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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

Click-Wrap Agreement - Internet Library of Law and Court Decisions - Updated April 2, 2008

This section of the Internet Law Library contains court decisions analyzing how to enter into binding contracts online.

Civ. Act. No. 07-0293 (E.D. Va., March 11, 2008)

Court holds that minors entered into valid ‘click wrap’ agreement with defendant IParadigms LLC (“IParadigms”) by clicking an “I agree” icon which appeared directly below an online Usage Agreement, and indicated their assent to be bound thereby.  Plaintiffs were high school students that were directed by the schools they attended to submit class work to defendant IParadigm’s “Turnitin” website to check for plagiarism.  As part of this submission process, plaintiffs were obligated to assent to the site’s Usage Agreement.  Because the Usage Agreement contained a limitation of liability clause precluding liability to plaintiffs as a result of their use of the Turnitin site, the Court rejected plaintiffs’ copyright infringement claims, which arose out of defendant’s storage of plaintiffs’ class work in a database used to check student homework for plagiarism.

In reaching this result, the Court rejected plaintiffs’ claims that, as minors, they were not bound by the terms of the site’s Usage Agreement.  Because they had accepted the benefits of the agreement – the ability to submit their class work for grade to their respective schools was dependent upon their use of the site – they could not escape the contractual conditions upon which such benefits were rendered.

The Court further held that plaintiffs’ copyright infringement claims failed because defendant had made a permissible fair use of their works.  In reaching this result, the Court relied on the fact that Turnitin’s use of plaintiffs’ school work was highly transformative of the original works, in that it added plaintiffs’ school work to a non-publicly available database used only to check for plagiarism by students.  The Court also rested its holding of fair use on the fact that defendant’s use did not impact the market for plaintiffs’ works, as the copies Turnitin made thereof were not available to the public, but rather maintained in a non-public database.

The Court rejected the counterclaims advanced by defendant iParadigms, including a claim for indemnification as a result of the commencement of this action.  This claim was based on a separate “Usage Policy” found on the Turnitin site.  The Court held that plaintiffs were not bound by this policy, which was not linked or otherwise referenced in the Usage Agreement to which plaintiffs were in fact bound.  There was no evidence that plaintiffs were aware of this separate “usage policy,” which was contained in a link on each page of the Turnitin site.  As a result, and because the parties’ contract stated that it constituted the full agreement between the parties, the plaintiffs’ use of the site was held not to create a valid browse wrap agreement, and the claim for indemnification, predicated on the Usage Policy, was dismissed.

The remaining counterclaims advanced by iParadigms arose out of the use of the site by one of the plaintiffs to submit class work to an institution he did not attend.  These claims for trespass to chattels, and violations of both the Computer Fraud and Abuse Act and Virginia Computer Crimes Act, failed due to the absence of the requisite damage.

No. C04-04825 (JW) (N.D. Ca., April 1, 2005)

Court holds Terms of Use on defendant's websites constitute binding agreements between website operator and website user, where notices on the sites provide that the Terms  will create such an agreement if a user continues to utilize the site, and plaintiff used the sites with both actual knowledge of the Terms, and with imputed knowledge arising out of repeated use of the sites via a "robot."  Court accordingly dismisses plaintiff's declaratory judgment action for improper venue, as the Terms of Use mandated suit be brought in Illinois, and plaintiff commenced suit in California.

1999 WL 462175, 323 N.J. Super. 118, 732 A.2d 528 (N.J. App. Div., July 2, 1999)

On this appeal, the Appellate Division affirmed the determination of the Superior Court of New Jersey that the plaintiffs had entered into a binding contract by agreeing on-line via the click of a mouse to be bound by the terms of the Microsoft Network's subscriber agreement. The terms of this agreement appear in a scrollable window next to blocks containing the words "I agree" or "I disagree." The user cannot commence use of the Microsoft Network unless she clicks the "I agree" button. Each of the plaintiffs clicked the "I agree" button, thereby indicating their assent to be bound by the terms of the subscriber agreement. Both the trial and appellate courts held this created an enforceable contract between the defendants and their subscribers.

