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Contracting Online

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CONTRACTING ONLINE

SHRINKWRAP LICENSES

The term “shrinkwrap license” usually refers to a license agreement, governing a purchaser’s use of software or digitized data, which is presented to the purchaser only after payment of the purchase price.

The license agreement is enclosed within the product box, and the shrinkwrap prevents the purchaser from reading its terms until after she pays for the software and is entitled to break the seal.

CLICKWRAP AGREEMENT

A “clickwrap agreement” is one in which the terms of the agreement are displayed on the computer screen and the computer user is requested to click an on-screen button to indicate assent to the displayed terms. The website is programmed so that the user won’t get to use the site unless the user clicks to accept the terms as presented.

Clickwrap Agreements differ from Shrinkwrap Licenses in that the existence of the clickwrap terms are brought to the user’s immediate attention as they are a prerequisite to use of a site, whereas on the other hand, in the case of shrinkwrap licenses, it is possible for the user to open a product and use it without realizing that the vendor has proposed a set of license terms.

BROWSEWRAP CONTRACT

A “browsewrap agreement” is on where the internet provider has established terms of use on its website and the terms of use state that by using the site the user agrees to the provider’s terms of use. The user is not required to read the terms before using the site but the terms are usually available via a link that can generally be found on the site.

SHRINKWRAP AGREEMENTS IN THE COURTS

ProCD v. ZEIDENBERG ï‚®

F: ProCD compiled information from more than 3000 telephone directories at a cost of over $10 million. In an attempt to control the various uses of the program and to control cost, ProCD enclosed restrictive licensing terms in the box with each product, limiting the use of the program to non-commercial purposes. Zeidenberg bought a consumer package of the ProCD program and published the information on the Internet. ProCD sought injunctive relief.
Issue:

Issue: Must buyers of computer software obey the terms of shrinkwrap licenses?

DISTRICT COURT

The District Court held that the licenses were unenforceable because the license terms did not appear on the outside of the product packages, and a purchaser of such a product does not agree to – and cannot be bound by – terms that were secret at the time of purchase.

SEVENTH CIRCUIT - JUDGE EASTERBROOK
Licenses are treated as ordinary contract, and therefore are governed by the common law of contract and the UCC. A contract generally contains only those terms upon which the parties to the contract have agreed.

Key Point: One of the terms that was agreed upon between Zeidenberg and ProCD was that the use of the product being purchased would be governed by a license.
Easterbrook Examples: Exchange of Money prior to Terms:
→ Purchase of Insurance Policy
→ Purchase of an Airline Ticket

Terms of Use are no less a part of the product than are the size of the database and the speed with which the software compiles listings, and competition among vendors, not judicial revision of a package’s contents, is how consumers are protected in a market economy.

HOLDING
The terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product.

HILL v. GATEWAY 2000 ï‚® Enforceability of Arbitration Clause
F: The Hills ordered a PC over the phone and one of the items included in the PC’s box when it arrives is a list of terms to which the purchaser is bound unless the purchaser returns the PC within 30 days. One of the terms associated with the PC was an arbitration clause. The Hills kept the PC longer than the 30 day limit before complaining about its performance. They then sued alleging that Gateway is a racketeer under RICO. Gateway argued for enforcement of the arbitration provision.

DISTRICT COURT

The court refused to enforce the arbitration provision, stating that the record was insufficient to support a finding of a valid arbitration agreement between the parties or that the Hills were given adequate notice of the arbitration clause.

SEVENTH CIRCUIT - JUDGE EASTERBROOK AGAIN

Federal Arbitration Act:
An Agreement to Arbitrate must be enforced save upon such grounds as exist at law or in equity for the revocation of any contract.

ANALYSIS
If the terms inside Gateway’s box constitute the parties’ contract because the Hills had an opportunity to return the PC after reading them, then all of the terms of the contract must be enforced.
→ ProCD holds that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product.
→ Carnival Cruise Lines held enforceable a forum selection clause that was included among three pages of terms attached to a cruise ship ticket.

HOLDING

The relationship between the Hills and Gateway is governed by the “contract” between them, evidenced by the terms included in the Gateway box, and accepted by the Hills through their use of the PC beyond the 30-day time period; therefore, the Hills are compelled to submit their dispute with Gateway to arbitration in accordance with those terms.

KLOCEK v. GATEWAY, INC.

F: Klocek sued Gateway and HP on claims arising form purchases of a Gateway PC and an HP scanner. Gateway’s PC included a Note to the Customer stating that keeping the PC beyond five days evidenced acceptance of the Terms & Conditions, one of which was an arbitration clause. Gateway moved to dismiss the suit in accordance with the arbitration provisions of this agreement.
ISSUE: Whether the contract of sale contains the Gateway Terms & Conditions.

