WOSML Chapter 16: Venue & Arbitration Clauses

Chapter 16: Venue and Arbitration Clauses

Contributors to This Page: David Axelson
Suggested Citation Form for This Page: Brian D. Wassom et al., Wassom on Social Media Law Chp. 16, available at <wassom.com/wosml-16.html> (last edited June 28, 2013)

When Internet users create social media accounts, they usually subject themselves to lengthy contractual terms that they do not read.  In a rush to join the social-networking frenzy, they “agree” to providers’ Terms of Use or Terms of Service (“TOS”) with the simple click of a mouse and without a second thought.

For users that end up in litigation related to their social media account, the terms to which they have purportedly agreed become crucial.  Common to nearly all social media sites’ TOS are clauses that mandate litigation in the provider’s forum-of-choice, and clauses that mandate arbitration to resolve disputes.  Courts have been faced with the difficult task of deciding whether these provisions are enforceable against users who have ostensibly agreed to them by using or creating an account.  While the application of contract law to novel issues can be challenging, courts have been relatively consistent in establishing guidelines for the enforceability of Internet TOS.

A.  The Different Forms of TOS

Take Facebook, for example.  Its TOS contain a mandatory forum-selection clause requiring users to litigate their disputes in the Northern District of California, and courts have consistently enforced this provision against out-of-state plaintiffs.  The enforceability of Facebook’s TOS turns on the precise mechanics of Facebook’s sign-up procedure:  new users must complete the process by clicking “Sign Up.”  Underneath the sign-up button is the phrase: “By clicking Sign Up, you are indicating that you have read and agree to the terms of service.”  The words “terms of service” are hyperlinked to the full version of the website’s TOS.

In Fteja v. Facebook (S.D.N.Y. January 24, 2012), the plaintiff, a resident of New York, sued Facebook alleging that the provider disabled his account without justification and for discriminatory reasons.  The plaintiff brought suit in the Southern District of New York, claiming that by blocking him from the site, Facebook harmed his personal relationships, caused him emotional distress and tarnished his reputation.  Facebook filed a motion to dismiss the case and, in the alternative, moved to transfer the action to the Northern District of California pursuant to the forum-selection clause in the TOS.  According to Facebook, the plaintiff agreed to litigate any possible disputes in California when he clicked “Sign Up.”

In deciding whether to grant motions to transfer venue, courts ask two questions: (1) whether the case could have been brought in the transferee forum, and (2) whether the transfer would advance the convenience of the parties and witnesses and the interest of justice.  The court in Fteja answered both questions affirmatively and granted the motion.  The answer to the first question was clear:  the suit could have been brought in the Northern District of California because it is where Facebook “resides.”  In addressing the convenience of the parties and the interest of justice, the court stated that the threshold requirement for enforceability of a forum-selection provision is that the “clause was reasonably communicated to the party resisting enforcement.”  The court held that Facebook’s cautionary statement below the sign-up button provided users with reasonable notice that clicking on the button signified assent to the hyperlinked terms.

The application of established contract doctrines, however, did not give the court a direct answer to the issues it faced.  In its analysis, the court discussed two important principles: “browsewrap” and “clickwrap.”  A deeper examination into the meaning and enforceability of these types of contracts is warranted.

     1. Browsewrap Contracts

Browsewrap contracts are agreements stating that mere use of a website will bind visitors to the provider’s TOS.  Courts typically strike them down as unenforceable, unless the website delivers substantial warnings as to their existence, providing users with actual or constructive knowledge of the terms.  Further, the few courts that have been willing to enforce browsewrap terms against users have predominately done so where the user is a business, not an ordinary consumer.  A prime example of the ineffectiveness of browsewrap terms is In re Zappos.com Inc., Customer Data Security Breach Litigation (D. Nev. Sept. 27, 2012).  In that case, the plaintiffs filed a class action suit against Zappos after the company announced a data security breach, and Zappos attemped to enforce the mandatory arbitration clause in its browsewrap TOS.  Users did not have to agree to the terms to reach the content of the website, but rather the site provided access to them via hyperlink in the lower corner of the main screen.  The United States District Court for the District of Nevada denied Zappos’ request for arbitration, reasoning that “[a] party cannot assent to terms of which it has no knowledge or constructive notice, and a highly inconspicuous hyperlink buried among a sea of links does not provide such notice.”  The court also reasoned that the clause was unenforceable because, in addition to being a browsewrap contract, it included a provision reserving the right to change the terms and conditions “at any time.”  To be sure, the decision provides a clear-cut example for social media sites of what not to do when creating TOS.

