[SOLVED] Browsewrap agreements and the related clickwrap agreements, Discussion Post help – Business Finance

I have two articles below on browsewrap agreements and the related clickwrap agreements.According to the articles you reviewed, are browsewrap agreements enforceable? Should browsewrap agreements be enforceable? What is your opinion on whether they should be enforceable?jil june
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JOU R N A L O F
JUNE 2004
INTERNET LAW
EDITED BY
G R AY
C A RY WA R E
&
VOLUME 7
NUMBER 12
FREIDENRICH
The Enforceability of Browsewrap
Agreements
By Bill Wiese
ou probably wouldn’t be overly concerned if I provided you with a link to an agreement containing terms
and conditions between you and me, reader and
writer, and told you that, by reading this article, you
are bound by the terms of that agreement. You would likely think that, merely by reading this article, you could not
possibly be binding yourself to an agreement. After all,
you haven’t read the agreement or taken any action to
manifest your assent to the agreement. If I were to bring
an action against you to enforce the terms of the agreement, you would likely argue that, in addition to lacking
assent, the agreement includes unconscionable terms or is
contract of adhesion. These are the same issues that parties to browsewrap agreements1 face, and yet somewhat
surprisingly, courts are increasingly finding these agreements enforceable.
Y
L I C E N S E V. S A L E
Before we turn to issues affecting the enforceability of
browsewrap agreements, let’s go back to the beginning to
discuss why software owners were interested in licensing
rather than selling their software. First, there are statutory reasons. A licensor can restrict a licensee’s use of software under a license, while, under the first sale doctrine,
a seller loses the ability to restrict subsequent use of a
product (subject to certain exceptions) once the product
is sold.2 Similarly, § 117 of the Copyright Act entitles the
owner of a copy of a computer program to adapt the program, make a backup copy, and transfer the copy.3
Bill Wiese is an attorney in the Austin, TX, office of Jenkens & Gilchrist,
a Professional Corporation, specializing in technology law.
Consequently, it is often the desire of the owner to retain
title and avoid a sale in order to prevent the recipient
from acquiring such rights.
Second, a software owner may be interested in licensing rather than selling because of the additional rights
retained by the owner. In general, licensing does not grant
or create a property interest at all, but merely a permission
to act or, conversely, a covenant not to sue for such
Continued on page 14
IN THIS ISSUE
THE ENFORCEABILITY OF
BROWSEWRAP AGREEMENTS
by Bill Wiese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
DEALING WITH UNSOLICITED COMMERCIAL EMAILS:
A GLOBAL PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . .3
by Eloise Gratton
COLUMN
Internet Law Update . . . . . . . . . . . . . . . . . . . . . . . .26
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Browsewrap Agreements continued from page 1
actions.4 If the owner sells the software and the buyer
exceeds the use prescribed in the sale agreement, the seller
can sue for breach of contract. However, if the owner
licenses the software and the licensee exceeds the rights
granted in the license, the licensee has not only breached
the contract but also has infringed the owner’s copyright.5
Third, a license grants a limited right to use the software. When an owner sells software, it typically grants the
buyer the unfettered right to use the software. By contrast,
a license agreement typically imposes usage restrictions and
is a customary means for collecting royalties through usagebased metrics.6 It is normal construction of a license agreement that the agreement prevents any use that is not
expressly authorized in the document.7
Finally, an owner may want to license software if the
software or its elements are protected as trade secrets. In
such a case, it would seem unreasonable to sell software to
a buyer under an agreement that imposed confidentiality
restrictions on the buyer’s use of the software it was purchasing. However, it is perfectly reasonable to impose such
restrictions upon a mere licensee.8
THE UNIFORM COMMERCIAL
CODE
Even though software owners prefer to treat the grant
of rights as a license rather than a sale, the courts have
nonetheless tended to view a software transaction as a sale
for purposes of the Uniform Commercial Code (UCC).9 A
sale of goods is governed by Article 2 of the UCC and, as a
result, is subject to the implied warranties and remedies set
forth in that Article. Software owners that have licensed
their software have argued that the software program is not
a good and a license should not be treated as a sale or a
lease. However, the courts have found that a software
license can, and should, be treated as a sale of goods covered
by Article 2, whether directly or indirectly. The applicability of Article 2 of the UCC to software licenses has significant consequences with respect to manifestation of assent
and disclaimer of warranties as discussed in more detail
below.
B R O W S E W R A P V. C L I C K W R A P
Clickwrap agreements and browsewrap agreements are
both forms of mass market license agreements. With a clickwrap agreement, a license, or a notice of a license, is displayed when a user accesses or downloads information, and
the user is required to click an icon indicating assent to the
license before proceeding.10 By contrast, a browsewrap
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agreement does not typically appear on the homepage, and
the user is not required to reject or accept the terms as a
condition of proceeding with the use of the site. Instead, a
browsewrap agreement is accessed through a hyperlink, usually appearing at the bottom of the homepage in a small
font and sometimes disguised behind the words “terms of
use,” “legal,” or “copyright notice.” Clicking on the link is
optional, not required.
There are generally three significant differences
between clickwrap and browsewrap agreements. First, in
order to carry out the primary purpose of their visit to the
site (e.g., downloading software), a user must acknowledge
the presence of the clickwrap agreement by clicking on a
button. With a browsewrap agreement, a user can carry out
its primary purpose without ever clicking on the hyperlink
that links to the browsewrap agreement and without ever
seeing the agreement or its terms. Second, with clickwrap
agreements, users have constructive notice of the terms of
the agreements because they are presented with those terms
prior to carrying out their primary purpose. In contrast, with
browsewrap agreements the terms of the agreement are displayed to users only if they click on the hyperlink to the
agreement. Finally, with a browsewrap agreement users may
not even realize that a contract is being formed. It is precisely because of these differences that courts have historically treated enforcement of these agreements differently.
ENFORCEABILITY ISSUES IN
B R OW S E W R A P AG R E E M E N T S
For many years, mass market licenses went unchallenged in the courts. That changed dramatically in 1991
when the Third Circuit determined that a shrinkwrap
license, a license that was presented to the user on the outside of a software package but under the shrinkwrap, was
not a binding agreement between a consumer and the licensor.11 The US District Court for the District of Arizona subsequently followed the Third Circuit’s lead two years later
when it held that shrinkwrap license were unenforceable in
Arizona Retail Systems, Inc. v. The Software Link, Inc.12 The
trend changed when the Seventh Circuit held in ProCD v.
Zeidenberg that the shrinkwrap license in question was
enforceable as the binding agreement between the parties.13
Although clickwrap agreements have generally
enjoyed favorable judicial treatment since ProCD, the
results in browsewrap cases have been mixed. In March
2000 in response to the defendant’s motion to dismiss, the
US District Court for the Central District of California
held that browsewrap agreements were not enforceable in
Ticketmaster v. Tickets.com14 (Ticketmaster I). In Ticketmaster I, the plaintiff posted a browsewrap agreement containing terms governing the use of concert listings made
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available on its Web site. Tickets.com linked to the listing
in violation of the browsewrap agreement. The court
declined to apply cases that upheld clickwrap agreements
because such agreements, the court said, are “open and
obvious and in fact hard to miss.” The court granted the
defendant’s motion to dismiss the breach-of-contract
claim, finding that “[i]t cannot be said that merely putting
the terms and conditions in this fashion necessarily creates a contract with any one using the Web site.” The
court indicated that it was willing to consider an amended claim that would allege facts showing the defendant’s
knowledge of the terms and conditions “plus facts showing
implied agreement to them.”
Later that same year, in Pollstar v. Gigmania Ltd.,15 the
Eastern District of California found that browsewrap agreements may be enforceable when it declined to dismiss a
breach-of-contract claim based on a browsewrap agreement on summary judgment. In Pollstar, the dispute related to online concert listings governed by a browsewrap
agreement that was accessed by a competitor and was,
therefore, factually similar to Ticketmaster I. The court
expressed doubt as to whether Web site users had adequate
notice of the browsewrap agreement. The court found that
the notice stating that “use is subject to license agreement” was in small gray print on a gray background; was
not underlined to indicate that it was an “active” link; and
could easily be confused with other, inactive links on the
same page. Nevertheless, the court declined to dismiss “at
this time” the plaintiff’s breach-of-contract claims based
on the browsewrap agreement. The court left for later consideration whether the agreement “may be arguably valid
and enforceable” based on the argument that “people
sometimes enter into a contract by using a service without
first seeing the terms.”
