In Patrick v. Running Warehouse, the 9th Circuit Court of Appeals found that an arbitration provision contained in a browsewrap or clickwrap agreement was enforceable. Defendants, Running Warehouse and its affiliated companies, own and operate e-commerce websites selling sporting goods. Consumers purchasing goods from Defendants’ websites are given the option to ‘Create an Account’ or to proceed straight to checkout. If a consumer selects ‘Create an Account,’ they must check a box that states “by creating an account, you agree to our privacy policy and terms of use.” The phrase ‘terms of use’ is a hyperlink that leads to the Defendants’ terms. When a consumer checks the box, they create a clickwrap agreement because they consent to the Defendants’ terms merely by clicking their assent rather than formally signing the agreement. If a consumer opts to not create an account and chooses to proceed straight to checkout, they are asked to confirm that they agree to the following statement: “By submitting your order you…agree to our privacy policy and terms of use,” before they can purchase the goods. The phrase ‘terms of use’ is again hyperlinked. Consumers that do not create an account merely assent to the terms by making a purchase. This creates an implied consent that they agree to the terms and conditions, known as a browsewrap agreement.
The hyperlinked ‘terms of use’ for Defendants included choice of law, arbitration, and venue provisions, and specifically required consumers to agree to arbitrate any claims through JAMS, in their Orange County, California offices, and waive any rights to litigate any claims in court or through class action.
John Patrick and other consumers purchased goods online from Running Warehouse and had their information stolen by hackers who breached Defendants’ websites. Mr. Patrick and the other consumers became Plaintiffs who brought class actions against Defendants for negligence and breaches of contract. Defendants moved to compel arbitration pursuant to the ‘terms of use’ in their agreements. The district court granted the motion and the 9th Circuit affirmed the decision.
Plaintiffs’ arguments included that clicking on boxes agreeing to the ‘terms of use’ did not provide sufficient notice of the arbitration provision, that the arbitration provision was unconscionable, and that the arbitration provision does not clearly or unmistakable delegate the issue of arbitrability.
First, in considering whether the Plaintiffs had sufficient notice, the Court considered whether the website provided reasonably conspicuous notice and whether the consumer had to take some action that unambiguously manifests his or her assent to those terms. The Court concluded that even though most consumers will not actually click on the hyperlink, the consumer is nevertheless making the choice to not be informed. The consumer had ‘inquiry notice,’ meaning they could have been informed if they had inquired. Further, the Court found that the arbitration provision was conspicuous. In order to be conspicuous, a browsewrap agreement must be displayed in a font size and format that a reasonably prudent Internet user would have seen it. The users were also required to either click to agree to the terms or pass a screen that confirmed that by placing the order the user consented to the terms. Accordingly, by either clicking or continuing with the order, the user took some action that unambiguously manifested his or her assent. The Court found that the users therefore had sufficient notice of the terms.
Second, the Plaintiffs claim that the arbitration clause was unconscionable due to its inclusion of a unilateral modification clause. The Court disagreed and found that the presence of a unilateral modification provision on its own does not render an arbitration provision unconscionable.
Finally, the Court found that parties clearly delegated arbitrability when they incorporate arbitrator’s arbitration rules in the agreement. Here, they agreed to JAMS rules so there was no issue of delegating the arbitrability.
The Ninth Circuit’s decision affirming the order to compel arbitration showed that the arbitration agreement was enforceable regardless of how the Plaintiffs assented to the terms. Specifically, as long as users have sufficient notice to the terms, the terms can be binding.
This case serves as a valuable reminder that consenting to terms and conditions via a clickwrap or browsewrap agreement can have consequences. Clickwrap and browsewrap agreements are binding contracts and can have significant implications.
Patrick v. Running Warehouse, LLC, No. 22-56078 (9th Cir. Feb. 12, 2024).