DMEast#13434910 Clickwraps, Browsewraps and Why ESIGN Deserves a Bum Rap Payday Loan Bar Association...

DMEast#13434910

Clickwraps, Browsewraps and Why ESIGN Deserves a Bum Rap

Payday Loan Bar Association MeetingNovember 7, 2011West Palm Beach, Florida

Mark J. FurlettiConsumer Financial Services GroupBallard Spahr LLP1735 Market Street, 51st FloorPhiladelphia, PA 19103-7599 [email protected]

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Agenda

• Introduction• Electronic contracting best practices

- Clickwraps- Browsewraps- Modification

• ESIGN Issues- Retention- Reasonable demonstration- Recurring TELs

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Best practices v. 2.0

• Working Group on Electronic Contracting Practices, Electronic Commerce Subcommittee of the Cyberspace Law Committee of the Business Law Section of the American Bar Association

• Christina L. Kunz et al., “Click-Through Agreements: Strategies for Avoiding Disputes on Validity of Assent,” 57 Bus. Law. 401 (Nov. 2001).

• 15 electronic contracting “best practices” for avoiding disputes

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• Should not have the option of manifesting assent without having been presented with the terms of the proposed agreement

• Means of assent should be placed at the end of the agreement terms requiring user to navigate past them before assenting (no hyperlinks or scroll boxes)

• Should be able to read the terms at user’s own pace

• Should be able to review the terms at later stages of the assent process

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• Should be given clear choice between assenting to the terms or rejecting them

• Should use clear words of assent, e.g., “I Agree,” not “Process my order” or “Continue”

• Should draw attention to consequences of assent and rejection

• Should maintain accurate records of the consent and format of the electronic agreement process, documenting steps the user had to take to obtain service

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• Clickwraps

“Clickwrap” includes “the following types of interfaces: terms within a frame through which a user must scroll to get to a radio button that must be checked to proceed; terms within a frame and a radio button outside and below that frame that must be checked to proceed; and a statement that the purchase is subject to terms and conditions, a link to those terms, and a radio button that must be checked to proceed.”

Ronald J. Mann, Just One Click: The Reality of Internet Retail Contracting, 108 Colum. L.Rev. 984, 990 (2008)

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• Browsewraps

[B]rowsewrap agreements do “not require the user to manifest assent to the terms and conditions expressly—the user need not sign a document or click an ‘accept’ or ‘I agree’ button.” Southwest Airlines v. BoardFirst, L.L.C., 06–CV–0891–B, 2007 WL 4823761, at *4 (N.D.Tex. Sept. 12, 2007). Instead, browsewrap agreements typically “involve a situation where notice on a website conditions use of the site upon compliance with certain terms or conditions, which may be included on the same page as the notice or accessible via a hyperlink.” Id. Thus, a party gives his or her assent simply by using the website. Id.

Van Tassell v. United Marketing Group, LLC, __ F. Supp. 2d __, 2011 WL 2632727 (N.D. Ill. July 5, 2011)

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• Clickwraps—hyperlinks and scroll boxes

- Appliance Zone, LLC v. NexTag, Inc., 2009 U.S. Dist. LEXIS 120049 (S.D. Ind. Dec. 22, 2009)• “I Agree” Checkbox with hyperlink

• Rejects argument that terms not sufficiently conspicuous because they did not appear on same screen as “I Agree” button

- Scherillo v. Dun & Bradstreet, Inc., 684 F. Supp. 2d 313 (E.D.N.Y. 2010)• Scroll box and “I Agree” checkbox

• “A person who checks the box agreeing to the terms and conditions of a purchase on an internet site without scrolling down to read all of the terms and conditions is in the same position as a person who turns to the last page of a paper contract and signs it without reading the terms—namely, the clause is still valid.”

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• Clickwraps—hyperlinks and scroll boxes (cont’d)

- Bar-Ayal v. Time Warner Cable, Inc., 2006 U.S. Dist. LEXIS 75972 (S.D.N.Y. Oct. 16, 2006)

• Upholds scroll box where user could click “accept” without scrolling all the way through

- Swift v. Zynga Game Network, Inc., __ F. Supp. 2d __, 2011 WL 3419499 (N.D. Cal. Aug. 4, 2011)

• Enforces “modified click-wrap” where hyperlink next to “I Accept” contained terms

- Fusha v. Delta Airlines Inc., No. 10-2571 (D. Md. Aug. 30, 2011)

• “[W]hether she read the forum selection clause or not, it is undisputed that Fusha clicked the “I Agree” button…prior to purchasing her tickets and therefore agreed to litigate her claims against Airtrade in…California.”

