McDonald’s is Lovin’ It! — Contest Rules Upheld

By John Ottaviani

James v. McDonald’s Corp., No. 04-2383 (7th Cir. 8/2/2005).

This is not a technology case per se, unless scratch-off game cards that accompany french fry orders are considered “technology.” However, the contract principles that underlie this case are the same ones that support the enforceability of the ubiquitous “click wrap” and “browse wrap” terms of use on Internet websites, and it’s nice to see a court applying them properly.

In 2001, McDonald’s was promoting sales of its food products by sponsoring a game called “Who Wants To Be A Millionaire?” Ms. James obtained a game card when she purchased an order of French fries at the drive-through window at a McDonald’s restaurant in Kentucky. She believed the game card to be a grand prize winner worth $1,000,000. McDonald’s notified her that she was mistaken and that her game card was for a low level prize ($5.00 in cash or less). After the news media reported a scheme where employees of a marketing company had allegedly stolen the winning game cards from the contest, Ms. James sued McDonald’s, alleging that McDonald’s knew that, due to the theft of the winning game cards, the odds of winning were less than represented, and that McDonald’s had used false pretenses to refuse to honor her winning game card.

The game rules contained an arbitration clause, so McDonald’s filed a Motion to Compel to Arbitrate. Ms. James claimed that the arbitration clause was not enforceable because: (1) she never saw or read the official rules; (2) McDonald’s had fraudulently induced her to participate in the game; and (3) the costs of arbitration were prohibitive. The District Court concluded that Ms. James could not avoid the arbitration clause and dismissed her complaint.

The Seventh Circuit agreed with the District Court. Ms. James argued that customers cannot be expected to read every container of food they purchase in order to know that they are entering a contract (in this case, an agreement to abide by the official rules). The Seventh Circuit relied in part on a basic principle of contract law that a party who had the opportunity to read a contract but did not is bound by the contract terms. The Seventh Circuit also looked to the practicalities of the situation: “To require McDonald’s’ cashiers to recite to each and every customer the 14 pages of the “Official Rules” and then have each customer sign an agreement to be bound by the rules would be unreasonable and unworkable. The Official Rules were identified to Ms. James part of the contest and that identification is sufficient in this case to apprise her of the contents of the rule.” Similar arguments have been raised to support the enforceability of click-through and browse-wrap agreements in the Internet context, which often are not read, and often are not set forth in full, but accessed through a hyperlink.

While we are on the topic of enforceability of “click-through” and “browse-wrap” agreements, the American Bar Association’s Electronic Contracting Practices Working Group has published two seminal works on the topic: “Click-Through Agreements: Strategies For Avoiding Disputes on Validity of Assent” and “Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements.” These are useful resources for anyone seeking to enforce (or to attack the enforceability of) click-wrap and browse-wrap agreements on the Internet.