The Internet has transformed the way legal transactions are conducted. What used to be a paper contract with dotted lines for signatures has been replaced with a hyperlink buried in a webpage. But is a website user presumed to have agreed to online terms simply by viewing the website?

Companies use websites to provide information and services. Businesses in the satellite industry are no exception. In the United States, a body of law has been developing regarding the enforceability of online contracts. In order to achieve maximum legal protection, businesses should understand the criteria used by courts in the evaluation of online contracts. 

Traditional Contract Law

A contract is formed only after three elements are fulfilled: There is an offer, the offer is accepted and something of value is exchanged (or promised to be exchanged). The Internet has not changed this. What has changed is the manner in which these elements are achieved, particularly the acceptance of the offer. The central issue in all online contracts is whether, and at what point, the webpage user accepts to be bound by the online terms. 

Shrink-wrap, Click-wrap and Browse-wrap

Early software companies sold their products in shrink-wrapped boxes containing computer diskettes. The outside of the box displayed a warning saying that, by breaking the shrink-wrap, the user agreed to terms shipped along with the software. Courts agreed, imposing on the users a duty to read.

Today most software is downloaded from a website, rather than purchased in physical media. However, courts have carried over the shrink-wrap principle to the Internet world. In a case against Google, a court ruled that a subscriber to Adwords (a pay-per-click advertising service) agreed to Google’s terms of service by clicking on the “I Agree” button following a display of legal terms. This type of online contract is called the “click-wrap” contract because the user, by a click of the mouse, accepts the vendor’s offer. An important characteristic of click-wrap contracts is that the user is not able to obtain the service (or access information) until after an icon is clicked.

Sometimes websites present terms and conditions by way of a hyperlink that leads to the terms. Other times, terms are simply splashed on the website. There is no “I Agree” button. The user is able to go straight to the services or information, sometimes without awareness of legal terms. This type of online agreement is called the “browse-wrap” contract because no express assent is extracted from the user. Depending on the circumstances, a user may implicitly agree to the terms simply by browsing.

In a case against Netscape, a court recognized the validity of browse-wrap contracts when reasonable notice of the terms is given to the user. However, while Netscape provided legal terms on its website, the terms could only be viewed after users scrolled down the page. The court said that users had no reasonable notice and hence they had not accepted the contract. The question of what constitutes reasonable notice is often a case-by-case determination. Courts have used a number of factors to decide this question. 

Contracts of Adhesion

Almost all online contracts are considered contracts of adhesion, commonly called “take-it-or-leave-it” contracts. This is where users have no opportunity to negotiate the terms. In contract law, contracts of adhesion are placed in a class apart in an effort to balance the bargaining power of the contract drafter.

While the law recognizes them as valid, their content must comply with public policy and consumer protection standards. For instance, certain clauses may be invalidated if not correctly presented to the user; particularly where the vendor limits its own liability, disclaims warranties or compels arbitration.

Companies in the satellite industry take pride in their websites. It is not unusual to find sites neatly festooned with online agreements such as terms of use, privacy policies and terms of service. Yet, depending on their presentation, these terms may not be enforceable; and even if they are, certain clauses may be invalidated if not properly displayed. It would be a worthwhile exercise to have online terms reviewed against the backdrop of applicable law.

Raul Magallanes runs a Houston-based law firm focusing on telecommunications law. He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.