In 2001, the Second Circuit weighed in on the
enforceability of browsewrap agreements in Specht v.
Netscape16 and found that they were not enforceable.
Netscape filed a motion to dismiss an action brought by
users who had downloaded and used its software based on
the arbitration clause in the browsewrap agreement.
When users downloaded software from Netscape, on the
download page below the “Download” button and not visible on the page without scrolling down was a link stating
“Please review and agree to the terms of the Netscape
SmartDownload software license agreement before downloading and using the software.” The Second Circuit
upheld the district court’s ruling that the plaintiffs were
not bound by the terms of the browsewrap agreement. The
Second Circuit concluded that, “in circumstances such as
these, 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
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sufficient to place consumers on inquiry or constructive
notice of those terms.”
In early 2003, the Central District of California again
ruled in Ticketmaster Corp. v. Tickets.com, Inc. (Ticket-master II)17, this time in response to the plaintiff’s motion for
a preliminary injunction. In Ticketmaster II, the court
ruled that, although it preferred a rule of law that would
require that contract formation could take place only
when there was a specific manifestation of assent, case law
did not support such a rule and browsewrap agreements are
enforceable. The court stated that “the principle has long
been established that no particular form of words is necessary to indicate assent—the offeror may specify that a certain action in connection with his offer is deemed
acceptance, and ripens into a contract when the action is
taken.”18 “Thus, as relevant here, a contract can be formed
by proceeding into the interior Web pages after knowledge
(or, in some cases, presumptive knowledge) of the conditions accepted when doing so.”19 In justifying its decision
that a browsewrap agreement should be enforceable, the
court stated that
Use of a cruise ship ticket with a venue provision
printed on the back commits one to the venue
provided. The Carriage of Goods by Sea Act, the
Carmack Act, and the Warsaw Convention provide that limitations of liability on the bill of lading, air waybill, or airplane ticket are enforceable
if the services are used by the customer. The
“shrinkwrap” cases find the printed conditions
plainly wrapped around the cassette or CD
enforceable. Even the back of your parking lot
ticket may be enforceable. The principle has
been applied to cases similar to this.
Later in 2003, in Net2Phone v. Superior Court, the
California Court of Appeal, Second District, upheld a
browsewrap agreement when it ruled that a consumer contract containing a forum-selection clause is not unenforceable merely because the clause is disclosed to
consumers by an Internet hyperlink.20 The court perceived
no unfairness in Net2Phone’s requirement that certain
contractual terms must be accessed via hyperlink, calling
such a requirement “a common practice in Internet business.”21 The court went on to say that “[t]he fact that the
forum selection clause may have been a ‘take it or leave it’
proposition, and not vigorously ‘bargained for’ . . . does not
make the clause unenforceable.”22
In the most recent case to be decided regarding
browsewrap agreements, Register.com v. Verio, Inc.,23 the
Second Circuit upheld the lower court’s ruling that
browsewrap agreements are enforceable. Register.com’s
browsewrap agreement contained a statement that, “by
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submitting a WHOIS database query, you agree to abide
by these terms.” Verio set up an automatic search of
Register.com’s database and used the data to market to
consumers in violation of Register.com’s browsewrap
agreement. Although the court recognized that contract
offers on the Internet often require the offeree to click on
an “I Agree” icon, such an action is not required in all circumstances. The court went on to explain that it is standard contract doctrine that when an offeree makes a
decision to take the benefit offered by the offeror and the
offeree has full knowledge of the terms of the offer, the
taking constitutes an acceptance of the terms and is binding on the offeree.24 The Second Circuit distinguished its
decision in Specht because the users in Specht were onetime users that may not have had actual notice of the
terms of the agreement. The court also went out of its way
to criticize the Central District of California’s decision in
Ticketmaster I, stating that “under the circumstances of
Ticketmaster [I], we see no reason why the enforceability of
the offeror’s terms should depend on whether the taker
states (or clicks) ‘I Agree.’”25
While it is difficult to detect a trend from the initial
browsewrap cases, it is easier to identify patterns when separating the legal issues in question. Some of the more significant issues are discussed below.
M A N I F E S TAT I O N O F A S S E N T
In order to bring a breach of contract claim based on
the violation of a promise contained in a browsewrap agreement, a plaintiff would first have to establish that the agreement is indeed a binding contract. Contracts are
established by an offer and acceptance (mutual assent).26 In
a traditional contract, the parties would execute a written
agreement with a signature to establish acceptance of the
terms. Clearly identifying when the parties have mutually
assented to a contract can be significantly more difficult in
a mass market license, and particularly with browsewrap
agreements.
Not one of the browsewrap agreements in the cases
noted had an “I accept” or “I Agree” button or any other
method for the user to manifest assent to the terms of the
agreement. Each of the courts expressed concern over the
failure to include some method for the user to manifest
their assent.27 The Specht court went so far as to say that
mutual assent was the “bedrock” of any agreement to
which the law will give force and noted that holding the
browsewrap agreements in question enforceable would
“expand the definition of assent as to render it meaningless.”28
Because none of the agreements contained a mechanism for the users to manifest their assent to the
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browsewrap agreement, the courts looked to see whether
it was reasonable to presume that the users had adequate
notice of the terms of the agreements. In Pollstar, the court
pointed out that many visitors to the site may not be
aware of the existence of the browsewrap agreement.29 Not
only was the agreement a link from the homepage and
therefore not immediately apparent to the user upon
entering the Web site, but the license was also indicated
by small gray text on a gray background which was not
eye-catching or noticeable to a user.30 The court also noted
that the text was not underlined, and thus it was not clear
to the user that the text was a link to view the license
terms, especially considering that other similar small text
on the page were not links.31 Therefore, notice of the
terms was not sufficient.32
In Ticketmaster I, the browsewrap agreement was actually displayed on the homepage rather than merely being
accessible through a link.33 This mitigated one of the visibility problems noted by the Pollstar court, however, the
Ticketmaster I court was concerned that the terms are visible only if the customer scrolls down to the bottom of the
homepage.34 Additionally, the court stated that the license
was not similar to a shrinkwrap because a shrinkwrap
agreement is “open and obvious and in fact hard to miss.”
The court found that the placement of the browsewrap
agreement on the bottom of the homepage where it could
easily be missed by a user could not necessarily be said to
create a contract with anyone who visits the Web site.
In Specht, the browsewrap agreement in question was
visible on the bottom of the homepage, along with an
“invitation to review.”35 The Specht court was concerned
that the user would have to scroll down to view the agreement (similar to Ticketmaster I) and that an “invitation to
review” does not clearly illustrate to a user that they are
bound by the terms of the agreement.36 Another factor in
the court’s decision was the ability of one of the plaintiffs
to download the product through a Web site managed by
a third party, thereby bypassing the homepage altogether.37
For these reasons, the court held the browsewrap agreement unenforceable and invalid.38
In Ticketmaster II, the court stated that a contract can
be formed by “proceeding into the interior web pages after
knowledge (or, in some cases, presumptive knowledge) of
the conditions accepted when doing so.”39 In this case, a
notice placed on the homepage of the plaintiff’s Web site,
which stated that anyone going beyond that point into the
interior Web pages accepts certain conditions. The link was
placed in a position that could not be missed. It was developed during discovery that, because the defendant had
received a letter from the plaintiff containing the terms of
the agreement, the defendant was fully familiar with the
conditions of the browsewrap agreement. The court then
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concluded that there was sufficient evidence that the defendant had knowledge of the agreement and its decision to
proceed into the interior pages therefore created a binding
contract.
Net2Phone disposed of the notice requirement more
readily than any of the other courts. The court said that
making agreements accessible by hyperlink was common
practice in the Internet business and cited Carnival Cruise
Lines, Inc. v. Shute40 for the proposition that the user need
not affirmatively manifest assent to an agreement to be
bound to its terms.
