The Software IP Report

Clickwrap Agreement Is Binding (But Arbitration Provision Is Not)

By Charles Bieneman

Categories: Software Licenses, The Software IP Report

A “clickwrap” agreement can form a binding contract even when all agreement terms are not included in the document to which the user assents, and the user must access other documents to be informed of the entire contract. Grosvenor v. Qwest Corp., 2012 U.S. Dist. LEXIS 23472, Civil Action No. 09-cv-02848-MSK-KMT (D. Colo. Feb. 23, 2012). However, an arbitration provision was not enforceable where the agreement provided that the licensor could change the arbitration provision without prior notice to the other party.

Facts

Plaintiff Grosvenor purchased Internet service from defendant Qwest, which subsequently raised its rates for the service. To sign up for the Internet service, Grosvenor accessed a disk provided by Qwest. Before programs on the disc were installed, and Internet service provided, Grosvenor was required to review and accept legal agreements provided in a scroll box. The agreements in the scroll box made no mention of arbitration. However, above the scroll box was the following statement: “Please read the terms including arbitration and limits on Qwest liability at www.quest.com/legal (‘Qwest Agreement’) that governs your use and Qwest’s provision of the service(s) and equipment you ordered from the list below.” After Grosvenor’s Internet service was established, Qwest sent him a “Welcome Letter” that again asked him to review provisions on Qwest’s website, and gave him 30 days to cancel his Internet service if he did not agree to accept these provisions. The agreement also provided that Qwest could change its terms at any time, and that Qwest need not give notice to Grosvenor of such changes. Grosvenor sued Qwest for, among other things, breach of contract, alleging that Qwest breached a contractual promise not to raise its rates.

Procedural Posture

The parties brought cross-motions for summary judgment. Qwest alleged that Grovsenor had accepted its contract, including the obligation to have his claims decided in arbitration. Grovsenor “argue[d] that any agreement to arbitrate is rendered illusory by the fact that Qwest claims an unfettered right to modify the arbitration provision.”

Result

Both parties’ motions were granted: the court found “that Mr. Grosvenor entered into a contractual agreement with Qwest upon his installation of the internet service and continued to be bound by that agreement,” but also “that the arbitration clause in that agreement is illusory and thus unenforceable.”

Analysis

Was there an enforceable contract?

Under Colorado law, which looks to objective indicia of assent to determine contract formation, the question was the same as in the well known clickwrap case of Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2001): “whether the contractual terms were ‘reasonably conspicuous’ and whether Mr. Grosvenor’s alleged assent to them was ‘unambiguous.'” A number of cases have endorsed the enforceability of click wrap agreements. This case did not fall under the rubric of cases such as Specht in which agreements were unenforceable because users were not required to “manifest their assent to the stated terms and conditions” before making a purchase.

However, Grosvenor was required to go to a website to view all of the agreement terms, but he could not go to the website until he had accepted the agreement to establish Internet service. Thus, pressing the “I Accept” button by itself may not have created an enforceable contract. Nonetheless, the “Welcome Letter” that directed Grosvenor to Qwest’s website, and that gave him the opportunity to cancel the agreement, created circumstances under which “Grosvenor’s conduct constituted an objective manifestation of assent to the contractual terms.”

Was the arbitration provision enforceable?

Grosvenor argued that, because the terms of the agreement, including the arbitration provision, could be changed at any time without notice to him, the agreement was an “illusory,” and therefore unenforceable, contract. The court agreed, refusing to accept Qwest’s arguments that this was a case in which an agreement to arbitrate was enforceable, and that it would be up to an arbitrator to determine whether the agreement as a whole was enforceable. According to the controlling Tenth Circuit case, Dumais v. American Golf Corp., 299 F.3d 1216 (10th Cir. 2002), an arbitration agreement that one party had the unfettered ability to change was an illusory contract.

Cited Clickwrap Cases

Because you never know when they might be useful, I note here a number of “clickwrap” cases cited by the Grosvenor court.

Cases following Specht in which “users . . . were not required to manifest their assent to stated terms and conditions before obtaining the services they sought” included: Schnabel v. Trilegiant Corp., 2011 U.S. Dist. LEXIS 18132, 2011 WL 797505 (D.Conn. Feb. 24, 2011) (slip op.), Cvent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927, 937 (E.D.Va. 2010), Hines v. Overstock.com, Inc., 380 Fed.Appx.22 (2d Cir. 2010), and Hoffman v. Supplements Togo Management, LLC, 419 N.J. Super. 596, 18 A.3d 210, 213, 219-20 (N.J. App. Div. 2011) .

Cases finding contract formation where “the user is presented with the text of an agreement in a scroll box and required the click a button expressing assent to those terms before installation continues” included Caspi v. Microsoft Network, LLC, 323 N.J. Super. 118, 732 A.2d 528, 532 (N.J. App. 1999); Forrest v. Verizon Communications, Inc., 805 A.2d 1007, 1010 (D.C. App. 2002); Moore v. Microsoft Corp., 293 A.D.2d 587, 741 N.Y.S. 2d 91, 92 (N.Y. App. 2002).

Harris v. comScore, Inc., 2011 U.S. Dist. LEXIS 115988, 2011 WL 4738357 (N.D.Ill. Oct. 7, 2011) denied a “motion to dismiss where plaintiff alleged that the link to the terms of service was ‘obscured during the installation process,’ and that the defendant had not come forward with an explanation as to ‘how the hyperlink to the agreement was presented to the user,’ but recognizing that ‘further factual development’ might reveal that “the terms of the license agreement were reasonably available during the installation process’.”