By: Judith Silver

September 16th, 2002

Reader Rating: 8.5

Readers are cautioned not to rely on this article as legal advice as it is no substitution for a consultation with an attorney in your state. Based on jurisdiction and time, the law varies and changes.

When people ask me what I do for a living, I answer "Internet law". This statement is always followed by the question "What's that?", whereupon I reply, "Do you know those agreements on Websites, which no one reads, but on which we all click 'I agree'? I write those." This always gets a laugh, but it's also true.

They're actually pretty handy, those agreements, and not just for helping you fall sleep as you try to read them!

Those agreements are called clickwrap agreements, terms and conditions, user agreements... but they all serve a similar purpose. The term "clickwrap" has evolved from the word "shrinkwrap" which describes the agreements in shrunken font size that are often wrapped around software disk boxes or envelopes.

Do They Work?

Nearly everyone I speak to thinks that clickwrap agreements don't work. Sometimes that's true. It depends entirely on how the agreement is presented on the Website.

Case law sets forth conditions under which these agreements are binding. If a Website presents the agreement in accordance with the guidelines identified by the cases, there is a very good chance that the agreements would be upheld by a court as binding.

So They Do Work -- But Why Do I Care?

A contract is an agreement between two parties. The parties can agree to almost anything that isn't illegal (you can't agree to sell your kid, commit murder or other stuff that's "against public policy"). So in a clickwrap agreement, you can set forth all the possible restrictions on the use of your Website, and the purchase of products or services through it.

You can lower your business risks by limiting your liability for things that you might be sued for, and you can accomplish other helpful objectives, such as waiving warranties that are implied by law into the purchase of products, and choosing the location for litigating disputes.

Note, however, these two caveats. Firstly, with regards to persons under 18 who use your Website: when persons under 18 enter into a contract, they have the right to "disaffirm" it -- which means that you may not be able to enforce a contract against a person under 18. Therefore, you may want to restrict the use of your site to persons over 18.

And secondly: consider persons in other countries. Keep in mind that there is a good chance that you will not be able to get a foreigner into court in the U.S. Also, if you're sued abroad by a user, the foreign judicial system may not uphold the U.S. contract, and may apply their own law instead -- even if the contract says that U.S. law applies.

Judges generally do not like to have to learn new law and will rarely make a legal holding that would require them to understand and interpret the law of another country.

Furthermore, keep in mind that US law restricts us from doing business with certain countries like Cuba, Iraq, Syria and others -- in fact, it's illegal to do business with some of them. Having persons in these nations make purchases or download software from your Website would almost certainly be considered "doing business" with these countries. It's also considered exporting, which is in some cases completely prohibited, while in others, it just requires an export license.

Clickwrap Agreement Terms

Useful clauses in a clickwrap agreement are:

Who Can Use the Site and How

• Agreement that the users are over 18. This can ensure that the user is either over 18 and bound by the contract, or supervised by a parent who agrees to the contract and the minor's use. It is important to be aware that the FTC has regulations regarding collection of information from minors that do apply to your Website.
• Agreement that the user is truthful in information disclosed on the site, agrees to what he or she is buying, and agrees to pay for it. This can provide a remedy against the user if fraudulent credit card information, contact information or other information is provided, or if the user disputes the charge later. Threat of litigation regarding the agreement can sometimes result in faster resolution of payment disputes.
• Agreement that the user agrees not to copy materials on the site, not to reverse engineer or break into the site, and not to use the Website materials, products or services to violate law.
• Agreement that the user agrees to use the site as per the instructions, not to disclose his password to others for use, and that the site has a license (permission) for use of anything the user submits or posts to the site.
• Agreement that the use of the site is at the discretion of the company, and that any use may be terminated by the company at any time.

Terms of Purchases or Services Provided

The clickwrap agreement should obtain the user's agreement to any policies regarding the purchase, including warranty, shipping, returns or otherwise, of products and/or services. It is important to be aware that FTC regulations and other laws govern sales of products over the Internet, as they do mail order and store purchases.

Waiver of Implied Legal Warranties

The clickwrap agreement should include language that waives legal warranties that are implied by law regarding the sale of products under the Uniform Commercial Code.

The UCC implied warranties include the following:

• merchantability (that the item will do what it is intended to),
• fitness for purpose (that if the item's fitness for a particular purposes is stated, it will meet that purpose),
• non-infringement (that the product does not infringe other parties' rights) and
• title (that the seller owns what she is selling).

These warranties apply to your product sales unless they are waived in writing that uses UCC-required language.

Liability Limits and Postings

The clickwrap agreement can involve language that limits your company's liability if it is sued for damages of all kinds, including:

• use of the site,
• errors on the site,
• viruses on the site or products,
• failure of the site to operate,
• third party links, and
• any purchase or service.

This is extremely helpful in lowering your risk while engaging in ecommerce business.

Site postings can have a lot of liability associated with them. Users may post materials that are libelous, obscene or infringing of a copyright or trademark, and sites can be liable for these postings.

Therefore, it is vital to incorporate site submission rules and the liability limit into the clickwrap agreement, and be sure that anyone who can post agrees to it as the case law sets forth. It is also helpful to include a provision that permits disclosure of user information to law enforcement authorities or as a result of subpoena.

There have been cases where allegedly libelous information is posted and the hosting site is subpoenaed for the identity of the poster. Sometimes, if the hosting site complies with, or is going to comply with, the subpoena, the site is sued by user for revealing their identity, or in order to stop the site from revealing their identity. Having users' consent to this disclosure in a clickwrap agreement can help avoid that scenario where the site is stuck between a subpoena or law enforcement, and a user law suit.

Shifting Responsibility to the User

The clickwrap agreement can also require that your users indemnify the company for any claims that result from the user's use. This means that if the company is sued due a user's actions regarding the site, the company has a way to sue the user and require the user to pay for any costs that the company is forced to pay in the law suit with the third party.

Conclusion

Clickwrap agreements can offer tremendous legal benefit both in lowering risk and ensuring remedies for Websites. However, be sure to prepare your agreement through an attorney or reputable legal forms retailer who'll provide you with information on how to post the agreements so that they're binding under case law. Simply throwing the terms on the site does not make them binding on users!

Readers are cautioned not to rely on this article as legal advice as it is no substitution for a consultation with an attorney in your state. Based on jurisdiction and time, the law varies and changes.