In recent years, courts have issued a host of rulings as to whether online or mobile users received adequate notice of and consented to user agreements or website terms when completing an online purchase or registering for a service. Some online agreements have been enforced, while others have not. In each case, judges have examined the circumstances behind the transaction closely, scrutinizing the user interface and how the terms are presented before a user completes a transaction. In general, most courts seek to determine whether the terms are reasonably conspicuous to the prudent internet user and whether the user manifested sufficient assent by signing up for a service or completing a transaction.

From the perspective of making a sign-up process as smooth as possible, there is often an interest in moving the reference to terms and conditions out of the main flow of user sign-ups.  However, as we were reminded recently by an Illinois court examining the interfaces of DVD rental company Redbox, one does so at risk of finding those terms to be unenforceable.

The Illinois court noted numerous shortcomings with Redbox’s electronic contracting process.  It found that because links to the relevant terms were not clearly and conspicuously displayed, customers did not have constructive notice that they were assenting to those terms when hitting the “Pay Now” button to rent a DVD at a kiosk or by signing into a Redbox account online. (Wilson v. Redbox Automated Retail, LLC, No. 19-01993 (N.D. Ill. Mar. 25, 2020)). As such, the court denied Redbox’s motion to compel arbitration of plaintiff’s claims.Redbox rents movies in DVD and Blu-ray formats through automated rental kiosks located at various retail venues. Consumers may go to a kiosk and complete a transaction on the screen or else create an account on the Redbox website, reserve and pay for a movie and then select a kiosk location to pick it.  In both instances, the transactions are subject to terms of use, which contain an arbitration clause. The arbitration clause was added in 2016 when Redbox sent an email to 120 million customers advising them of the change.

At the relevant time of the litigation, when a customer rented a movie from a Redbox kiosk, the terms were presented in this way:

On the right side under the total rental cost is the purple “Pay Now” button that customers are required to press to complete the transaction. As shown above, the button to access the terms and the disclosure language informing users that pressing “Pay Now” indicates assent to those terms is located at the bottom of the screen under other large buttons that are not essential to completing the transaction.

A customer using the Redbox website to rent a movie would have seen this display:

On this screen, the language signifying that “By signing in, you are agreeing to the Rewards Terms, and Redbox Terms of Use and Privacy Policy” is placed at the bottom of the screen and written in text that is smaller than some of the other notices on the screen.

In the case, plaintiff argued that there was no enforceable contract to arbitrate, while Redbox countered that the plaintiff assented to the terms each time she rented a movie by either method.  Redbox also argued that its 2016 email to all of its customers gave plaintiff notice of the arbitration clause and plaintiff assented to the updated terms by continuing to use the service. Thus, the issue before the court was whether the design and content of Redbox kiosk screen or the website interface gave conspicuous notice of the terms.

Regarding the kiosk screen, the court found several problems with the presentation: (1) the “Pay Now” button was not “spatially coupled” with the link to the terms, as the hyperlink was not adjacent to it; (2) the presence of other buttons below the “Pay Now” button were unrelated to the payment/assent process and had the effect of “diverting the customer’s attention from the Terms of Use and accompanying disclosure”; (3) the text immediately above the two intervening buttons (“Don’t miss your perks!”) “further diverts” the customer’s attention from the terms, such that a customer “may justifiably believe that the three buttons below that text address ‘perks.’”

As to the website sign-in screen, the court took issue with the space that separated the Sign In button with the disclosure and link to the terms at the bottom of the screen. While the court said that some “minor spatial decoupling” is not necessarily fatal on its own, it also found the link to the terms on the Redbox website was not “reasonably conspicuous.”  The court found that the presentation raised concerns as to whether a reasonable user would recognize the text as a hyperlink, particularly since the screen displayed other hyperlinks, “FORGET PASSWORD” and “JOIN REDBOX PERKS,” that were more obvious than the presentation of the terms, which were displayed as hyperlinks in small gray text on a black background.

Rejecting Redbox’s final argument, the court ruled that even if the plaintiff received notice of the updated terms in Redbox’s 2016 email, the plaintiff had never previously assented to Redbox’s terms when renting DVDs and her previous interactions with Redbox “did not suggest that she should have expected to receive an email adding new terms to her dealings with the company.”

In all, the outcome suggests that operators or developers reexamine their contract formation processes to ensure that the reasonable user is sufficiently made aware of the site’s mandatory terms and the legal import of clicking “Pay Now” or “I Agree.” Indeed, a minor change of wording, font choices and web design could have cured any deficiencies in this case.

These configuration issues are often what separates an unenforceable presentation such as in the Ninth Circuit’s Nguyen case (where the links to the terms were not adjacent to the button to complete the transaction) as compared to the enforceable presentation in the Second Circuit Meyer case (where notice of the terms was reasonably conspicuous and displayed cleanly on the mobile screen).  Special attention should be paid to the placement of intervening buttons near the “Complete Transaction” button – while other courts have found online agreements enforceable despite the presence of intervening buttons, the Redbox court noted that in such cases, such buttons provided “alternative means of manifesting assent” (e.g., sign-in via a user’s social media account).

It may be instructive to contrast the result in the Redbox case with some other recent decisions where arbitration clauses were enforced.  For example, in two cases in the past several months, the Southern District of New York found electronic contracting processes enforceable and granted motions to compel arbitration.

In Henricks v. Flywheel Sports, Inc., No. 19-00895 (S.D.N.Y. Mar. 18, 2020), a plaintiff brought mobile privacy claims against fitness studio company Flywheel Sports, Inc. (“Flywheel”).  Flywheel moved to compel arbitration based upon the terms agreed to by the plaintiff during account registration.  The court granted the motion.

At the relevant time, Flywheel’s registration interface looked like this:

Zooming in on the bottom portion of Flywheel’s contracting screen:

Examining the layout of the registration screen, the court ruled that Flywheel’s page presented the company’s terms in a “clear and conspicuous way,” as the user was required to click a box agreeing to the terms, which were hyperlinked in “distinctive blue lettering.”

In another case, Sollinger v. SmileDirectClub, LLC, No. 19-05977 (S.D.N.Y. Feb. 18, 2020), a New York district court considered whether SmileDirectClub, LLC, a company that offers remote home dentistry services, could compel arbitration based on its online “Informed Consent” agreement against a user bringing various claims.

The closing screen of that registration process appears below:

In granting SmileDirectClub’s motion to compel arbitration, the court found the “Informed Consent” agreement and the site terms were enforceable because: the screen was relatively “uncluttered,” the hyperlink to the agreements appeared in blue text displayed on a contrasting background, and the hyperlinks were directly adjacent to the button manifesting assent to the agreements.

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With online contracting interfaces being closely scrutinized by courts, it would be prudent for companies to engage their business and legal teams to have a second look at their consumer registration interfaces (particularly on the mobile screen).  While there is an important business interest in making the sign-up process as user-friendly as possible, to ensure that consumers are bound by online terms, it is important to present them as conspicuously and clearly as possible.