It is a familiar issue. When should a consumer “be on the hook” for all of the terms and conditions in a company’s agreement accompanying its product or service?

The permeations relating to this problem are extensive. Are all of the terms buried in the fine print enforceable?  Does the consumer ignore such terms at his or her peril when the consumer fails to read the agreement?  Is it enough that the customer was given a chance to read the terms at the time of purchase? What manner or degree of consent is enough to bind the consumer to the letter of the written terms?  These are all problems of contract formation.  The question of acceptance of terms and conditions is especially tricky in the context of online commerce.

The California Court of Appeal (Second District) recently considered this issue as it relates to the “terms and conditions” or “terms of use” to which users are often asked to agree as part of an online purchase. The court’s decision in Long v. Provide Commerce, Inc., dealt with an appeal by Provide Commerce, Inc., the operator of ProFlowers.com.  See Long v. Provide Commerce, Inc. (Cal. Ct. App. Mar. 17, 2016) 2016 WL 1056555, at *1.  After a customer sued over an online purchase, the Internet-based flower purveyor sought to enforce a clause in the company’s “Terms of Use” that required its customer to arbitrate disputes, including a waiver of the right to a jury trial.

The type of online terms and conditions used by ProFlowers is often known as a “browsewrap” agreement. With that type of agreement, a user does not have to affirmatively click anything to signal his or her consent to the terms of the company’s written agreement.  Rather, “a user’s assent is inferred from his or her use of the website.” Long, supra, at *1.

At the time the plaintiff placed his order, the website’s “Terms of Use” could be found by clicking on a capitalized and underlined hyperlink at the bottom of each web page on the ProFlowers.com site. The court noted that the “hyperlink was displayed in what appears to have been a light green typeface on the website’s lime green background, and was situated among 14 other capitalized and underlined hyperlinks of the same color, font and size.” Long, supra, at *2.  The “Terms of Use” were also accessible by a hyperlink embodied in an email order confirmation, though the link was in small grey font toward the very bottom of the email and relatively obscured by other information and links.

The court observed that while Internet commerce presents new issues, it does not fundamentally alter the key requirement that for a party to be bound by a contractual provision, there must be a sufficient manifestation of consent. In the context of a “browsewrap” agreement, the courts have held that “the determination of the validity of the browsewrap contract depends on whether the user has actual or constructive knowledge of a website’s terms and conditions.” Long, supra, at *4 (quoting the federal Ninth Circuit Court of Appeal’s decision in Nguyen v. Barnes & Noble Inc. [(9th Cir. 2014) 763 F.3d 1171]).  In the absence of actual notice, 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.” Id.

The court noted the elements that the courts have considered in deciding whether to conclude that a website design puts the user on sufficient notice of the company’s terms and conditions, including the proximity of the hyperlink (linking to the written terms) to the areas likely to be in view of the user as he or she interacts with the website and completes the transaction and whether the website design includes “something more to capture the user’s attention and secure her assent” to the terms and conditions. Long, supra, at *5.

Here, the court found that the hyperlinks and the overall design of the ProFlowers.com website failed to put a reasonably prudent Internet user on notice of the company’s Terms of Use. The court found that the placement, color, size and other qualities of the hyperlinks to the Terms of Use were too inconspicuous, relative to the overall website design.  Most of the user’s interactions were in a separate bright white box in the center of the page that contrasts sharply with the lime green background.  To find the Terms of Use hyperlinks on various pages, the user must look below the area that has the information fields and the buttons he or she must otherwise click to proceed with the transaction.  Even then, the hyperlinks themselves are buried below multiple other links and in a light green font that blends in with the lime green background of the website.

The lesson for the day is that conspicuousness means conspicuousness. If no affirmative user click is required demonstrating the user’s consent to the terms and conditions, the website design should ensure that a link to a terms and conditions page will be hard to miss.  The visual prominence of the link is key.  Avoid having the link situated in a submerged page (i.e., where the user must scroll down to see it).  Certainly avoid having the link be in a font difficult to distinguish from the webpage background.  The link should be in what one would expect to be the plain view of the user as he or she interacts with the site.

SNAP QUIZ-Which type of lawsuit would divide the Supreme Court Justices along the following lines?

Justices Breyer, Roberts, Scalia, Kennedy, Alito and Kagan vs. Justice Thomas, Ginsburg and Sotomayor?

If you guessed federal arbitration preemption you are a winner.

Yesterday, the Supreme Court smacked down another rogue California Court for allowing consumers to circumvent DirecTV’s service agreement.  The agreement included a black hole of an arbitration provision, specifically drafted to suck all life from any court litigation claim that ever was, is, or could be.

In DirecTV v. Imburgia the consumers’ service contract provided that “any Claim either of us asserts will be resolved only by binding arbitration” and “neither of us [most specifically you-Mr. or Ms. Consumer] shall be entitled to join or consolidate claims in arbitration.”  However, the contract provided that “if the law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.”  But, and it’s a really big but, “the arbitration provision shall be governed by the Federal Arbitration Act.”

The consumers filed a putative class action in California state court, DirecTV sought to enforce the arbitration provision, the trial court refused, DirecTV appealed and the Court of Appeal affirmed, mis-remembering that, while in olden times [pre 2011] California law forbade class-action waivers like the one at issue, the US Supreme Court gutted that law in AT&T v. Concepcion, holding that the Federal Arbitration Act preempts and invalidates such laws.

