Federal Court Ruling Finds Amendments to Click-Wrap and Terms of Service Unenforceable

In today’s society, license agreements are everywhere. With the advent of Software as a Service (SaaS) and web-based services, click-wrap or clickthrough agreements—agreements where the licensee agrees to the terms of the license agreement by clicking a button or ticking a box—are commonplace. The software and online services industries depend on such agreements. Recently however, a federal district court judge out of the Northern District of California issued a potentially industry-shaking ruling invalidating amendments to such click-wrap agreements unless a user is required to manifest assent to such amendments through something more than mere continued use of the service.

The defendant in the suit is Dropbox and the plaintiff is a user of Dropbox’s online file storage service. The plaintiff, who filed the suit pro se, alleged that he suffered injury as a result of a 2012 data breach which the plaintiff alleged involved the compromise of his Dropbox account. In response to the complaint, Dropbox moved to compel arbitration arguing that its amended terms of service (TOS) required the claim to be resolved through binding arbitration instead of a lawsuit.

In its motion to compel arbitration, Dropbox argued that the plaintiff agreed to its TOS through a click-wrap agreement. These TOS, Dropbox argued, allowed it to periodically amend its terms. In 2014, Dropbox modified its TOS to include an arbitration requirement and Dropbox claimed that it notified its users of the change by email, which provided users an opportunity to opt out of arbitration requirement. The plaintiff responded by claiming that he never read nor saw the email and that he was not required to do or acknowledge anything in order to continue to use Dropbox’s services. As such, the plaintiff argued that he did not assent to the changes to Dropbox’s TOS and could not be bound by them. Defendant replied that the TOS did not require plaintiff to manifest any particular assent to the changes and that continued use was sufficient to assent to and be bound by the amended terms of the TOS.

Federal Court Ruling Finds Amendments to Click-Wrap and Terms of Service Unenforceable

Given that Dropbox’s approach to amending its TOS is the industry standard, the Court’s ruling no doubt will have the attention of other providers who rely on click-wrap agreements and continued use of services as assent to be bound by periodically amended online terms.

The Court’s full opinion is available here.

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