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The history of shrinkwrap license and what comprises a binding contract

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Introduction Click-wrap agreements sometimes called "click-through"; "click and accept" and "web-wrap" agreements are agreements formed over the Internet. In some cases, an end-user can download a software product or electronic content only after "clicking and accepting" on license terms. In other cases, registration for an online service or purchase of tangible goods requires acceptance of such an agreement. Internet users have become familiar with screens flashing legal terms and requiring the clicking of an "I accept" button before such goods can be ordered, services procured, or information accessed.

The Internet user must indicate his assent to be bound by the terms of the offer via express conduct -- typically the act of clicking on a button stating "I agree" or "I accept. The analysis of click-wrap agreements follows that of so-called "shrink-wrap" agreements in which users of software products are deemed to accept license terms by opening or using packaged software.

Shrink-wrap agreements have been found to be enforceable in a series of major U. Zeidenberg 1 case discussed below.

Shrink wrap contract

Click-wrap agreements offer companies selling goods and services over the Internet significant protections beyond those afforded by whatever intellectual property rights they may have in their goods and services.

Click-wrap agreements are frequently used to disclaim implied warranties, limit financial liability to the purchase price of the product, specify the governing law and forum for resolving disputes, limit permitted uses, protect non-copyrighted material, and prohibit decompilation or reverse engineering of software programs.

Click-wrap agreements are useful for Internet companies selling goods and services for several reasons.

The Origin of Click-Wrap: Software Shrink-Wrap Agreements

First, it is impractical to have separately negotiated agreements with each end-user. With the volume of traffic commercial websites hope to obtain, most Internet companies do not want the burden of separately coming to an agreement with each end-user. Second, most end-users prefer ease and convenience when using the Internet.

Most end-users do not want or expect to spend time and effort negotiating terms of use before using websites. Third, using click-wrap agreements discourages even large buyers from insisting on separately negotiated terms.

This has the practical effect of increasing the bargaining position of the online merchant, vis-a-vis the consumer. It is important to note, however, that there will be situations in which Internet companies may be well-advised not to use click-wrap agreements.

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For example, click-wrap agreements are more suitable when end-users are expected to be individuals, rather than organizations. In this situation, the online merchant must be careful to ensure that the individual clicking to accept has power and authority to accept on behalf of the company.

  1. In particular, the Netscape contract was rejected because it lacked an express indication of consent no "I agree" button and because the contract was not presented directly to the user users were required to click on a link to access the terms.
  2. In addition, in Spain, all packaging must be in Spanish.
  3. The court then selected an arbitrator to hear the dispute. Local counsel should be retained and consulted to ensure that the necessary changes are made to enable click-wrap agreements to be enforced against individuals and companies in those countries.

Of particular concern is an employee's ability to bind its employer to non-competition covenants and other contractual provisions affecting goods and services other than the software product being downloaded, installed or used by that employee. Digital signatures are preferable when authenticity and security are important.

This issue may be particularly important in business-to-business "B2B" transactions. The Origin of Click-Wrap: Software Shrink-Wrap Agreements Click-wrap agreements derive their name from so-called "shrink-wrap" agreements, the license agreements by which most packaged consumer software is sold today. The term "shrink-wrap" comes from the manufacturing process of "shrinking" the clear cellophane packaging around the product box. Originally, software manufacturers attempted to print the entire license text on the outside of the product box, visible through the cellophane wrapping, with a notice that by breaking the seal and opening the box, the user would become bound by the license terms.

Today, a well-drafted shrink-wrap notice should contain a statement on the outside of the product packaging that software is copyrighted and that the data and its users are subject to the terms in an agreement within the box.

License terms are printed in full in the user guide, licensing brochure or as part of the product's help menu. Conceptually, an agreement is formed when the software vendor offers to license the use of software according to the license terms accompanying the software and the purchaser or licensee accepts those terms by its conduct, i. Increasingly, users are required to accept license terms electronically in order to complete the installation of the software.

The license should state that the end-user can return the product for a full refund if the license terms are unacceptable to the end-user. Zeidenberg affirmed the validsity of shrink-wrap agreements. In ProCD, a federal appeals court addressed the issue of whether a shrink-wrap license that is included with computer software is an enforceable contract.