The California Court of Appeal decided that by including the “if the law of your state” provision, DirecTV and the consumers [really just DirecTV, the consumers had nothing to do with drafting the contract] intended the specific language to trump the general provision, i.e. “the arbitration provision shall be governed by the Federal Arbitration Act. Following the canons of contract interpretation, the Court also found an ambiguity and interpreted it against the drafter, DirecTV.

Justice Breyer, writing for the majority, basically wrote what part of ‘NO’ don’t you understand?: “The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”

In a bit of snark, Justice Breyer wrote that the parties to the contract could have decided to “have portions of their contract governed by the law of Tibet, the law of pre-revolutionary Russia or (as is relevant here) the law of California including the [prior anti-class action waiver law]….”  But the contract’s reference to “the law of your state” can only mean the valid law of your state and not the law of your state before the US Supreme Court trumped California’s quaint and antiquated laws that allowed consumers to band together in class-actions.

Justice Thomas dissented that the Federal Arbitration Act does not apply to state court proceedings. Justice Ginsburg, joined by Justice Sotomayor dissented, attempting to give the “customer, not the drafter [DirecTV], the benefit of the doubt.”  She noted that the DirecTV litigation was three years old when the US Supreme Court issued the Concepcion decision, and thus when the contract was formed “the law of your state,” at least in California, rendered DirecTV’s arbitration provision unenforceable.  Calling DirecTV’s service contract a “take-it-or-leave-it contract,” Justice Ginsburg bemoaned the societal costs of decisions like Concepcion which, she noted, “predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

It seems like every week there is a new trademark dispute involving craft breweries.  One need only check Beerpulse or Brewbound, two popular beer industry sites, to see many posts about craft beer trademark disputes.  This is not surprising because the number of craft breweries has been growing at a phenomenal pace and is now at a record number.  As of June 2013, there were 2,538 breweries in the United States, a 25% increase since 2011 (there are now more than 2,700 estimated).  And the number of beer brands is growing even faster.  An article in DRAFT Magazine states that there are more than 12,000 beer brands registered with the United States Patent and Trade Mark Office (USPTO) and 45,000 wine and spirits trademark registrations.  That makes it very difficult to come up with an unique and distinctive mark.  Some beer brands like OL’ RED CEASE AND DESIST and REDACTED IPA are beers whose original names were changed to legal terms after a trademark dispute.

Brewery Fallout

What is a brewery to do?  Well breweries should, of course, do a careful search of other trademarks before launching a new brand.  They also might one to consider using a single unique “house” brand rather than having to come up with a new name for each style of beer that they produce.  Fortunately, the craft beer industry is very collegial and many disputes never end up in litigation or come to light in the news media because breweries have amicably settled their differences.  In an often cited instance of cooperation, Russian River Brewing of Santa Rosa, California and Avery Brewing of Boulder, Colorado both realized they had SALVATION brand beers and decided to make a blend of their beer, re-named COLLABORATION NOT LITIGATION ALE.  Of course, that’s not always a feasible solution, but Collaboration is reflective of the cooperative spirit that prevails in the industry.

Still, the number of disputes is on the rise and the trend will probably continue.  It may be time for the industry to consider some sort of industry-sponsored or industry-promoted alternative dispute resolution (ADR) procedure for these disputes.  For example, the Brewers Association might consider encouraging brewery members to submit disputes that cannot be initially resolved between the parties to mediation (such as to an  INTA International Trademark Association mediator) or to binding arbitration, or even create a beer industry panel to arbitrate such disputes.

By creating such a process, the beer industry could streamline the resolution of such disputes, reduce costs and get back to what it does best:  brew more beer.
(Eugene tweets on legal issues and news in the beer industry at @BeerAttorney.  He spoke on trademark law issues at the recent Craft Brewers Conference in Denver, Colorado).

Last week the Seventh Circuit’s decision in Lewis v. Epic Systems Corporation, invalidated employment contract provisions requiring employees to arbitrate employment disputes and precluding them from bringing class-actions.

The Seventh Circuit found such provisions violate the National Labor Relations Act.   This decision contradicts decisions by the Second, Fifth, Eighth, Ninth and Eleventh Circuits. which have upheld such provisions.  But those decisions rested at least partially on the Supreme Court’s 2011  AT&T Mobility LLC v. Concepcion decision, which upheld contract provisions requiring arbitration and precluding consumer class-actions.

The Concepcion decision was five to four, with the late Justice Scalia writing the majority opinion for the conservative block of the Court.  With Justice Scalia’s passing, Supreme Court observers are questioning whether a reconstituted Court might scale back or even reconsider the Concepcion decision.    The battle over mandatory arbitration and class-actions waivers must also be viewed in the wider context of the Consumer Financial Protection Bureau’s recent proposed rule prohibiting such provisions in financial services contracts and House Republican’s efforts to quash the rule and reign in the agency.

The Seventh Circuit’s decision sets the stage for a potential showdown regarding whether and when such provisions are enforceable, but in the meantime, employers should continue to include and enforce such provisions.