Unlike traditional contracts, which involve negotiation and signatures, clickwrap agreements are designed for efficiency and ease of use in the online environment. But its simplistic nature has raised a lot of concerns for legal teams, particularly around its enforceability.
This is a valid observation, as clickwrap agreements (and all forms of digital contracts) come with inherent risks. When implemented the wrong way, not only do they become unenforceable, but they also result in non-compliance, litigations, severed relationships, and financial losses.
In this guide, we will dive into the details of what makes clickwrap agreements legally binding, as well as factors that can impact their enforceability.
What are clickwrap agreements?
"By checking the box, I affirm that I have read and agreed to the company's terms and conditions."
Does the line above sound familiar? If you've ever checked a box with a similar sentence, you've been party to a clickwrap agreement.
A clickwrap agreement, also known as a click-through agreement or a web-wrap agreement, is a type of contract that users enter into by clicking on a button that says "I agree," checking a box, or taking specific mandatory action while accessing a product or service from a digital interface.
“A clickwrap user agreement requires the user to take some type of affirmative action to acknowledge their consent. Typically, they need to tick a box affirming that they have read and agree to the terms. An even stronger type of clickwrap requires the user to “scroll” through the user agreement before they have the ability to accept it. The more steps the user must take to “agree,” the stronger the odds of enforcing the agreement.”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Web User Agreements
What does the law say about clickwrap agreements?
Clickwrap agreements are categorized under digital contracts, which are legally binding documents outlining the rights, obligations, and responsibilities of parties executing a business transaction through a digital interface.
Digital contracts are recognized and governed by local and international laws, including:
- The Conventions on Contracts for the International Sale of Goods (CISG)
- The United Nations Commission on International Trade Law (UNCITRAL)
- The Uniform Electronic Transactions Act (UETA)
- The Electronic Signatures in Global and National Commerce Act (E-SIGN Act)
This, by extension, brings clickwrap agreements under the umbrella of these laws.
Additionally, a clickwrap agreement requires offerees to click a “confirmation button” or tick a checkbox as a form of consent to stipulated T&Cs. According to E-SIGN Act and UETA definitions, both actions qualify as a form of electronic signature.
So, are clickwrap agreements legally binding? Yes.
However, it is important to note that for a clickwrap agreement to become legally binding, it must meet certain criteria, just like every other legal agreement. These criteria include:
- Mutual agreement: There must be mutual agreement on the essential terms of the contract. One party makes an offer, including specific T&Cs, and the other accepts the offer without any material changes. The acceptance must be clear, unequivocal, and communicated to the offeror.
- Consideration: In this case, consideration refers to something of value exchanged between the parties. This can be money, goods, or services. Each party must be giving up something and receiving something else in return.
- Capacity: The parties entering the contract must have the legal capacity to do so. This generally means they must be of legal age, mentally competent, and not under the influence of drugs or alcohol.
- Legal purpose: The contract must have a lawful purpose. It cannot involve illegal activities or go against public policy. Contracts that involve illegal acts or violate regulations are generally unenforceable.
Also read: Clickwrap Agreements: The Ultimate Guide
Are clickwrap agreements enforceable? Factors to consider
“The keys to an enforceable user agreement come down to “notice” to and “acceptance” by the user. Did the user have a chance to read and review the user agreement and give some form of consent? If not, you can have the best user agreement in the world but it’s useless”
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Web User Agreements
We have already established that clickwrap agreements are legally binding. But are they enforceable? The answer to this question is Yes and No.
Like every legally binding agreement, enforceability is subject to various factors and circumstances. While clickwrap agreements can generally be more enforceable than traditional web agreements (e.g., browsewrap), there are situations where their enforceability may be challenged or limited.
Here are some crucial factors that can influence your clickwrap agreement’s enforceability:
#1 Legal requirements
For a clickwrap agreement to be enforceable, it must meet the standard legal requirements for a valid contract. This includes mutual consent, consideration, legal capacity, and legal purpose. If any of these elements are missing, its enforceability may be questioned.
#2 Clarity of presentation
The enforceability of a clickwrap agreement can be impacted by how it is presented to the user or customer. If the presentation of the agreement is unclear, hidden, or deceptive, it could undermine its enforceability. Thus, it is crucial for the clickwrap agreement to be easily identifiable, with its content expressed in simple language.
The user should also be provided with reasonable notice that they are about to enter a binding agreement, that way, you can establish that they’re fully aware of the consequences of their actions.
#3 Unconscionability of contractual terms
If the terms of a clickwrap agreement are found to be grossly unfair or one-sided, a court may deem the agreement unconscionable. Unconscionability generally involves a significant imbalance of bargaining power and terms that are oppressive to one party or against public policy.
In such cases, the entire agreement or specific clauses within it may be rendered unenforceable.
#4 Local laws and jurisdiction
The enforceability of any contract, including clickwrap agreements, can vary depending on the legal framework and jurisdiction in which it is being enforced.
Different countries or regions may have explicit laws and regulations that govern contract formation and interpretation. These laws may differ in terms of the requirements for a valid contract, the standards for assessing fairness or unconscionability, and the specific rules for electronic agreements.
Thus, it is important to adequately research the laws within the jurisdiction of execution when structuring your contract.
#5 Contractual modifications
Due to constantly evolving business policies and industry standards, organizations may need to update the content of their contracts from time to time.
If these changes impact your clickwrap agreements, you must notify your existing users and customers and obtain their explicit acceptance of these changes for continued use of or access to your products or services.
Failure to do so may affect the enforceability of the modified terms, as customers can claim unawareness of said changes.
