Are clickwrap agreements held enforceable by American courts? | Binadox - SaaS management

Are clickwrap agreements held enforceable by American courts?

Regina Rakipova


A clickwrap agreement is an online contract form widely used over the Internet. It is a prevalent way by which website and software users enter into contracts online. The clickwrap agreement presents the terms and conditions, users have to accept in order to install software or subscribe and use a cloud service. By clicking the ‘I agree’ button or selecting the checkbox users (employees), acting on behalf of the company, accept the terms and conditions and enter a legally binding contract whether they are aware of it or not. This potentially puts the employer at risk of incurring undesirable obligations without consent. These obligations can cause financial expenses, loss of time and resources.

Vendors use clickwrap agreements to protect their products or services through disclaiming implied warranties, remedies and liabilities; specify fees and penalties; protect non-copyrighted material; and impose other limitations. Whether such forms of contracts are enforceable has raised much controversy worldwide. In American judicial practice clickwrap agreements have been the key issue in lawsuits involving many well-known brands, such as Amazon, Google, Uber, etc., and they were held enforceable in a number of cases. Several examples illustrating validity of clickwrap agreements will be described below.

How an employee can bind the company

Nowadays nearly every employee is provided with a desktop or a laptop and the Internet access, which is a necessity for internal and external corporate communication. Users are also granted authority to download and install software and subscribe to cloud services. Consequently, in the process of work-related activities employees are exposed to multiple clickwrap agreements and accept them without the in-house legal department review. Acceptance of the agreement usually states or implies that the person who clicks through the agreement has authority to bind the company, while in reality an employee doesn’t have actual authority to enter into contracts. The vendor infers that the user has such an authority simply for the reason that he or she is given enough IT privileges to install the software or subscribe to the cloud service. As a result of such installation or subscription, the user bounds the company to the agreement through “apparent authority”.

Apparent authority gives an employee a power to act on behalf of the employer, even if this power is not expressly granted. The power arises only if a third party (the software vendor) reasonably infers, from the employer’s actions or a failure to act, that the employer granted such power to the employee. If the employer gives a third party an impression, that the employee is authorized to act on behalf of the company, the employer is liable for the acts of the employee. Apparent authority can be given by providing an employee with materials, devices, etc. The concept of apparent authority protects a third party, that would otherwise incur losses if the employee’s agreement did not bind the employer.

Judicial practice

In Appliance Zone v. Nextag the court found that the employee had the apparent authority to bind his employer to a clickwrap agreement simply because the company had provided him with a computer and the Internet access. Appliance Zone claimed that the employee, who had clicked through the Nextag online agreement did not have authority to enter into contracts. Appliance Zone filed a suit against Nextag, but failed to prove lack of contracting authority in court and the contract was held enforceable.

In National Auto Lenders, Inc. v. Syslocate, Inc., on the contrary, the court held that there was no apparent authority to bind the employer (NAL). Although two lower-level NAL employees clicked through the online agreement, the contract was held not binding, because during preceding negotiations NAL notified Syslocate that nobody was authorized to bind the company except three specific executive officers. The court concluded that it would be unreasonable for Syslocate to infer otherwise. As a result, the Syslocate Agreement was held not enforceable.

Another high-profile legal case dealing with clickwrap enforceability is Feldman v. Google. The case involved Lawrence E. Feldman & Associates who purchased advertising through Google’s ‘AdWords’ program. Feldman, a lawyer by profession, claimed that the agreement was not binding because no one in his firm had ever signed or negotiated it and the contract also lacked definite price terms. The court found that by pressing the ‘I agree’ button Feldman had expressed his acceptance of the contract and given his profession he was qualified enough to interpret the terms. The agreement was found enforceable with the court concluding that the Plaintiff had been given the opportunity to read the contract and to reject it.

Another interesting court case, Appistry, Inc. v. Amazon, Inc., features a genomics data technology company and a tech giant Amazon. An Appistry employee registered to use Amazon Web Services and clicked through the AWS Customer Agreement. Later Appistry filed a patent infringement lawsuit against Amazon and claimed that the agreement was not binding because it was forced upon the company without an opportunity to bargain. Appistry also claimed that the employee lacked authority to bind the company. The court rejected all the arguments and held the contract enforceable.

