U.S. Court of Appeals for the Ninth Circuit, Sean Wilson, v. Huuuge, Inc., a Delaware corp., Docket No. 18-36017

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)

Samsung Electronics Co. v. Apple Inc., Docket 15-777

Design: Patent infringement: Damages: Smartphone: Unanimous:

Section 289 of the Patent Act provides a damages remedy specific to design patent infringement. A person who manufactures or sells “any article of manufacture to which a patented design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit.” 35 U. S. C. §289. In the case of a design for a single-component product, such as a dinner plate, the product is the “article of manufacture” to which the design has been applied. In the case of a design for a multicomponent product, such as a kitchen oven, identifying the “article of manufacture” to which the design has been applied is a more difficult task.

This case involves the infringement of designs for smartphones. The United States Court of Appeals for the Federal Circuit identified the entire smartphone as the only permissible “article of manufacture” for the purpose of calculating §289 damages because consumers could not separately purchase components of the smartphones. The question before us is whether that reading is consistent with §289. We hold that it is not.

The federal patent laws have long permitted those who invent designs for manufactured articles to patent their designs. See Patent Act of 1842, §3, 5 Stat. 543–544. Patent protection is available for a “new, original and ornamental design for an article of manufacture.” 35 U. S. C. §171(a). A patentable design “gives a peculiar or distinctive appearance to the manufacture, or article to which it may be applied, or to which it gives form.” Gorham Co. v. White, 14 Wall. 511, 525 (1872). This Court has explained that a design patent is infringed “if, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same.” Id., at 528.

Apple Inc. released its first-generation iPhone in 2007. The iPhone is a smartphone, a “cell phone with a broad range of other functions based on advanced computing capability, large storage capacity, and Internet connectivity.” Riley v. California, 573 U. S. ___, ___ (2014) (slip op., at 2). Apple secured many design patents in connection with the release. Among those patents were the D618,677 patent, covering a black rectangular front face with rounded corners, the D593,087 patent, covering a rectan­gular front face with rounded corners and a raised rim, and the D604,305 patent, covering a grid of 16 colorful icons on a black screen. App. 530–578.

Section 289 allows a patent holder to recover the total profit an infringer makes from the infringement. It does so by first prohibiting the unlicensed “application” of a “patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale” or the unli­censed sale or exposure to sale of “any article of manufac­ture to which a patented design or colorable imitation has been applied.” 35 U. S. C. §289. It then makes a person who violates that prohibition “liable to the owner to the extent of his total profit, but not less than $250.” Ibid. “Total,” of course, means all. See American Heritage Dictionary 1836 (5th ed. 2011) (“the whole amount of something; the entirety”). The “total profit” for which §289 makes an infringer liable is thus all of the profit made from the prohibited conduct, that is, from the manu­facture or sale of the “article of manufacture to which the patented design or colorable imitation has been applied.”

Arriving at a damages award under §289 thus involves two steps. First, identify the “article of manufacture” to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.

This case requires us to address a threshold matter: the scope of the term “article of manufacture.” The only ques­tion we resolve today is whether, in the case of a multi­component product, the relevant “article of manufacture” must always be the end product sold to the consumer or whether it can also be a component of that product. Under the former interpretation, a patent holder will always be entitled to the infringer’s total profit from the end product. Under the latter interpretation, a patent holder will some­times be entitled to the infringer’s total profit from a component of the end product.

The text resolves this case. The term “article of manu­facture,” as used in §289, encompasses both a product sold to a consumer and a component of that product.

This reading of article of manufacture in §289 is con­sistent with 35 U. S. C. §171(a), which makes “new, origi­nal and ornamental designs for an article of manufac­ture” eligible for design patent protection.

The Patent Office and the courts have understood §171 to permit a design patent for a design extending to only a component of a multicomponent product. See, e.g., Ex parte Adams, 84 Off. Gaz. Pat. Office 311 (1898) (“The several articles of manufacture of peculiar shape which when combined produce a machine or structure having movable parts may each separately be patented as a design . . . ”)

This reading is also consistent with 35 U. S. C. §101, which makes “any new and useful . . . manufacture . . . or any new and useful improvement thereof ” eligible for utility patent protection. Cf. D. Chisum, Patents §23.03[2], pp. 23–12 to 23–13 (2014) (noting that “article of manufacture” in §171 includes “what would be considered a ‘manufacture’ within the meaning of Section 101”). “This Court has read the term ‘manufacture’ in §101 . . . to mean ‘the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery.’” Diamond v. Chakrabarty, 447 U. S. 303, 308 (1980) (quoting American Fruit Grow­ers, Inc. v. Brogdex Co., 283 U. S. 1, 11 (1931)). The broad term includes “the parts of a machine considered sepa­rately from the machine itself.” (W. Robinson, The Law of Patents for Useful Inventions §183, p. 270 (1890)).

The parties ask us to go further and resolve whether, for each of the design patents at issue here, the relevant article of manufacture is the smartphone, or a particular smartphone component. Doing so would require us to set out a test for identifying the relevant article of manufac­ture at the first step of the §289 damages inquiry and to parse the record to apply that test in this case. The United States as amicus curiae suggested a test, see Brief for United States as Amicus Curiae 27–29, but Samsung and Apple did not brief the issue. We decline to lay out a test for the first step of the §289 damages inquiry in the ab­sence of adequate briefing by the parties. Doing so is not necessary to resolve the question presented in this case, and the Federal Circuit may address any remaining issues on remand.

