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Thursday, January 14, 2010

Court Upholds Forum Selection Clause in B2B Clickwrap

By Mehmet Munur

A District Court in Indiana recently held that NexTag’s clickwrap Terms of Service was enforceable against Appliance Zone despite arguments by Appliance Zone that no contract was formed and that if an agreement were formed it was procedurally unconscionable. Ironically, NexTag was helped by the fact that Appliance Zone was an ecommerce merchant that used a similar sign-up process and similar website terms of use in its own business.

Appliance Zone advertises and distributes appliance parts and accessories through its commercial website. NexTag operates a commercial comparison website and advertises the goods of third parties such as Appliance Zone. NexTag refers customers to the third parties’ website where they can purchase the good and charges a few dimes for every referral.

When Appliance Zone found out that NexTag used Appliance Zone’s trademark to promote the prices of goods of Appliance Zone’s competitors, Appliance Zone brought a trademark infringement suit under the Lanham Act against NexTag in Indiana. NexTag, being a Delaware corporation based out of California, argued improper venue due to the forum selection clause in its Terms of Service Agreement, which every business must agree with before listing their products on NexTag. Thus, the court had to decide whether the forum selection clause in NexTag’s Terms of Service Agreement was enforceable.

Appliance Zone raised three arguments to state that the forum selection clause not applicable: 1) there was no agreement between the parties; 2) if there was an agreement, it was unconscionable; and 3) the lawsuit did not arise out of the agreement and thus it was not governed by the forum selection clause.

First, Appliance Zone argued that the employee that signed up with NexTag did not have the authority to enter into the contract. The court held that the employee had apparent authority to enter into the contract. The employee clicked the radio box next to the statement “I accept the NexTag Terms of Service,” uploaded 20,000 product descriptions and 14,000 product images onto NexTag’s website, and Appliance Zone paid for NexTag’s services. Therefore, the conduct demonstrated acceptance of a valid contract.

Second, Appliance Zone argued that the Terms of Service Agreement was unconscionable because 1) it was inconspicuous, 2) parties had unequal bargaining power, and 3) Appliance Zone did not read it. The court rejected each of these arguments. The court held that the presentation of the Terms of Service Agreement was typical for the online retail industry, that it was clearly labeled, and that it was placed in a highly visible portion of the web page. Appliance Zone also had to check a box to manifest assent to the Agreement. The court also cited Appliance Zone’s similar sign-up process and similar language in its Terms of Use against Appliance Zone to state that NexTag’s Terms of Service Agreement was not procedurally or substantively unfair. The court also stated that Appliance Zone had failed to demonstrate the disparity in the bargaining power and that Appliance Zone would be presumed to have read the terms and agreed to them when it signed them as a matter of fundamental contract principle.

Finally, the court addressed Appliance Zone’s argument that the trademark issue did not arise out of the Terms of Service Agreement. The court held that the binding precedent required that the Agreement govern the dispute between the parties—Appliance Zone had cited to persuasive 2nd Circuit Precedent.

This case highlights how electronic Business-to-Business agreements are more difficult to overturn than electronic Business-to-Consumer agreements. Plaintiff’s arguments related to not having read the agreement, uneven bargaining positions, and unconscionability are mostly arguments raised in Business-to-Consumer settings. However, such arguments are unlikely to work in cases where the party arguing against the enforceability of the contracts employs a similar contract in a similar settings.

The case is Appliance Zone, LLC v. NexTag Inc., No:4-09-cv-0089-SEB-WGH (S.D. In. Dec. 22, 2009).

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