As Facebook prepares its much ballyhooed IPO, in Fteja v. Facebook Judge Holwell addressed the question of the enforceability of Facebook’s terms of use against individuals users.  Mustafa Fteja, a Staten Island resident, alleged that he suffered “mental anguish” when Facebook disabled his account “without justification and for discriminatory reasons.”  But because Fteja clicked that he agreed to Facebook’s terms of use when he opened his account, he now is required to pursue his claims in Santa Clara, not New York. 

Even though Fteja claimed that he never agreed to sue in Santa Clara, Facebook demonstrated that when Fteja opened his account he was asked to click “Sign Up,” and was notified that “By clicking Sign Up, you are indicating that you have read and agree to the Terms of Service.”  The phrase “Terms of Service” presented a hyperlink to the actual terms, which included a Northern California venue provision. 

As Judge Holwell framed the question: Is it enough that Facebook warns its users that they will accept terms if they click a button while providing the opportunity to view the terms by first clicking on a hyperlink?

There are various methods by which websites and software companies can display their terms and the method that they choose is a key factor in deciding whether their terms are binding on users.  Facebook’s method is most closely akin to what are known as “clickwrap” licenses, where the user clicks “I agree” to the standard terms after the terms are displayed.  However, Facebook did not display the terms, it just linked to them. In that way, Facebook’s terms are also like “browsewrap” agreements which tell a user that he is subject to the terms of use just by using the site, without requiring specific assent.  Browsewrap agreements have typically been enforced against businesses, but not individual users.  

Judge Holwell went out of his way to state that he was applying well settled principles of contract law, even in the context of new media: “… it is tempting to infer from the power with which the social network has revolutionized how we interact that Facebook has done the same to the law of contract that has been so critical to managing that interaction in a free society. But not even Facebook is so powerful.”  Powerful or not, Facebook still gets the win. 

According the the Judge, “at least for those to whom the internet is in an indispensable part of daily life, clicking the hyperlinked phrase is the twenty first century equivalent of turning over the cruise ticket. In both cases, the consumer is prompted to examine terms of sale that are located somewhere else. Whether or not the consumer bothers to look is irrelevant. ‘Failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract.'”

The opinion also includes a useful review of traditional venue factors that come in to play regardless of the applicability of a choice of venue provision as  “[t]he existence of a forum selection clause cannot preclude the district court’s inquiry into the public policy ramifications of transfer decisions.”

(My colleague Spencer Stiefel ably assisted with this post.)