Online Contracts update: US Court gives lesson in web design

26 April 2022

The colour of a hyperlink may seem like a minor point of detail, but it assumed surprising significance in a recent decision of the US Court of Appeals1, which offers helpful insights into the principles governing the enforceability of online contracts. The key takeaway, for businesses looking to ensure their agreements are binding on online customers, is that hyperlinks to terms and conditions should ideally appear in blue underlined font – and should be accompanied by a clear explanation of which specific action will signify acceptance.

While New Zealand continues to await judicial clarification of the rules regarding online contracts, and the principles which govern their enforceability, overseas case law provides a useful indicator of the factors that are likely be relevant.

Summary of the case

Berman v Freedom Financial Network & Others concerned two customers who visited various retail websites operated by a marketing company. In the process of registering on those websites the customers provided personal information, which was then used by the company for the purposes of an extensive telemarketing campaign. The customers filed proceedings alleging that the relevant marketing messages they received were sent without their consent, in breach of US consumer protection legislation.

The company claimed that the case could not proceed because of an arbitration clause in the terms and conditions, which they argued had been accepted during the sign-up process. The relevant terms had been presented via a hyperlink in grey font above a green “continue” button, which the customers had both clicked during the sign up process. A screenshot in the judgment depicted the registration form in this way: 

The key issue for the Court was whether the terms should be binding on the customers. 

Court’s analysis

Consistent with past US case law on online terms, the Court approached the issue in two parts, by considering: (a) whether the website provided reasonably conspicuous notice of the terms; and (b) whether it required the consumer to agree to the terms unambiguously. On both grounds the Court found that the terms were not enforceable. In reaching that view the Court (the Ninth Circuit, with jurisdiction over Silicon Valley and well versed in such matters) drew on a line of its own judgments where similar online registration processes had been disputed.

On the first issue, the Court found that the website had failed to provide reasonable notice of the terms. That was based on a detailed analysis of the formatting and presentation of the relevant links. The key issues were:

  • The relevant text was in “tiny grey font” and the hyperlinks appeared in the same grey font as the rest of the sentence.
  • The hyperlinks were not in blue, which the Court described as “the colour typically used to signify the presence of a hyperlink.” Separately the judgment stressed the importance of “a contrasting font colour (typically blue)” to signal a hyperlink.
  • The text also lacked the use of capital letters – another “customary design element denoting the existence of a hyperlink.”
  • The underlining of the links, while a feature of a hyperlinks, was insufficient without more. As the Court noted, businesses “must do more than simply underscore the hyperlinked text in order to ensure that it is sufficiently “set apart” from the surrounding text.” That is because consumers cannot be required to “ferret out hyperlinks” by hovering their mouse over otherwise plain-looking text.

On the second issue, the Court found that it was not clear what action would constitute acceptance of the terms and conditions, as the wording above the green button did not directly refer to that button or the effect of clicking on it.  As the Court explained:

  • Clicking a button can only be construed as assent if the user is “explicitly advised” that the act of clicking will constitute assent to the terms and conditions of an agreement. Without more, clicking on a button on a webpage “does not signify a user's agreement to anything.” The Court noted that this could have been remedied by including explanatory language such as “By clicking the Continue button, you agree to the Terms & Conditions.”
  • The fact that the text and the button appeared side-by-side was insufficient. Close proximity of the hyperlink to buttons or checkboxes, without a clear explanation of the relationship between the two, was not enough to amount to reasonable notice.
  • Even though the text directly referred to the substance of certain terms (summarising the requirement for “mandatory arbitration”) that did not mean customers were bound to those terms, absent an explicit explanation of how the terms would become binding. 

On that basis, the Court rejected the company’s arguments that the arbitration provision was effective, and allowed the customers’ proceeding to continue.

Implications for New Zealand businesses

The case highlights the importance of presenting online terms clearly to consumers, a principle which will apply similarly in New Zealand as it does in the US. The case provides various valuable takeaways but in particular:

  • Links to terms should be transparently and conspicuously presented, in “traditional” hyperlink formatting, which in the Court’s view meant blue, underlined and capitalised. So, “TERMS AND CONDITIONS”, not “terms and conditions”.
  • Any links to the terms should be accompanied by a clear and prominent explanation of which specific step constitutes the act of acceptance. So, for example, making clear that “by clicking” a particular button or checkbox, the customer accepts the terms.

These principles, and others described in our previous articles on similar cases (here and here) will assist with improving arguments for contractual enforceability, should online contracts be challenged. 

These steps should also reduce risk under the “Unfair Contract Terms" provisions of the Fair Trading Act, the application of which turns in part on whether the terms are “transparent”. The upcoming extension of that regime to cover certain business to business contracts (discussed here) further heightens the importance of ensuring that standard form terms are conspicuously and transparently presented to customers. Ahead of those changes, which take effect from 16 August 2022, businesses should carefully review their websites and standard form contracts, and consider afresh the clarity of the mechanisms through which they seek to bind customers to online terms.

If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully advisor.

1 Berman v. Freedom Financial Network, LLC; Freedom Debt Relief, LLC; Fluent, Inc.; Lead Science, LLC, WL 1010531 (9th Cir. Apr. 5, 2022).

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.