In Verio, the Second Circuit placed great weight on the
fact that Verio had repeatedly received notice of the terms
of the browsewrap agreement and continued to use the service.41 Verio was daily submitting numerous queries, each of
which resulted in its receiving notice of the terms of
Register.com’s browsewrap agreement. Also, Verio admitted
during discovery that it was well aware of the terms of that
agreement. The court went on to say that, “[i]f Verio had
submitted only one query, or even if it would have submitted only a few sporadic queries, that would have given considerable force to” Verio’s contention that it had not
manifested its assent to Register.com’s browsewrap agreement.42
In summary, it appears that there is a trend toward
upholding the enforceability of browsewrap agreements
when the user knew, or had reason to know, of the terms of
the agreement.43 Moreover, as long as it is clear that the user
will be bound to the terms of the agreement by using the
site, it does not appear to be necessary for the user to click
on the link to the browsewrap agreement to continue (as
with a clickwrap agreement).44 The user is not required to
have read the agreement for it to be binding; the user must
only be aware that the binding terms exist.45 Several courts
have cited the discussion in ProCD of the several types of
valid paper contracts in which a consumer enters into a
contract by using a service before receiving the terms of the
agreement (e.g., tickets for sporting events, cruises, or airlines), where terms are printed on the back of a ticket and
the consumer does not see them until after purchasing the
ticket.46
DISCLAIMERS OF EXPRESS AND
I M P L I E D WA R R A N T I E S
If a court finds that there has been mutual assent to a
browsewrap agreement, the next issue is whether the terms
in the agreement are enforceable. One of the most common
provisions in a browsewrap agreement is some form of disclaimer of express and implied warranties. Web sites deal
with warranties in a variety of ways, some formal, some
casual, and some not at all. The disclaimer of warranties,
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which might appear relatively straightforward in the context of real-world sales, is considerably more complex in
the context of online sales. Inclusion of warranty disclaimers in online licenses serves the purposes of both
notifying consumers of the vendor’s position and of protecting the vendor from liability should its software fail,
destroy data, or crash a network.
Contract law has well-developed and reasonably settled rules about the existence and nature of implied warranties.47 A number of cases have specifically considered
the enforceability of warranty disclaimers in the
shrinkwrap license context,48 but none have specifically
addressed the issue in browsewrap cases. Consequently, if
we assume that browsewrap agreements are otherwise
enforceable, it is instructive to look at the holdings in
clickwrap cases to better understand how courts may treat
similar issues in a browsewrap context.
In order to determine which warranties to disclaim,
Web site owners need to first understand which warranties
are applicable to their sites. As previously mentioned, for
software licenses, courts typically apply the warranties set
forth in Article 2 of the UCC. To understand the implications of choosing to, or failing to, disclaim warranties, a
brief review of the source of express and implied warranties is helpful.
Express Warranties
Under Article 2, the seller of goods, whether merchant or not, is deemed to have given express warranties
by, among other things, furnishing to the buyer “[a]ny
description of the goods which is made part of the basis of
the bargain.”49 “The seller need not use the words ‘warrant’
or ‘guarantee’ to create an express warranty.”50 In fact, there
is an abundance of case law concerning printed catalogs, an
advertising medium not unlike the Web, whose descriptions
of products have often been found to constitute express
warranties.51 As a result of this precedent, sellers should disclaim express warranties explicitly (e.g., “No express warranties”).52 The seller should use caution, however, since
the disclaimer language is only effective to the extent that
it is not inconsistent with the language of the express warranty.53
Implied Warranty of Title
Article 2 reads into every contract for the sale of goods
a warranty by the seller that “the title conveyed shall be
good, and its transfer rightful; and . . . the goods shall be
delivered free from any security interest or other lien or
encumbrance of which the buyer at the time of contracting
has no knowledge.”54 This warranty “will be excluded or
modified only by specific language or by circumstances
which give the buyer reason to know that the person selling
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does not claim title in himself or that he is purporting to sell
only such right or title as he or a third person may have.”55
Implied Warranty Against Infringement
A seller who is a “goods” merchant, that is, “a merchant regularly dealing in goods of the kind” at issue, warrants that, unless the goods were manufactured by him in
compliance with the buyer’s specifications, “the goods shall
be delivered free of the rightful claim of any third person by
the way of infringement or the like . . . .”56 This warranty
can be disclaimed only by agreement of the parties.57
Implied Warranty of Merchantability
The seller, if a “merchant with respect to goods of that
kind,” conveys an implied warranty to the buyer that the
goods are merchantable,58 that is, “of a quality comparable
to that generally acceptable in that line of trade under the
description or other designation of the goods used in the
agreement.”59 To be effective, any attempted disclaimer of
this type of warranty must mention merchantability and, if
in writing, must be “conspicuous.”60 The court determines
the “conspicuousness” of a disclaimer by asking whether “it
is so written that a reasonable person against whom it is to
operate ought to have noticed it.”61
Implied Warranty of Fitness for a Particular Purpose
Under Article 2, when the seller at the time of contracting has reason to know any particular purpose for
which the goods are required and that the buyer is relying
on the seller’s skill or judgment to select or furnish suitable
goods, there is, unless otherwise modified under § 2-316, an
implied warranty that the goods shall be fit for such purpose.62 There is no requirement that the seller be a merchant to extend to the buyer this particular warranty.63 To
exclude or modify this implied warranty, the disclaimer
“must be by a writing and conspicuous.”64
In addition to the foregoing warranties, in the two
states where the Uniform Computer Information
Transactions Act (UCITA) has been enacted, a number
of implied warranties are recognized by statute. While it is
unlikely that UCITA will be enacted in many, if any,
additional jurisdictions, it is instructive to examine the
warranties that it provides.
Implied Warranties of Noninfringement and
Noninterference
The first two warranties provided under UCITA are
the implied warranties of noninfringement65 and noninterference.66 To comply with these warranty obligations, a
licensor must either own the intellectual property rights
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in the licensed material or have the permission of the
owner to use and sublicense such rights. If neither is true,
then a disclaimer of the two warranties is warranted to
insulate the licensor from potential liability flowing from
the licensee’s use of the licensed materials.
Express Warranties Under UCITA
Express warranties also are provided under UCITA.
These warranties arise from the affirmative representations
and promises of a warrantor.67 Like the UCC, however,
express warranties need not be embodied in a warranty
clause to be enforceable. They can arise from advertisements and other promotional materials or in informational
materials and instructions.68 They can even be reflected in
samples, models and demonstrations.69 As long as these representations and promises form a part of the basis of the bargain, they are enforceable as express warranties.
The Implied Warranty of Informational Content
The implied warranty of informational content is also
discussed in UCITA. UCITA narrowly defines the warranty for informational content and allows it to be disclaimed.70 However, under UCITA, when a “merchant”
makes specific promises concerning informational content,
it is required to exercise reasonable care to prevent inaccuracies. As a result, liability for breach of the implied warranty of informational content resulting from for
inaccuracies in Web site content will depend, in part, on
whether a promise to provide accurate information has
been made or can be inferred.
Implied Warranty of Fitness for Licensee’s Purpose
Finally, UCITA provides an implied warranty of fitness
for licensee’s purpose.71 This warranty arises when “a licensor has reason to know of the licensee’s particular purpose
in the transaction and that the licensee is relying on the
licensor’s expertise in selecting or developing information
suitable for that purpose.”72
It is clear that the ability of the licensor to disclaim
warranties depends on the specific facts at issue, and the
courts have generally been inconsistent in enforcing disclaimers.73 In the event that a court is willing to accept a
disclaimer, however, the licensor should make certain that
the proper formalities are followed. Based on the foregoing
analysis, the licensor should, at a minimum, disclaim all
express warranties, clearly and conspicuously disclaim the
implied warranties of title, noninfringement and noninterference, merchantability, and fitness for a particular purpose
and informational content. Because the courts may be
reluctant to accept these disclaimers, there is a significant
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risk in relying too heavily on them.74 As a result, the best
course of action is for the software owner to use reasonable
care in the development and deployment of its software.75
FORUM SELECTION
In general, “[w]here the parties have selected a forum
by contract, it is incumbent upon the party resisting to
establish that the choice was unreasonable, unfair or
unjust.”76 There have been a number of recent commercial
cases in which the courts have concluded that the choice of
the parties is unreasonable and have refused to enforce the
contractual choice of forum.77 State courts have more frequently followed the traditional rule that the parties cannot
by their contract oust the court of jurisdiction over a dispute
that had not yet arisen at the time of the contract.78
However, in some states, such as California, the courts have
overruled the older cases and enforced choice-of-forum
clauses when reasonable under the circumstances.79
Accordingly, a choice-of-forum clause should be included
in every online agreement.
In Caspi v. The Microsoft Network, LLC,80 Microsoft
enrolled the plaintiffs into Internet service plans with higher fees without notifying the subscribers of the fee increase.
