Online Agreements

Before you click I agree next time

How many online contracts have you just clicked “I Agree” to, without even reading? Probably more than you remember. And you are not the only one as most people never read the online contracts they agree to online. But, why is that so? There are several reasons, this is just a few of them.

1. The terms are not negotiable anyway so people know they can’t change them.
2. The terms are too complicated to understand, and people are afraid to be perceived as less intelligent by not understanding the basic terms of a website, so they just accept them (hint – they ARE difficult to understand, even for us lawyers).
3. Simply not interested in knowing the terms of service and think that if enough other people have accepted the terms they “can’t be that bad”.
4. The users don’t think that online contracts are enforceable as they haven’t signed their name in ink anywhere.

However, if the formation process satisfies the required formalities then the users are legally bound by online contracts, regardless if they have read the contract or physically signed them.

1. Introduction

Online contracting raises legal issues that any business attempting to set up an online contracting site should consider. If you’ve spent a considerable amount of hours drafting your company’s terms of service (ToS) for your website to manage risk and explain limitations of your business (and perhaps also that you will be sharing your users personal information with third parties to “enhance your users user experience, wink wink”) you most likely want your users to be bound by it. However, a ToS, like any other contract, requires proper formation. Below we will cover the basics on how you make sure your ToS are binding and will actually hold up in court.

2. Recommendation

General contract law principles such as offer and acceptance can generally be accommodated on the Internet but bearing in mind that people act differently when they are faced with an online contract as described above, businesses have to actively consider the steps of the online contract formation process. Court cases in the U.S. have proven that there are more than just one right way to form an online contract but below are some hands on recommendations to increase the likelihood of contract formation.

Clear Call-to-Action. Users should be presented with a statement that says “if you do X, you agree to Y”, for example “By clicking “I agree” you consent to be bound by our Terms of Service”. A number of contracts have failed because of weak or ambiguous calls-to-action, and that’s an easy problem to avoid. (A call-to-action button is a piece of text, sometimes combined with an image, that tells your user what you want them to do next.)

Call-to-Action Prominence. The call-to-action should be visible on the page/screen without the user having to scroll down, and the font should be a larger font size and more prominent color than the surrounding text. This one is also easy to conform with so don’t act apologetic to the fact that you want to bind your user by decreasing the size of the “I agree” to a teeny tiny font, do the opposite.

Mandatory Checkbox. The call-to-action should say something along the line “by clicking this checkbox, you agree to the [name of the legal terms],” with an associated checkbox that users must check to proceed. The extra checkbox is not legally required but it is strongly advisable to have it as it helps courts avoid distinctions between “clickwraps” and “sign-in-wraps.”.

Contract Visibility. Courts still accept making the legal terms available as a hyperlink from the call-to-action. However, preferably the user terms are presented on the same page as the call-to-action. Because of their length, many services present the legal terms as “scrollboxes” where the first few lines of the legal terms are visible and users can scroll down in the box (without leaving the page) to read more. You can also provide options for users to “pop out” the terms into a newwindow and, as a nice touch, print the legal terms if they choose. A very strong of contract formation would require users to scroll through the terms before they are allowed to click the “agree to” checkbox, but this step is not legally required.

Second Click to Proceed.  Though not required, it is strongly advised to have a second click that lets the user advance from the page/screen, such as a “register” or “buy now” button.

“Non-leaky” Formation Process.  It should be impossible for users to reach their desired outcome (such as creating the account or buying the item) without going through the contract formation process. This means there should be no workarounds or alternative user flows that reach that outcome. 

Mobile Devices

Mobile devices create a number of extra potential issues with contract formation that you should be aware of. For example, because the screen size is smaller than on desktop or laptop computers, the agreement text may be smaller and harder to read. Also, lengthy agreements could unreasonably require users to scroll through literally dozens of screens to read the whole agreement.

3. Case Study: Uber´s Contract Formation

Uber has been a party to a number of court cases, several due to their contract formations and contract content. Uber has an arbitration clause in their terms of services but in order for their users to be bound by the arbitration clause they must have a proper contract formation process. Previously, to register with Uber, prospective customers had to navigate the following process. First, they completed this screen:

After clicking “next,” registrants saw the following screen:

Nothing unusual so far. The issues came in the next step because when registrants attempted to fill in the credit card information, which was mandatory to finish the registration process, the above screen changed to this:

Missing anything that we talked about in the above section “Recommendations”? When the user starts to enter the credit card number, the keypad covers up the language “By creating an Uber account, you agree to the Terms of Service and Privacy Policy,” but the “Register” button remained visible. As a result, registrants who filled in the credit card information and immediately selected the “Register” button would not see the “By creating an Uber account…” language again. This was an error that ended up costing Uber thousands in court fees.

What we learn from the Uber case is that once the contract formation process is formally established, you must check the contract formation implementation to ensure it’s airtight. This includes understanding if there are any possible workarounds and, most importantly, check the formation on multiple devices and operating systems because they will differ. This may seem like obvious but still needs to be mentioned as the mobile version of your software might mess up the call-to-action button and the link to the terms of service at some stage. The development team will likely have to set up an account creation flow for mobile apps that differs from the web flow. The different operating systems might also require different set ups as often app flows differ between iOS, Android and other mobile device operating systems, and even between different generation of each operating system.