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• Clickwraps—terms emailed later

- Schnabel v. Trilegiant Corp., 2011 WL 797505 (D. Conn. Feb. 24, 2011)

• No agreement where terms were not with “Yes” button and were later provided in a link at the bottom of an email

• But court suggested could be binding if consumers given notice that terms would come later and could reject them

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• Clickwraps—entering information before seeing agreement/15 minute time out

- Riensch v. Cingular Wireless, LLC, 2006 U.S. Dist. LEXIS 93747 (W.D. Wash. Dec. 27, 2006)

• Rejects argument that agreement was procedurally unconscionable because user had to enter personal information before being presented with agreement and because 15-minute “time-out” feature on website hindered ability to read terms

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• Browsewraps- PDC Laboratories, Inc. v. Hach Co., 2009 U.S. Dist. LEXIS

75378 (C.D. Ill. Aug. 25, 2009)

• Hyperlink to terms appeared on bottom of each screen in order process and last page included button labeled “Review terms, add any comments, and submit order”

• Court upholds and looks to UCC which explains that an agreement is conspicuous if “a reasonable person against which it is to operate ought to have noticed it”

• Both parties commercial entities

• Suggests that distinction between browsewrap and clickwrap is unimportant and that what matters is whether the terms were reasonably communicated

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• Browsewraps (cont’d)

- Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362 (E.D.N.Y. 2009)

• Only notice that terms applied was in terms themselves

• “Entering this site will constitute your acceptance of these Terms and Conditions”

• Court finds agreement unenforceable for lack of notice

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- Van Tassell v. United Marketing Group, LLC, __ F. Supp. 2d __, 2011 WL 2632727 (N.D. Ill. July 5, 2011)

“[A] review of these web pages and hyperlinks connecting them shows that the notice of the Conditions of Use on ChefsCatalog.com is far less conspicuous than the notice in the cases upon which Pikes Peak relies. Unlike in either Hubbert or PDC Laboratories, a hyperlink to the Conditions of Use does not appear on either the home page or the check out pages. Instead, a user only encounters the Conditions of Use after scrolling to the bottom of the home page and clicking the “Customer Service” link, and then scrolling to the bottom of the Customer Service page or clicking the “Conditions of Use, Notices & Disclaimers” link located near the end of a list of links on the page.”

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- Druyan v. Jagger, 508 F. Supp. 2d 228 (S.D.N.Y. 2007)• “By clicking on the ‘Look For Tickets’ button or otherwise using this

website, you agree to the Terms of Use”

• Plaintiff claimed that he never read terms

• Court held that it did not matter if the plaintiff ever read the terms so long as he had sufficient notice of them

• Plaintiff had used site previously and was experienced with web

- Southwest Airlines Co. v. BoardFirst, LLC, 2007 U.S. Dist. LEXIS 96230 (N.D. Tex. Sep. 12, 2007) (upholding browsewrap)• “[O]ne general principle that emerges is that the validity of a browsewrap

license turns on whether a website user has actual or constructive knowledge of the site’s terms and conditions prior to using the site.”

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- A.V. v. iParadigms, LLC, 544 F. Supp. 2d 473 (E.D. Va. 2008)

• Hyperlink with terms appeared on each page of website

• Court refused to enforce because browsewrap was not incorporated by reference into subsequent clickwrap and website did not direct users to view the browsewrap agreement

- Snap-On Business Solutions, Inc. v. O’Neil & Assoc., Inc., 2010 WL 2650875 (N.D. Ohio July 2, 2010)

• Refuses to enforce clause for attorney’s fees where users did not have to manifest assent or view the terms

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- Hubbert v. Dell. Corp., 835 N.E.2d 113 (Ill. Ct. App. 2005)

• “The blue hyperlinks on Defendant’s Web pages, constituting the five-step process for ordering the computers, should be treated the same as a multi-page written, paper contract. The blue hyperlink simply takes a person to another page of the contract, similar to turning the page of a written paper contract. Although there is no conspicuousness requirement, the hyperlink’s contrasting blue type makes it conspicuous. Common sense dictates that because the plaintiffs were purchasing computers online, they were not novices when using computers. A person using a computer quickly learns that more information is available by clicking on a blue hyperlink.”