The plaintiffs brought a class action against Microsoft alleging various claims, including breach of contract. Microsoft
moved to dismiss the claims for, inter alia, improper venue
because of a forum-selection clause in the clickwrap agreement. That agreement restricted jurisdiction and venue
exclusively to King County, WA. The New Jersey Superior
Court found that the fact that the service contract was a
clickwrap agreement was not significant. Although the
forum-selection clause was in lower case text and it was in
the last paragraph of the agreement, the court held that the
plaintiffs should have known that they were entering into a
contract with a forum-selection clause. The court would
not allow the plaintiffs to pick and choose the provisions of
the agreement that they wanted to enforce.
The dispute in Groff v. America Online, Inc.,81 also
involved the enforcement of a forum-selection clause in a
clickwrap agreement. America Online moved to dismiss a
claim brought against it in Rhode Island because of a forumselection clause in its clickwrap agreement with the plaintiff. The plaintiff claimed that he did not read or agree to
the online contract containing the forum-selection clause.
The court, however, found that it was impossible for anyone
to use America Online’s services without first assenting to
the clickwrap agreement. Quickly dispensing with the question of whether the clickwrap agreement was valid, the
court held that the contract between the parties barred the
plaintiff from bringing an action in Rhode Island due to a
forum-selection clause in the contract.
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In summary, many cases have addressed the issue of
whether a forum-selection clauses in online agreements will
be enforced. In most cases, when the court found the online
agreement to be enforceable, the forum-selection clause was
also found to be enforceable. In a few cases, however, courts
refused to enforce forum-selection clauses on policy grounds
unrelated to the fact that such clauses were set out in online
agreements.82
ARBITRATION PROVISIONS
There have been a number of cases addressing whether
an arbitration provision in a clickwrap or shrinkwrap agreement is enforceable, and the results are mixed. In one of the
first cases, In re RealNetworks,83 RealNetworks allowed users
to download its product from the Internet. RealNetworks
included a clickwrap agreement on its site that contained
an arbitration provision. When RealNetworks was sued by
a group of plaintiffs for trespass to privacy and property,84 the
court upheld the validity of the clickwrap agreement and
found the arbitration provision enforceable.85 Plaintiffs
argued that RealNetworks’ arbitration clause was “unenforceable because it . . . [was] both procedurally and substantively unconscionable.”86 Procedurally, plaintiffs
claimed that they did not receive fair notice of the arbitration clause because it was buried in the agreement and did
not have its own heading. However, the court placed
greater weight on the fact that the arbitration clause was in
the same size font as the rest of the agreement. Accordingly,
the court stated that there had been no relevant “caselaw
that provides that an arbitration clause is unconscionable if
the contract does not draw attention to it.”87
Substantively, plaintiffs argued that the arbitration
clause was unconscionable because it mandated a “geographically distant forum,” failed “to provide for classwide
arbitration,” and because arbitration is cost-prohibitive.88
The court rejected these arguments as well, stating that past
cases have found that these consumer concerns are not
enough to render an arbitration clause unconscionable.
Therefore, the court held that RealNetworks’ clickwrap
arbitration clause was valid and enforceable against its customers.
In contrast to the holding in RealNetworks, the district
court in Comb v. PayPal, Inc., refused to enforce the defendant’s clickwrap agreement, which contained a binding
arbitration clause, on grounds that the agreement was
unconscionable under California law.89 Several individuals
had brought an action in federal court in California against
PayPal, the provider of an online payment service, in connection with various erroneous transactions. PayPal sought
to enforce the binding arbitration clause in its clickwrap
agreement. The court noted that many provisions in the
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25-page clickwrap agreement reflected a lack of mutuality
without business justification for the one-sidedness, including in particular, the arbitration provisions, which would
have prohibited the consolidation of multi-user claims and
forced users to assume unreasonably high arbitration costs
in light of their very small claims.
Specht is another case in which the court refused to
enforce an arbitration provision. As discussed earlier, the
court, applying California law, refused to enforce the arbitration clause in the terms of use accompanying the
Netscape Smart Download software program, describing
the agreement as similar to the browsewrap agreement in
Pollstar. The program was downloaded free of charge by
users from the Netscape Web site, which contained a notice
requesting the user to “Please review and agree to the terms
of the Netscape SmartDownload software license agreement before downloading and using the software.” The user
was not required to view the agreement or take any affirmative action, such as clicking a box prior to downloading
or using the software. The court held that the user had not
assented to the agreement under those circumstances and
rejected the argument that the act of downloading indicates
assent, stating that acceptance of that argument “would so
expand the definition of assent as to render it meaningless.”
Based on the courts actions in the foregoing cases, if
the arbitration provision is not unduly burdensome (as in
PayPal), if the arbitration provision is conspicuous (in contrast to RealNetworks), and the agreement is found to be
enforceable (in contrast to Specht), it is likely that the arbitration provision will be upheld.
PROHIBITIONS ON REVERSE ENGINEERING
Under trade secret principles, it is generally acceptable
to reverse engineer a product to determine how the product
works. Reverse engineering involves not only analyzing circuit board layouts but also decompiling computer software.
However, it is impossible to decompile software and then
analyze the results without making a copy (or a derivative
work) of the software. Courts have sometimes held that the
making of these copies in the context of reverse engineering is a fair use and is not copyright infringement.
License agreements have long included restrictions on
reverse engineering, and a number of circuits have found
such restrictions to be unlawful. In Vault Corp. v. Quaid
Software, Ltd., the Fifth Circuit held that a state law prohibiting all copying of a computer program was preempted
by the federal Copyright Act.90 Similarly, in Sega Enterprises,
Ltd. v. Accolade, Inc., the Ninth Circuit held that the
Copyright Act permits as a fair use persons who are neither
copyright holders nor licensees to disassemble a copyrighted computer program in order to gain an understanding of
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the unprotected ideas and functional elements of the program, as long as the person seeking the understanding has a
legitimate reason for doing so and when no other means of
access to the unprotected elements exists.91 Furthermore,
the Ninth Circuit found that a legal prohibition on reverse
engineering would preclude public access to such ideas and
functional elements and “thus confer on the copyright
owner a de facto monopoly over those ideas and functional
concepts.”92 In Lotus Dev. Corp. v. Borland Int’l, Inc., the
First Circuit recognized the right to copy methods of operation or functional concepts for others to build on.93 The
Eleventh Circuit also endorsed the concept of reverse engineering as a fair use in Bateman v. Mnemonics, Inc.94 The
Ninth Circuit again recognized reverse engineering as a fair
use defense to copyright infringement in Sony Computer
Entertainment, Inc. v. Connectix Corp., finding that intermediate copies made and used by the alleged infringer during the course of reverse engineering were protected by the
fair use doctrine.95
In a somewhat surprising decision, the Federal Circuit
weighed in with its view of the enforceability of a
shrinkwrap reverse-engineering provision in January 2003.
In that case, Bowers v. Baystate Technologies, Inc.,96 Bowers
invented a template, titled Cadjet, that made improvements to computer-aided design software. In 1998, Bowers
made an offer to Baystate Technologies, Inc., to bundle
Bowers’ Cadjet with Baystate’s Draft-Pak software. Baystate
declined the offer, and Bowers subsequently bundled Cadjet
with another product and sold the combined product as the
Designer’s Toolkit. The Designer’s Toolkit included a
shrinkwrap license that, among other things, prohibited
reverse engineering. Baystate obtained copies of the
Designer’s Toolkit, reverse engineered those copies, and
subsequently released an updated version of its Draft-Pak
software that incorporated many of the features of the
Designer’s Toolkit. After making a number of moves likely
intended to reduce or eliminate Bowers’ market share,
Baystate anticipated that it might be sued by Bowers and
filed a declaratory judgment action. The District Court held
against Baystate for breach of contract. Baystate’s primary
argument on appeal was that the Copyright Act preempted
the shrinkwrap license’s prohibition on reverse engineering.
