concerning choice of law, mandatory forum selection, arbitration and class action waivers, warranty disclaimers and limitations of liability. Where UGC, merchant or other third party content is posted on a site, additional key terms will include content license terms dictating what usage rights are ceded to the service provider in that content, and a requisite "takedown" policy and agent designation under the Digital Millennium Copyright Act ("DMCA"), which is necessary for a non-publisher service provider to take advantage of the secondary liability "safe harbor" under the DMCA.4 From an online provider's perspective, the enforceability of these types of material terms is critical to controlling exposure to potentially substantial liabilities and the costs attendant to litigating multiple claims throughout the country in different legal jurisdictions.

"[M]erely posting TOS on a site does not make them enforceable. To ensure enforceability, an end-user must either provide clear affirmative electronic assent to the TOS or have actual or constructive notice of conspicuously posted TOS before proceeding to interact with a site."

Where such terms are material to a provider's business model, existing TOS and the applicable website interface should be reviewed carefully and revised as necessary to insure enforceability on an ongoing basis. TOS should also incorporate by reference, and hyperlink to, a website's applicable privacy policy, which then becomes part of the overall contract with an end-user.

Browsewrap vs. Clickwrap TOS

Online TOS generally fall into one of two categories: "browsewrap" or "clickwrap" agreements, although there are nuances within each category. "Browsewrap" refers to TOS that typically are posted on a site and do not require any affirmative assent by an end-user to use the site or its services.5 Browsewrap TOS often sit passively as a hyperlink at the bottom of a website home page, but may also be brought to a user's attention and accessed through one or more links on a site, without requiring an end-user to affirmatively accept...