[Ecommerce] How courts have changed their views on shrinkwrap/browsewrap (BNA Story)

Thu Apr 3 15:13:00 2003

Mr Mazumdar wrote an interesting Article in BNA (March 12) where he 
describes how cases (from the early cases like Step-Saver Data Systems 
Inc. v. Wyse Technology, ProCD Inc. v Zeidenger to Caspi v. Microsoft 
Network LLC) involving shrinkwraps and browsewrap show changes in how 
courts view electronic contracting.

Quote:
Issues Arising in Cases Today.
According to Davidson [Leonard, Street & Deinard, Minneapolis,speaker at 
the 16th Annual Advanced Computer and Internet Law Institute, Georgetown 
University Law Center], factors that are currently raising issues in the 
field of electronic contracting include:

• the loose transportation of contractual terms originally developed for 
paper transactions to electronic transactions. For example, a clickwrap 
agreement on a Web site might still include phrases such as "by opening 
this package";

• the possibility that online distribution of software carries with it 
implied terms that are dependent on the circumstances;

• the referencing and incorporation of terms in other documents through 
"nesting," which might make it hard to find all the terms that apply to 
a transaction and might result in ambiguity; and

• a general trend that allows a merchant to hold consumers to any terms 
that they "reasonably should be aware of."
END of QUOTE

in Electronic Contracting
Rise of Mass Distribution Methods Have Spurred Changes in Law's View of 
Formation

Courts' views on what are legitimate methods of forming contracts have 
changed over the few decades, largely in reaction to the rise of mass 
market methods of distribution, according to an intellectual property 
and information technology lawyer speaking March 7 during a presentation 
on e-contracting legal issues.

Stephen J. Davidson of Leonard, Street & Deinard, Minneapolis, who spoke 
at the 16th Annual Advanced Computer and Internet Law Institute, 
presented by Georgetown University Law Center's Continuing Legal 
Education program, emphasized that in just a few years, our ideas of how 
companies may go about obtaining assent to enforceable agreements has 
changed considerably.
"Can this be real?"
Stephen J. Davidson, Leonard, Street & Dienard, Minneapolis, on 
encountering his first shrinkwrap license

Davidson illustrated his point with an anecdote about purchasing a 
Hewlett-Packard Co. printer in 1995: In order to operate the printer, he 
needed a piece of software, which had not been included in the box. 
Hewlett-Packard mailed him a floppy diskette with the requisite program 
and on the back of the mailing envelope a sticker was attached with the 
following message: "IMPORTANT: By opening this package you accept all 
terms and conditions of the agreement included in this package."

"I thought, 'Can this be real?' " Davidson said of his reaction at the 
time. "I didn't believe for a minute that when I saw this notice that I 
might be bound to terms that I wouldn't see until I opened the package."
Questions Have Survived the Years.

Today, Davidson said, his reaction and the reaction of the law to such 
methods of forming agreements has changed radically. Mass market 
distribution methods--from mail order to online sales to online 
distribution--is the primary force driving such change.

Nevertheless, in any particular case, the two important questions are 
the same questions that have been present all along:

• is the agreement enforceable as a contract? and

• even if it is enforceable overall, are there particular terms that 
might not be enforceable because they are unconscionable, inconspicuous, 
preempted by law, or ambiguous?

Early Cases Rejected Shrinkwraps.

This concern was implicated even in the very first shrinkwrap 
cases--Step-Saver Data Systems Inc. v. Wyse Technology, 939 F.2d 91 (3d 
Cir. 1991), and Arizona Retail Systems Inc. v. Software Link Inc., 831 
F. Supp. 759 (D. Ariz. 1993). These cases held, drawing on support from 
the Uniform Commercial Code, that in a case in which a consumer was 
harmed, a shrinkwrap license could be held invalid.

This kicked off a movement in the software industry that resulted in the 
drafting of the Uniform Computer Information Transactions Act, which has 
faced considerable opposition but it still being advocated for adoption 
by state legislatures (8 ECLR 162, 2/19/03).
ProCD Case Changed the Whole Picture.

However, the dominant trend since those initial cases has been to hold 
shrinkwrap and clickwrap licenses to be enforceable contracts, Davidson 
said. The seminal case in this line was ProCD Inc. v. Zeidenberg, 86 
F.3d 1447 (1996) (1 ECLR 298, 6/28/96), in which Judge Frank H. 
Easterbrook turned the tide against preceding trends and said that a 
seller could define an act by a buyer as assent to the conduct because 
the buyer had adequate notice.