In an August 20, 2002, panel decision and a January
2003 en banc decision,97 the Federal Circuit held that a
shrinkwrap license, and specifically a prohibition on reverse
engineering, survives preemption by the Copyright Act and
is therefore enforceable against the licensee. The Federal
Circuit, applying law of the First Circuit on the copyright
preemption issue, found that the Copyright Act did not
preempt the trade secret claim because that claim required
proof of an “extra element” beyond the mere copying,
preparation of derivative works, performance, distribution,
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or display.98 The contract claim, requiring findings of mutual assent and consideration, is sufficient to render it qualitatively different from copyright infringement.99
Furthermore, the court found that the shrinkwrap agreement was far broader than the protection afforded by copyright law.100
A number of commentators have criticized the decision in Bowers because the Federal Circuit failed to apply
the test for implied conflict preemption. In its analysis, the
Federal Circuit relied on Data General and ProCD to support its finding that the Copyright Act did not preempt the
trade secret claim. The commentators’ argument is that the
courts in Data General, ProCD, and Bowers analyzed preemption with respect to § 301 of the Copyright Act but
failed to discuss the applicability of conflict preemption as
it applies to the federal preemption of state laws. Section
301 of the Copyright Act expressly preempts only laws that
grant rights equivalent to copyright. However, conflict preemption derives from the US Constitution’s Supremacy
Clause, Article VI, and its Intellectual Property Clause,
Article I, § 8, and occurs when either the federal and state
laws directly conflict, so that it is physically impossible for a
party to comply with both, or a state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”101 Simply put, the Bowers
court did not discuss whether enforcing a contractual
restriction on reverse engineering would have the effect of
restricting that which the Copyright Act intended to be
free from restraint.
SUGGESTED TECHNIQUES TO
I M P ROV E E N F O R C E A B I L I T Y
Ideally, the user should be able to assent before making use of the site or downloading software. In the
Ticketmaster case, the court ruled that the restrictions contained in the agreement were not valid in part because the
design of the Web site allowed the user to bypass the terms
of the agreement. In Specht, the restrictions were found not
to be valid because the user could download software without first assenting to the terms of the agreement, and in
Caspi, the enforceability of the agreement was upheld
because the user did not incur charges until after indicating
assent.
The user should be able to view the full terms of the
agreement, or at least have a reasonable opportunity to do
so, before indicating assent. In Ticketmaster I, the Central
District Court of California found that the agreement was
invalid in part because the user could find the terms only by
scrolling past the instructions, past the events page, and
finally to the bottom of the homepage. In Williams v.
America Online, the court found the agreement invalid
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because the user could not read the terms without first
clicking twice on the “Read Now” button. On the other
hand, in Groff v. America Online, the agreement was upheld
where the user could either click “I Agree” before seeing
proposed terms or could scroll through the terms and then
click “I Agree,” and the Caspi court upheld the enforceability of an agreement where one column showed the options
of “I Agree” and “I Disagree” and the other column showed
the full terms.
The terms of the agreement should be easy to scroll
through and read. In Specht, the court expressed concern
that the agreement was printed in small gray text on a gray
background. By contrast, the RealNetworks court upheld the
enforceability of an agreement that appeared in a pop-up
window that was easy to read, that didn’t automatically disappear, and that allowed the user to scroll through the terms
as needed to read the entire agreement.
There should be a clear choice between acceptance
and rejection of the terms. In Specht, the user was only permitted to either click “Download” or scroll through the
terms and then click “Download.” The Specht court disapproved of the Register.com decision to uphold the enforceability of a browsewrap agreement where the notice stated
that the user agreed to abide by the terms by making use of
the database. The Pollster court discussed whether a user
could be bound by terms without clicking a button to manifest assent.
The user should have the right to cancel the agreement and receive a full refund if the customer objects to
the terms. In Forrest v. Verizon Communications,102 the right
of cancellation was a factor supporting enforceability of a
forum-selection clause in a mass market agreement.
The current version of the agreement should be
available to the user at any time. The most current version
browsewrap agreement should be accessible to the user at all
times. If the user downloads software, the user should be
able to return to the page at which the agreement appeared
and print or download a copy even after the download has
been completed.
A method for tracking versions of the agreement
should be established. The Web site owner should adopt a
consistent method for tracking the dates and times at which
modifications to the browsewrap agreement are posted to
the site. Even if the browsewrap agreement contains a provision stating that the user is bound by subsequent updates
to the agreement, courts may, and likely will, find such a
provision unenforceable. As a result, it may become important to be able to verify which version of the agreement was
in place at the time the user visited the site.
The forum selection clause should be easy to read
and reasonable. If the agreement is otherwise enforceable,
courts tend to uphold forum-selection clauses unless they
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are unreasonable or found to be against public policy. A reasonable forum-selection clause should be included in every
browsewrap agreement. While most courts enforce forumselection clauses, the court in America Online, Inc. v.
Superior Court of Alameda County, refused to enforce a
forum selection clause in part because it had appeared as
part of a standard form online contract and in a densely
worded format not readily identifiable by users.
An arbitration provision should not be used if each
user’s claim would be too small to reasonably arbitrate. In
Comb v. PayPal, Inc., the court found that the arbitration
provision was unenforceable in part because the provision
prohibited the consolidation of multi-user claims and forced
users to assume unreasonably high arbitration costs in light
of their very small claims.
A prohibition on reverse engineering may be included but will likely not be enforceable. Most courts that have
examined the issue of contractual prohibitions on reverse
engineering have concluded that such restrictions are preempted under federal law and, therefore, are unenforceable.
However, in light of the recent decision in Bowers upholding a reverse engineering provision other courts may be
revisiting this issue.
Clear and conspicuous language should be used to
disclaim warranties. The software owner will want to
specifically disclaim all express warranties as well as the
implied warranties of title, noninfringement and noninterference, merchantability and fitness for a particular purpose,
and informational content. A general limitation of liability
is not sufficient; waiver of UCC warranties requires the use
of particular language. In practice, the requirement that disclaimers or modifications be conspicuous generally means
that a reasonable person against whom it is to operate ought
to have noticed it. Courts have generally found that terms
are conspicuous if they are written in capitals, a larger font,
or a contrasting color or style.
Warranty disclaimers should not be relied upon to
absolve the licensor of all faults. Because courts have not
universally upheld warranty disclaimers, it is best to develop and deliver software in a commercially reasonable manner as if compliance with the express and implied
warranties provided under the UCC and UCITA was
required. In fact, it may be possible to foster customer loyalty by expressly providing a warranty.103 Also, a warranty
disclaimer will not relieve the seller from its obligation to
disclose all material defects in a product. Failure to do so
may constitute fraud.
CONCLUSION
The law surrounding browsewrap agreements has been
anything but consistent. Some courts have found that an
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online contract is not formed unless the user manifests his
assent by clicking on an “I Agree” or “I Accept” button.
Some courts have held that it may be sufficient that the
contract is prominently displayed on the download screen,
even though the customer is not required to manifest his
assent. Other courts have found that a contract may be
formed where the link to the browsewrap agreement specified that use is subject to the contract and the link was visible to consumers. On the other hand, a court may find that
there is no contract if a Web site user is able to bypass the
small print terms and conditions governing the online
activity without manifesting his assent, if the terms and
conditions are set forth on a separate page or are otherwise
difficult to find, or if the fact that use is subject to terms and
conditions is not clear. Additionally, even if the user clicks
on an “I Agree” button, a court may not enforce the contract against the user if he did not have an adequate opportunity to review the terms of the agreement to which he was
assenting.
NOTES
1. In Pollstar v. Gigmania Ltd, 170 F. Supp. 2d 974 (E.D. Cal. 2000), the
court described a browsewrap agreement in contrast with a shrinkwrap
agreement as “part of the web site and the user assents to the contract
when the user visits the web site.”
2. 17 U.S.C. § 109(a) (under the so-called first sale doctrine, “the owner of a
particular copy . . . is entitled, without the authority of the copyright
owner, to sell or otherwise dispose of the possession of that copy.”).
Compare Adobe Systems Inc. v. One Stop Micro, Inc., 84 F. Supp. 1086
(N.D. Cal. 2000) (distribution agreement was not a sale but a license so
the first sale doctrine did not apply), with Softman Products Co., LLC v.
Adobe Systems, Inc., 171 F. Supp. 2d 1075 (C.D. Cal. 2001) (transaction interpreted to be a sale rather than license because rights in software were perpetual and payment was a fixed sum). See also Microsoft
Corp. v. Harmony Computers & Elecs., Inc., 846 F. Supp. 208 (E.D.N.Y.
1994); ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310, 1331
(N.D. Ill. 1990). Other courts look at the totality of the circumstances
to determine whether mass-market transactions produce a sale rather
than a license. See, e.g., DSC Commun. Corp. v. Pulse Commun., Inc.,
170 F.3d 1354 (Fed. Cir. 1999).
3. 17 U.S.C. § 117; see also Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995).
4. See Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984).
5. See, e.g. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989)
(“A licensee infringes the owner’s copyright if its use exceeds the scope of
the license.”); see also Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d
1115 (9th Cir. 1999) (distinguishing between a violation of the scope of a
license, which could be an infringement, and a violation of independent
covenants contained in the agreement, which is a breach of contract).