The Appellate Division went on to uphold the validity of the forum selection clause contained in these subscriber agreements, which clause mandates that all suits arising out of or related to the subscriber agreement be brought in courts located in Kings County, Washington.

245 F.Supp. 2d 913 (C.D. Ill. 2003)

Court holds that plaintiff entered into a binding online click-wrap agreement by clicking an 'I Agree' icon, which indicated he had read, understood and agreed to the terms of the parties' contract.  The contract's terms were available for review online by clicking on a link which appeared on the Register.com website just above the 'I Agree' icon.  As a result, the Court dismissed the claims advanced by plaintiff, because plaintiff commenced suit in a forum other than the exclusive jurisdiction specified in the forum selection clause contained in the parties' contract; asserted state law claims under the laws of a state which were rendered inapplicable by the contract's choice of law provisions, and asserted claims that failed in light of the contract's terms.

805 A.2d 1007 (Dist. of Columbia Court of Appeals, August 29, 2002 )

Affirming the court below, the District of Columbia Court of Appeals holds that plaintiff entered into a binding contract online with Verizon Internet Services ("VIS") by clicking an "Accept" icon, indicating his assent to be bound by the contract.  This icon appeared directly below a "scroll box" on VIS's website which contained the terms of the contract.  The terms were not all visible online when the user initially viewed the web page on which the "scroll box" was found.  Rather, to review all of the contract's terms, the user was required to use the "scroll box" to scroll through them. 

The Court of Appeals also affirmed the dismissal of a putative class action commenced by plaintiff arising out of his dissatisfaction with VIS's DSL service, because the suit was not commenced in Virginia, the jurisdiction specified in the contract's forum selection clause as the exclusive jurisdiction in which disputes could be heard.

File No. C.A. No. PC 97-0331, 1998 W L 307001 (R.I. Superior Ct., May 27, 1998)

In the course of dismissing plaintiff's suit for improper venue, the court affirmed the validity of a click-wrap agreement entered into by AOL and one of its customers. AOL moved to dismiss this suit on the ground that a forum selection clause in the parties' contract mandated that the suit be brought in Virginia, where defendant's base of operations was located. The court agreed, and dismissed the suit.

In reaching this conclusion, the court held that the parties' contract, entered into online by the click of an "I agree" button, was enforceable. According to AOL, before a user can access AOL's system, he must first click on an "I agree" button indicating his assent to be bound by AOL's Terms of Service. This button first appears on a screen in which the user is offered a choice to either read, or agree to be bound by, AOL's Terms of Service. It also appears at the foot of the Terms of Service, where the user is offered the choice of clicking either an "I agree" or "I disagree" button, by which he accepts or rejects the Terms of Service.

Said the court:

Our Court ... stated the general rule that a party who signs an instrument manifests his assent to it and cannot later complain that he did not read the instrument or that he did not understand its contents. Here, plaintiff effectively "signed" the agreement by clicking "I agree" not once but twice. Under these circumstances, he should not be heard to complain that he did not see, read, etc. and is bound to the terms of his agreement.

Civil Act. No. 05-40170-FDS (D. Mass., September 28, 2007)

Court holds plaintiff bound by a click-wrap agreement entered into by her travel companion with defendant Expedia Inc. (“Expedia”) when she purchased tickets and hotel accommodations on plaintiff’s behalf.  The travel companion was acting as plaintiff’s agent, and by her acceptance of the agreement, bound plaintiff to its terms.  As such, the Court dismissed plaintiff’s claims against Expedia for personal injuries sustained at the hotel she visited when her sandal broke, causing her to fall down stairs and into an ornamental pond, holding them barred by the liability disclaimer contained in the parties’ agreement.  The Court further held that plaintiff’s claims against Expedia failed because it owed her no duty to warn of dangerous conditions that allegedly existed at the resort in question.