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• Browsewraps (cont’d)- Hoffman v. Supplements Togo Mngmt. LLC, 18 A.3d 210 (2011)

Defendants provide nothing to contradict plaintiff's contention that the forum selection clause would not be visible on an Erection MD purchaser's computer screen unless he or she scrolled down to a submerged portion of the webpage where the disclaimer containing the clause appeared. Nor do defendants rebut plaintiff's contention that if a purchaser selected one of their products (such as Erection MD) advertised on the site, by clicking that item and adding it to his or her electronic “shopping cart,” the webpage would skip ahead to new pages that do not contain the disclaimer.

In sum, the forum selection clause was unreasonably masked from the view of the prospective purchasers because of its circuitous mode of presentation. The relative size of the disclaimer's type face is irrelevant, because the website was designed in a manner that makes it unlikely that consumers would ever see it at all on their computer screen. Consequently, the website here is dissimilar to the one in Caspi and similar to the one in Specht.

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• Modification

- Margae, Inc. v. Clear Link Technologies, LLC, 2008 WL 2465450 (D. Utah June 16, 2008)

• Clickwrap with provision allowing defendant to “modify the agreement at any time by notifying [the plaintiff] or by posting a new agreement”

• Defendant posted new agreement with arbitration clause

• Court held that plaintiff was bound by modified agreement because it visited site frequently and that plaintiff should have been checking website

• Plaintiff was a business

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• Modification (cont’d)

- Harris v. Blockbuster Inc., 2009 WL 1011732 (N.D. Tex. Apr. 15, 2009)

• Clickwrap provided that Blockbuster could modify “at any time, and in its sole discretion…with or without notice” and that “such modifications will be effective immediately upon posting”

• Court held that unilateral modification provision rendered agreement illusory

• Court suggested that case would have come out differently if modifications could only operate prospectively

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• Implications- ABA Working Group’s “best practices” are still sound after a

decade but…

• Courts have no trouble enforcing clickwraps, including those with hyperlinked terms, with scroll boxes (where users are not forced to scroll through the terms) and without a “I Do Not Agree” choice

• Courts seem willing to enforce a browsewraps so long as users are adequately notified about their existence (and product not a scam)

- Modifications have a good chance of being given effect where user frequently visits sites and is put on notice about need to check for changing terms

- May be prudent to put defensive provisions (e.g., an arbitration clause, notice and cure clause) in browsewraps

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• Other best practices

- Don’t use popups

- Make it very easy to save, print or email agreement

- Use bold type, headings, and tables of contents

- Draw attention to arbitration clauses and provisions that relate to price, privacy and recurring charges

- Make agreement always accessible from website

- Don’t time out session with terms

- Don’t “submerge” terms

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ESIGN

• Retention

- 15 USC 7001(c)(1)(C)(i) ("[T]he consumer—(i) prior to consenting, [must be] provided with a statement of the hardware and software requirements for access to and retention of the electronic records…") (emphasis added);

- 15 USC 7001(c)(1)(D) (must provide notice "if a change in the hardware or software requirements needed to access or retain electronic records creates a material risk that the consumer will not be able to access or retain a subsequent electronic record that was the subject of the consent…") (emphasis added).

• How do you retain federal disclosures provided through a smartphone?

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ESIGN

• Reasonable demonstration

- 15 USC 7001(c)(1)(C)(ii) (Electronic disclosure acceptable if the consumer “consents electronically, or confirms his consent electronically, in a manner that reasonably demonstrates that the consumer can access the information in electronic form that will be used to provide the information that is the subject of the consent…”)

• How do you reasonably demonstrate that someone can read a pdf?

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ESIGN and recurring TEL’s

Q: Can a series of recurring electronic funds transfers be authorized over the telephone?

A: Not easily and not without prior groundwork. For preauthorized EFTs, Section 205.10(b) of Reg E requires a “writing signed or similarly authenticated by the consumer.” There is no way to turn a telephone call into a “writing.”