#6 Availability of evidential records
Legal standards like ESIGN, UETA, and GDPR generally require the availability of records in relation to electronic agreements and transactions. Moreover, during legal proceedings, organizations are required to present records proving the customer or user agreed to be bound by their agreement’s T&Cs.
This is crucial for legal teams as most customers will typically deny awareness or consent during legal proceedings.
Also read: Tips to Store Your Contracts Effectively
While there are several ways to store and manage your agreements, leveraging a Contract Lifecycle Management (CLM) system is the best way to do so.
SpotDraft CLM offers a comprehensive central repository for housing your entire contract documents. This repository comes with a robust search and filter functionality that allows you to locate and sort files with a few clicks. It also comes with security and version control mechanisms, enabling you to not only keep your documents safe but also maintain a trail of all the modifications they have gone through.
Alongside its central repository, SpotDraft offers an all-inclusive ecosystem of tools you can leverage to significantly improve contract management processes. These include contract templates, reporting and analytics, automations, eSignatures, and third-party integrations, among others.
Real-life scenarios where clickwrap agreements won in court
Unlike browsewrap and other traditional web agreements, clickwrap agreements do not assume consent. Instead, it requires users to demonstrate agreement to T&Cs through specified actions.
This has proven helpful in court several times, helping organizations enforce contractual obligations and protect their legal rights.
Let’s look at a few real-life examples:
#1 Caspi v. Microsoft Network, LLC
In 1999, Steven J Caspi and several other customers across the United States sued Microsoft in the Superior Court of New Jersey for fraud and breach of contract regarding their registration for Microsoft’s MSN membership service.
According to the plaintiffs, Microsoft had rolled over their membership into more expensive plans without notice or consent.
Microsoft, however, stated that the entire contract was created in accordance with the laws of Washington. It had a “forum selection” clause in its T&Cs stating that all legal proceedings related to the MSN membership must be handled within Washington’s jurisdiction for proper context and judgment.
The plaintiffs denied awareness of such a clause, claiming they did not get sufficient notice. However, before signing up for the membership, Microsoft required every registrant to navigate across different screens, clicking "I Agree" before moving on to the next registration phase.
Because it was unequivocally proven that the plaintiffs had actively consented to these T&Cs by clicking “I Agree,” the court in New Jersey ruled in favor of Microsoft. Thus, Microsoft was able to enforce its forum selection clause, successfully dismissing the case in New Jersey.
#2 DeJohn v The .TV Corp. International and Register.com
In 2003, David Dejohn sued The .TV Corp. International and Register.com over a breach of contract. He had attempted to purchase six different .tv domains through the platform Register.com.
After registering an account and paying $50 for each domain name, Dejohn received an email that his application to purchase the six domain names had been approved.
Shortly after, Register.com sent a second email notifying Dejohn that the confirmation emails had been sent in error and that 5 of his domain purchase application had, indeed, been unsuccessful. Following this, Register.com refunded all his money.
Despite being refunded, Dejohn filed a lawsuit against Register.com and . TV Corp. for contract breaches, fraud, and deceptive trade practices.
Register.com moved a motion to dismiss the case, citing a clause in its Service Agreement.
In its Service Agreement, Register.com stipulated that it would not be held responsible for any unsuccessful registration or renewal of desired domain names. Within the same Service Agreement, Register.com referenced .TV’s T&Cs, requiring its customers to acknowledge and accept them as well.
Dejohn argued that the terms in the Service Agreements were ambiguous, inconsistent, and consequently unenforceable.
But ultimately, the court ruled in favor of .TV and Register.com, citing that as long as Dejohn had clicked on the box indicating that he read and consented to the Service Agreement, he was bound to its T&Cs.
#3 Forrest v. Verizon Communications, Inc.
In 2002, plaintiff Bruce Forrest filed a case in the District of Columbia Superior Court against Verizon Communications, Inc. (VCI) and its subsidiary, Verizon Internet Services (VIS), over a breach of Service Level Agreements (SLAs), negligent misrepresentation, and violation of Virginia's consumer protection laws.
VIS responded with a motion to dismiss the case based on its forum selection clause, which mandated that every legal proceeding related to the agreement must be handled within the jurisdiction of Fairfax County, Virginia—which was VIS’ principal place of operation.
According to VIS’ legal team, Forrest, in accepting the contract, had agreed to its terms, including the forum selection clause.
The agreement was presented in a scroll box, with a notice at the top saying, “PLEASE READ THE FOLLOWING AGREEMENT CAREFULLY.” To enter the contract, VIS’ customers, including Forrest, were mandated to click a button that said: “Accept.”
Citing this, the court established that VIS' motion to dismiss the case on jurisdictional grounds was valid because Forrest demonstrated consent by clicking the contract's "Accept" button.
Clickwrap agreements are as legally binding as traditional contracts signed with pen on paper. But its enforceability is determined on a case-by-case basis.
Courts generally consider the T&Cs of the agreement, as well as its compliance with existing regulations, before making their final ruling. To stand a better chance of enforcing a clickthrough agreement, it is crucial to ensure that the terms are clear, easily accessible, and fair for all parties. Also, ensure you keep proper records for evidential purposes.
SpotDraft’s new clickthrough functionality is designed to help you create legally binding and enforceable web agreements more efficiently. Coupled with its ecosystem of contract management solutions, the platform empowers legal teams with everything they need to initiate, execute, track, store, and manage contracts more productively.
Want to see how it works? Click here to get a demo tailored specially for you.
“I have seen a demo of SpotDraft’s CLM technology and they should be on your short list of vendors to talk to about a contract management system.”
~ Sterling Miller, CEO and Senior Counsel Hilgers Graben PLLC
Ten Things: Cool Tech for In-House Counsel