The Court did deny defendant Gap Inc.’s (“Gap”) motion for summary judgment, and allowed plaintiff to proceed with her claims that a defective sandal she purchased from Old Navy, owned by the Gap, failed, causing her to fall and sustain the injuries at issue.  The Court rejected the Gap’s motion that such claims should be barred by application of the spoliation doctrine, as plaintiff had not preserved the sandal in question.  The Court held plaintiff could not be held responsible for the absence of the sandal, as she had left it at the resort at the time of the injury, while she was rushed to the hospital, and was unable to locate it subsequently.  Issues of fact as to whether the Gap actually manufactured the sandal in question would await trial for resolution.

C98-20064, 1998 WL 388389 (N.D. Ca., April 20, 1998)

(Court enjoined defendants both from sending spam which falsely stated it came from plaintiff's e-mail service, and from using Hotmail accounts as mailboxes for "spam" reply. Court held that such conduct violated plaintiff's Term's of Service, which prohibited the use of Hotmail accounts to facilitate the transmission of spam. To use plaintiff's service defendants, after being afforded the opportunity to view the Terms of Service, clicked on a box indicating their assent to be bound thereby. As such, the Court's holding reflects its willingness to uphold the validity of a click-wrap agreement between the parties. The Court also held that defendants' conduct constituted trademark infringement and dilution, as well as trespass to chattels and a violation of the Computer Fraud and Abuse Act.)

359 Ill. App. 3d 976, 835 N.E.2d 113 (Ill App 5 Dist., August 12, 2005) app. denied, 217 Ill. 2d 601, 844 N.E.2d 965 (Ill. 2006)

Reversing the court below, an Illinois intermediate appellate court, applying Texas law, holds purchasers of Dell computers bound by Terms and Conditions of Sale posted and available on Dell’s website at the time of purchase.  Importantly, the court held plaintiffs bound by these terms notwithstanding the fact that they were only available via hyperlink on Dell’s site, and further, that the consumer did not have to affirmatively click an “I accept” icon to indicate his assent to be bound thereby.  The Court held that by purchasing their computers online, plaintiffs entered into an online contract which included the Terms and Conditions, because they were advised on Dell’s website that their purchases were subject thereto.

As a result, the court held plaintiffs bound by the arbitration clause contained in the Terms, which mandated that they arbitrate disputes arising out of the purchase of their computers before the National Arbitration Forum.  In reaching this result, the court rejected plaintiffs’ claims that such a clause was procedurally and substantively unconscionable.

183 F.Supp.2d 328, Civ. Act. No. 00-11489-WGY, 2002 US Dist. Lexis 209 (D. Mass., January 2, 2002)

Court holds that plaintiff is bound by the terms of a license agreement that appeared on its computer screen when it loaded defendant's software, because plaintiff indicated its assent to be bound thereby by clicking on an "I agree" icon at the foot of the license agreement. Court reached this conclusion despite the fact that the plaintiff had ordered the software in a purchase order it sent to defendant before clicking on the "I agree" icon, which purchase order did not contain the limitation of damage clause found in the license agreement. The court held such a result was appropriate under UCC Section 2-204, which states that "a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." (Emphasis added). The court further held that such a result was appropriate under UCC Section 2-207, which permits the addition of additional terms to a contract, here the purchase order, either on explicit or implicit consent. The court found the requisite explicit consent present in plaintiff's act of clicking on the "I agree" icon. The necessary implicit consent was also present because the additional terms in the license agreement came as no surprise to, and caused no hardship for, the plaintiff.

