How many times have you downloaded an app to your smartphone or software to your personal computer? Most people have done this dozens of times. Notice that sometimes when you install an app/program you are asked to click on a box that says you “Agree” to the terms of service. In the legal world, this is referred to as a “click-wrap” agreement. On other occasions, you are not required to “click on a box,” but you’re simply invited to read the terms of service. You don’t have to and there is no one forcing you to do so. In fact, you can ignore them if you desire. This is referred to as the “browse-wrap.”
So what exactly are your rights as a consumer, when you supposedly agree to terms of service through one of these two methods?
Terms of Service.Uber.
This question may be closer to an answer after a controversial ruling by federal judge Jed Rakoff of the Southern District of New York. In an antitrust class action complaint, Meyer v. Kalanick and Uber Technologies, Inc. the judge denied a motion to compel arbitration in a class action complaint filed against Uber Technologies, a multinational transportation network, which allows its app users to hail rides via their Smartphones.
Like most apps, Uber’s contains a hyperlink to their terms of service, which includes a “mandatory arbitration” clause. However, Judge Rakoff ruled that consumers using the Uber app were not obligated to either click a box (click-wrap) or read through (browse-wrap) the terms of service before using it. Thus, the users never consented to the mandatory arbitration clause. The court also noted that the arbitration clause for Android users was “buried” in pages of legalese in fine print that was barely legible, making it extremely unlikely to be understood by ordinary consumers.
The accepted legal standard has been that in absence of “click-wrap,” the notice of terms of service is required to be conspicuous and indisputable. Judge Rakoff ruled that Uber did not meet these standards. This ruling contradicted a recent federal case out of Massachusetts, which ruled that Uber’s arbitration clause was “sufficiently disclosed.”
Federal courts, including the Supreme Court, have steadfastly enforced mandatory arbitration clauses. However, this ruling by Judge Rakoff and the 2014 Ninth Circuit Court of Appeals decision in Nguyen vs. Barnes and Noble have shown that courts take seriously the concept of notice—making consumers aware of the existence of the terms. Essentially, arbitration provisions and class action waivers are enforceable, so long as the user has been placed on sufficient notice.
In this case, the plaintiff’s allegation that he did not see the terms of service, while registering to use Uber, was sufficient to determine that Uber did not provide sufficient notice. Therefore, the arbitration provision was not enforceable.
What can a business owner take away from this?
- Contract rules apply.
- They cannot be stuck inside “highly legalistic language that no ordinary consumer could be expected to understand.”
- Best practice, require acceptance of the terms through a click-wrap
Is this a sign of things to come and will congress ultimately have to update federal dealing with mandatory arbitration laws to bring them up to speed with the digital age? We will have to wait and see.