6. See, e.g., National Car Rental System, Inc. v. Computer Associates Int’l,
Inc., 991 F.2d 426 (8th Cir. 1993) (contractual restrictions on use not preempted by copyright law).
7. See, e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989).
8. See Young Dental Mfg. Co. v. Q3 Special Prods., Inc., 891 F. Supp. 1345
(E.D. Mo. 1995) (claim that publicly sold software was a trade secret
found “completely frivolous”); ISC-Bunker Ramo Corp. v. Altech, Inc.,
765 F. Supp. 1310 (N.D. Ill. 1990) (in concluding that computer software was a trade secret, finding, “consistent with the common practice
in the computer industry respecting commercial systems, ISC provides
its computer programs to customers only by way of a license agreement”); Data General Corp v. Digital Computer Controls, Inc., 297
A.2d 433 (Del. Chanc. 1971), aff’d, 297 A.2d 437 (Del. S. Ct. 1972)
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(question of fact whether design drawings sold with computer qualified
as trade secrets, even when distributed on a “need to know” basis only to
customers who signed confidentiality agreements).
9. See, e.g., Communications Groups v. Warner Commun. Inc., 527
N.Y.S.2d 341 (Civ. Ct. N.Y. 1988); Neilson Bus. Equip. Ctr., Inc. v.
Monteleone, 524 A.2d 1172 (Del. 1987). See generally “Software Vendor
Liability under the Uniform Commercial Code,” 50 Bus. Law 151.
36. Specht, 150 F. Supp. 2d at 588 (explaining how access to license agreement was arranged on Web site).
37. See Softman Prod. Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075, 1087
(C.D. Cal. 2001) (stating that installation is required in order for consumer to assent to licensing agreement); Specht, 150 F. Supp. 2d at 588
(finding “please review” language as “invitation” to review).
10. ILAN Systems, Inc. v. NetScout Service Level Corp., 2002 U.S. Dist.
LEXIS 209 (D. Mass. Jan. 2, 2002).
38. See Specht, 150 F. Supp. 2d at 596-597 (explaining that Michael Fagan
had obtained SmartDownload from shareware Web site which did not
contain any reference to license agreement or its terms).
11. Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91 (3rd Cir. 1991).
39. Id. at 598 (asserting denial of defendant’s motion to compel arbitration).
12. Arizona Retail Systems, Inc. v. The Software Link, Inc., 831 F. Supp. 759
(D. Ariz. 1993).
40. Ticketmaster Corp. v. Tickets.com, Inc., 2003 WL 21406289 (C.D. Cal.
2003).
13. ProCD v. Zeidenberg, 86 F.3d. 1447 (7th Cir. 1996).
41. Carnival Cruise Lines v. Shute, 111 S. Ct. 1522 (1991) (holding that the
use of a cruise ship ticket with a venue provision printed on the back commits one to the venue provided).
14. Ticketmaster v. Tickets.com, 2000 WL525390 (C.D. Cal 2000).
15. Pollstar v. Gigmania Ltd., 170 F. Supp. 2d 974 (E.D. Cal 2000).
16. Specht v. Netscape, 2002 US App LEXIS 20714 (2d Cir. 2002).
17. Ticketmaster Corp. v. Tickets.com, Inc., 2003WL21406289 (C.D. Cal.
2003).
18. Id. (citing Binder v. Aetna Life Ins. Co., 75 Cal. App. 4th 832 (1999), 89
Cal. Rptr. 2d 540; Penn Sec. Life Ins. Co. v. Rising, 62 CA3d 302, 133
Cal. Rptr. 59).
19. Id.
20. Id. (internal cites omitted).
21. Net2Phone, Inc. v. Superior Court, 109 Cal. App. 4th 583 (2003).
22. Id.
23. Id. (citing Restatement (Second) of Contracts § 69(1)(a) (“[S]ilence and
inaction act as acceptance . . . [w]here an offeree takes the benefit of
offered services with reasonable opportunity to reject them and reason to
know they were offered with the expectation of compensation.”); 2
Richard A. Lord, Williston on Contracts § 6:9 (4th ed.) (“[T] acceptance
of the benefit of services may well be held to imply a promise to pay for
them if at the time of acceptance offeree has a reasonable opportunity to
reject the service and knows or has reason to know that compensation is
expected.”); Arthur Linton Corbin, Corbin on Contracts § 71 (West 1 vol.
ed. 1952) (“The acceptance of the benefit of the services is a promise to
pay for them, if at the time of accepting the benefit the offeree has a reasonable opportunity to reject it and knows that compensation is expected.”).
24. Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004).
25. Id.
26. Id.
27. E. Allen Farnsworth, Farnsworth on Contracts § 3.1 (2d ed. 1998).
28. See Specht, 150 F. Supp. 2d at 595-596 (asserting that downloading is not
clear indication of assent and without this consent users are not compelled to arbitrate); Pollstar v. Gigimania, 170 F. Supp. 2d 974, 980-982
(E.D. Cal. 2000) (noting that the consumer did not have to click
“accept” button before proceeding into Web site which made agreement
different than normally enforceable shrink-wrap agreements);
Ticketmaster Corp. v. Tickets.com, Inc., 2000 WL525390 (C.D. Cal.
March 27, 2000) (stating that, while many Web sites necessitate the
user to click an “agree” button, the Ticketmaster agreement did not and
that merely placing terms and conditions on a Web page does not create
a contract).
29. Specht, 150 F. Supp. 2d at 596.
30. Pollstar, 170 F. Supp .2d at 980-981 (noting that after viewing Web site,
court determined many site visitors may not have been aware of agreement).
31. Pollstar, 170 F. Supp. 2d at 980-981 (detailing obscure nature of link to
license agreement).
32. Pollstar, 170 F. Supp. 2d at 981 (explaining how Web site had chosen to
arrange accessibility of license agreement on its homepage).
33. Pollstar, 170 F. Supp. 2d at 981 (stating, however, that court was hesitant
to declare unenforceability of browsewrap agreement “at that time”).
34. Ticketmaster I, 2000 WL525390 (describing arrangement of link).
35. Id. (noting that visitors to this Web site had to scroll to bottom to
notice license agreement link).
42. Verio, 356 F.3d 393.
43. Id.
44. Compare Ticketmaster Corp. v. Tickets.Com, Inc., 2003 WL 21406289
(C.D. Cal. Mar. 6, 2003) (distinguishing Specht from this case because
the terms of agreement there were not plainly visible or known to
defendants); Pollstar, 170 F. Supp. 2d at 974 (upholding a browse-wrap
agreement where the text was small and gray on a gray background);
Register.com, Inc. v. Verio, Inc., 126 F. Supp. 2d 238 (S.D.N.Y. 2000)
(upholding a browse-wrap agreement where the contract terms were visibly placed on the download screen); America Online, Inc. v. Booker,
781 So. 2d 423, 424-25, (Fla. Dist. Ct. App. 2001) (upholding a forum
selection clause in an online terms of service agreement), with Specht,
306 F.3d at 30 (rejecting a browsewrap agreement where the link to
terms was obscured at the bottom of the download page).
45. Pollstar, 170 F. Supp. 2d at 981
46. See Specht, 306 F.3d at 30 (stating that failure to read terms before signing a contract is not a legitimate defense).
47. Pollstar, 170 F. Supp. 2d at 981.
48. See U.C.C. §§ 2-313 to 2-318.
49. See, e.g., Step-Saver, 939 F.2d 91; Arizona Retail Sys., 831 F. Supp. 759.
50. UCC § 2-313(1). Courts are divided on the issue of whether the buyer
must have relied on the specific representation in purchasing the product
in question to recover under an express warranty theory. See Robert S.
Adler, “The Last Best Argument for Eliminating Reliance from Express
Warranties: ‘Real-World’ Consumers Don’t Read Warranties,” 45 S.C. L.
Rev. 429, 444 (1994) (observing that despite the ambiguity of UCC § 2213 in this regard, the majority of courts have interpreted the section as
requiring reliance in some form).
51. UCC § 2-313(2). However, “an affirmation merely of the value of the
goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.” Id.