These high-profile cases are indicative of the U.S. courts generally being willing to enforce clickwrap agreements against corporates. Although in National Auto Lenders v. Syslocate the court refused to enforce the online clickwrap agreement, this case remains more of an exception. It does not call into question the enforceability of clickwrap agreements as such, but rather illustrates the fact that courts look at specific circumstances in which an agreement is accepted.

When an online contractual agreement is enforceable

General enforceability of clickwrap agreements is becoming commonplace. Still no bright line rules regarding online contracts are established and courts generally apply traditional contract principles when it comes to enforcing a clickwrap. American judicial practice, as illustrated in cases mentioned above, provides a range of factors courts have to consider when the enforceability of a clickwrap agreement is determined. Typically the likelihood of a clickwrap agreement being upheld increases if it meets the following criteria:

  • The user is given reasonable notice of the agreement terms.
  • The user expresses consent to the terms.
  • The user has authority to bind the company.
  • For an agreement to be enforceable, contracting parties must be aware or have an opportunity to become aware of its terms. The clickwrap agreement is considered valid when an online user has been given reasonable notice of the agreement’s terms and it is clear that by clicking on the ‘I agree’ button he or she expresses consent to the terms. Of course, many people do not take the time to read clickwrap agreements before accepting them. Clickwrap agreements are typically lengthy, thus scrolling them down to press the confirmation button is a common practice. Often they can also be difficult to access, for example, when reading on a small screen of a smartphone, or when text is placed into a small pop-up, or simply written in a small font. Courts generally examine whether the terms are prominently displayed and easy to access. But even if it is onerous to access the terms, as long as there is an opportunity to review the contract before installing the software or subscribing to a cloud service, a legally binding agreement is created.

    Additionally, even if a user spent time to actually read the agreement but failed to understand the terms, the contract still remains enforceable. Clickwrap agreements can include intricate terminology and controversial terms such as forbidding public criticism of the product, prohibiting use in connection with third-party software, prohibiting reverse engineering, disclaiming warranties and liabilities, requiring consent to future changes of the agreement without notice, etc. Containing specific terms and being complex in wording, clickwrap agreements are mainly difficult for the employee to unravel unless he or she is a member of a legal department. Nevertheless, if a clickwrap agreement is presented properly, it will usually be held valid, particularly when a dispute involves a business-to-business relationship, since corporations are presumptively more sophisticated than consumers.

    Typically, companies attempt to argue the validity of an online agreement by claiming that the user had no notice of the terms and therefore there was no mutual assent to the terms. Mutual assent between the contracting parties is another essential element to form a legally binding contract. Clickwrap agreements by their nature require the user to manually click on the ‘I agree’ button or check the ‘I accept’ box to be able to proceed with software installation or SaaS subscription. The language surrounding the acceptance button or box must clearly express that by clicking on it the user agrees to be bound by the terms of the agreement. Thus, a clear indication that the user acknowledges and accepts the agreement is demonstrated, which creates a legally binding contract. Later on, this makes it very difficult, if not impossible, for the user to claim lack of mutual accent.

    Another point courts examine when deciding whether a clickwrap can be enforced against a corporation involves the law of agency. In order to bind the employer an employee must have actual or apparent authority. In majority of cases corporate employees are not communicated directly that they can bind the company, i.e. they do not have actual authority. Instead, courts have to determine whether an employee was authorized to enter into contractual agreement on behalf of the employer. In three above cases companies argued that the employee didn’t have apparent authority to accept the online agreement. In each case the court had to decide whether it was reasonable for the software vendor to believe that the employee had apparent authority to bind the company.

    Ways to manage risks of virtual contracting

    Clickwrap licenses have become a significant part of the electronic environment. With the Internet being essential in many workplaces, it is inevitable that employees have to deal with clickwrap agreements. To properly address the issue and mitigate risks posed by these contracts it is important for businesses to implement both administrative and technical measures.

    On the one hand, it is necessary to educate employees on their actions when coming across clickwrap agreements. Companies should introduce policies stating that employees are not authorized to accept online agreements without first obtaining the approval of the company’s legal department. It is also important to introduce a practice where communication with the in-house legal department is streamlined and all prospective agreements are sent for review. Upon review important provisions can be negotiated, and non-negotiable agreements can be avoided or at least entered in with full knowledge of their legal implications. On the other hand, only technical means can really solve the problem. Combined together administrative measures and software tools help to properly identify and manage risks of virtual contracting.

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