Electronic Signatures and Internet Contracting: Rules of the Road

August 11, 2014

Companies continue to make basic errors when doing business via the Internet, mobile apps, tablets, and other digital technologies, and one wrong turn can result in major consequences when a dispute arises. Following these eight “rules of the road” can help businesses keep their online terms and conditions on a route toward enforceability.

  1. Clearly Display the Terms. Make sure that the terms are clearly displayed to the user. Courts don’t look favorably upon companies making the terms intentionally difficult to read. For example:
    1. Avoid using small or hard–to-read fonts.
    2. Unless it’s unavoidable, don’t display the terms in a tiny window that shows only a few lines of text at a time.
  2. Have a “Click to Agree” Checkbox. It is essential that the users clearly demonstrate that they are consenting to the terms. You should require the user to click a separate checkbox that states “I agree to the terms” or something similar, rather than allowing the users to proceed by clicking only a generically-labeled “Continue” or “Next” button. For a contract to be enforceable, users must be made aware that they are consenting to the terms, as opposed to, for example, just mindlessly clicking past the advertisements and upselling opportunities that some companies insert into the ordering process.
  3. Print or Email the Terms. Give the user the option to print the terms or receive an email copy. Both the Uniform Electronic Transactions Act (UETA), which is the law in 47 states, and the federal Electronic Signatures in Global and National Commerce Act (E-Sign), which is the federal electronic signature law, require that electronic records be “retrievable” by both parties. In addition, the Uniform Electronic Transactions Act specifically states that terms will not be enforceable against a person it they were inhibited from printing or storing the electronic record.
  4. Keep a Record. Record the date, time, user identification (name, email, username, etc.), and contract version to which the user agreed. It does little good to get the user’s consent if you can’t prove it later when a dispute crops up.
  5. Avoid “Browsewrap” and Unilateral Updates. This should be obvious from steps 1-4 above, but “browsewrap” agreements – in other words, simply making your terms available via a link on your website without requiring the user to see them or agree to them –generally are unenforceable and offer little, if any, protection. In addition, avoid language stating that you can unilaterally update the terms of the agreement without providing the user notice or obtaining the user’s consent. While it may be tempting to give yourself the power to make unilateral updates, if the contract is not binding on one party (and it’s not binding on you if you can change it at any time), there is a great likelihood that it will be found not binding on anyone. If you want to update your contract, you need to notify the user of the updates and obtain consent again.
  6. Identity Verification. Best practice is to verify that the person who is “clicking to agree” is who the person claims to be, and not the person’s child or assistant, or an outright stranger. This will help you avoid arguments about whether the person who entered into the agreement actually had the authority to do so. There are a variety of ways to do this, depending on the level of certainty you’re trying to achieve:
    1. Have them answer questions to which only they should know the answers (there are services that will do this for you, often using information from the person’s credit report);
    2. Contact the person via an email address if you know, based on prior experience, that the address belongs to that person;
    3. Call them on the phone;
    4. Use specialized software from companies like Docusign or Adobe; or
    5. Verify that the person’s IP address matches the location where service will be provided.
  7. “In writing” Requirement. As mandated by the federal E-Sign Act, if a law (for example, the Truth in Lending Act) requires you to provide disclosures or other information to a consumer “in writing,” then before making that disclosure electronically, you must do the following.
    1. Provide the consumer with a conspicuous statement of:
      1. Any right or option to have the record in nonelectronic form,
      2. The right to withdraw consent to have the record provided electronically and consequences of withdrawal such as termination or fees,
      3. Whether the consent applies to just that record or will be used generally,
      4. Procedures to withdraw consent or update the consumer’s contact information,
      5. The consumer’s right to get a paper copy including how they can obtain it and any fees that will apply, and
      6. The hardware or software requirements necessary to receive the electronic disclosure.
    2. Obtain the consumer’s consent to receive these disclosures electronically in a manner that reasonably demonstrates that the consumer will be able to access the information in electronic form.
  8. Special Considerations. As a general matter, digital signatures – including “clicking to agree” – are just as enforceable as physical signatures. However, just as certain types of contracts need to be notarized when they are being signed in the physical world, there may be special requirements for e-signatures in regulated areas such as estate planning or real estate or where other regulatory requirements apply.

McGuireWoods Technology and Outsourcing Team

Helping our clients structure and manage their online terms and conditions is one of the services provided by the e-contracting task force of McGuireWoods’ technology and outsourcing practice team. Along with providing e-contracting counseling, the team provides legal services to support a wide range of business transactions driven by technology, including IT procurement, outsourcings, ERP implementations, data security, and dispute prevention and resolution. Our clients include Fortune 100 corporations, governmental entities, nonprofit organizations, and emerging business enterprises spanning the industry spectrum. Adam Grove heads the E-contracting Task Force; the practice team is chaired by Steve Gold.