52. See, e.g., State Farm Ins. Co. v. Nu Prime Roll-A-Way of Miami, Inc., 557
So. 2d 107, 108 (Fla. Dist. Ct. App. 1990) (observing that a seller’s representations in newspaper advertisements, catalogues, circulars, etc., may
become part of a contract of sale and constitute an express warranty);
Mennonite Deaconess Home and Hosp., Inc. v. Gates Eng’g Co., Inc., 363
N.W.2d 155, 161-162 (Neb. 1985) (holding that representations made in
advertising brochures can create express warranties); Crest Container
Corp. v. R.H. Bishop Co., 445 N.E.2d 19, 24 (Ill. App. Ct. 1982) (holding
that affirmations made in a catalog may constitute express warranties);
Overstreet v. Norden Lab., Inc., 669 F.2d 1286, 1290-1291 (6th Cir. 1982)
(a catalog description or advertisement may create a warranty in appropriate circumstances); Wisconsin Elec. Power Co. v. Zallea Bros., Inc., 606
F.2d 697, 700 (7th Cir. 1979) (holding that statements contained in advertising may create express or implied warranties); AES Tech. Sys., Inc. v.
Coherent Radiation, 583 F.2d 933, 939 (7th Cir. 1978) (holding that a catalog’s specifications for the power output of a laser system constituted a
warranty on which the system’s buyer could rely).
53. UCC § 2-316(1). See also, T.T. Exclusive Cars, Inc. v. Christie’s, Inc., 1996
WL 737204, at *3 (S.D. N.Y. 1996) (finding that an auction catalogue’s
description of an antique car was expressly disclaimed, numerous times, in
unambiguous language in the same catalogue and could not be relied on by
a sophisticated buyer); Chase Resorts, Inc. v. Johns Manville Corp., 476 F.
Supp. 633, 638 (E.D. Mo. 1979) (finding a catalog’s disclaimer of express
and implied warranties effective).
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54. Disclaimers of express warranties by words or conduct must be construed
wherever reasonable as consistent with the words or conduct relevant to
the creation of express warranties. UCC § 2-406 (Mar. 1, 1999 draft). See
also, Weisz v. Parke Bernet Galleries, Inc., 351 N.Y.S.2d 911, 912 (ICY.
App. Div. 1974) (holding that a buyer should “act with the caution of one
in circumstances abounding with signals of caveat emptor” when the seller
had placed prominent disclaimers in its catalogue); Olathe Mfg., Inc. v.
Browning Mfg., 915 P.2d 86, 95 (Kan. 1996) (observing that in order to
make the buyer aware of any limitation of remedy, the seller’s product
brochure should have at least referred to one of the prior catalogs which
included such a limitation).
55. UCC § 2-312(1)(a)-(b).
56. UCC § 2-312(2).
57. UCC § 2-312(2).
58. UCC § 2-312(2).
59. Id. § 2-314(1).
60. Id. § 2-314 cmt. 2. The warranty of merchantability promises that the
goods “must be at least such as”:
(a) pass without objection in the trade under the contract description; and
(b) in the case of fungible goods, are of fair average quality within the
description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind,
quality and quantity within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may
require; and
(f) conform to the promises or affirmations of fact made on the container
or label if any. Id. § 2 314(2)
The determination of whether the goods in question are merchantable
“depends upon the facts of each individual case.” Ford v. Starr Fireworks,
Inc., 874 P.2d 230, 233 (Wyo. 1994).
61. UCC § 2-316(2)
62. Id. § 1-201(10).
63. Id. § 2-315.
64. See, e. g., Bevard v. Ajax Mfg. Co., 473 F. Supp. 35, 38 (E.D. Mich. 1979);
International Petroleum Services, Inc. v. S & N Well Serv., Inc., 639 P.2d
29, 33 (Kan. 1982).
65. UCC § 2-316(2). “Language to exclude all implied warranties of fitness is
sufficient if it states, for example, that ‘There are no warranties which
extend beyond the description on the face hereof.’” Id.
66. Under the warranty of noninfringement, a licensor of information represents that “the information will be delivered free of the rightful claim of
any third party by way of infringement or misappropriation.” See
UCITA § 401(a) (2002).
67. Under the warranty of noninterference a licensor warrants “that no person holds a rightful claim to, or interest in, the information which . . .
will interfere with the licensee’s enjoyment” of the information. See
UCITA § 401(b).
68. See UCITA § 402(a)(1) (2002); U.C.C. § 2-312 (2002).
69. See UCITA § 402(a)(2); U.C.C. § 2-313(1)(b).
70. See UCITA § 401(a)(3); U.C.C. § 2-313(1)(c).
71. As defined by UCITA, the implied warranty for informational content
only applies to “a merchant that, in a special relationship of reliance
with a licensee, collects, compiles, processes, provides, or transmits
informational content.” UCITA § 404(a). It does not apply at all to (1)
subjective characteristics of the informational content, such as aesthetics, appeal, and suitability to taste; (2) published informational content;
or (3) a person who acts as a conduit or provides no more than editorial
services in collecting, compiling, distributing, processing, providing, or
transmitting informational content that under the circumstances can be
identified as that of a third person. UCITA § 404(b).
72. UCITA § 405(a).
73. Id. § 405 cmt. 2.
74. Cf Step-Saver, 939 F.2d 91 (finding that, because there was no express
acceptance of the terms of the agreement by the licensee, all of the terms
of the agreement, including the disclaimer of warranties, were unenforce-
24
June
2004
able), and Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F.
Supp. 759 (D. Ariz. 1993) (warranty disclaimer clause in license agreement was not enforceable), with Rinaldi v. Iomega Corp., 1999 WL
1442014, at *1 (Del. Super. Sept. 3, 1999) (finding that a seller’s disclaimer of the implied warranty of merchantability for a computer “Zip
drive” was sufficiently “conspicuous” as required by the UCC when contained in the packaging of the product).
75. For various reasons, certain obligations cannot be avoided or disclaimed.
“A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.”
Restatement (Second) of Contracts § 195(1) (1981). Also, while it may
be possible to avoid liability for mere negligence, it is generally not possible to disclaim responsibility for gross negligence or intentional torts.
See Restatement (Second) of Contracts § 195(2).
76. “[O]ne who undertakes to render services in the practice of a profession
or trade is required to exercise the skill and knowledge normally possessed by members of that profession or trade.” Restatement (Second) of
Torts § 299A.
77. In re Fireman’s Fund Ins. Cos., Inc., 588 F.2d 93 (5th Cir. 1993).
78. See, e.g., Copperweld Steel Co. v. Demag-Mannesmann-Bohler, 578 F.2d
953 (3rd Cir. 1978) (clause selecting forum in Germany was unreasonable
and, therefore, unenforceable); Lulling v. Baranaby’s Family Inns, Inc., 482
F. Supp 318 (E.D. Wis. 1980).
79. See, e.g., 56 A.L.R.2d 300; 14 Williston 3d § 1725.
80. See, e.g., Smith, Valentino & Smith, Inc. v. Superior Court, 17 Cal. 3d
491 (1976); Central Contracting Co. v. C.E. Youngdahl Co., 418 Pa. 122,
209 A.2d 810 (1965).
81. Caspi v. The Microsoft Network, LLC, 323 N.J. Super. 118, 732 A.2d
528 (N.J. Super. Ct. App. Div. 1999).
82. Groff v. America Online, Inc, 1998 WL 307001 (R.I. Super. Ct. May
27, 1998).
83. See, e.g., Nam Tai Electronics, Inc. v. Titzer, 93 Cal. App. 4th 1301
(2001) (holding that a forum-selection clause in Yahoo!’s terms of service clickwrap agreement, which subjected the parties to the personal
and exclusive jurisdiction of California courts, governs “litigation
between registered users and Yahoo!”); Caspi v. The Microsoft Network,
LLC, 732 A.2d 528 (N.J. Super. Ct. App. Div.) (holding that the plaintiffs were bound by the forum-selection clause in a clickwrap agreement
into which they had entered by clicking “I Agree”); Forrest v. Verizon
Communications., Inc., 2002 D.C. App. LEXIS 509(2002) (affirming an
order of the trial court enforcing a forum selection clause which had
been included in a clickwrap agreement); Hughes v. McMenamon, 204
F. Supp. 2d 178 (D. Mass. 2002) (granting defendant’s motion for summary judgment based on a forum-selection clause contained in the parties’ clickwrap agreement); Barnett v. Network Solutions, Inc., 38
S.W.3d 200 (Tex. App.), review denied (2001) (upholding forum selection clause in online contract for registering Internet domain names
that required user to scroll through terms, accepting or rejecting them);
America Online, Inc. v. Booker, 781 So. 2d 423 (Fla. Dist. Ct. App.