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Q: Don’t NACHA’s recurring TEL rules, which became effective on Sept. 16, 2011, suggest that Reg E’s writing requirement can be satisfied with an ex post writing (i.e., one sent to the customer after obtaining the authorization over the phone)?

A: Yes, they do, but there is no support for this in Reg E or E-SIGN, which expressly provides that an oral communication cannot satisfy a written disclosure requirement. See 15 U.S.C. § 7001(c)(6).

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Q: Any clever ideas?

A: As it happens, yes. We think the authorization for recurring EFTs can be obtained over the phone (or by other electronic means) if the final authorization step is preceded by delivery of an (unsigned) authorization form to the consumer. The idea is for the consumer to electronically “sign” the paper authorization!

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Q: How is that possible? First of all, how can you get an electronic signature over the telephone?

A: E-SIGN defines “electronic signature” as “an electronic sound, symbol,, or process, attached to or logically associated with a contract ….” It is not clear whether it is enough to record the consumer agreeing to a contract or authorization. See 15 U.S.C. § 7.001(c)(6), which provides that oral communications and recordings are not “electronic records.” However, it is possible to provide in the phone call that pushing a series of numbers on the phone touchpad (for example, the last four digits of the consumer’s social security number) will constitute the consumer’s signature to a contract.

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Q: Yes, but how can you electronically “sign” a paper agreement?

A: E-SIGN gives effect to an electronic signature that is “logically associated” with a contract. It does not say that the electronic signature must be associated with an electronic contract or record. Accordingly, it should be possible to electronically sign the paper authorization if the signature can be “logically associated” with the authorization. We think the required logical association can be created by simply advising the consumer that the signature he or she is giving is to a paper authorization that has been previously provided to the consumer. (Because the authorization is on a paper form, it is not necessary to provide the various disclosures mandated by E-SIGN for electronic records (e.g., hardware and software requirements, how to withdraw consent, etc.). See 15 U.S.C. § 7001(c)(1).

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Q: But contract formation requires delivering a contract, not just signing it. How does the consumer deliver the authorization here?

A: There is no common law reason why the authorization needs to be in writing, and neither Reg E nor the NACHA Rules require delivery. Rather, they “merely” require signing a written authorization. So long as appropriate consumer protections are provided, we believe that the common law requirements for contract formation and the Reg E/NACHA requirements for preauthorized EFT authorizations have all been fulfilled.

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Q: Wouldn’t the consumer’s authorizing the debits over the phone trigger the application of the rules applicable to telephone-initiated entries (i.e., TELs) and require that such entries be categorized as TEL entries?

A: No. NACHA published a Formal Rules Interpretation entitled “Proper Use of SEC Codes; Aggregation of Transactions” that explains that entries authorized pursuant to a standing written authorization (such as that described here) are properly classified as PPD entries. NACHA’s recent amendments regarding recurring TELs confirms this. See Supp. No. 2-2010 to NACHA Operating Rules (describing how to authorize telephone-initiated PPD entries).

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Q: Can this process be adapted to instead authorize subsequent one-time debit entries initiated via text messages, emails, the Internet or other means of communication without the re-disclosure of the authorization language required under the ACH Rules?

A: Yes. The Formal Rules Interpretation discussed above expressly contemplates such “blanket” authorizations with consumers subsequently confirming the date of payment, amount of payment and payee via various means of communication. So long as the blanket authorization is sufficiently broad and clear, there is no need to repeat the authorization language for the subsequently confirmed debits. Moreover, such subsequent debits should be classified as PPDs because the original standing authorization is a writing. See NACHA Formal Rules Interpretation, “Proper Use of SEC Codes; Aggregation of Transactions.”

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Q: Could you use the same authorization method over the Internet instead of the phone?

A: You could, but, in general, it would not be necessary because text on a computer screen can constitute a writing if the proper E-SIGN disclosure is provided. If desired, however, the method described here could be used to eliminate the need to repeat the authorization language where there is a written blanket authorization for one-time entries, as described in the preceding response, and a subsequent confirmation of the date of payment, amount of payment and payee over the Internet.

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DMEast#13434910 Clickwraps, Browsewraps and Why ESIGN Deserves a Bum Rap Payday Loan Bar Association...

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