In Hill v. Gateway 2000 Inc., 105 F.3d 1147 (1997) (2 ECLR 84, 1/17/97), 
Easterbrook went even further, enforcing a contract whose terms were not 
available when the purchasers placed a telephone order on the grounds 
that they expected that the terms applying to the transaction would be 
included in the box. The key in Hill was that the purchasers had ample 
notice of the terms and an opportunity to undo the transaction by 
returning the goods.

Adequate notice reappeared as an issue, however, in Micro Star v. 
Formgen Inc., 154 F.3d 1107 (9th Cir. 1998), in which a vendor provided 
the terms of the license in a computer file that was installed on the 
buyer's computer along with the software, but did not otherwise call 
attention to it. The court determined that an ordinary user was not 
likely to have found the license and thus there might have been a 
failure of formation. However, the party at the bar was not an ordinary 
user; it was a sophisticated user who did in fact find the license terms 
and thus they were enforceable.

M. A. Mortenson Co. v. Timberline Software Corp., 998 P.2d 305 (Wash. 
2000) (4 ECLR 269, 3/24/99) rejected a buyer's argument that the 
purchase order for a software program was an integrated contract. The 
court said that the seller could use shrinkwrap terms to supply 
additional provisions, including a limitation on liability. Even if the 
shrinkwrap was viewed as a request to add terms to the transaction, by 
using the software, the buyer assented to the request.

Klocek v. Gateway Inc., 104 F. Supp. 3d 1332 (D. Kan. 2000) (5 ECLR 791, 
7/26/00), however, ran counter to the ProCD line of cases. Klocek held 
that the buyer in a consumer transaction makes the offer to form a 
contract by placing an order. The seller then may accept by shipping. 
For terms included with the goods to become enforceable, the court said, 
there must be some evidence of express assent to the terms on the part 
of the buyer, more than the passive act of keeping the goods for more 
than five days.
Adequate Notice Issue in Browsewrap Cases.

These concepts have also been applied to clickwrap contracts executed in 
the course of online transactions.

Caspi v. Microsoft Network LLC, 732 A.2d 528 (N.J. Super. Ct., App. Div. 
1999) (4 ECLR 743, 08/18/99), enforced clickwrap terms so long as they 
were not unfair or unreasonable.

On the other hand, Ticketmaster Corp. v. Tickets.com Inc., 54 U.S.P.Q. 
1344 (C.D. Cal. 2000) (5 ECLR 889, 8/30/00), refused to enforce a term 
that prohibited deep linking to a Web site. The court held that merely 
placing terms somewhere on a site that would ordinarily not be 
conspicuous could not effectively create a contract with someone using 
the site.

Another such browsewrap agreement was held unenforceable in Specht v. 
Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001) (6 
ECLR 747, 7/18/01); aff'd Specht v. Netscape Communications Corp., 306 
F.3d 17 (2d Cir. 2002) (7 ECLR 999, 10/9/02). The Web site in that case 
permitted users to download software without making explicit reference 
to terms of use, which would not be noticed unless the user scrolled 
down past the download interface and followed a hyperlink provided.

Davidson said that the lesson to take away from these cases is that 
vendors might be required to take steps to ensure that a buyer is aware 
of terms and has a realistic opportunity to review them before assent 
may be imputed. However, a user with actual notice may still be subject 
to the terms even if the vendor has failed to meet this standard. 
Furthermore, according to Davidson, there is still a possibility that 
terms that violate public policy may be found unenforceable.
Issues Arising in Cases Today.

According to Davidson, factors that are currently raising issues in the 
field of electronic contracting include:

• the loose transportation of contractual terms originally developed for 
paper transactions to electronic transactions. For example, a clickwrap 
agreement on a Web site might still include phrases such as "by opening 
this package";

• the possibility that online distribution of software carries with it 
implied terms that are dependent on the circumstances;

• the referencing and incorporation of terms in other documents through 
"nesting," which might make it hard to find all the terms that apply to 
a transaction and might result in ambiguity; and

• a general trend that allows a merchant to hold consumers to any terms 
that they "reasonably should be aware of."

By Anandashankar Mazumdar

-- 
Manon Anne Ress
Consumer Project on Technology
www.cptech.org
PO Box 19367, Washington, DC 20036
manon.ress@cptech.org, voice: 1.202.387.8030, fax: 1.202.234.5176