ANALYSIS

Before granting a stay or dismissing a case pending arbitration, a court must determine that the parties have a written agreement to arbitrate and ordinary contract principles must be applied to determine whether the parties have agreed to arbitrate a given dispute.
Gateway urges the court to follow the Seventh Circuit Hill decision, but the court states that it is not persuaded that either the Kansas or Missouri courts would necessarily follow the 7th Circuit. Instead the Court analyzed the case under UCC §2-207 “Battle of the Forms.”

UCC §2-207 “Battle of the Forms” - According to the Court

Under §2-207, the Standard Terms constitute either an expression of acceptance or written confirmation.
→ As an expression of acceptance, the Standard Terms would constitute a counter-offer only if Gateway expressly made its acceptance conditional on Klocek’s assent to the additional or different terms.
→ Because Klocek is NOT a merchant, additional or different terms contained in the Standard Terms did not become part of the parties’ agreement unless Klocek expressly agreed to them.

Despite the 5-day period noted in the Standard Terms, the court states that the fact that Gateway merely enclosed the Standard Terms inside the computer box for Klocek to read does not establish that Gateway informed Klocek of the 5-day review-and-return period as a condition of the sales transaction.

HOLDING

Gateway failed to present sufficient evidence to support a finding that Klocek agreed to the arbitration provision contained in the Standard Terms (shrinkwrap agreement).

CLICKWRAP AGREEMENTS IN THE COURTS

DAVIDSON & ASSOC v. INTERNET GATEWAY
F: Plaintiffs allege that the defendants infringed their copyrights and violated the anti-circumvention provisions of the Digital Millennium Copyright Act (“DMCA”) in addition to claims that the defendants breached the End User Licensing Agreement and Terms of Use associated with the Plaintiffs’ Battle.net Online Gaming Service.

END USER LICENSE AGREEMENTS AND TERMS OF USE
For every game at issue, the outside packaging states that the use is subject to an End User License Agreement and that any use of the Battle.net service is subject to specific Terms of Use.

If the user does not agree to any term or condition, then the user may return the game for a full refund of the purchase price within thirty days of the original purchase.

The Defendants all clicked on the “I Agree” button after either the EULAs or Terms of Use were displayed.

ANALYSIS

Preemption under the Copyright Act
→ Plaintiffs are alleging that the contract creates a right not existing under copyrights law, but rather a right based upon the defendants’ agreement to the EULA & Terms of Use.
→ The Court agrees that the contractual restriction creates a right not otherwise existing under Copyright Law. The right created is the right to restrict the use of the software through the EULA & Terms of Use.
→ Therefore, NO PREEMPTION BY THE COPYRIGHT ACT.



“Clickwrap Agreements”
→ A clickwrap agreement appears when a user first installs computer software obtained from an online source or attempts to conduct an Internet transaction involving the agreement and purports to condition further access to the software or transaction on the user’s consent to certain conditions there specified.
→ The user consents to these conditions by clicking on a dialogue box on the screen, which then proceeds with the remainder of the software installation or Internet transaction.

The Court finds that the EULAs and the Terms of Use are enforceable contracts under the UCC given that the UCC provides that a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
The Court distinguishes the case from Klocek based on the fact that in this case the defendants had sufficient notice of the EULAs and Terms of Use because both were disclosed prior to the installation of the games and access to Battle.net.

HOLDING

The End User License Agreements and Terms of Use are valid and enforceable contracts.

BROWSEWRAP AGREEMENTS IN THE COURTS

SPECHT v. NETSCAPE COMMUNICATIONS CORP.

F: The Plaintiffs sued AOL & Netscape alleging that the SmartDownload program transmitted private information about the plaintiffs’ downloading of files from the Internet. This case is the defendants’ appeal from the District Ct’s denial of the defendants’ motion to compel arbitration. The dispute turns on the validity and enforceability of the “browsewrap” agreement that had to be clicked on/agreed to before use of the program.

ANALYSIS

MOTION TO COMPEL ARBITRATION

The determination of whether parties have contractually bound themselves to arbitrate a dispute is a legal conclusion subject to de novo review.

REASONABLE NOTICE & MANIFESTATION OF ASSENT

Mutual manifestation of consent, whether by written or spoken work or by conduct, is the touchstone of contract.

A consumer’s clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those specific terms.

An offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.
REASONABLY PRUDENT OFFEREE OF DOWNLOADABLE SOFTWARE

Where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on notice, constructive or otherwise, of those terms.

HOLDING

A reasonably prudent offeree in the plaintiffs’ position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload’s license terms hidden below the “Download” button on the next screen.
→ The Plaintiffs’ downloading of the SmartDownload software did not constitute acceptance of the defendants’ license terms.
→ Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.

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