Zappo’s Zapped On Arbitration Clause

The online retailer Zappo’s is unable to rely on an arbitration clause found on its Web site because it couldn’t convince a federal judge that visitors ever actually saw the terms, much less agreed to them. Zappo’s got involved in federal litigation with a number of customers arising from a data breach. Customers whose personal information got hacked filed suit. Zappo’s tried to steer the dispute to private arbitration in Las Vegas, under an arbitration clause that was part of its terms and conditions. And that’s where the trouble began. There are two types of online agreements – “browsewrap” and “clickwrap.” According to the court, with a “browsewrap” agreement, the Web site owner attempts to bind users to terms and conditions posted somewhere on the site, usually accessible through a hyperlink. A “browsewrap” agreement does not require the user to affirmatively do anything, such as “clicking” “I agree” to show his agreement. A “clickwrap” agreement, on the other hand, requires some sort of affirmative action to show agreement. The challenge with a browsewrap agreement is showing that the user read and understood the terms of the agreement. In Zappo’s case, the arbitration provision was visible only if the user clicked on a hyperlink located near the bottom of each page of the Web site. But according to the court, that link was set out in the same size, font and color as other non-significant links. The Web site itself never directed the user to the Terms of Use. As the court said, “[n]o reasonable user would have reason to click on the Terms of Use . . . .” There are a few noteworthy aspects to this holding. First, it’s mildly interesting to me that the court was so dismissive of the idea that the average Web site user would not be bothered with the Terms of Use. Second, I’m not sure why a busy retailer like Zappo’s, which is likely to be the subject of legal claims just as a result of the volume of transactions it handles, wouldn’t use a clickwrap agreement. While I suspect that the overwhelming majority of people click “I agree” without ever reading the terms, at least that act puts the burden on the customer, and makes it far more likely that the court will enforce the arbitration clause. But as is so often the case, no one asked me first!