Mass Law Blog

Online Contracts – When Is the Last Time You Read the Terms and Conditions?

by | Sep 22, 2021

When you sign up for an online service do you read the terms and conditions? Few people do, not even the lawyers that are hired to write these things. While online agreements are ridiculed for their length and complexity they are important to the online service companies – companies like Uber, Airbnb and countless others that have to deal with the risk of customer lawsuits. Companies use online agreements to protect themselves in a variety of ways – against jury trials (often by requiring arbitration), to establish the location where customer lawsuits must be filed (often the merchant’s home state), and to limit damages customers can recover.

The strange reality is that when a customer challenges the enforceability of an online agreement the courts have to disregard the fact that the customer likely wouldn’t have read the agreement no matter how it was presented. When was the last time you read the terms and conditions when registering for a service on your smartphone? If you’re like most people, never.

Assume that you were signing up for Uber on your smartphone, and after navigating through two screens where you entered your contact info and created a password you were presented with this third, final screen (click on the image for clarity):

Would you think that by creating an account you had agreed to Uber’s terms and conditions, even if you didn’t click on the “Terms & Conditions and Privacy Policy” box and never read those terms? What if I told you that the text in that box was not blue or underlined, would that make a difference? Would the fact that the top line – “By creating an Uber account, you agree to the” – is in a lighter font than the words below it – “Terms & Conditions and Privacy Policy” – have made a difference to you? Might you not have completed your registration with Uber if you’d realized that any damages claim against Uber was barred? That any legal claim had to be brought before an arbitrator rather than a court?

These factors made a big difference to the Massachusetts Supreme Judicial Court when it was presented with the question whether Uber’s online agreement formed an enforceable contract. On these facts the SJC held that no contract had been formed.

The case was brought by Christopher Kauders, a blind man who alleges that on three occasions Uber drivers discriminated by refusing to pick him up because he was accompanied by a seeing eye dog, in violation of a Massachusetts statute that protects handicapped people with dog guides. Uber claimed that during the online registration process Mr. Lauder had agreed to its terms and conditions, one of which required him to resolve any claim by arbitration, another of which absolved Uber of any monetary damages.

After a byzantine procedural history the case eventually found its way to the SJC, which held that the framework for analyzing issues of online contract formation requires a two-part test: first, was there reasonable notice of the terms, and second, did the customer provide a reasonable manifestation of assent to those terms?

While this may sound straightforward (although I doubt it), in a case like this the devil is in the details – or, as the court put it, “the trick here is to know how to apply these general principles to newer forms of contracting over the Internet.”

What is “reasonable notice”? The court explained: “In examining the interface, we evaluate the clarity and simplicity of the communication of the terms. Does the interface require the user to open the terms or make them readily available? How many steps must be taken to access the terms and conditions, and how clear and extensive is the process to access the terms?”

What is a “reasonable manifestation of assent”? According to the court, “when considering whether the user assented to the terms of the online agreement, we consider the specific actions required to manifest assent.” Not surprisingly, the court noted that clickwrap agreements are the clearest manifestation of assent.

What about an online agreement such as Uber’s, which is not a clickwrap agreement, but rather a “browsewrap”? To analyze Uber’s agreement – and ultimately reach the conclusion that a contract had not been formed – the court applied a “totality of the circumstances” test. Among the factors the court considered were –

– The nature of the online transaction
– The scope of the agreement
– The interface design

Applying this criteria the court found that factors 2 and 3 favored a finding that Uber’s online contract was not enforceable – the agreement was broad, and the interface design was inadequate to provide reasonable notice that a new subscriber was entering into a contract.

What does this mean for online service providers?

First, online service providers should pay close attention to this case, whether they are based in Massachusetts or not, since almost any online provider could be sued in Massachusetts based on principles of personal jurisdiction. As a practical matter, the most conservative state sets the “lowest common denominator” standard for online providers nationwide. After the Kauders case, and at least for the moment, Massachusetts is that state.

Second, “browsewrap” agreements are now a thing of the past. No online provider wants to go through what Uber went through in this case – having their online contracting process and content picked apart in minute detail and argued over by lawyers and judges who have shown an inexhaustible capacity to do just this. While allowing users to register via a streamlined process that doesn’t force them to scroll through terms and conditions may be desirable, it’s not worth the risk. Clickwrap agreements are now the standard for every online company.

Third, even a clickwrap agreement is not totally immune from challenge. Online providers need to be careful to structure the registration process so that the user cannot register without being presented with the online agreement in a standard font size, being required to scroll through the agreement to the bottom of the screen, and to then either check a box indicating assent (preferable) or click a link stating “I Agree.”

Postscript for lawyers and other legal beagles: Uber faced an uphill fight in this case. In 2018 the same online agreement was at issue before the First Circuit, which held that the agreement was not enforceable. Cullinane v. Uber Techs., Inc. (1st Cir. 2018). See If Everything Is Conspicuous, Nothing Is Conspicuous: Forming an Online Contract in the First Circuit (July 2, 2018). While a First Circuit decision on a matter of state contract law is not binding on the SJC, it is highly persuasive. During oral argument before the SJC Uber’s lawyer described the First Circuit’s Cullinane decision as an “outlier.” The SJC didn’t buy that, and Uber now faces trial in a Massachusetts state court.

Kauders v. Uber Technologies, Inc. (Jan 4, 2021)

Additional posts on this topic:
Sloppy Online Agreements Costs Plaintiff Its Breach of Contract and CFAA Claims (Nov. 16, 2012)
“Yet Another Hierarchical Officious Oracle” Is Unable to Create an Enforceable Online Agreement (May 14, 2013)
Ninth Circuit Finds Barnes & Noble’s “Browsewrap” Unenforceable (Sept. 12, 2014)
The Copyright Workaround and Reputation Management: Small Justice v. Ripoff Report (Jan. 8, 2018)