Why Are Website Terms and Conditions Binding Agreements?

Why Are Website Terms and Conditions Binding Agreements?

For those of us born after the mid-1990s, the idea of a world without the internet is unfathomable. Part of this changing world involved online contracts and the presence of website Terms and Conditions templates from reliable resources like The Contract Shop.

Before the internet became mainstream, the idea of contracts being legally binding without a physical signature was already in place by software companies shipping CD-ROMs to millions of new computer users around the world. 

Many who saw these agreements for the first time thought to themselves: "Why do I have to agree to Terms and Conditions?In reality, it was a way for the software companies to protect themselves from liability and provide legal recourse, should the user misuse the software in a way not intended by the manufacturer. 

It’s All About Shrinkwrap

These early signatureless contracts were known as “shrinkwrap agreements.” Software companies placed stickers on the outside of the shrinkwrap on the product’s box that said, “If you open this, you agree to the Terms and Conditions contained inside.”

In many cases, when the user installed the software, they would also be presented with some form of digital Terms and Conditions and would be asked to click “I Agree.”

When the internet became mainstream, websites needed a way to legally shield themselves in a similar manner. So, shrinkwrap agreements became entirely digital and began to be referred to as “clickwrap agreements.”

A Series of Legal Wins

Throughout the late 1990s and into the early 2000s, the legally binding nature of online contracts became even more secure. Thanks to a series of landmark cases, judges and legal scholars agreed that clickable agreements were legally binding. 

It began with a case in which a company called ProCD was sued because their shrinkwrap agreement forced a user to agree to terms they couldn’t read before purchasing. The court rejected this argument, citing several examples of handing over money for a product before fully understanding the terms, such as for airline or train tickets. This was further upheld in cases where clickable agreements were shown when the user installed the software. In nearly every case, the courts upheld digital contracts as legally binding.

The reasoning behind this was that they shared all the hallmarks of paper contracts: the user was presented with Terms and Conditions, had the opportunity to read them, and then had the ability to acknowledge and agree to these Terms and Conditions or decline the offer. 

Cautionary Tale: Ticketmaster

In the year 2000, the company Ticketmaster attempted to sue another company for improperly using Ticketmaster’s website in a way that was not allowed according to the Terms and Conditions of Ticketmaster’s website. 

Ticketmaster had posted the Terms and Conditions at the bottom of their webpage, and stipulated that using the website amounted to an agreement to the Terms and Conditions. However, when it went to court, the case was thrown out on the grounds that the user had no way of agreeing to the Terms and Conditions, and that the placement at the very bottom meant a user was unlikely to discover the Terms and Conditions. 

This became a textbook lesson in internet law on not only where to put Terms and Conditions on websites, but how users are notified and allowed to agree to Terms and Conditions. For this reason, it’s critical that a website both clearly display their Terms and Conditions and allow the user to agree to the Terms and Conditions in order to be fully protected. 

In Summary

Once the world became largely digital, it was important to transfer all the legal functions of businesses into the electronic realm. Out of this necessity, as long as they are done correctly, courts have found online agreements to be legally binding.

Kevin Gallagher
Kevin Gallagher

Kevin Gallagher is the CEO of The Contract Shop®, a contract template store for creative entrepreneurs, freelancers, coaches, and more. His background is in helping online businesses grow, having previously worked at Allbirds managing part of their operations. He is proud to report that his digital artist wife Mandy is a happy customer of The Contract Shop®, and his main motivation is to help as many people like her as possible with the tools that they need to confidently manage their businesses.

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