On The Case

2nd Circuit’s Uber arbitration ruling huge win for app industry

(Reuters) - On Thursday, the 2nd U.S. Circuit Court of Appeals ruled that Uber user Spencer Meyer assented to the company’s mandatory arbitration requirement when he clicked a button to complete his registration for the Uber smartphone app. The 2nd Circuit’s decision, written by Judge Denny Chin for a panel that also included Judges Reena Raggi and Susan Carney, rejected Meyer’s argument that he wasn’t on fair notice of the arbitration provision because the Uber registration process presented the app’s terms of service only via hyperlink.

That’s great news for companies with smartphone apps – and not just because the court held that app purchasers can be bound by a “sign-in wrap” that folds assent to terms of service into registration for the app. The 2nd Circuit also confirmed the obvious: Now that Internet-connected devices have become nearly ubiquitous, smartphone users ought to know that registering for an app has legal consequences.

“While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes,” Judge Chin wrote. “The user is still on inquiry notice.”

To be clear, the opinion did not conclude that users automatically agree to terms of service when they click to use an app. The 2nd Circuit nodded to its own year-old precedent in Nicosia v. Amazon, which held that the hyperlink to Amazon’s terms of service on a cluttered Amazon order page was not sufficiently conspicuous to put consumers on notice of Amazon’s mandatory arbitration provision. But the Uber court found that Uber’s registration page clearly presented a hyperlink to the company’s terms of service. When the hyperlink is conspicuous, Judge Chin wrote, courts should assume that increasingly sophisticated smartphone consumers understand the contractual consequences of registering for an app.

“When considering the perspective of a reasonable smartphone user, we need not presume that the user has never before encountered an app or entered into a contract using a smartphone,” the opinion said. “A reasonable user would know that by clicking the registration button, he was agreeing to the terms and conditions accessible via the hyperlink, whether he clicked on the hyperlink or not.”

Uber’s assent-by-registration contract falls somewhere between a browsewrap agreement, in which a company claims to bind anyone who accesses its site merely by posting its terms of service, and a clickwrap agreement, in which a user is required to click a button assenting to posted terms. Courts have generally found browsewrap agreements not to bind consumers to arbitration but have broadly held clickwrap agreements to be binding. By my read, the 2nd Circuit’s Uber ruling nudges courts to treat sign in-wrap contracts like Uber’s as akin to clickwrap agreements, as long as they include a conspicuous link to terms of service.

I’ve previously described the Uber case as a big test for Internet companies, which appeared as amici via the Internet Association, the Consumer Technology Association and The Chamber of Commerce. It’s fair to say they passed with flying colors.

Uber and former CEO Travis Kalanick still have to go back to the courtroom of U.S. District Judge Jed Rakoff of Manhattan to show that they did not waive mandatory arbitration by moving to dismiss Meyer’s antitrust class action before attempting to compel arbitration. Nevertheless, Uber lawyer Theodore Boutrous of Gibson Dunn & Crutcher said in an email statement that the 2nd Circuit’s “powerful and commonsense opinion will serve to protect online contracting and strengthen commerce nationwide.”

Lawyers for Meyer, who is represented by Harter Secrest & Emery, Cafferty Clobes Meriwether & Sprengel and Constantine Cannon, said in an email statement that they look forward to pressing ahead with arguments that Uber and Kalanick gave up their right to compel arbitration. “This ruling does not grant defendants the right to throw this case into arbitration,” the statement said. “The defense waived that right.”