By Steve Kramarsky
The “clickwrap” license—a legal concept that did not exist 30 years ago—is now one of the foundations of digital commerce. Simply by clicking “I AGREE”, millions of people every day enter contracts governing their substantial legal rights (including rights to privacy, intellectual property, and judicial review) without knowing what those contracts say. Of course, ignorance of the specific terms is not a problem unique to clickwrap agreements: people sign contracts without reading them all the time.
It is not “generally a defense to an action founded upon such agreement that the party did not read the contract, or was ignorant of its contents”. Miller v. Phoenix Mut. Life Ins. Co., 107 N.Y. 292, 296 (N.Y. 1887). This issue is well-known and has been the subject of substantial academic research, but there is little evidence that behavior would change materially if people were more saware of the rights they were giving up.
Under New York law, clickwrap licenses can be valid and enforceable under a theory broadly known as “inquiry notice”. Contract formation requires a meeting of the minds, and a meeting of the minds requires both parties to know the terms of the contract. Even if a party does not have actual notice they can still be bound if they are on inquiry notice: if they could reasonably have discovered the terms, and if they agreed to them through conduct that a reasonable person would understand to constitute assent.
This is a fact-based inquiry that turns on an objective reasonableness standard, and New York courts look carefully at the presentation of clickwrap screens in analyzing the validity of these agreements. Factual questions such as the placement of the “I Agree” button, the availability and color of the link to the Terms of Service or similar agreement, and the clarity of the agreement itself can be dispositive.
Enough case law has developed in this area that most major service providers understand how to craft an effective and valid clickwrap agreement, but edge cases still arise. One such case, Wu v. Uber Techs., Inc., No. 90, 2024 WL 4874383 (N.Y. Nov. 25, 2024), recently came before the Court of Appeals resulting in an opinion and thought-provoking dissent that are worth examination.
The Wu Case: Background and History
In July 2020, plaintiff Wu requested an Uber and was injured during the ride. Plaintiff sued Uber in November 2020 in New York State court, pleading negligence against the company on a respondeat superior theory. Plaintiff served her complaint through the Secretary of State in November 2020. Uber alleged that it did not become aware of the suit at the time because its New York office was shut down by COVID and therefore did not respond to the filing.
In January 2021, Uber sent a mass email to millions of its U.S. users informing them that they would soon be prompted to agree to updated “Terms of Use” to continue using the service. The email stated: “We recommend that you review the updated terms. Some of the updates include changes to the Arbitration Agreement, the terms related to access and use of the Uber platform, and procedures and rules for filing a dispute against Uber.” Wu, 2024 WL 4874383 at *1. The email included hyperlinks to the updated terms, and it is undisputed that Plaintiff received and opened the email; there is no evidence she clicked the links.
When Plaintiff next opened the Uber app, she was presented with a gating pop-up screen titled “We’ve updated our terms,” which encouraged her to review the new terms of use, included a hyperlink to those terms (underlined and in blue text), and ended with a checkbox labeled in bold: “By checking the box, I have reviewed and agreed to the Terms of Use and acknowledge the Privacy Notice.” Plaintiff was required to check the box and click a “confirm” button to continue using the app, although she was not required to click the link, and there is no evidence she did so. Id. at *2.
Uber’s January 2021 Terms of Use include several clauses relevant in Wu. First, they provide that anyone accessing or using any Uber service agrees to the bound by them. Second, they contain a paragraph of bold, all-caps text advising that the agreement contains an arbitration clause and warning users to read and consider “the consequences of this important decision” before accepting the agreement.
Third, the arbitration clause requires individual arbitration of essentially all disputes, explicitly including personal injury claims, though it is silent concerning pre-existing litigation. Finally, there is a “delegation provision,” stating that any threshold dispute as to the arbitrability of a given claim or the validity of the agreement itself is for the arbitrator (not a court) to decide.
On March 3, 2021, plaintiff moved for a default judgment against Uber. Uber answered, including the affirmative defense that plaintiff had agreed to arbitration, and served a Notice of Intent to Arbitrate under CPLR 7503(c), referencing the January 2021 Terms of Use.
