When Do Smartphone Apps Create Binding Contracts? The Maine Law Court Weighs In

The Maine Supreme Judicial Court recently issued its first opinion on the enforceability of contracts formed using a smartphone app. (Sarchi, et al. v. Uber Technologies, Inc., et al., 2022 ME 8) In a unanimous decision, the Court found that Patricia Sarchi, a user of Uber’s ride-sharing service, was not obligated to arbitrate her dispute with Uber, which arose from an Uber driver’s decision not to give Ms. Sarchi, who is blind, a ride because of her guide dog.

The Court reasoned that Ms. Sarchi was neither provided reasonable notice of, nor manifested her assent to, binding arbitration when she simply clicked “DONE” after setting up her account and entering payment information. The contractual terms were presented to Ms. Sarchi only in a separate hyperlink, and Ms. Sarchi created her account without clicking on the hyperlink to the terms and without reading or affirmatively acknowledging them.

Examining case law from other jurisdictions, the Court characterized Uber’s rider contract as a “sign-in wrap agreement.” In this form of electronic agreement, the user is notified of the existence of contract terms when proceeding through the sign-in process, but does not acknowledge either reading or agreeing to the terms.

Noting that the enforceability of a sign-in wrap agreement is a fact-intensive inquiry, the Court identified three key technical features used by other courts to determine whether the agreement is enforceable: (1) conspicuousness of the terms, specifically whether a hyperlink to terms is clearly labeled and recognizable as such; (2) whether the screen that links to the terms is uncluttered; and (3) how explicitly the user expresses assent to the contract’s terms.

With these features in mind, the Court applied traditional principles of contract formation to the question of whether
Ms. Sarchi had formed a contract with Uber with a binding arbitration term. The Court looked to whether she had
(a) reasonable notice of the online contract terms, and (b) manifested her assent to the terms.

On the first prong, the Court found that Ms. Sarchi did not have reasonable notice of the terms because the hyperlink containing them was not readily identifiable as such and because the focus of the registration process was on entering payment information rather than on the terms.

On the second prong, the Court found that Ms. Sarchi did not manifest her assent to the terms because a reasonable user would conclude that by clicking “DONE,” she was only entering her payment information. The “DONE” button appeared on the opposite corner of the screen from the notice and link to the terms. The Court noted that the “DONE” button could have, but did not say, “By clicking DONE, you agree to the Terms.”    

The Court repeatedly contrasted this process with Uber’s app for registering drivers, which requires drivers to click “YES, I AGREE” below the statement “By clicking below you represent that you have reviewed all the documents above and that you agree to all the contracts above.” Drivers then have to click another “YES, I AGREE” box with additional confirmatory language. The Court appeared troubled by the fact that Uber required its drivers take steps to confirm that they received notice of, and agreed to, Uber’s terms and conditions, but did not require its riders to take those same steps.

The Court also held that a subsequent email notifying riders of updates to the terms (which also required arbitration) did not obligate Ms. Sarchi to arbitrate her dispute because she did not open the email and, in any event, the email did not require her to read or acknowledge the update terms to remain registered as an Uber rider.

Because arbitration clauses are a widely-utilized tool to control litigation risk, the Sarchi decision contains important lessons for companies that form contracts electronically. The Law Court suggested that with minor differences in the account registration process, it would have required Ms. Sarchi to arbitrate her dispute. For example, if Ms. Sarchi had been required to affirmatively acknowledge that she had read the terms and that she agreed to them, the Law Court likely would have found the “reasonable notice” and “manifestation of assent” tests satisfied and compelled her to arbitrate.

For questions on this case, or for guidance on creating enforceable electronic contracts, please contact alert authors Nolan Reichl or Kyle Noonan.