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Class action lawsuits represent a potential worst-case scenario for enterprises.
Class action suits waste a tremendous amount of time and money. Legal teams spend hundreds of billable hours going through a tedious e-discovery process, collecting declarations from multiple high-ranking executives, and tracking down all signed agreements and their different versions. If your Legal team does not have an efficient way to manage online terms, the e-discovery process becomes even more brutal and prone to errors.
By being proactive, your enterprise can stop class action lawsuits before they begin. The arbitration clause inside most user agreements is designed to prevent class actions from happening. However, when the agreement itself isn't valid or presented in a way that makes it enforceable, then the arbitration clause means nothing.
Avoid class action suits by making sure your arbitration clause inside your terms is enforceable. This means following best practices for terms presentation, tracking the terms and version control updates, and maintaining robust back-end records about who accepted your agreements.
Related Content: Avoiding the Pitfalls of Poor Terms Management
Presenting terms online has become a somewhat common practice, but it isn't always done right. The presentation of the online terms matters a lot in their enforceability - the position of the button, language, hyperlink colors can all determine whether a user was put on notice.
There are three common ways to request agreement to terms from users: clickwrap, sign-in-wrap, and browsewrap.
Browsewraps, because they are presented as a link at the bottom of page and don't require users to take any action to accept them, are far less likely to be enforced.
Sign-in-wrap is slightly more enforceable but still not a best practice. A sign-in-wrap pairs taking an action (signing in, registering, checking out, etc) with acceptance of the agreements. While that is an efficient system in terms of ease of use, the dual nature of the agreement makes it less enforceable.
Clickwrap, on the other hand, has been the most effective route of presenting and receiving agreement to terms. In a clickwrap agreement, users must affirmatively accept an agreement by either checking a box or clicking a button labeled “I agree.” The court is more likely to uphold an agreement that a user had to take some action to assent to, which makes clickwrap the most enforceable (if good screen design and back end records are also present).
In our 2020 clickwrap litigation report, we show that while only 65% of sign-in wrap contracts were upheld in court, 80% of clickwrap cases were upheld in 2019.
Just as important as how you present your terms for agreements is how you track and store them.
Back-end records of acceptance indicate which user agreed to your online terms and when. It includes identifying information about the user: name, email, and IP address, as well as agreements they agreed to, and versions that were live at the time of signing. The ability to produce this information is crucial to success in the event of class action lawsuit.
In Tanis v. Southwest Airlines, for example, Southwest’s ability to produce backend records that included “the employee’s name, employee identification number, and the date and time that the employee executed the acknowledgment” was cited by the court as the reason why the agreement was enforced.
So, you should be prepared to present all this information in the event of a class action.
Related Content: 5 Components of An Enforceable Clickwrap Agreement
There are three major types of evidence that you need to be able to produce in case litigation strikes: back-end records of acceptance, screenshots, and affidavits/declarations.
Screenshots are effective in displaying precisely what a user sees at the time of terms acceptance. Agreements need to be presented conspicuously in order to put users on notice of the existence of terms. The screenshot should reflect design best practices to prove that
1. the user was put on notice of the terms
2. the user explicitly assented to those terms.
In Epps-Stowers v. Uber Technologies, the screenshots produced showed the court that the defendants presented their terms conspicuously and received explicit asset.
Affidavits/Declarations are sworn statements from key personnel about the company’s contract acceptance methods. Leveraging the testimony of a personnel who is an expert in the development and inner workings of your contract acceptance methods can go very far in having your terms accepted.
In Egan v. Live Nation Worldwide, the VP of Product Management of Live Nation gave an exhaustive account of the account set-up process, from the screen to the function of the buttons to the hyperlink. He was then able to assert that one could not complete transactions on the site without agreeing to the terms. The court enforced their terms.
Class action lawsuits are always going to be a concern for any enterprise. But while their threats must be taken seriously, there is work that can be done on the frontend to ensure that you are protected. From displaying your terms through clickwrap to keeping records and evidence of each transaction and agreement, you can ready yourself and head off litigation at the pass. The success of your marketplace counts on doing so.
Update: We have released the 2021 report of clickwrap litigation trends with more up to date best practices and case rulings from the last year. Our Clickwrap Litigation Trends: 2021 Report also analyzes the impact of the pandemic and the boon of eCommerce on the trends we see. Download your copy!