Plaintiff objected on a number of grounds, including: (i) that Uber had violated Rule 4.2 of the Rules of Professional Conduct by communicating with a represented party about the subject of her pending litigation without prior notice to her attorney; (ii) that the arbitration agreement was unconscionable and contrary to New York public policy, at least as applied to claims already pending in court; and (iii) that Plaintiff never validly agreed to the updated terms.
Plaintiff pressed for default judgment and sanctions (for the alleged ethical violation). Uber cross-moved to compel arbitration and to stay the litigation, arguing that the email and pop-up screen put plaintiff on inquiry notice of the agreement, and all other issues should be decided by the arbitrator under the delegation provision.
The trial court denied plaintiff’s motion, finding that plaintiff was on inquiry notice of the agreement and that she had failed to establish a violation of Rule 4.2 (because she had not shown that Uber had actual knowledge her pending action or representation by counsel at the time of the mass email).
The trial court also noted that the relief plaintiff sought for the alleged ethical violation—dismissal of Uber’s defenses and entry of judgment against it—was overbroad and not appropriate. The court granted Uber’s cross-motion to compel arbitration. The First Department affirmed on appeal, granting leave to appeal to the Court of Appeals.
The Decision of the Court of Appeals
The majority in the Court of Appeals describes its opinion as “apply[ing] centuries-old principles of contract law to a web-based ‘terms of use’ update”. After reviewing the facts and procedural history, the opinion frames the case as an issue of contract formation, rather than contract interpretation or validity.
The court notes the strong public policy favoring arbitration agreements, and the requirements in both state and federal law that New York courts “interfere as little as possible with the freedom of consenting parties’ to submit disputes to arbitration.” Id. at *4. It cautions, however, that because arbitration agreements are simply contracts and arbitration is “strictly a matter of consent,” it should be used to resolve only those disputes that the parties have agreed to submit to arbitration, as determined by principles of state contract law.
The court then turns to the legal analysis. Noting that contract formation is an objective standard, the court finds that there is “no requirement that a party have correctly understood—or even reviewed—the terms presented by the offeror for their manifestation of acceptance to be effective.”
Instead, the issue in a case of inquiry notice is whether the terms were “clearly and conspicuously presented to the offeree as a contract and made available for review,” not whether the offeree reviewed them. Id. at *5. The court cites extensive precedent, some dating back to 1887, for the proposition that under New York Law, a person who signs a contract without reading it generally bears the risk that it may contain provisions she does not like or expect.
The court next notes that, under New York law and the Federal Arbitration Act, parties can agree to have an arbitrator decide not only the merits of a dispute, but also “gateway questions,” such as the scope of the agreement or whether a party should be released due to the wrongful conduct of another party. If such delegation language exists (as it does the Uber Terms of Service), the question becomes whether the parties agreed to that delegation, not whether they have agreed to arbitration generally, because the delegation clause is severable from the remainder of the arbitration provision.
Therefore, if a contract containing a delegation clause was formed at all, the rest of the issues regarding the arbitration, including whether it should take place or whether the matter should be returned to the trial court, are issues for the arbitrator. Thus, the Court of Appeals finds here that the only issue before it is one of contract formation: did the parties form a contract that included a delegation clause? If so, everything else is for the arbitrator.
The court goes on to undertake an analysis of Uber’s online contract formation process. Noting that “this court has not, until now, had the opportunity to offer substantial guidance on the question,” the court joins other state and federal courts across the country to hold that “traditional” contract formation law applies to web-based contracts and holds that a web-based contract requires a “manifestation of mutual assent” sufficient to assure that the parties agree to all material contract terms.
That assent can be based on inquiry notice of the terms, and the issue is not whether a user actually read the terms, but whether a “reasonably prudent user” would have understood that the terms were available and proceeded on that basis. A reasonably prudent user, the court notes, is one who is someone who has general familiarity with how to navigate a website, use a scroll bar, recognize a hyperlink, and so on. Id. at *7.
