How to ensure that Online Arbitration Clauses are Valid?

Hello everyone, sharing the first article from Sama experiences in Online Dispute Resolution (ODR) which will be relevant for enterprises using online agreements.

1. Background

As we know from repeated Indian Supreme Court Rulings that lack of a valid arbitration clause is a clear ground for challenging the arbitration award and nullifying the full arbitration process.

What makes the clause invalid, especially in the context of online arbitration? Autonomy is the cornerstone of an arbitration process, and not getting clear consent to an arbitration clause from the customer, makes the arbitration clause null and void.

Most of our clients are switching to Online Arbitration Clauses by amending their Terms and Conditions or Dispute Resolution Policy on their respective websites, where consents are taken through clickwrap agreements.

Understanding how the courts assess online agreements is a crucial way to protect your business from risk. Yet 34% of online agreements were not enforced in court thanks to nonoptimal screen design, lack of evidence, and/or poor version control. How can your company design online agreements for enforceability?

 

What are Clickwrap Agreements?

A clickwrap contract is a popular type of a digital contract. It is an agreement which is between a user and a company. A user must click a box or button before they download content, make a purchase, or use a website. The Salient features of Clickwrap Contracts are:

• Clickwrap Contracts are unilateral Contracts. They contain standard terms and conditions which multiple users online agree on before using the websites or products.
• Unique identification of Clickwrap Contract are buttons like:
• I accept
• I agree
• Ok
• I consent
• Clickwrap Contracts usually relate to terms and conditions, usage, privacy related terms, or End-user license Contracts (EULS).
• Users can opt-out of the contract by clicking on the cancel button, I disagree, or by closing the sites.

 

Enforceability of Clickwrap Agreements

Foreign

• Feldman v. Google, Inc. – 513 F. Supp. 2d 229 (E.D. Pa. 2007)

While upholding the enforceability of the Clickwrap Contract court presented with “reasonable notice of the terms and manifested assent of the Contract.” While Plaintiff argued that he did not enter into any kind of contract with the defendant, the court held that there could be no purchase without agreeing to the terms and conditions of the Contract while purchasing the advertisement “Adwords” program.

• Specht v. Netscape Communications Corporation, 306 F.3d 17 (2d Cir. 2002)

Court held in the present case that Clickwrap Contracts are enforceable only when they are clearly and conspicuously posted on the website whereas in the present case Netscape posted the Contract inconspicuously.

• Hotmail Corporation v. Van Money Pie, 1998 WL 388389 (N.D.Cal.)

In this case, the court held that clicking on the “I agree” button at the end of the terms and conditions leads to the enforceability of the Clickwrap contracts.

       Indian Scenario

• Trimex International FZE v. Vedanta Aluminium Limited 

In this case, the court upheld that if the terms of a Contract had been discussed over the email, such emails constituted to be a valid contract and hence were enforceable.

• Ddit(lt) Mumbai v. Gujarat Pipavav Port ltd:

In this case, the Income tax tribunal held that Unconscionable or unreasonable bargain (contract adhesion) in Mass contracts like Shrinkwrap and Clickwraps makes them unenforceable even though they have all the components of a valid contract.

In India, under the Indian Contract act, 1872, the definition of Contract doesn’t cover any kind of E-contracts or the Clickwrap Contracts. In India, we have the Information Technology Act, 2000 under which E-contracts are given recognition by section 10-A (w.e.f 27-11-2009) and also through United Nation Commission on International Trade Law (UNCITRAL Model on E-commerce) validates electronic signature but doesn’t cover under its ambit terms as I agree, I accept or Ok. Whereas Section 65-B of the Indian Evidence Act, 1872 provides a procedure for furnishing electronic documents but this provision has nowhere been used in the context of Clickwrap or another kind of such Contract. Therefore Clickwrap Contracts cannot be said to be ‘electronically signed’ in the Indian context.

But so far, no Supreme Court ruling in India has held that Clickwrap Contracts are not valid in India.

The above-mentioned case laws very well outline that Clickwrap contracts are enforceable in the court of law but their enforceability depends majorly upon the question of whether the consent was taken freely and actively or not. While all the Clickwrap contracts can be enforced in court if they tick all the essentials of a valid contract, it can be seen that this kind of contract has got more sanctions internationally than in the Indian Scenario.

How to design the correct Clickwrap Agreement so that the Arbitration Clause cannot be challenged later?

From various international litigations, we can draw some of the best practices we can use to make the Clickwrap Contracts enforceable:

1. Active consent by the user: It is one of the best practices that the user can follow. The user must click on ‘I agree’, ‘Ok’ or ‘I accept’ button or ‘click on it’. The websites should not pre-check the box as the assent from the user must come actively.
2. Give reasonable notice before termination of services: The user should be informed about the TOS in clear words like Terms and Conditions, Privacy Policy, User Contract must be written in a font that is understandable by the user. Clear notice of the Contract makes the Contract enforceable in a Court of law.
3. Contracts should be easily understood by laymen:The websites or software providers should remember that not every person will understand the legal terms of the Contract. Once clickwrap Contracts need to be written in a way that someone without a background in privacy can read, comprehend, and give informed consent to. The site should clearly tell its users to read the TOS to its users.
4. Revised Conditions should be rechecked:The TOS of the Clickwrap Contract if revised should be made to agree by the user again so that the user is aware of the new terms of services.
5.  Specific Consent should be highlighted from the rest of the documents: I think to remember the service provider is that if they ask for permission for things like using users personal information, use it for marketing purposes, in such cases the TOS for such should be distinguishable.
6.  Documentation: One of the most important parts of enforcing the Clickwrap Contract is managing the record as to when the consent was taken and on what version the consent was given. Unless we are unable to prove who accepted the Contracts and which version(s) of the Contract was accepted, then the Clickwrap Contract is not likely to be enforceable.
7. Screen Design of the terms and conditions: It is best practice to keep the layout of the screen before designing a Click Wrap Contract :Simple and uncluttered.The entire screen shall be seen at one time.

   Use language which is easily understandable by the user.

   Never use a contrasting color

Conclusion

According to Clickwrap Litigation Trends Report (available here), more than 75 percent of Clickwrap agreements are enforced. Other 25 percent are not enforced due to lack of reasonable notice, lack of clear assent or just poor design making it difficult to understand the terms and conditions.

If you are an enterprise looking to incorporate Online Arbitration Clauses through a clickwrap agreements, it is imperative to follow the above-mentioned practices to ensure they are held enforceable in the court of law.