Dos and Don’ts for Online Retailers Listing Terms and Conditions on Their Websites

A recent California federal decision states clear guidelines for consumer-focused companies’ online terms and conditions. In McKee v. Audible, Inc., the plaintiff signed up on his smartphone for a free one-month trial with Audible, an Amazon subsidiary offering audiobook subscription services. Thereafter, the plaintiff filed a putative class action against Audible and Amazon.com taking issue with Audible’s policy regarding unused credits. Defendants then filed a motion to compel arbitration.

The motion to compel arbitration was granted as to Amazon, but denied as to Audible. The court found that while both companies’ arbitration agreements were valid and enforceable, Audible’s customer user agreements were not clearly displayed when consumers signed up for the service online and were blocked by certain images when using the Audible app. Therefore, customers were not given the requisite actual or constructive notices of the terms of service, such that they could mutually assent to the terms of service in order to create a valid and enforceable contract.

The court offered the following guidelines for constructive notice in internet commerce: (1) “terms of use” will not be enforced where there is no evidence that the website user had notice of the agreement; (2) a user should be encouraged by the design and content of the website and the agreement’s webpage to examine the terms clearly available through hyperlinkage; and (3) the link to a website’s terms should not be buried at the bottom of a webpage or tucked away in obscure corners of the website where users are unlikely to see it.

The court also issued a laundry list of criticisms noting where Audible went wrong in failing to give constructive notice of its terms and conditions to its users:

  • Audible’s website did not have a hyperlink for the initial disclosure and the terms appeared in small, undifferentiated font.
  • An Audible website user must scroll down to view the disclosure and may proceed to the next page without ever doing so.
  • Given the location of the disclosure on the Audible app, use of a pop-up keyboard would temporarily block from view certain terms and conditions, with a hyperlink to conditions and terms of use.
  • The website and the app lacked parallel wording (“Continue” compared with “Signing In”).
  • Some hyperlinks were disabled (“Conditions of Use” as compared to “Terms of Use”).
  • Some hyperlinks led to a laundry list of user agreements.

Online consumer retailers should be wary of the foregoing missteps and adhere to the court’s guidelines above to the extent possible. Online retailers must ensure now, more than ever, that customer use agreements, terms of service, and arbitration provisions must be clearly displayed when consumers sign up for a service or make an online purchase.

Caroline E. Oks is an Associate in the Gibbons Business & Commercial Litigation Department.
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