Courts evaluating these issues generally look at the design and content of the relevant interface to determine whether a reasonably prudent user would know that contract terms were available. They look for clear, uncluttered pages, with well-marked links (underlined and in blue text) that are close to the “Accept” button or check-box and not “buried at the bottom of the page or tucked away in obscure corners of the website.” Id. In addition, they look for a clear and objective manifestation of assent, such as a check box or “I Agree” button.
Here, the court examined Uber’s email and its web interface and included screenshots of both in the opinion. It noted the clear headlines, large-text warnings, plain language (including explicit reference to the new arbitration clause), easily accessible contract terms indicated by underlined blue links, and the general interface of both the email and the app screen.
Considering these factors, the court holds that a reasonably prudent user would understand that the contract terms were available by clicking the links provided, and that by checking the box and clicking the “confirm” button, she agreed to the Terms of Use.
The court notes that it is unclear whether plaintiff clicked on “any of the several prominently-placed hyperlinks that would have enabled her to actually review and assess the January 2021 terms” (Id. at *9) but finds that question irrelevant under New York law. This process—which Uber has perfected over many years and numerous iterations—is a textbook example of “clickwrap” contract formation, and the Court of Appeals holds that it was effective.
The court then holds that the rest of the issues (such as the scope of the agreement and its applicability to claims already pending in court) are for the arbitrator. It affirms the trial court’s decision that any ethical violation by Uber in improperly contacting a represented party (if any such violation occurred) would not be sufficiently serious to merit invaliding the agreement. It therefore affirms the decision to compel arbitration.
The Wu Dissent and Some Remaining Questions
There is no real question, as a matter of law, that these clickwrap agreements are valid and enforceable when properly implemented and Uber (which has struggled with the process in the past) now offers an excellent example of how to do the process right. But Wu is undeniably an edge case. The question here is whether a process that is reasonable for the vast majority of users is appropriate for a user represented by counsel who has a pending claim in litigation.
While the majority finds these facts irrelevant to the question of contract formation and thus holds that the parties have “agreed” to have an arbitrator answer even that gating issue, the dissent, authored by Judge Jenny Rivera and joined by Chief Judge Rowan Wilson, approaches the question from another angle.
The dissent begins with the observation that “mandated removal from court to arbitration of an already filed lawsuit is a material term for these parties that is separate and distinct from a general arbitration provision for future suits.” Id. at *11. For the dissent, this is the dispositive issue. If plaintiff was not on actual or inquiry notice that the arbitration clause would encompass her preexisting lawsuit, she cannot have agreed to that term and no contract can have been formed, at least as to arbitration of that claim.
This argument proceeds from the idea that the “removal” aspect of Uber’s arbitration clause as applied in this case is unusual and not something the average user would expect or agree to if they knew about it. For most users, the issue is irrelevant; but for users with litigation pending, the dissent suggests they would not expect to give up the right to continue that litigation simply by clicking on the updated Terms of Service.
The dissent undertakes an analysis of the likely expectations of users so situated, examining the language of the agreement, the lack of express reference to pending litigation, and the use of prospective terms in the email. It also notes that, in the usual course, Uber’s counsel would be required to communicate with plaintiff’s counsel to seek consent to remove the case from court to arbitration, and that a reasonable person would expect that safeguard to be in place.
Based on these and other facts, the dissent argues that inquiry notice did not occur, because a reasonable user could not have been expected to agree to an arbitration clause that applies to existing cases. Id. at *17.
Any lawyer reading Wu will likely have sympathy for both arguments here. Clickwrap agreements are critical e-commerce infrastructure and, if properly implemented should be enforced. However, it is hard to grasp that an opposing party could reach out to a represented client (knowingly or not) and convince them to give up a valuable right without so much as a phone call to counsel.
The majority essentially holds that, once an arbitration contract with a delegation clause is validly accepted, everything else is for the arbitrator; the dissent argues that if any part of the arbitration clause is sufficiently unusual, there can be no contract formation at all. Wu settles that question, although it is possible that the strong language of the dissent may guide whatever arbitrator who eventually decides the underlying issue of arbitrability.
This article first appeared in the New York Law Journal on January 17, 2025. Stephen M. Kramarsky, a member of Dewey Pegno & Kramarsky, focuses on complex commercial and intellectual property litigation.