     2. Clickwrap Contracts

Clickwrap contracts require users to actually click or check a box manifesting assent to the terms before being allowed to proceed through the website or take certain actions.  In contrast to browsewrap, these types of contracts enjoy almost uniform enforceability.  A contrary example to the Zappos scenario is Swift v. Zynga Game Network, Inc(N.D. Cal. August 4, 2011), wherein the Northern District of California upheld the arbitration provision in Zynga’s Yoville Facebook game, which was included in a clickwrap agreement.  In that case, the user was required to click an “accept” button directly above the website’s hyperlinked TOS before being allowed to proceed.  Although most traditional clickwrap agreements require users to scroll through the full text of a website’s TOS, the court, summarizing clickwrap precedent, concluded that “clickwrap presentations providing a user with access to the terms of service and requiring a user to affirmatively accept the terms, even if the terms are not presented on the same page as the acceptance button, are sufficient [to bind users]” (emphasis added).  Because clickwrap terms provide users with unambiguous notice and access to a website’s TOS, they are generally enforceable against users who manifest their assent, regardless of whether they actually read the provisions.

     3. Facebook’s Part-Browsewrap, Part-Clickwrap Contract

With that in mind, Facebook’s sign-up method created a unique dilemma: The site did not include an explicit “I agree” checkpoint that forces users to view the terms (as in a standard clickwrap agreement), nor did it state that merely using the site signifies assent (as in a standard browsewrap agreement).  Thus, at least according to the court in Fteja, Facebook’s method was part-clickwrap, part-browsewrap.  The question then becomes, simply, did Facebook’s method provide enough warning to its users to make the terms enforceable?  The court said yes.  In doing so, it dealt with some notable precedent.  For example, in Specht v. Netscape (2d Cir. 2002), the Second Circuit refused to enforce an arbitration clause contained in a software download agreement, where the site urged users to read and agree to the hyperlinked terms and conditions, but did so on a subsequent page rather than directly next to the download button.  Because Facebook’s warning exists in such close proximity to the sign-up button, the court declined to follow Specht, but noted that the use of a hyperlink, rather than displaying the full terms, was a notable similarity that raised questions about Facebook’s sign-up process.

The Fteja court, adopting an analogy from different Second Circuit case, likened Facebook’s sign-up page to a situation where it “maintains a roadside fruit stand displaying bins of apples,” and places signs above the bins that read “By picking up this apple, you consent to the terms of sales by this fruit stand.  For those terms, turn over this sign.”  In that hypothetical, the court noted, the terms would be enforceable.  The court also referenced Carnival Cruise Lines, Inc. v. Shute, a United States Supreme Court case from 1991, wherein the Court held that a mandatory forum clause on the reverse side of a cruise ticket was valid even though it became binding before patrons physically received their ticket.  The Fteja court added, “[c]licking on the hyperlinked phrase is the twenty-first century equivalent of turning over the cruise ticket.”

The holding in Fteja holding finds support in a variety of other contexts.  For example, in E.K.D. v. Facebook (S.D. Ill. March 8, 2012), the District Court for the Southern District of Illinois reached the same conclusion regarding Facebook’s forum-selection clause.  Although the E.K.D. court more readily classified the terms as browsewrap, the court concluded that Facebook provided reasonable notice to its users regarding the terms by including the hyperlink and the warning below the sign-up button.  Further, the plaintiffs in that case were minors suing Facebook for misappropriating their names and pictures in its “sponsored stories,” and the court held that they could not disaffirm the contract due to contractual infancy.  This has broad implications because, as the court pointed out, “over fourteen million facebook.com users in the United States [were] under the age of thirteen [at the time of the decision].”

