This article has been written by Shivam Sharma pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Dipshi Swara (Senior Associate, Lawsikho).
Table of Contents
Introduction
With our increased dependency on online platforms, we ought to understand some legal aspects that remain associated with most of the websites. Online agreements are one such aspect that we end up signing without even realising what they entail. Legal effects of such online agreements have always been a matter of discussion. Clickwrap agreements come under the category of online agreements, wherein a message appears on the system of the user with a button labeled ‘I agree.’ When faced with the question of enforceability of such an agreement, the courts still end up applying the traditional rules of contract. In this article, we will understand the legal aspects of the clickwrap agreements in the light of a few important case laws.
Click Wrap agreements
Clickwrap agreements are those agreements which we come across while using software, website, or any other electronic media. They are also referred to as clickthrough agreements and clickwrap licenses. What sets these agreements apart is the way they present the ‘terms and conditions’ of using the services and such terms and conditions are followed by the words ‘I agree’ or ‘I accept’. In order to facilitate the complete use of these services, the user needs to click on such ‘I agree’ or ‘I accept’.
A user will encounter such agreements in the following instances:
(i) Downloading and installing antivirus on the computer;
(ii) Purchasing a ticket for a movie screening from a website;
(iii) Registering and using any social media account;
(iv) Ordering any item online to be delivered at home.
These are in no way an exhaustive list of events but are a mere small representation of the whole picture of clickwrap agreements. This article dwells on three important cases that have shaped the legal outlook of clickwrap agreements internationally. The article has extended its scope to international cases because the judicial outlook on clickwrap agreements is still in its infancy in India. However, there have been some small developments in the Indian landscape as well and the same will be explored in a later part of this article.
Case one: Feldman v Google
Facts and issues
The case involved a law firm by the name of Lawrence E. Feldman & Associates (Feldman) availing the services of advertisement via Google’s AdWords. The contention of the Plaintiff in the case was that Feldman was a victim of ‘click fraud’. Click Frauds are frauds that occur when persons and entities who have negligible interest in the services which are being advertised, click repeatedly on the ads for such services. The contention of Feldman was that since Google required it to pay for every click on its ads, Google should not take into account those clicks which are fraudulent. Another important point of contention was the forum selection clause in the agreement between the parties. This clause governed how a dispute resolution would be conducted between the parties.
Analysis
In the present case, the selection clause reads as follows. “The Agreement must be construed as if both parties jointly wrote it, governed by California law except for its conflicts of laws principles and adjudicated in Santa Clara County, California.” Feldman contended that this clause shall not be applicable as it was neither seen nor signed and negotiated by anyone in the firm.
To this, Google replied that Feldman had entered into a contract before it placed its ads on AdWords. The webpage displaying the AdWords contract begins with a notice which asks the user to “Carefully read the terms and conditions. If you agree with these terms, indicate your assent below.”
This was followed by the actual terms and conditions. The very beginning of the contract stated that once the user agrees to these terms, he or she will enter into a binding and legal agreement with Google. At the bottom of the page, which one could see without any scrolling, were displayed the words, “Yes, I agree to the above terms and conditions.” It is imperative for the user to click on this box in order to avail of the services of AdWords.
Final Decision: The court concluded that Feldman had good and reasonable notice of the terms and conditions of the agreement and it was the prorogation of Feldman to have read them before agreeing to them. The court held that Feldman was indeed bound by the terms of agreement it had entered into with Google.
Case two: Specht v Netscape Comms. Corp
Facts and issues
The case took place between numerous plaintiffs (which included Mr. Specht) and Netscape Communications Corporation (Netscape). Netscape provided a software named ‘SmartDownload’. The users were expected to install the software SmartDownload on their computers to browse the internet. However, it was later found out by the users that the SmartDownload software was transmitting their personal information to Netscape whenever they browsed the internet. Plaintiff brought a lawsuit against Netscape for the breach of privacy rights. Netscape on its part argued that the users of the software had agreed to the terms of use and hence any dispute would be subjected to the Arbitration Clause of the agreement between Netscape and users.
Analysis
The webpage which provided the download link for the SmartDownload software had the terms and conditions for downloading and using the software. However, these terms were not readily visible and the user needed to scroll down to the bottom of the page to view them. On clicking on the link of terms, the user would be directed to the actual license agreement which indeed contained the Arbitration Clause.
However, these terms and statements were not displayed anywhere near the ‘Download’ button itself. The user had to be extra vigilant in order to find the terms of use.
