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Online Mandatory Arbitration Provision Stops Class Action from Moving Forward

In another victory for retail and fashion clients, a federal court recently held that an online arbitration provision for a web-based application was enforceable, reversing a lower court decision and essentially blocking a proposed class action. In the putative class action suit initially based on claims of price fixing, the defendant company filed a motion to compel arbitration based on a mandatory arbitration provision included in an online terms of service that the plaintiffs were required to agree to in order to use the application. The court held that the defendant company’s method for publishing its terms of service was conspicuous enough to put consumers on notice of the provisions, including a mandatory arbitration provision.
 
The defendant used a browse-wrap agreement for its terms and conditions (i.e., a version where the terms and conditions are set forth in a separate webpage to which a hyperlink is provided to the user). A hyperlink to the terms of service was provided near the “Register” button and near a phrase noting that, by creating an account with the company, the user was agreeing to the “TERMS OF SERVICE & PRIVACY POLICY.” The court found that existence of the browse-wrap agreement in close proximity to the “Register” button on a page that was generally uncluttered was sufficient to put consumers on inquiry notice, regardless of whether consumers clicked through to actually view the terms and conditions. As a result, the court found that the mandatory arbitration provision was enforceable.
 
This case continues the trend of courts finding in favor of arbitration provisions and shows the importance of making terms of service, or links to terms of service, conspicuous to consumers for web-based applications.
 
Arent Fox’s Fashion Law practice will continue to monitor developments in this area. If you have any questions, please contact Anthony Lupo, Wesley GeeDiana Bae, or the Arent Fox professional who usually handles your matters.