Recently, the Ninth Circuit issued a decision in Keebaugh v. Warner Bros. Entertainment, Inc., another chapter in the ongoing terms of use enforceability saga. No. 22-55982 (9th Cir. Apr. 26, 2024)
In Keebaugh, a group of individuals filed a lawsuit against Warner Bros Entertainment, Inc. (“Warner Bros.”), alleging that Warner Bros. made misrepresentations related to its app “Game of Thrones: Conquest” (“GOTC”). The app is a GOTC game that is free to download but as part of gameplay, offers users options to purchase additional features. The plaintiffs, who all played the game and made in-app purchases, sued Warner Bros. alleging that Warner Bros. deceived the plaintiffs and other consumers like them by falsely advertising discounts on in-app purchases.
Central to this dispute, however, was the issue of whether the game users were bound by the arbitration clause in the app’s terms of service (the “TOS”), which Warner Bros. argued users agreed to by pressing the “Play” button on the app’s sign-in screen. Below the “Play” button, the app informed game users that by pressing that button, they agreed to the TOS. Below this, there were two boxes—one labeled “Privacy Policy”, and one labeled “Terms of Service” (or “Terms of Use”, depending on which version of the sign-in screen users saw). When users pressed the “Privacy Policy” button, they were directed by hyperlink to the full text of the game’s privacy policy. When users pressed the “Terms of Service” button, they were directed by hyperlink to the full text of that policy. Importantly, game users were not able to access the game unless and until they pressed the “Play” button; but they did not actually have to view or accept the text of the privacy policy or TOS before they pressed “Play”.
The game’s TOS included an arbitration agreement which included, among other items, a class action waiver. Warner Bros. filed a motion to compel arbitration pursuant to the game’s TOS. The Central District of California denied Warner Bros.’s motion to compel arbitration, determining that a valid arbitration agreement did not actually exist between the parties because Warner Bros. failed to provide “reasonably conspicuous” notice to the game users of the terms of that agreement.
Warner Bros. appealed the District Court’s decision to the Ninth Circuit, which (as we’ve been covering a lot lately) has recently decided a handful of cases addressing when a website or app user is bound by terms of service and/or arbitration agreements. As a reminder, contracts may be enforceable under California law if they provide “reasonably conspicuous notice of the terms” that the website user will be bound by and if the user “takes some action, such as clicking a button or checking a box” that “unambiguously” shows his assent to those terms.
In this important decision, the Ninth Circuit disagreed with the lower court, reversing and remanding that court’s decision, and holding, inter alia, that Warner Bros.’s notice was sufficiently conspicuous, and thus a valid arbitration agreement existed between Warner Bros. and the non-minor plaintiffs in the case. The court examined different types of internet contracts—browsewraps, clickwraps, scrollwraps, and sign-in wraps—which are categorized based on the way a website user does or does not manifest assent to be bound by terms.
Browsewraps, where a website user accepts a website’s terms simply by browsing the site, are generally held to be unenforceable in California. Clickwrap agreements, where website users click on a box agreeing to terms after being presented with terms of service, have generally been found to be enforceable. Scrollwrap agreements, which have a greater level of notice, as they require a website user to scroll through the text of the website’s terms before they manifest assent, are also generally enforceable. Sign-in wraps fall somewhere between browsewraps and scrollwraps—website users are presented with notice that indicates that they are required to agree to certain terms before accessing the website, but the user is not required to actually review those terms or affirmatively assent to those terms before proceeding.
The internet agreement at issue in Keebaugh was considered a “sign-in wrap” agreement. The Keebaugh court analyzed the specifics of Warner Bros.’s app and referenced the court’s own precedent (and the precedent of other courts in California) in recent cases analyzing various types of internet agreements. The court determined that, when evaluating sign-in agreements, courts in California should evaluate “the full context of the transaction” and consider whether the transaction “contemplates entering into a continuing, forward-looking relationship” governed by the terms and conditions at issue. For the “context of the transaction” factor, the court found that, because the GOTC game was accessed through an app—as opposed to a website—users who download the app expect to have continued access to that game in a way that reflects their intention to enter into an ongoing relationship. Regarding the visual requirements of the notice factor, the court held that the notice was conspicuous enough that a “reasonable user” of the app would be on notice that they were agreeing to be bound by the TOS, including its arbitration provision.
While the plaintiffs had also argued that the arbitration agreement in the TOS was procedurally unconscionable due to its ban on public injunctive relief, the Ninth Circuit rejected that argument and remanded the case to the District Court to examine the plaintiffs’ other arguments regarding unconscionability.
This case serves as an important reminder to companies to evaluate both how they approach displaying their terms of service and arbitration agreements on their websites and apps and how they word their arbitration agreements. If not, winter could be coming!