No. 03-2582-GTV-DJW (WHW) (D. Kan., August 23, 2004)

Court holds that plaintiff entered into a valid agreement by clicking on an icon indicating its assent to be bound to displayed software license terms, and thereafter using defendant's software and services.  As a result, the Court, honoring a forum selection clause found in the parties' agreement, transferred the case before it from Kansas to California, the venue for suit designated in the forum selection clause.  In reaching this result, the Court rejected plaintiff's claim that it was not bound to the agreement because its assent had been given by an individual who lacked the authority to bind it to such an agreement.  The Court found that plaintiff had failed to establish this contention due to its failure to identify the individual(s) who give their assent.  In any event, plaintiff was bound because it had ratified its agent's acts by using the software and associated services for a period of six years.

109 Cal. App. 4th 583 (Cal. Crt. App., June 9, 2003)

In this mandamus proceeding, California's Court of Appeals, by a two to one vote, holds a party suing as a private Attorney General subject to the same forum selection clause as the consumers it is seeking to protect.  As such consumers would be bound as a result of their use of Net2Phone's website to the provisions of its Terms of Use, so too is their private advocate.  The Court of Appeals accordingly directed that the action Consumer Cause commenced on the consumers' behalf in California be stayed because the Terms of Use contained a forum selection clause which mandated suit in New Jersey.  The Court upheld the forum selection clause notwithstanding the fact that New Jersey, unlike California, does not permit private advocates such as plaintiff to pursue claims on behalf of injured consumers.

309 F.Supp.2d 446, Civ. 02-5164 (DRH) (WDW) (E.D.N.Y., Mar. 25, 2004)

Court holds that plaintiff, by clicking an "I accept" icon agreeing online to be bound by the Terms of Service governing use of an online discussion group set forth in a scrollable window, viewable ten lines at a time, was bound by the forum selection contained therein.  Finding such a clause enforceable, the Court dismissed a claim brought by plaintiff asserting that defendant Google breached this agreement, because this claim was not brought in the designated forum.

The Court also held that Section 230 of the Communications Decency Act ("CDA") immunized an ISP hosting an online discussion group from claims that its failure to remove objectionable content posted on the discussion group's web page gave rise to claims of tortious interference with contractual relations. 

Finally, the Court denied the motions of two additional defendants to dismiss the claims asserted against them for want of personal jurisdiction.  The Court held that the first defendant was subject to specific jurisdiction in New York because of its operation of a commercial website via which it sold $6000 of products a year to New York residents.  The second defendant was similarly subject to suit because he had entered into a contract with a New York company, which contract allegedly gave rise to the claims asserted against him.

356 F.3d 393 (2d Cir. 2004)

Affirming the court below, the Second Circuit holds that Register.com is likely to prevail on breach of contract claims arising out of Verio Inc.'s use of data obtained from Register.com's Whois database in violation of the database's Terms of Use, which prohibit use of that information for unsolicited advertising.  In reaching this conclusion, the Second Circuit held that Register.com's Terms of Use are likely to create a contract between Register.com and Verio, because Verio repeatedly used Register.com's Whois database with actual knowledge that the Terms provided that such use would constitute assent to be bound by the data use restrictions contained in the Terms.  Notably, the Second Circuit reached this result notwithstanding the fact that Verio did not click an "I Agree" icon indicating its agreement to be so bound.  More importantly, the Court found Register.com likely to prevail despite the fact that Verio did not see these Terms until after it had already completed the act - using the Whois database - which purportedly indicated its assent to be bound thereby. 

The Second Circuit also found both that Verio's use of a search robot to gather Whois data likely constituted a trespass to chattels, and that certain of Verio's promotional activities violated the Lanham Act.

As a result, the Second Circuit affirmed the District Court's issuance of a preliminary injunction, enjoining Verio from either utilizing a search robot to obtain information from Register.com's Whois database, or utilizing information obtained from that database to assist in the transmission of mass unsolicited advertising by telephone, direct mail or e-mail.