The reasoning extends beyond Facebook specifically.  Courts have dealt with other, similar forum-selection and arbitration clauses, and have deemed them enforceable when websites provide blue hyperlinks to their TOS and a readily visible warning that submitting a purchase or taking a particular action signifies assent.

B.   How Broad Can These Provisions Be?

Facebook’s TOS, like the TOS of many other social networking sites, contain a broad provision that subjects users to Facebook’s selected forum for “any dispute about or involving the Web site and/or the Service.”  Just how broad is this coverage?  In Miller v. Facebook (N.D. Ga. January 15, 2010), the court applied the clause to a suit alleging that the defendant’s Facebook “app” violated the plaintiff’s copyright in an Adobe Flash videogame, without much explanation as to why the TOS covered the copyright dispute.

Consider a similar example with a different result.  In VS Technologies v. Twitter (E.D. Va. June 28, 2011), the plaintiff, a limited liability company, sued Twitter for patent infringement.  The patent inventor created an individual Twitter account and agreed to its terms, which mandated California as the forum for “[a]ll claims” in connection with Twitter’s site.  Twitter argued that the clause applied to VS Technologies, despite the fact that the individual patent inventor, not the company itself, agreed to Twitter’s terms.  It reasoned that the company was “so closely related to the dispute that being bound [was] foreseeable.”  However, the patent inventor created his Twitter account before VS Technologies was formed, and the United States District Court for the Eastern District of Virginia sided with VS Technologies, holding that the company could not be bound by a provision to which it never agreed.

Further, the court held that the forum selection clause did not apply to the plaintiff’s patent infringement claims because (1) Twitter’s clause did not expressly provide for federal jurisdiction, and (2) the patent infringement claims were not based on the “access to and use of services provided by Twitter’s website.”  Moreover, Twitter argued that patent infringement suits fell within the ambit of the terms because the TOS contained a specific “Copyright Policy,” which implies that it contemplated the coverage of intellectual property disputes.  The court turned this argument against Twitter, finding that because the company included a copyright policy, but did not include an analogous patent policy, the TOS did not cover patent claims.

C.  Policy Considerations Underlying TOS Enforcement

Perhaps equally important as the application of contract law to the validity of these clauses is the policy behind enforcing them.  In Miller v. Facebook, the Northern District of Georgia, upholding Facebook’s forum-selection clause, pointed out that “striking the forum selection clause could wreak havoc on the entire social-networking internet industry” and could subject the company to “litigation in every state in this country and in nations around the globe[.]”

In contrast, the court in VS Technologies v. Twitter, striking down a forum-selection clause, stated as a matter of policy, “with the growth of the social networking industry, the Court hesitates to establish precedent that would potentially foster satellite litigation in every patent case involving a social networking market participant.”

To be sure, each of these policy arguments regarding the enforceability of venue clauses is compelling.  Whether a particular judge favors one over the other is just one of the many questions that arises when these matters reach the court system, which still has relatively little precedent to work with.

D.  Reconciling the Decisions

It would be dangerous to assume the existence of hard-and-fast rules regarding the enforceability of arbitration and venue clauses on social media sites, and users should exercise care when operating their accounts, keeping in mind that they may be bound to terms of use that they have not read.  Broadly speaking, pure clickwrap terms are much more likely to be enforceable than pure browsewrap terms, but where a contract falls somewhere in between the two, enforceability turns on whether its terms have been reasonably communicated to users.  As the case law develops in this young area of law, social media providers will be given more and more guidance as to how, and when, they can enforce their terms against their ever-growing body of users.  For now, courts must simply do their best apply established law.  As one court pointed out, “[w]hile new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.”