Printed on the box was a notice that the conditions of use of the CD-ROMs were defined by the terms in the user's manual. The defendant published the directory information contained on the CD-ROMs on the Internet and sold access to third parties, leading ProCD to bring suit for breach of contract, among other causes.

The lower court held that the license was not enforceable because the shrink-wrap license was inside the box, rather than printed on the outside. It further reasoned that the contract had been formed when the buyer purchased the goods, and could therefore not contain "hidden terms" that were not disclosed until the box was later opened.

The appellate court rejected this analysis, holding that no contract was formed until the defendant opened the box and used the product.

  • However, with advance planning and country-by-country adjustments, Internet companies can significantly increase their prospects of being able to enforce most of the terms of their click-wrap agreements in most major international markets;
  • In France, documentation and on-line help must be in French;
  • With the volume of traffic commercial websites hope to obtain, most Internet companies do not want the burden of separately coming to an agreement with each end-user;
  • In the defining statement of the opinion, the court held that, "shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general;
  • UCITA is designed to create a uniform set of state laws to deal with transactions in "computer information," broadly defined to include software, multimedia products, computer databases and online information.

The court relied on Article 2 of the Uniform Commercial Code "UCC" and common-law contract principles to hold that ProCD had restricted the manner of accepting its offer to the user's agreeing to the license terms.

In the defining statement of the opinion, the court held that, "shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general. The court observed that "[t]ransactions in which the exchange of money precedes the communication of detailed terms are common" not only within the software industry but in many service industries such as insurance, airline tickets and concert tickets.

The court also focused on the impracticality of parties agreeing to an information license before money changed hands and concluded that, in the case at hand, a potential buyer simply had to return the goods for a full refund to prevent formation of a contract. Concurrently, the Internet phenomenon produced countless websites and innumerable end-users. Internet companies began using click-wrap agreements to define the terms of their websites' use and to apply to online purchases, much as software companies had used shrink-wrap agreements.

Case law soon developed on the enforceability of click-wrap agreements which, not surprisingly, followed the rationale of ProCD.

  • The court held that a valid contract existed, even if the plaintiff did not know of the forum selection clause;
  • Click-wrap licenses may actually be easier to enforce in most of the above countries because the licensee can review the terms and conditions before accepting and affirmatively manifesting his or her acceptance of such terms and conditions;
  • Click-wrap agreements offer companies selling goods and services over the Internet significant protections beyond those afforded by whatever intellectual property rights they may have in their goods and services;
  • The court enjoined defendants from sending spam email which falsely stated it came from plaintiff's e-mail service, and from using Hotmail accounts as mailboxes for receiving reply spam;
  • Ticketmaster posted terms and conditions of use at the bottom of its site's home page.

The Microsoft Network2, plaintiffs sued for, among other things, breach of contract and fraud for Microsoft "rolling over" MSN membership into more expensive plans. The Appellate Division of New Jersey affirmed the Superior Court of New Jersey's decision that the forum selection clause contained in Microsoft Network subscriber agreements was enforceable and valid.

A forum selection clause in the Microsoft Network's terms of use had mandated that all suits concerning the subscriber agreement be brought in courts located in Kings County, Washington.

The user could not use Microsoft Network unless she clicked the "I agree" button next to a scrollable window containing the terms of use.

  1. Shrink-wrap agreements have been found to be enforceable in a series of major U.
  2. Local counsel should be retained and consulted to ensure that the necessary changes are made to enable click-wrap agreements to be enforced against individuals and companies in those countries.
  3. The fact that click-wrap agreements can be enforced does not mean that every agreement is in fact enforceable.
  4. Internet companies should develop a U. Printed on the box was a notice that the conditions of use of the CD-ROMs were defined by the terms in the user's manual.

Each plaintiff clicked the "I agree" button to use Microsoft Network, indicating their assent to be bound by the terms of the subscriber agreement and thus forming a valid license agreement. Groff sued AOL as a result of AOL's decision to switch pricing models from a set fee for a limited time to unlimited internet access for a higher flat monthly fee. The plaintiff charged that this practice violated the Rhode Island Unfair Trade Practice and Consumer Act 4 because AOL offered this pricing model despite knowing its computer system was incapable of accommodating the number of users AOL expected to switch to the plan.