126 F. Supp. 2d 238 (S.D.N.Y., December 12, 2000) (Jones, J.) aff'd. 356 F.3d 393 (2d Cir. 2004)

Court issues a preliminary injunction enjoining Verio, Inc. from either utilizing a search robot to obtain information from Register.com's Whois database, or utilizing information derived from that database for mass unsolicited advertising by telephone, direct mail or electronic mail. Court holds that Verio's actions will likely constitute a breach of plaintiff's Terms of Use, as well as a violation of both the Computer Fraud and Abuse Act and the Lanham Act and a trespass to chattels. In reaching this conclusion, the court holds that Register.com's Terms of Use are likely to create a contract between Register.com and the users of its Whois database, notwithstanding the fact that these users are not required to click an "I Agree" button indicating their agreement to be so bound.

No. 01-7860 (L) (2d Cir., October 1, 2002)

Affirming the decision of the court below, the Second Circuit Court of Appeals holds that plaintiffs are not bound by the terms of a license agreement purporting to govern the use of a software product they downloaded because plaintiffs neither had reasonable notice thereof, nor adequately manifested their assent to be bound thereby.  The software in question could be downloaded from a page on defendant Netscape's web site by clicking on a button which said "download".  The terms of the license agreement in question were not contained on this web page, however, and the only notice the user received of the license agreement was found on a portion of the web page below the download button.  Typically, this notice appeared "below the fold" and was not on that portion of the page which first appeared on the user's screen when he went to download the program.  This notice informed the user that his use of the software would be governed by the terms of a license agreement, which terms could be seen by clicking on a link provided on the web page.  Once the program was downloaded, the user received no further notice of either the license agreement or its terms.  The Court held that this procedure did not create a binding contract between the parties.

The Second Circuit further held that the terms of a license agreement plaintiffs did agree to, governing their use of Netscape's browser, did not obligate them to arbitrate the claims they raised in this litigation.  These included claims that Netscape violated both the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act by causing Netscape's Smart Download software, a Netscape browser 'plug in', to send information to Netscape about plaintiffs' downloading activities.

2001 WL 755396, 150 F. Supp. 2d 585 (S.D.N.Y., July 5, 2001), aff'd. -- F.3d -- (2d Cir., Oct. 1, 2002)

Court holds that act of downloading software does not indicate assent to be bound by terms of license agreement, where a link to such terms appears on, but below that portion of the web page that appears on the user's screen when such downloading is accomplished. As a result, the Court holds that under California law, plaintiffs are not bound by the terms of such license agreement, or the arbitration clause contained therein, despite language in the license agreement which provides that by installing or using the software, the user consents to be bound by the terms of the license agreement.

2000 U.S. Dist. Lexis 4553 (C.D. Ca., March 27, 2000)

The court, in granting defendant's motion to dismiss plaintiffs' breach of contract claim, held that a contract is not created simply by use of a web site on which is posted at the bottom of the site's home page terms and conditions that provide that such use constitutes the user's assent to be bound by the site's Terms and Conditions. The court left open the possibility, however, that use of a web site, coupled with knowledge of Terms and Conditions which declare such use evidence of assent to be bound thereby, could create a binding contract, and granted plaintiffs leave to replead their claim.

The court further held that "hyperlinking [without framing] does not itself involve a violation of the Copyright Act ... since no copying is involved." In addition, the court held that "deep linking by itself (i.e. without confusion of source) does not necessarily involve unfair competition."

The court refused at the outset of a litigation, however, to dismiss plaintiffs' claim that defendant, by deep linking, was tortuously interfering with plaintiffs' prospective business advantage, by depriving them of advertising revenue that might otherwise be achieved if the user were forced first to go to the site's home page (with the necessary increase in traffic that would generate) before he could proceed to an event page.

Lastly, the court held that defendant did not infringe plaintiffs' copyright in their site by extracting data concerning concert and other entertainment events from plaintiffs' web site (such as location, date and time of the event) and presenting it on defendant's web site in its own format. The court further held that plaintiffs could not attempt to recast such a claim into either state law misappropriation, trespass, unfair business practice or unjust enrichment claims, as those claims, to the extent they prohibited conduct permitted under the copyright act, were preempted thereby.

