Takeaway: The modification of a Click-Wrap Agreement will not enforceable in the absence of notice and unambiguous manifestation of assent by user. When a business revises its Terms of Service, in addition to a “click-wrap” agreement on its website, the business should also include a notice on its website of revisions to the TOS and require additional affirmative action by users, such as clicking a button to assent to the changes before the user is permitted to continue using the online service. Otherwise, if there is litigation about a later added term in the TOS, a court may refuse to enforce the modifications made in a TOS in the absence of notice and affirmative action demonstrating a user’s consent despite the user’s continued use of the website.

Many businesses rely on a provision stating that they can revise their Terms of Service (TOS) from time to time, and that the customer or client’s continuing to use of the services constitutes agreement to any modified terms. However, a recent court decision has refused to enforce such a term in the absence of notice and affirmative action demonstrating the user’s consent — the user’s continued use of the website or service may no longer be enough. While this case was litigated in California, it suggests that best-practice might now be that businesses using “click-wrap” agreements on their websites (or in their contracts if they do not mail the changes to the customer/client), require an actual action indicating consent.

Sifuentes v. Dropbox, Inc., 2022 WL 2673080 (N.D. Cal. June 29, 2022)

David Sifuentes filed a lawsuit against Dropbox alleging that his Dropbox account had been compromised in 2012 because of a data breach and that Dropbox had failed to notify him of the breach. As a result, his personal information had been stolen and used by hackers, making his bank account vulnerable and requiring him to repeatedly change his login information for various accounts.

Dropbox filed a motion to compel arbitration, asserting that David had assented to its terms of service (TOS) in December 2011 that required arbitration by checking a box indicating his agreement before being allowed to create a Dropbox account. The 2011 TOS contained a provision stating that Dropbox could “revise these Terms from time to time” and that continuing to use Dropbox constituted assent to any modified terms. Dropbox stated that it had modified its TOS twelve times since David created his account and that David had assented to the modifications by continuing to use Dropbox. Dropbox added the arbitration provision to its TOS in 2014 and notified users of the change in an email containing hyperlinks directing them to the new TOS and describing the changes, including the following:

We’re adding an arbitration section to our updated Terms of Service. Arbitration is a quick and efficient way to resolve disputes, and it provides an alternative to things like state or federal courts where the process could take months or even years. If you don’t want to agree to arbitration, you can easily opt-out via an online form, within 30-days of these Terms becoming effective. This form, and other details, are available on our blog.

The federal district court for the Northern District of California noted that the 2011 online contract containing the TOS was a “click-wrap” agreement, in which “a user is presented with the terms and conditions and must click on a button or box to indicate that he agrees before he may continue.” Although David did not dispute his assent to the 2011 TOS, David contended that the 2011 TOS did not include an arbitration clause, and that he “never read, clicked on[, or] accepted any updated terms and condition [sic] including any emails sent concerning any changes to the (TOS)’s and the arbitration agreement.”

The court denied Dropbox’s motion to compel arbitration because an online agreement is only valid if the user had actual or constructive notice of its terms. If the user did not have actual notice, the user would be deemed to have constructive notice only if (1) the website provided reasonably conspicuous notice of the terms and (2) the user took action—for example, clicked a button—which unambiguously manifested assent to the terms. The court found that Dropbox had not shown that David had actual notice of its TOS. In addition, the court found that David had taken no action to unambiguously manifest his consent. Although Dropbox contended that it had sent an email explaining its addition of the arbitration clause, there was nothing in the record to show that David had opened the email or that, to continue using Dropbox, he had to take action to manifest his consent. His ongoing use of Dropbox was irrelevant in determining whether he had notice of the changes. As a result, the court found Dropbox had failed to show by a preponderance of the evidence that David had actual or constructive notice of the changes in the TOS, and thus, he had not manifested his assent to the changes. The court denied Dropbox’s motion to compel arbitration.