Secondary sources: American Heritage Dictionary 1836 (5th ed. 2011); J. Stormonth, A Dictionary of the English Language 53 (1885); D. Chisum, Patents §23.03[2], pp. 23–12 to 23–13 (2014); W. Robinson, The Law of Patents for Useful Inventions §183, p. 270 (1890).

(U.S.S.C., December 6, 2016, Samsung Electronics Co. v. Apple Inc., Docket 15-777, J. Sotomayor, unanimous).

Violation d'un design protégé par un brevet : celui qui fabrique ou vend un produit (fabriqué) qui intègre un design protégé par un brevet pourra être actionné par le titulaire du brevet, lequel pourra conclure à la restitution de l'entier du profit illicitement accumulé (cf. 35 U. S. C. §289). Dans le cas d'un design portant sur un produit en un seul tenant, comme une assiette, il est aisé de lier le design au produit. Dans le cas d'un design portant sur un produit comportant plusieurs parties, comme un four de cuisine, il est plus délicat de déterminer le "produit" sur lequel est appliqué le design protégé (le produit est-il une des parties intégrantes ou l'ensemble des parties intégrantes (p.ex. le four lui-même ou l'une de ses parties ?)).

La présente espèce traite de la violation de designs pour smartphones. La Cour d'appel pour le Circuit fédéral a retenu que le smartphone dans son entier doit être compris comme le "produit" dont le droit au design est violé, cela même si la protection ne porte que sur le design de l'une des parties intégrantes. De la sorte, le calcul du dommage au sens de la Section 289 revient à additionner les ventes des smartphones, sans procéder à une déduction qui pourrait être justifiée par une protection que partielle du droit au design. Cela au motif que les consommateurs ne peuvent pas acheter les composants d'un smartphone de manière séparée. La Cour Suprême juge ici que cette analyse juridique est erronée.

Le droit fédéral des brevets d'invention permet de longue date d'enregistrer un design, lui conférant la protection prévue par ce droit. Dite protection peut être donnée pour un design nouveau, original et ornemental, appliqué à un produit fabriqué par l'homme (cf. 35 U. S. C. §171(a)). La Cour Suprême fédérale a jugé depuis longtemps qu'un design breveté est violé si aux yeux d'un observateur ordinaire, prêtant une attention telle celle ordinairement d'un acheteur, deux designs sont substantiellement identiques.

La Section 289 permet au titulaire du brevet d'obtenir de l'auteur de la violation la totalité du profit dérivant de dite violation (cf. 35 U. S. C. §289). Le profit total est ainsi l'entier du profit résultant de la conduite illicite, soit résultant de la fabrication ou de la vente d'un produit auquel le design a été appliqué.

Pour déterminer le montant d'un dommage auquel le défendeur doit être condamné, un raisonnement en deux étapes est à suivre : tout d'abord s'agit-il d'identifier le "produit" auquel le design a été appliqué. En second lieu convient-il de calculer le profit déduit du produit tel que délimité à l'étape précédente.

La présente espèce n'implique que de répondre à la question préalable de l'étendue de la notion de "article of manufacture", soit de produit fabriqué. La seule question à laquelle répond la Cour est de savoir si, dans le cas d'un produit à multiple composants, l'"article of manufacture" doit toujours être le produit fini vendu au consommateur, ou s'il peut être l'un des composants du produit fini. Selon la première de ces deux théories, le titulaire du brevet pourra toujours obtenir la totalité du profit dérivé de la vente du produit fini. Selon la seconde théorie, le titulaire du brevet sera parfois bien-fondé à réclamer le profit découlant de la partie intégrante du produit fini.

Le texte même de la Section 289 est dispositif. La notion d'"article of manufacture" inclut aussi bien le produit fini vendu au consommateur que cas échéant un composant de ce produit fini. Cette conception est conforme à 35 U.S.C. §171(a), disposition selon laquelle les designs nouveaux, originaux, et à caractère ornemental, intégrés à un produit fabriqué, sont susceptibles de protection par le droit des brevets. Et aussi bien l'Office des brevets que les Tribunaux ont compris la Section 171 comme permettant l'octroi d'un brevet en faveur d'un design qui ne s'étend qu'à une partie d'un produit qui en contient plusieurs.

Les conceptions qui précèdent sont par ailleurs conformes à 35 U.S.C. §101, disposant que toute fabrication utile et nouvelle, ou toute amélioration nouvelle et utile d'un produit déjà fabriqué peut revendiquer la protection du droit des brevets ("utility patent protection"). Il est observé qu'un article fabriqué au sens de la Section 171 inclut ce qui est considéré comme produit fabriqué au sens de la Section 101. Et la présente Cour a lu les termes "produits fabriqués" au sens de la Section 101 comme signifiants la production d'articles pour un usage, à partir de matières "premières", ou à partir d'autres articles, dans ce cas en donnant à ces articles de nouvelles formes, qualités, propriétés ou combinaisons, que ce soit par un travail manuel ou par le travail d'une machine. Cette large terminologie inclut les parties d'une machine considérées séparément de la machine elle-même.

Dans cette affaire, les plaideurs ont en outre demandé à la Cour de juger, pour chacun des brevets en cause, si le produit fabriqué relevant était le smartphone lui-même, ou une partie intégrante de ce smartphone. La Cour observe que juger ainsi impliquerait préalablement de déterminer un test permettant d'identifier le produit fabriqué relevant à la première étape de l'examen de la question du dommage au sens de la Section 289. Le Gouvernement, en tant qu'amicus curiae, a suggéré un test, mais ni Samsung ni Apple ne se sont prononcés, de sorte que la Cour estime prématuré de juger à ce niveau. La cause est dès lors renvoyée à l'autorité précédente, le Circuit fédéral, pour juger les questions encore en suspens.