E-Commerce
Clickwrap Agreements
Browsewrap Agreements
Smartphone App User
Reasonable Notice of its Terms of Use
Constructive Notice
Contract Drafting
Motion to Compel Arbitration
Online Commerce: Traditional Principles of Contract
Still Apply
Washington State Law
Argued and Submitted August 29, 2019 Seattle, Washington
The question of first impression for our court is under what
circumstances does the download or use of a mobile application (“app”) by a
smartphone user establish constructive notice of the app’s terms and
conditions?
The panel affirmed the district court’s denial of HUUUGE Inc.’s motion
to compel arbitration against a smartphone app user.
Under Washington law, the panel held that because Huuuge did not provide
reasonable notice of its Terms of Use, the app user did not unambiguously
manifest assent to the terms and conditions or the imbedded arbitration
provision. The panel held that the app user had neither actual notice nor
constructive notice of the Terms of Use, and thus was not bound by Huuuge’s
arbitration clause in the Terms.
Wilson downloaded the app from Apple’s App Store in early 2017 and
played Huuuge Casino for over a year.
Huuuge does not require users to affirmatively acknowledge or agree to
the Terms before downloading or while using the app. Users can access Huuuge’s
Terms in two ways: 1) reading the Terms before downloading the app, although
the user is not required to do so; or 2) viewing the Terms during game play,
which is similarly not necessary to play the game. Either way, the user would
need Sherlock Holmes’s instincts to discover the Terms.
Typically, a user would first search for the app in a smartphone app
store. One option is to download the app directly from the search results, in
which case the user does not view anything that alerts him to the existence of
the Terms. Alternatively, instead of a direct download, the user would need to
click through to Huuuge Casino’s landing page. Next, the user must click on the
small blue text stating “more” in the app’s description, which reveals the
app’s full profile. The user would then need to scroll through several
screen-lengths of text to encounter a paragraph that starts with “Read our
Terms of Use,” and includes the text of a link to the Terms. The link, however,
doesn’t magically conjure the Terms. Instead, the user must copy and paste or
manually enter the URL into a web browser to access the Terms.
Once a user has downloaded the app, the user can play games immediately.
During gameplay, a user can view the Terms by accessing the settings menu. The
settings menu can be accessed by clicking on a three dot “kebob” menu button in
the upper right-hand corner of the home page. If a user clicks on the
button, a pop-up menu of seven options appears. The fifth option is titled
“Terms & Policy” and reveals the Terms, including the arbitration
agreement.
It is not necessary for a user to open the settings menu while playing
the app. Nor is there a requirement to acknowledge or agree to the Terms when
opening the app, creating an account, playing the game, or at any other point.
The FAA requires district courts to stay judicial proceedings and compel
arbitration of claims covered by a written and enforceable arbitration
agreement. 9 U.S.C. § 3.
Huuuge, as the party seeking to compel arbitration, must prove the
existence of a valid agreement by a preponderance of the evidence. Norcia v.
Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). To
determine whether such an agreement exists, “federal courts ‘apply ordinary
state-law principles that govern the formation of contracts.’” Nguyen v.
Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (quoting First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).
The parties agree that Washington state law governs the validity of the
arbitration agreement since there is no choice of law provision in the
agreement and the district court has diversity jurisdiction. See First
Options of Chi., Inc., 514 U.S. at 944.
As we have acknowledged many times, although online commerce has
presented courts with new challenges, traditional principles of contract still
apply. See, e.g., In re Holl, 925 F.3d 1076, 1084 (9th Cir. 2019).
In the context of online agreements, the existence of mutual assent
turns on whether the consumer had reasonable notice of the terms of service
agreement. Nguyen, 763 F.3d at 1177; Wilson v. Playtika, Ltd.,
349 F. Supp. 3d 1028, 1037 (W.D. Wash. 2018).
(…) We now move to the issue of constructive notice. Just as we have
applied traditional contract principles to online contracts, we do so here too.
Online contracts fall into two broad categories. Nguyen, 763 F.3d at
1175-76. Clickwrap agreements require users to affirmatively assent to the
terms of use before they can access the website and its services. Browsewrap
agreements do not require the user to take any affirmative action to assent to
the website terms. Id. In some situations, a user may not even know a
website has a user agreement.
Huuuge’s agreement is unambiguously a browsewrap agreement. Wilson was
not required to assent to Huuuge’s Terms before downloading or using the app—or
at any point at all. Huuuge did not notify users that the app had terms and
conditions, let alone put them in a place the user would necessarily see.
Instead, a user would need to seek out or stumble upon Huuuge’s Terms, either
by scrolling through multiple screens of text before downloading the app or
clicking the settings menu within the app during gameplay.
In the absence of actual knowledge, a reasonably prudent user must be on
constructive notice of the terms of the contract for a browsewrap agreement to
be valid.
In Nguyen v. Barnes & Noble, we stressed that “the onus must
be on website owners to put users on notice of the terms to which they wish to
bind consumers.” Id. at 1179. The burden similarly falls on app
operators.
Users are put on constructive notice based on the conspicuousness and
placement of the terms and conditions, as well as the content and overall
design of the app. For example, courts will not enforce agreements where the
terms are “buried at the bottom of the page or tucked away in obscure corners
of the website,” especially when such scrolling is not required to use the
site. Id. (citing to Specht v. Netscape Commc'ns Corp., 306 F.3d
17, 23 (2d Cir. 2002)). Similarly, courts decline to enforce agreements where
the terms are available only if users scroll to a different screen, Hines v.
Overstock.com, Inc., 668 F. Supp. 2d 362, 367 (E.D.N.Y. 2009), complete a
multiple-step process of clicking non-obvious links, Van Tassell v. United
Mktg. Grp., 795 F. Supp. 2d 770, 792-93 (N.D. Ill. 2011), or parse through
confusing or distracting content and advertisements, Starke v. SquareTrade,
Inc., 913 F.3d 279, 293 (2d Cir. 2019); Nicosia v. Amazon.com, Inc.,
834 F.3d 220, 237 (2d Cir. 2016). Even where the terms are accessible via a
conspicuous hyperlink in close proximity to a button necessary to the function
of the website, courts have declined to enforce such agreements. Nguyen,
763 F.3d at 1178-79.
Huuuge’s app is littered with these flaws. When downloading the app, the
Terms are not just submerged— they are buried twenty thousand leagues under the
sea. (…) This is the equivalent to admonishing a child to “please eat your
peas” only to then hide the peas. A reasonably prudent user cannot be expected
to scrutinize the app’s profile page with a fine-tooth comb for the Terms.
Huuuge argues Wilson’s repeated use of the app places him on
constructive notice since it was likely he would stumble upon the Terms during
that time period. However, just as “there is no reason to assume that users
will scroll down to subsequent screens simply because screens are there,” there
is no reason to assume the users will click on the settings menu simply because
it exists. Specht, 306 F.3d at 32. The user can play the game
unencumbered by any of the settings.
Nothing points the user to the settings tab and nowhere does the user
encounter a click box or other notification before proceeding. Only curiosity
or dumb luck might bring a user to discover the Terms.
Instead of requiring a user to affirmatively assent, Huuuge chose to
gamble on whether its users would have notice of its Terms. The odds are not in
its favor.
(U.S. Court of Appeals for the Ninth Circuit,
December 20, 2019, Sean Wilson, v. Huuuge, Inc., a Delaware corp., Docket No.
18-36017, For Publication)
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