Final decision
The court held that a mere click on the Download button for SmartDownload software by itself does not signify assent to the terms of use as crafted by Netscape. The agreement itself was too inconspicuous. Thus, the court made out that Plaintiff was not bound by the terms of the agreement as the Download button was not sufficiently linked to the terms of the agreement.
Case three: Bragg v Linden Research, Inc.
Facts and issues
The present case took place between Linden Research, Inc (Linden) and Mr. Bragg. Linden was the creator and developer of an online game called Second Life. Mr. Bragg was one of the many players of this game. Second Life involves an online virtual reality where a player can build things, buy things, explore places and interact with other people/players. An additional feature of the game is that the player can also purchase land within the game with real-life money.
Linden recognized the intellectual property rights of its players in the context of what they created inside the game and also facilitated a mechanism for the sale of land at profits by the players. Mr. Bragg had purchased and owned many parcels of land in the game and one such parcel was called ‘Taesot’ which he had purchased for $300.
At a later point after the purchase, Linden nulled the said purchase by Mr. Bragg and froze his account. This was done because Linden found the purchase was done via an ‘exploit’ within the system and was thus fraudulent. This was challenged by Mr. Bragg in a suit against Linden. However, Linden contended that the terms of use require all the disputes to handle via arbitration.
Analysis
Every user/player of Second Life must accept the terms and conditions before they can play the game. Mr. Bragg too had accepted these terms by clicking on the accept button. Yet he argued that the arbitration provision was procedurally and substantively unconscionable. A term in an agreement is substantially unconscionable if it delivers a ‘shock to the conscience’. On the other hand, a term is procedurally unconscionable if it is a contract of adhesion.
This case is especially interesting because the services provided by Linden have no alternative. A user of Second Life cannot simply substitute it with another game as no such substitute is in existence. Hence Mr. Bragg had no other choice but to accept the terms for what they were. This made the present agreement into a contract of adhesion.
Final decision
The Court held that in the present case, the weaker party (Mr. Braggs) was given the terms with a ‘take it or leave it’ stance. There was no room for negotiation and hence there was indeed some procedural unconscionability. Keeping this in mind, the court held that the terms of the Clickwrap agreement were not applicable. It must be noted that the present decision was solely driven by the consideration that there was no substitute for the services of Linden. Had there been some substitute available, the Court would have ruled in favour of Linden.
The above mentioned case laws have contributed towards setting some strong principles with respect to the significance and enforceability of clickwrap agreements. After understanding the international outlook, let us have a quick overview of the position of clickwrap agreement in India.
A few important developments in Indian jurisprudence for clickwrap agreement
Up until this point, this article focused itself on the international decisions and legal position with respect to Clickwrap Agreement. The jurisprudence for Clickwrap Agreements has only begun to develop in India. In the case of Central Inland Water Corp v Brojo Nath, it was held that a gross inequality in the bargaining power over contracts will render its terms unconscionable. Going by such standards would however, render most clickwrap agreements as invalid. This, of course, would be counter intuitive.
But again in L.I.C. of India and Anr v. Consumer Education and Research Centre and Ors, the Supreme Court once again stuck down a contract citing that the parties did not have equal bargaining powers.
In another decision, this time from the Income tax tribunal in the matter of Ddit (It) 3(1), Mumbai vs Gujarat Pipavav Port Ltd, the Tribunal expressed its concerns and doubts with respect to the applicability of clickwrap agreements in the Indian context. This case related to copyright infringement but it required dwelling into the concept of clickwrap agreement. The Tribunal also highlighted the aspects of unconscionable and unreasonable bargain.
This is not to say that all contracts over the internet will be invalid. In the case of Trimex International FZE vs. Vedanta Aluminium Limited, India, the Apex Court has indeed upheld the validity of unregistered and unsigned contracts which were reached via the mode of emails.
Conclusion
The above analysis is a cautionary tale for those who intend to provide their services via an electronic medium. A developer must always ensure that the user of its services provides explicit consent to the terms he has set out and that is done via an ‘I agree’ button. In every case, the nature of the contract must be obvious and efforts must be undertaken to ensure that the agreement itself is not inconspicuous. The user needs to have reasonable notice and a fair opportunity to review the terms of the agreement.
The terms themselves must be drafted in a fair and reasonable manner, especially where the service is one of its kind and there is no readily available substitute for the same. Clickwraps are one of the strongest ways to obtain legal consent for an agreement online. They are definitely way better at it than their counterparts Browsewrap Agreements. Yet there are numerous pitfalls that one must be aware of while drafting a Clickwrap Agreement.
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