September 26, 2022

Volume XII, Number 269

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September 23, 2022

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Bombshell Ruling Puts Amendments to Click-Wrap and Terms of Use Agreements in Question

In a potentially industry-changing ruling, Judge Gilliam of the Northern District of California ruled that amendments to click-wrap agreements, like Dropbox’s terms of use, are invalid unless the user had to manifest assent through some act more than continued use of the service:

Defendant essentially argues that it contracted for the right to change the terms at will because the 2011 TOS contains a provision stating that Defendant “may revise these Terms from time to time” and that continuing to use the service constitutes agreement to any revised terms. Defendant’s argument misses the point. Given the complete lack of evidence of notice within Defendant’s service itself, Plaintiff’s ongoing use of the service is irrelevant to determining whether he had actual or constructive notice of the post-2011 terms of service.

The case is Sifuentes v. Dropbox, Inc., 2022 WL 2673080, *4 (N.D. Cal. June 29, 2022).

The Case

In Sifuentes, the plaintiff (proceeding pro se) filed suit against Dropbox over alleged harm resulting from a 2012 data breach. Dropbox moved to compel arbitration arguing that under its amended terms of use, the claim had to be arbitrated. Dropbox explained that its terms of service, to which plaintiff had agreed by a “click-wrap” style agreement, allowed Dropbox to periodically amend the terms. In 2014, Dropbox modified its terms of use to include an arbitration requirement and notified its users by email, which included explicit notice of the change and an opportunity to opt out of arbitration. Plaintiff claimed to have never read nor seen these emails and that he was allowed to continue to use Dropbox’s services without having to do anything with regard to the terms of service.

The court found Dropbox’s evidence of notice unpersuasive. Regarding actual notice, the court found that “there is nothing in the record to suggest that Plaintiff saw or read the email, such as a read receipt reflecting that Plaintiff opened the email.”

Regarding inquiry notice, the court found that the binding terms of the click-wrap agreement, allowing Dropbox to periodically change its terms, did not amount to inquiry notice. The court found that “there is nothing in the record to suggest that Plaintiff could not use the service until he indicated his assent, that he would have been advised of new terms and conditions while using Defendant’s services, or that Defendant ever tracked whether Plaintiff had opened its email.” The court threw considerable water on any argument that the email notices alone would be sufficient notice if the customer continued to use the service: “Even if the email alone could be considered ‘reasonably conspicuous notice,’ Plaintiff took no action to unambiguously manifest his assent.”

The court accordingly denied Dropbox’s motion to compel arbitration.

Implications

Sifuentes has the potential to require an overhaul of many service providers’ approach to updating their terms of service with end-users. Many service providers include, and rely on, their ability to modify terms of service in the future, with customers manifesting assent through continued use. The approach has allowed service providers to update and modify their terms without the need for messy, clunky pop-up windows that can interfere with users’ experiences. The Sifuentes court’s decision merits attention because the Northern District of California covers both San Francisco and Silicon Valley, the home region to many of the country’s technology companies and online service providers. For that reason alone, online service providers should reexamine how they are binding users to terms of service. Those using an app-based or web-based interface in particular would be well advised to alter the manner by which they update their terms of use to require an on-screen notice of the new terms combined with a requirement that the customer “do something” (e.g., close a window or click a box) before being able to use the service.

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 196
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About this Author

Joseph Grasser Intellectual Property Attorney Squire Patton Boggs San Francisco, CA & Palo Alto, CA
Partner

Joseph Grasser’s practice focuses on federal and state court litigation with emphasis on intellectual property matters and unfair competition claims. Joseph also advises domestic and international clients on matters relating to trademarks, copyrights and trade secret matters. His experience includes all phases of litigation, from initial motion practice through to jury trial and appeal.

415-954-0243
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