How do you Know you Have an Enforceable Online Contract?

Ecommerce is Up. So is Class Action Litigation.

I recently took a continuing legal education program from the global law firm of Morgan, Lewis. https://www.morganlewis.com/

The very timely topic was: Protecting Your eCommerce Company with Enforceable Online Contracts.

There has been a recent surge in the adoption of electronic contracting:

  • Ecommerce sales accounted for 57% of overall retail growth in 2019.
  • As of the end of April, ecommerce transactions increased 45% since start of the COVID19 crisis.

There has also been a corresponding increase in class action litigation.

  • 54% of US companies are facing class action lawsuits, with a notable uptick in consumer class actions in the wake of COVID-19.

What are the Components of Valid, Enforceable Online Contracts?

It turns out that online contracts need to have the same basic elements as ink-on-paper contracts in order to be enforceable:

  1. Offer: a manifestation of willingness to enter into a contract.

 

  1. Acceptance: a contract is effective upon a written acceptance of the offer’s terms, or performance of an act that a reasonable person would understand to mean acceptance.

 

  1. Consideration: something valuable given in exchange for something else valuable.

 

What Makes Online Contracts Hard to Enforce?

Ink-on-paper contracts, signed by both parties, make it easy to see the terms of the contract. There may later be a disagreement over the interpretation of some terms, but where is no disagreement over the existence of the words.

Online contracting usually doesn’t produce that single document whose existence isn’t in dispute.

Ecommerce companies need to make sure they are using systems that (i) make it easy for consumers to understand all the terms of the offer, and (ii) are good at maintaining electronic proof of the consumer’s acceptance.

Common Types of Online Consumer Contracts.

Scrollwrap: Requires users to review and affirmatively assent to the terms of

use before they can access the website and its services.

Clickwrap / modified clickwrap: Terms are only visible via a hyperlink; user

clicks a button to assent to the hyperlinked terms.

Browsewrap: Does not require the user to take any affirmative action to assent

to the terms.

Recent Trends in Litigation of Online Contracts.

  • Between 2018 and 2019, 15% increase in clickwrap litigation.
  • Clickwrap agreements had 80% success rate in 2019.
  • Successful defense of electronic agreements typically involves having:
    • Screenshots
    • Affidavits/declarations
    • Records showing date of acceptance
  • Browsewrap agreements are at higher risk of being deemed unenforceable. Courts have refused to uphold them when they exhibit problems such as:
    • Lack of reasonable notice where terms were buried in smartphone app and user was not required to acknowledge or agree to terms.
    • No evidence of actual or constructive notice because users had to click on a hyperlink titled “more” to review arbitration provisions.
    • Clicking the hyperlink was not required to download the app.

Conclusion:

Business owners need to make sure every aspect of their ecommerce platforms work smoothly and are easy for the customer to understand.  That includes having a system that captures and retains proof that there is a valid contract with each customer.

It seems every website home page has a COVID19 warning on it.  The ubiquity of these warnings creates it own risk.  If you want anything in that warning to be binding on your customer, make sure the binding part doesn’t get lost in the COVID19 noise!

Thank you!

Michael Oswald

michael@msochartered.com

www.msochartered.com

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2020 Michael S. Oswald

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