5 Tips For Enforceable Membership, Subscription and SaaS Agreements

I work with website designers a lot — making sure that the Customer Agreements of my clients are presented as part of the registration process in a way that’s legally enforceable.

One of the key components of your basic website legal compliance documents is your Customer Agreement (which may have many different names such as Membership Agreement, Subscription Agreement, Terms of Sale, Content License Agreement, etc.).

Some of my clients think that their Customer Agreement will be enforceable solely because of legal mumbo jumbo I put in it. Not true! Proper presentation during your registration process is also a key to enforceability. If the agreement is not presented properly, it will not be enforceable.

And as I point out to my ecommerce clients and their website designers… if your Customer Agreement is not enforceable, then all of your carefully worded disclaimers and limitations of liability will be ineffective. The result — you would be exposed to substantial liability.

Specht v. Netscape Comms. Corp

A good example of a click-wrapped agreement that was presented improperly can be found in the case of Specht v. Netscape Comms. Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001), aff’d. 306 F.3d 17 (2nd Cir. 2002).

In the Specht case, Netscape’s website developer designed its download page for Netscape’s SmartDownload software with little regard for contract enforceability.

Netscape’s download page provided a download button which downloaded the SmartDownload software. The only reference to a license agreement required the user to scroll to the bottom of the same web page which provided a link to the license agreement. Clicking on this link directed the user to another page which stated that use of the software was governed by a license agreement that required still another click before the user could read the contract terms.

The 2nd Circuit ruled that Netscape’s agreement was unenforceable because of 3 deficiencies:

  • the user did not have to click on an “ACCEPT” or “I AGREE” button to indicate assent;
  • the text on the web page accompanying the download did not clearly state that agreement was a pre-condition to use;
  • the failure to provide “reasonable notice” of the existence of contract terms.

Lessons Learned From The Specht Case

Lessons learned from the Specht case involve 2 basic methods of successfully incorporating your Customer Agreement into your website – the full page method and the scroll box method.

The full page method is the most conservative method. This method requires the placement of the “I AGREE” button at the bottom of the page containing the contract terms (thereby requiring the user to at least scroll to the bottom of the page to click).

The scroll box method requires the placement of the “I AGREE” button on or in close proximity to a scroll box containing the scrollable contract terms coupled with visible explanatory text providing notice of the contract terms.

Most website designers prefer the scroll box method because it uses less space. If you use the scroll box method, this is a summary of the 5 tips for enforceability:

  1. Conspicuous presentation during registration process – the scroll box with the agreement should be presented conspicuously during the registration process;
  2. Reasonable notice of the existence of contract terms – this is the purpose of the text that is in all caps at the very top of the agreement (ABC COMPANY IS WILLING TO GRANT YOU RIGHTS TO ESTABLISH AND USE AN ACCOUNT WITH THIS SITE …);
  3. Unambiguous manifestation of assent – this is the purpose of the ACCEPT button – place both the ACCEPT and the DECLINE buttons on the scroll box just under the scrollable window – set the default to DECLINE – make sure that registration cannot be completed unless the ACCEPT button is clicked;
  4. Opportunity to review contract terms – the scrollable window should show some of the text of the agreement below the notice section without the requirement of scrolling to see it – the text should be in a legible font, clear, and readable – the scroll box should permit the user to review the contract terms easily at the user’s own pace, and the user should be able to navigate up and down through the entire text of the agreement in the scroll box; and
  5. Opportunity to print agreement – the scroll box presentation should clearly indicate an opportunity to print the agreement.

Conclusion

Enforceable Customer Agreements are critical to controlling your online business… and with it, your exposure to liability. Although part of the issue of enforceability is determined by what your Customer Agreement actually says… a significant part is determined by how it’s presented. So, be sure to monitor how your website designer incorporates your agreement into your site, and make sure it’s done right.

The future of your business may be riding on it!

Copyright © 2008 Chip Cooper

For additional information, visit our SaaS Legal Resource.

This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.

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