AOL moved to dismiss this suit from the Rhode Island Superior Court for improper venue on the ground that a forum selection clause in the parties' contract mandated that the suit be brought in Virginia, where AOL's base of operations the history of shrinkwrap license and what comprises a binding contract located. The court agreed, and dismissed the suit. The court held that the plaintiff assented to AOL's terms of service online by the click of an "I agree" button. The terms of service included a clause mandating that suits concerning the service be brought in Virginia.

AOL customers must first click on an "I agree" button indicating assent to be bound by AOL's terms of service before they can use the service. This button first appears on a web page in which the user is offered a choice either to read, or simply agree to be bound by, AOL's terms of service.

It also appears at the foot of the terms of service, where the user is offered the choice of clicking either an "I agree" or "I disagree" button, by which he accepts or rejects the terms of service.

The court held that a valid contract existed, even if the plaintiff did not know of the forum selection clause: Here, plaintiff effectively "signed" the agreement by clicking "I agree" not once but twice. Under these circumstances, he should not be heard to complain that he did not see, read, etc.

  • First, it is impractical to have separately negotiated agreements with each end-user;
  • The fact that click-wrap agreements can be enforced does not mean that every agreement is in fact enforceable;
  • Zeidenberg 1 case discussed below;
  • A forum selection clause in the Microsoft Network's terms of use had mandated that all suits concerning the subscriber agreement be brought in courts located in Kings County, Washington.

Van Money Pie, Inc. Hotmail's terms of service prohibited the use of email accounts to facilitate the transmission of unsolicited mass e-mail "spam". To use the Hotmail service, the defendants were required to click on a box indicating their assent to Hotmail's terms of service.

The court enjoined defendants from sending spam email which falsely stated it came from plaintiff's e-mail service, and from using Hotmail accounts as mailboxes for receiving reply spam. The fact that click-wrap agreements can be enforced does not mean that every agreement is in fact enforceable. Contracting parties must still look to ordinary contract law principles to determine the enforceability of particular agreements.

Principally, Internet companies should be sure that end-users have manifested their assent to be bound in a meaningful manner. End-users do not manifest assent to an online license simply by using an Internet company's website. Ticketmaster posted terms and conditions of use at the bottom of its site's home page.

Within the terms and conditions of use, Ticketmaster stipulated that use of the website constitutes the user's assent to be bound by the site's terms and conditions. The court provided, however, that if the defendants used the website with knowledge of terms and conditions which declare such use evidences assent to be bound thereby, an enforceable contract could exist. Internet companies should be careful that their terms and conditions not be adjudged so harsh as to be considered contracts of adhesion.

Contracts of adhesion arise when a standardized form of agreement, drafted by the party having superior bargaining power, is presented to the other party, whose choice is either to accept or reject the contract without the opportunity to negotiate its terms.

In Tony Brower v. Further, a clause mandating arbitration of disputes arising out of the contract in Chicago does not render the contract an unenforceable adhesion contract. However, the court found that a clause requiring that such disputes be arbitrated under the rules of the International Chamber of Commerce "ICC" was unconscionable and, thus, unenforceable. Because this fee exceeded the price of Gateway's products, it effectively denied purchasers a forum in which to resolve disputes arising out of the purchase of the product.

The court then selected an arbitrator to hear the dispute. In July 1999, the National Conference of Commissioners on Uniform The history of shrinkwrap license and what comprises a binding contract Laws, a panel of expert legal practitioners and academics, promulgated a "model" law and submitted it to the fifty states for consideration and approval.

UCITA is designed to create a uniform set of state laws to deal with transactions in "computer information," broadly defined to include software, multimedia products, computer databases and online information.

The law would create new rules concerning electronic contracting for information products. For a number of reasons, most commentators believe that only a handful of states will enact UCITA in the short term. Under UCITA, the offeree, typically the consumer, must manifest assent to be bound by the offeror's contract terms.

To be binding, the offeree must be afforded an opportunity both to review the contract's terms, and to decline or accept the offer.

Moreover, mere retention of information without further action is insufficient to create an online contract. To ameliorate the superior bargaining position of mass-market licensors, UCITA contains certain protections for licensees.