One of the many challenges facing companies that do business online is ensuring their website’s terms of service and privacy policies are enforceable to the greatest extent possible in case of a dispute with  customers.

In a recent California case, Berman v. Freedom Financial Network LLC, the Ninth Circuit Court of Appeals revisited when use of a website can bind a customer to hyperlinked “terms and conditions” containing an arbitration provision that the customer never saw or read. The appeals court affirmed the district court, ruling that the plaintiffs did not enter into a binding agreement to arbitrate because they did not “unambiguously manifest their assent to the terms and conditions when navigating through the [defendants’] websites.”

Although the court indicated there is no specific formula to follow, another court has recently issued a reminder holding that simply including verbiage that states, “Accessing our website binds you to our policies” — whether terms of service, terms of use, privacy policy or other related wording — is not enough.

As a general proposition, to form a contract under the laws in most jurisdictions both parties to the contract must manifest their assent to the terms of the agreement. While this traditionally happens through written communications or verbal discussions, parties may also establish an agreement through their conduct.

However, conduct is not effective as a form of agreement unless the party engaging in the conduct intends to do so and knows — or has reason to know — what the other party may infer from the conduct taking place. These principles are very important when evaluating whether a party has adequately manifested their agreement to the terms and conditions appearing on a website.

In its decision, the Ninth Circuit discussed the two different types of agreements commonly used in connection with website policies:

• Clickwrap agreements, in which a website presents users with specified contractual terms on a pop-up screen and users must check a box explicitly stating “I agree” in order to proceed.
• Browsewrap agreements, in which a website offers terms that are disclosed often only through a hyperlink and the user supposedly manifests assent to those terms simply by continuing to use the website.

Clickwrap agreements are usually found to be enforceable by courts, since they provide a website user with notice of the terms of the agreement and require them to check an “I agree” box in order to proceed. Browsewrap agreements, however, are less likely to be enforced by courts because users are often unaware of the terms of the agreement, or that their continued use of the website would be considered acceptance of any stated terms.

In Berman, the defendants included a mandatory arbitration clause in small print as a part of a browsewrap terms of service agreement. The plaintiffs argued they did not see the mandatory arbitration clause and had not assented to it.

The Ninth Circuit ruled the small print arbitration clause in a browsewrap agreement was insufficient to form a binding contract under New York and California law.

The Ninth Circuit also noted the defendants did not argue that the plaintiffs had actual notice of the mandatory arbitration clause and could not establish enough facts to demonstrate the plaintiffs were on inquiry notice of the website’s terms and conditions. This was because the notice was not conspicuous enough and the hyperlink that would have taken the website user to the terms of service was not readily apparent.

The court also found the plaintiffs did not take any actions that unambiguously manifested their assent to the terms of service while browsing the website. Given these findings, the Ninth Circuit affirmed the lower court’s ruling, holding the mandatory arbitration clause in the terms of service was not binding on the plaintiffs — a ruling that is consistent with many others published by courts throughout the country.

As a practical matter, Berman underscores that businesses should work with their website designers to make sure notice of any terms and conditions with which the company intends to bind its customers should be clear and conspicuous on their websites. Also, the presentation of those terms and conditions should be accomplished by website design features that require users to affirmatively agree to the terms and conditions in question.

One way to accomplish this is by incorporating a clickwrap agreement into the website’s design.  In addition, hyperlinks that take users to additional terms of service should be clear so that users are not required to ferret them out.