Online Arbitration Clauses Successes and Failures – an Analysis

By Michelle Cohen, Ifrah Law

Many companies view arbitration as preferable to state or federal court litigation for several reasons, including the ability to exclude class actions, confidentiality (and lack of published decisions that set precedent), reduced litigation costs, and an experienced neutral decision-maker.  Over the years, courts have become more comfortable enforcing arbitration clauses in online terms and conditions. However, parties often challenge arbitration imposed through “clickwrap” or “browsewrap” agreements to avoid arbitration. Courts then look at the facts and circumstances when the organization purportedly imposed the online terms. This analysis includes probing when and how a company presented the applicable terms, the language and typeset used, and the placement of the terms, focusing on whether a “reasonable consumer” would be put on “inquiry notice” of the terms (if actual notice was not given). In other words, courts generally review whether companies presented consumers with terms in a manner that would cause a reasonable consumer to inquire further (e.g, click through a link or scroll down through the terms). 

Two cases involving Uber, the ride sharing service, illustrate how different courts reach different conclusions when examining whether to enforce online terms. In both cases, plaintiffs challenged Uber’s arbitration clause contained in Uber’s terms and conditions.  The U.S. Court of Appeals for the Second Circuit (which covers Connecticut, New York, and Vermont) enforced the clause. The U.S. Court of Appeals for the First Circuit (covering Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island) refused to require the consumers to arbitrate. Why the difference? 

In Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2nd Cir. 2017), Spencer Meyer, a Connecticut resident, sued Uber and its then CEO, Travis Kalanick, in federal district court in New York, for illegal price fixing under Section 1 of the federal Sherman Act and a similar New York law, particularly relating to Uber’s “surge” pricing. Meyer’s case was filed as a putative class action in which he sought to sue on behalf of a nationwide class who have used the Uber app to obtain a ride and paid a fee based on the Uber pricing algorithm.

In response, Uber asked the district court to require Meyer to arbitrate his dispute with Uber. Uber based its arbitration argument on the mandatory arbitration provision set forth in Uber’s terms of service, which Uber presented in the app when Meyer registered for his Uber account.  Meyer asserted that the terms of service was not reasonably conspicuous and that he did not agree to the arbitration provision. The federal district court denied Uber’s motion. On appeal, the Second Circuit (in a unanimous opinion) held that the terms of service were conspicuous. Further, Meyer had, in essence, assented because a reasonable user would understand that he was agreeing to additional terms (and he had an opportunity to click and read all those terms, including the arbitration clause). A “reasonably prudent smartphone user knows that text that is highlighted in blue and underlined is hyperlinked to another webpage where additional information will be found.” (Meyer, 868 F.3d at 77-78).

The Second Circuit focused on these key aspects of Uber’s terms: 

  • Following Meyer’s entering of basic registration information and clicking “Register,” Meyer was presented with a statement advising him that “by creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  This capitalized phrase (appearing in blue text and underlined) contained a hyperlink that, if clicked by a user, would present Uber’s Terms of Service and Privacy Policy.
  • The arbitration provision applicable at the time of Meyer’s registration consisted of a large paragraph, titled (in bold) “Dispute Resolution.” The clause further instructed, in bold, that each party waived a trial by jury and to participate in a class action.
  • The screen was uncluttered and the reference (in caps) to Uber’s Terms of Service and Privacy Policy (including the hyperlinks) appeared right below the registration buttons. Further, a user could see the entire screen “at once,” without scrolling down or clicking further.
  • The notice of the Terms of Service was directly related and adjacent to the registration feature.

In contrast, the First Circuit, in Cullinane v. Uber Technologies, Inc., 893 F.3d 53 (1st Cir. 2018), refused to enforce Uber’s arbitration clause against several consumers. The plaintiffs sued Uber under Massachusetts’ consumer protection law for excessive fees. The First Circuit reversed the lower court which had ruled in Uber’s favor. Applying Massachusetts law, the court concluded that “when the terms of the agreement are only available by following a link, the court must examine ‘the language that was used to notify users that the terms of their arrangement with [the service provider] could be found by following the link, how prominently displayed the link was, and any other information that would bear on the reasonableness of communicating [the terms].”

Here, the court focused on the following factors: 

  • Uber chose not to use a common method of conspicuously informing users of the existence and location of terms and conditions: requiring users to click a box stating that they agree to a set of terms, often provided by hyperlink, before continuing to the next screen.
  • Uber’s “Terms of Service & Privacy Policy” hyperlink did not have the common appearance of a hyperlink. While not all hyperlinks need to have the same characteristics, they are “commonly blue and underlined.” Here, the “Terms of Service & Privacy Policy” hyperlink was presented in a gray rectangular box in white bold text.  The characteristics of the hyperlink raised concerns as to whether a reasonable user would have been aware that the gray rectangular box was actually a hyperlink.
  • Along with the “Terms of Service & Privacy Policy” hyperlink, the “Link Card” and “Link Payment” screens contained other terms displayed with similar features. For example, the terms “scan your card” and “enter promo code” were also written in bold and with a similarly sized font as the hyperlink. The presence of other terms on the same screen with a similar or larger size, typeface, and with more noticeable attributes diminished the hyperlink’s capability to grab the user’s attention.

The Second Circuit in Meyer sent a clear message that terms and conditions available via hyperlinks (including arbitration clauses) will bind a user and be enforced by a court, provided certain conditions are met.  However, each case (as we see here) will be a fact-specific review.  Companies designing terms for apps and websites should carefully review how the terms are presented (including at what point in the process). The Meyer court noted favorably that Uber’s reference to its terms and conditions were presented in an uncluttered fashion at the point of registration. And, the hyperlinks were noticeable through the use of blue color and were underlined. Further, a user saw the reference to the terms when registering, not after. The user could see the entire screen at once.  In contrast, the Cullinane court criticized the abundance of text where the hyperlink to the terms occurred, noting “if everything on the screen is written with conspicuous features, then nothing is conspicuous.” The First Circuit also emphasized Uber’s failure to use blue typeface and underline the hyperlink. While this may seem trivial, it resulted in the court refusing to enforce the arbitration agreement. In other words, while words matter, design may prevail when it comes to the enforceability of arbitration clauses in online terms and conditions.