2003 U.S. Dist. Lexis 6483 (C.D. CA., March 7, 2003)

Court holds that a binding agreement can be formed by the use of a web site, without more, if the user has actual knowledge that the site's Terms and Conditions so provide.  As a result, the Court denied defendant Tickets.com's summary judgment motion, which sought dismissal of breach of contract claims arising out of Tickets.com's use of a search robot to obtain information about concerts from plaintiff Ticketmaster's web site.  The Court held that issues of fact as to defendant's knowledge of the site's Terms and Conditions at the time it used plaintiff's site precluded a determination as to the binding nature of such Terms.

The Court did grant so much of Tickets.com's summary judgment motion which sought dismissal of trespass to chattels claims Ticketmaster asserted as a result of such activity.   These claims failed because of the absence of evidence that "the use or utility" of Ticketmaster's computers were being adversely affected by Tickets.com's use of a search robot to gather information from plaintiff's site.

Finally, the Court dismissed several copyright infringement claims brought by Ticketmaster.  These included infringement claims arising out of the temporary copying into the RAM of defendant's computers of data from plaintiff's site, including materials in which plaintiff held a copyright.  These materials were copied as an intermediate step to obtaining, and displaying on Tickets.com's own site, factual information contained therein.  The Court held such copying was a protectable fair use given the only materials retained at the end of the process were the facts -- as to concert locations, dates and times -- contained therein, which facts were not protected by copyright.  Infringement claims arising out of deep linking to interior pages of plaintiff's website were dismissed because, by deep linking into plaintiff's site, Tickets.com was not showing or displaying plaintiff's copyrighted materials (which instead were being displayed by plaintiff itself).  Finally, infringement claims arising out of copying the URLs from such interior pages were dismissed because such URLs did not have sufficient originality to be copyrightable.

No. 05-13404 (11th Cir. April 14, 2006)

Affirming the court below, the Eleventh Circuit holds plaintiff bound by online amendments to its agreement with defendant posted to defendant's website.  As those amendments raised the rates due for defendant's services, which increased rates plaintiff refused to pay, the Eleventh Circuit affirmed the District Court's grant of summary judgment to defendant on its breach of contract claim.  The Court found support for its decision in the parties' agreement, which bound plaintiff to tariffs "as the same may exist or be modified in the future [by defendant] . . . and/or as the same may appear on [defendant's] website."

Quick Hits

Michael Cohn v. Truebeginnings, LLC, et al.
B190423 (Cal. Crt. App., July 31, 2007)

Court held that plaintiff, by clicking a “continue” icon in the course of completing a user profile for an online dating service, was bound by the site’s Terms of Use, available via a hyperlink on the webpage he was viewing.  The “continue” icon appeared at the foot of the initial webpage the user saw in the course of completing his profile, and just to the right of a sentence that read “I am 18 years old and I have read and agree to the True Terms of Use and Code of Ethics.”  The phrase ‘Terms of Use’ were linked to the site’s Terms of Use, which appeared in a pop-up window when a user clicked on this link.  The Terms of Use advised the user that “once you click on the ‘continue’ button at the end of this sign-up form, you are agreeing to be bound by the Terms of this Agreement.”

Importantly, the Court found plaintiff bound despite his claim that he was not asked to agree to be bound by the Terms of Use as part of the sign-up process.  This evidence was effectively refuted by that supplied by the defendant, which demonstrated that all users, to obtain a profile, must click the ‘continue’ icon.

