Does Your EULA Work? 9th Circuit Provides Additional Clarity

The 9th Circuit recently published a very useful opinion in Keebaugh vs. Warner Bros Entertainment regarding the enforceability of EULAs in light of proper notice.

This case concerned the Game of Thrones Conquest game. The plaintiffs filed a putative class action WB, the publisher, for false and misleading advertising. WB moved to compel arbitration, pursuant to the TOS.

The trial court denied the motion, holding that there was no valid arbitration agreement between the parties because WB "failed to provide reasonably conspicuous notice of the TOS."

The 9th Circuit reversed, holding that the TOS was indeed conspicuously noticed and therefore the arbitration provision was agreed to and valid.

When users first booted up GoTC, they were greeted with a "Play Button" and language below it, written in white font, which said: "By tapping 'Play' I accept the Terms of Use and acknowledge the Privacy Policy." Links to the respective documents were included below, highlighted by white borders. It does not require users to scroll through the documents prior to accepting. This is known as a "sign-in wrap agreement."

In making its ruling, the Court applied the test articulated in Berman v. Freedom Fin. Network, LLC, which provides that a sign-in wrap agreement is valid where 1) "the website provides reasonably conspicuous notice of the terms to which the user will be bound; and 2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.

With respect to Point 1, the Court held that the visual placement of the notice was clear because, among other things, it a) was "conspicuously displayed directly below the action button"; b) "clearly denotes that continued use will constitute acceptance of the Terms of Service"; c) "the link to the Terms of Services is conspicuously distinguished by the a contrasting white font and emphasized through white borders outlining the hyperlinks"; and d) the sign-in screen lacks clutter and uses customary design elements denoting the existence of a hyperlink" to the TOS.

Under Point 2, to determine mutual assent to sign-in wrap agreements, courts must look at the full context of the transaction, in addition to any action taken by the user. The Court disagreed with the district court, which held that GoTC users did not anticipate entering into a continuing relationship with WB that "would require some terms and conditions." The Court reasoned that as an app downloaded to one's mobile device, GoTC "carries the connotation that the user will also have ongoing access to that app, unless something material changes." Because of that, no reasonably prudent user would consider downloading and playing a game to be a one-time transaction. This is important because, assent to a sign-in wrap agreement can be manifested through conduct, but ONLY if the assenting party intends to engage in the conduct or knows or should know that the other party may infer assent from that conduct. In short, by clicking "Play" after reading the notice regarding the terms, a reasonable player either intends (or should know that WB could infer intent from their actions) to accept the terms governing their use of the game/app.

In another portion of the opinion, the Court held that, while the TOS' language that prevented users from seeking public injunctive relief was unenforceable, this did not render the arbitration clause itself unenforceable.

I would encourage you to read the entire opinion because it provides a great summary of the different "types" of online agreements and the relative enforceability of each. Remember "browse-wrap agreements" are typically not enforceable in California, "click-wrap" and "sign in wrap" agreements may be enforceable, and "scroll wrap" agreements provide the strongest notice.

In sum, you may think no one reads your TOS or your EULA, but lawyers and judges definitely do! If you want those documents to mean anything, check with an experienced attorney before launch!