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Some “Terms of Service” are not Contractually Binding

A U.S. District Court held that terms of service (TOS) only identified as a hyperlink above a signature line in a contract provided electronically to a business customer, which contract required a signature on a printed version of the contract, did not incorporate the terms of service shown only by the hyperlink. Holdbrook Pediatric Dental LLC v Pro Computer Service LLC., Case No.  1:14-cv-06115 (D.  N.J. July 21, 2015) (Available Here). This U.S. District Court case from the District of New Jersey illustrates how some businesses poorly attend to contractual relations with their customers.

In this case, an information technology (IT) service vendor provided service to a business customer during a three-month period under the terms of a signed contract. The relationship soured, the IT service provider changed the network password controls and failed to provide the password controls to the business customer who was locked out of the customer’s server for two days. As a result, the business customer was forced to cancel 83 scheduled appointments due to this interruption of service. The customer brought suit against the IT service provider under the Federal Computer Fraud and Abuse Act, 18 U.S.C. Section 1030 (a)(5)(A)(i).

The IT service provider moved for dismissal of the action asserting that the contract required mandatory arbitration as set forth in the hyperlinked terms of service. Ultimately the court determined that the terms of service were not integrated into the signed contract and therefore denied the motion to dismiss and the request for arbitration.

The details of the manner of contracting and the hyperlinked terms of service (TOS) and how they were sloppily attached to the contract was an important factor identified by the court in making its decision. The primary body of the contract was provided by the IT service provider to the business customer. The business customer was required to print out the contract sign it and then return it to the IT service provider. In small font directly above the signature line, a hyperlink to a terms of service location was identified along with a statement “download terms and conditions.”

The business customer argued that the terms of service required a separate signature block (the TOS had a signature line) and the customer did not sign the TOS and the IT provider did not require the signed TOS from the business customer. Further, the business customer argued that it never became aware of the TOS nor that the TOS was incorporated into the agreement (no “incorporation by reference” language). Further, there was no explicit statement in the primary printed contract that the TOS would be incorporated by reference into the primary contract.

As noted by the court, in this Internet era, agreements are often maintained, delivered and signed in electronic form. A separate agreement may be incorporated through a hyperlink but the traditional standard nonetheless applies: the party to be bound must have had reasonable notice of and manifested an assent to the additional terms.  Liberty Syndicates at Lloyd’s v. Walnut Advisory Corp., Case no. 09-1343, 2011 WL 5825777 at *4 (D.N.J. Nov. 16, 2011).  

The court discussed click wrap agreements and browser wrap agreements. In click wrap agreements, all the terms of the agreement are collected in a dialog box in the user must click on an icon that affirmatively demonstrates his or her assent to be bound by the terms and conditions. See Liberty Syndicates. In a browser wrap agreement, the terms of use are contained in a hyperlink but the user can utilize a provider’s services without ever knowing that such services are being provided subject to the terms and conditions.  Feldman v. Google Inc., 513 F.Supp. 2d 299, 236 (E.D.Pa. 2007); see also Fjeta v. Facebook, Inc., 841 F.Supp. 2d 829 (S.D.N.Y. 2012)(discussing a hybrid click wrap and browser wrap agreement); see also Swift v. Zynga Game Network, Inc. 805 F.Supp. 2d 904 (N.D. Ca. 2011)(TOS on webpage visible by hyperlink).  In the Swift case, directly below an “accept” button, was a statement that clicking on the button served as an assent to the terms of service. The District Court in the Swift case found that the plaintiff was bound by the terms of service.

As stated by the court: in this case, by contrast, the hyperlink is placed in the managed support plan [the primary contract] in isolation. Unlike the cited cases, there is no statement that signing the agreement indicated acceptance of the terms and conditions [the TOS], nor is there an instruction to sign the contract only if [business customer] agreed to the additional terms. The court finds that the existence of the hyperlink in the document, without any statement to draw attention to the link, is insufficient to demonstrate that [the business customer] had reasonable notice that the terms and conditions were part of the contract. Further complicating matters is the fact that although the managed support plan [contract] was sent in electronic form, and it could not be accepted in electronic form. Therefore, it is different than the click wrap license cases.
The court held that the business customer did not have reasonable notice of the terms and conditions and therefore did not agree to the arbitration clause contained in the terms of service or TOS.

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