Similarly, the fact that the Terms were available via a hyperlink did not prevent plaintiff from being bound thereby.  Said the Court:

Respondents presented substantial evidence that appellant had to click on the ‘continue’ button in order to register for his trial membership on the Web site, and that doing so constituted an agreement to the ‘Terms of Use’ on the Web site.  Appellant may not have read the ‘Terms of Use’ but they were readily available to him on the True.com Web site if he clicked on the ‘Terms of Use’ link near the ‘Continue’ button.  Under these circumstances, where appellant obviously had access to the Internet and was entering into a contract on the Internet, there was nothing inherently unfair in requiring him to access contractual terms via hyperlink, which is a common practice in Internet businesses.  The trial court did not abuse its discretion in finding that appellant agreed to the forum selection clause contained in the ‘Terms of Use.’

The Appellate Court nonetheless reversed the lower court’s decision, which had dismissed plaintiff’s claims because of the forum selection clause contained in True’s Terms of Use.  The clause in question, held the Appellate Court, only provided that disputes arising out of a party’s use True.com’s online dating service may be brought in the Texas.  Because this clause did not mandate that such suits must brought in Texas, the lower court needed to analyze, under traditional forum non conveniens analysis, whether California or Texas was the appropriate forum in which the suit should proceed.  The forum selection clause at issue provided “you agree to personal jurisdiction by and venue in the State of Texas and the U.S. District Court for the Northern District of Texas.”  The case was remanded to the lower court for the performance of this analysis.

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Mary Defontes and Nicholas Long v. Dell Computers Corp., et al.
C.A. No. P.C. 03-2636 (R.I. Superior Crt., Jan. 29, 2004).

Court held plaintiffs, purchasers of Dell computers and related service agreements, are not bound by the Terms and Conditions Agreement that accompanied such machines on shipment.  The Court held that a browse-wrap agreement was not created upon the initial ordering of the machines, because the link to the Terms and Conditions Agreement at issue was found “inconspicuously” at the bottom of the web page of Dell’s website at which such products were ordered.  According to the Court “this was not sufficient to put plaintiffs on notice of the terms and conditions of the sale of the computer.  As a result, a browse wrap agreement found on Dell’s webpage cannot bind the parties to the arbitration agreement” found in the Terms and Conditions.

The Court further held that a shrink-wrap agreement was not formed between Dell and the plaintiff purchasers, binding plaintiffs to the Terms and Conditions, notwithstanding the fact that those Terms accompanied the computers on shipment to plaintiffs, and were also sent with acknowledgements of plaintiffs’ orders.  The Court reached this conclusion because the Terms at issue did not give plaintiffs the option to reject them by returning the computer to Dell.  Said the Court:

This Court, employing the same logic, finds that the binding effect of the Terms and Conditions Agreement also hinges on whether a reasonable person would have known that return of the product would serve as rejection of those terms.  Accordingly, this Court finds that Plaintiffs did not “knowingly consent” to the terms and conditions of the agreement because they were not given sufficient notice of the method to reject those terms.  Therefore, Plaintiffs are not bound by the arbitration clause therein. 

Because the plaintiffs were not party to the Terms and Conditions, the court denied Dell’s motion to stay this action and compel plaintiffs to arbitrate their claim that Dell improperly charged tax on both the sale of ancillary services plaintiffs purchased with their Dell computers, as well as associated transportation costs.

Applying Texas law, the Court also held that the arbitration provision found in Dell’s Terms and Conditions was in any event an unenforceable illusory contract.  Thus, the Terms and Conditions provided that “these terms and conditions are subject to change without prior written notice at any time, in Dell’s sole discretion …”.  Because Dell retained such an unfettered right to modify or terminate the contract at any time, the Court held that “the language in the Terms and Conditions Agreement fails to bind Defendants in any genuine way.  Accordingly, this Court finds that the arbitration agreement is illusory and therefore unenforceable.” 

Of note, the court held that the fact that the arbitration provision, if binding, would bar plaintiffs from pursing their claims as a class action was not, by itself, a ground to invalidate such a clause under Texas law or render it unconscionable.

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For additional cases, see Contract.

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