This alert was originally intended to report on a recent Ninth Circuit decision involving enforcement of a ToU which included a mandatory arbitration provision (covered below), but we learned yesterday the FTC sued Uber in the N.D.CA for engaging in unfair and deceptive acts and practices in connection with its Uber One premium subscription service. The FTC's complaint alleges that consumers were unaware they had enrolled in the service and that Uber made it difficult to cancel and made multiple misrepresentations regarding the service (such as savings claims), in violation of Section 5 of the FTC Act and ROSCA (the acts/practices cited in the complaint occurred prior to the effective date of the amended Negative Option Rule (January 14, 2025 for misrepresentations), which likely explains the absence of it being cited in the complaint). This action comes somewhat as a surprise given the current administration's seeming disinterest in enforcing consumer protection laws (see, e.g., closed matters at the CFPB and SEC), but reinforces our belief (as suggested in our last alert) that the FTC may be selectively targeting certain companies/industries believed to be on the government's disfavored list, in this case, BigTech.  This belief is bolstered by the timing of the announcement and the complaint citing Uber's actions dating back to 2021 (Complaint ¶14), which suggests this investigation was likely opened during the Lina Khan era.  If Ferguson (or the White House) wanted to make this case go away (consistent with other agency actions), the FTC could have either closed the matter or accepted a mild settlement, but instead it chose to litigate.  We can't say for sure, but if it walks like a duck...

 

And now for the Ninth Circuit...

 

Reporting here not on a legislative or regulatory development in the auto renewal space, but an important decision out of the Ninth Circuit (attached) denying a defendant's motion to compel arbitration in a class action lawsuit involving a subscription offering.  At issue on appeal was whether consumers, when enrolling in defendant's online subscription service, were put on "inquiry notice" as to the applicability of the company's Terms of Use (ToU) that contained a mandatory arbitration/class action waiver provision.  The Ninth Circuit panel upheld the district court's denial of defendant's motion, finding "no meeting of the minds" existed due to defendant's failure to sufficiently inform consumers of and obtain their agreement to the ToU.

In light of this decision, now may be a good time to review your enrollment flow to ensure you are able to enforce your ToU in the face of a class action lawsuit, at least in the Ninth Circuit.

 

From the decision: "The panel concluded that no contracts were formed between plaintiffs and JustAnswer under an inquiry theory of notice, which requires a showing that (1) a website provided reasonably conspicuous notice of the terms to which a consumer will be bound, and (2) the consumer took some action, such as clicking a button or checking a box, that unambiguously manifested their assent to those terms. The panel concluded that some plaintiffs were presented with advisals that were insufficiently conspicuous to put them on inquiry notice, and others were not explicitly advised of what actions would be taken to signal assent to contractual terms."

 

On the issue of "reasonably conspicuous notice," the panel considered whether notice of the applicability of the ToU to the subscription was “displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.” This largely centers on an analysis of the “visual aspects of the notice” within the “overall screen design.”  The decision continued, "this inquiry is “fact-intensive” and is informed by the “totality of the circumstances.” Following California caselaw, we have discussed certain factors relevant to our visual analysis of webpages and hyperlinks, such as the location of the advisal on the webpage or the font size, color, and contrast (against the page's background)." (citations omitted)

 

The panel conceded there is no "brightline" test for determining whether a particular design element is adequate and declined to create a checklist for such purpose.  Instead, it closes this analysis by concluding "[a]t bottom, when visually analyzing the conspicuousness of an advisal and any hyperlinks, courts must be tuned to the expectations of a reasonably prudent internet user. A hefty dose of common sense goes a long way."

 

On the issue of whether consumers must affirmatively agree to the terms, the panel noted "such unambiguous manifestation of assent can only occur in the inquiry-notice context where an internet user is “explicitly advised that the act of clicking will constitute assent to the terms and conditions of an agreement,” warning that "[e]ven strongly implicit advisement isn't enough—a webpage must explain that certain actions will be understood by the offeror to signal assent to contractual terms." (citations omitted).  The decision noted that simply using "I agree to the Terms" is inadequate for this purpose, and instead requires a clear and express statement tying a consumer action to agreeing to the ToU, such as "By signing up you agree to the Program Terms.”  The panel also found inadequate defendant's use of an action button reading “Continue,” noting that an "[e]xplicit advisement generally looks like an explanatory clause, usually at the beginning of an advisal—for example: “By clicking the Continue >> button, you agree to the Terms & Conditions,” or “By tapping ‘Play' I agree to the Terms of Service,” (citations omitted, emphasis added).

All that said...the decision contained some additional information in dicta that is instructive.  The panel viewed the enrollment contracting process as a "sign-in wrap" since consumers were provided a link to the ToU, but not required to separately indicate that they had read or agreed to the terms.  If, on the other hand, consumers were required to check a box acknowledging the applicability of the terms, the panel noted (albeit in a footnote), the outcome would have been different, "If Plaintiffs were asked to affirmatively check or click the pre-checked box, however, we may reach a different result. Asking users to “click[] on an ‘I accept' or ‘I agree' button” would have created a “clickwrap” agreement, and thus would have been presumptively enforceable." Decision at FN6. We're not sure if the court's referring to a "pre-checked box" here was in error, as that term is preceded by "affirmatively check or click the," which would assume the box was unchecked.  Regardless, we tend to advise that such boxes not be pre-checked, and must be affirmatively selected by the consumer.

 

And on the subject of agreeing to a ToU, let's also keep in mind the FTC's amended Negative Option Rule requirement that a Negative Option Feature (NOF) be agreed to "separately from any other portion of the transaction"...which begs a question...is agreeing to a ToU (and privacy policy) "separate from" the NOF?  There is no guidance in the Rule on this point, so careful consideration must be paid to drafting and implementing a check out process that seeks to accomplish various objectives without running afoul of the FTC's amended Rule.