2001) (upholding forum-selection clause contained in AOL’s online
Terms of Service); DiLorenzo v. America Online, Inc., No. 605867
(Sup. Ct. N.Y. Co. 1999) (dismissing the complaint of an AOL subscriber based on the presence of a forum-selection clause in AOL’s Terms
of Service); Groff v. America Online, Inc., 1998 WL 307001 (R.I.
Super. 1998) (upholding AOL’s forum-selection clause); Spera v.
America Online, Inc., No. 06716/97 (Sup. Ct. Westchester Co. 1998)
(rejecting subscriber’s argument that the contract was one of adhesion
and treating AOL’s Terms of Service as a standard form agreement routinely enforced under New York law). But see America Online, Inc. v.
Superior Court of Alameda County, 108 Cal. Rptr. 2d 699 (2001)
(refusing to enforce similar forum-selection clause, after allocating AOL
burden of showing that clause did not diminish consumers’ rights under
state law, because Virginia consumer protection law does not provide for
class actions, and noting that the court below had found the clause
unfair because it had appeared as part of a standard form online contract
and in a densely-worded format not readily identifiable by users);
Williams v. America Online, Inc., 2001 Mass. Super. LEXIS 11 (Mass.
Super. Ct. 2001) (refusing to enforce online contract provision designating Virginia as forum when (1) complained-of damage to users’ computers occurred before users could review terms of service, (2) public policy
urged that Massachusetts consumers should not have to pursue defendant in Virginia, and (3) Judicial Panel on Multi-district Litigation had
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decided to transfer all federal cases raising similar claims against defendant to Florida rather than to Virginia).
84. In re RealNetwork, 2000 U.S. Dist. LEXIS 6584 (N.D. Ill. 2000).
85. Id.at *1. To support their claim, plaintiffs alleged that “RealNetworks’
software products secretly allowed RealNetworks to access and intercept
users’ electronic communications and stored information without their
knowledge or consent.” Id.
86. Id. at **8-9.
94. Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807, 818 (1st Cir. 1995).
95. Bateman v. Mnemonics, Inc.,79 F.3d 1532 (11th Cir. 1996).
96. Sony Computer Entertainment, Inc., v. Connectix Corp., 203 F.3d 596
(2000).
97. Bowers v. Baystate Technologies, Inc., 302 F.3d 1334 (Fed. Cir. 2002).
98. Bowers v. Baystate Technologies, Inc., 320 F.3d 1317 (Fed. Cir. 2003).
Petitioner filed a writ of certiori on April 29, 2003, which was denied by the
US Supreme Court on June 16, 2003.
87. Id. at *14. The court explained that “[p]rocedural unconscionability
involves impropriety during the process of forming a contract, whereas
substantive unconscionability pertains to those cases where a clause or
term in a contract is allegedly one-sided or overly harsh.” Id. (citing Pub.
Employees Mut. Ins. Co. v. Hertz Corp., 800 P.2d 831, 833 (Wash. Ct.
App. 1990)).
99. Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147 (1st Cir.
1994). The Federal Circuit also reasoned that the First Circuit would follow
the reasoning of ProCD and other federal courts that had considered similar
issues related to preemption.
88. Id. at *16.
101. Id. at 1326.
89. Id. at **18-20.
102. California Fed. Sav. & Loan Ass’n v. Guerra, 479 U.S. 272, 281 (1987).
90. Comb v. Paypal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002) (refusing
enforcement of clickwrap arbitration clause on grounds of procedural and
substantive unconscionability).
103. Forrest v. Verizon Commun., Inc., No. 01-CV-1101 (D.C. Ct. App. Aug.
29, 2002).
91. Vault Corp. v. Quaid Software, Ltd., 847 F. 2d 255 (5th Cir. 1988).
92. Sega Enter. Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992).
93. Id. at 1527.
100. Bowers, 320 F.3d at 1324.
104. See the Web site of Land’s End, where, instead of disclaiming all warranties, Land’s End has chosen to give an unconditional money-back
guarantee, at
http://www.landsend.com/cd/fp/help/0,,1_36877_36883_37024___,00.htm
l?sid=6432023318867160040.
25
552
BERKELEY TECHNOLOGY LAW JOURNAL
UPDATE ON
SHRINKWRAP/CLICKWRAP/BROWSEWRAP
[Vol. 21:551
CONTRACTS
JAMES V. MCDONALD’S CORP.
417F.3d 672 (7th Cir. 2005)
HuBBERT V. DELL
CORP.
835 N.E.2d 113 (III. App. Ct. 2005)
MoTiSE V. AMERICA
ONLINE,
INC.
346F. Supp. 2d563 (S.D.N.Y. 2004)
REGISTER.COM, INC. V. VERIO, INC.
356 F.3d 393 (2d Cir. 2004)
CAIRO, INC. V. CROSSMEDIA SERVICES, INC.
2005 U.S. Dist. LEXIS 8450 (N.D. Cal. Apr. 1, 2005)
Several recent cases examined the legal significance of unconventional
forms of contract formation. In each case, a court held the parties were
contractually bound. The effect of these mlings is to expand the law goveming the acceptance of contract terms in the shrinkwrap, clickwrap,
browsewrap, and related contexts.
In James v. McDonald’s Corp., the Seventh Circuit addressed the validity of contract terms that are neither read by, nor immediately communicated to a contracting party, but are published and available to both parties. McDonald’s promoted a game in which purchasers of food products
also received the chance to win prizes. The plaintiff obtained a game card
when she purchased an order of French fries. After a dispute regarding her
entitlement to a prize, she filed suit, alleging that McDonald’s misrepresented the tme chance of winning. McDonald’s filed a motion to compel
James to arbitrate her claims under the contest mles posted at participating
McDonald’s restaurants.
The district court granted McDonald’s motion to compel arbitration,
and the Seventh Circuit affirmed. The court held that the arbitration clause
found in the “Official Rules” was part of the contract and therefore binding. In reaching this decision, the court relied on the fact that the contest
mles were posted and referred to on the packaging James received with
2006]
CYBERLAW: ADDITIONAL DEVELOPMENTS
553
her game card. James contended that she should not be required to arbitrate her claims because she never entered into an agreement to arbitrate
her dispute. The court disagreed, reasoning that even though the plaintiff
did not read the mles in their entirety, she agreed to be bound by them by
participating in the game.
In Hubbert v. Dell Corp., the plaintiffs bought computers from Dell
over the intemet. Each of the online forms the buyers completed contained
a hyperlink to the “Terms and Conditions of Sale.” These terms included
an arbitration clause. Dell filed a motion to compel arbitration. The trial
court denied the motion, finding that the arbitration clause never became
part of the contract. Dell appealed.
The Illinois Court of Appeals determined that the trial court erred in
holding that the arbitration clause was not effective. The court reasoned
that the blue hyperlinks constituted sufficient notice to the plaintiffs and,
therefore, the terms were binding. The court noted that the hyperlink appeared on several webpages the plaintiffs necessarily viewed while ordering their products, as well as on the defendant’s marketing pages. The
court likened the five-step online process to a multi-page, written paper
contract. As with a traditional paper contract, the Terms and Conditions
were part of the contract, and the plaintiffs were bound by the arbitration
clause within them.
In Motise v. America Online, Inc., a New York federal court mled on
the application of an Intemet Service Provider’s (ISP) contract terms to an
individual who was not party to the original contract, but used the ISP’s
service. Plaintiff used his stepfather’s America Online (AOL) account to
access the intemet. Plaintiff filed suit, alleging that AOL released private
information about him on a public listserv. AOL responded by seeking to
either dismiss the action or, altematively, transfer the case to the Eastem
District of Virginia as provided by the fomm selection clause in the AOL
member agreement. The plaintiff argued that he did not receive notice of
AOL’s Terms of Service and so was not bound by them. AOL countered
that (1) the plaintiff received constmctive notice through availability of the
terms and notice on the initial webpage and (2) the plaintiff was a sublicensee of his stepfather.
The court rejected AOL’s constmctive notice arguments and instead
reasoned that because the plaintiff was able to utilize AOL’s services
through his stepfather’s account, he accepted the terms of service as a sublicensee. The fomm selection clause was therefore enforceable. The plaintiffs stepfather was required to accept the terms of service and was therefore bound at the time he created the account. When accessing the intemet
through his stepfather’s account, the plaintiff was subject to the same con-
554
BERKELEY TECHNOLOGY LAW JOURNAL
[Vol. 21:551
ditions and limits on privileges as the original licensee, his stepfather.
Thus, the court reasoned that contract enforcement must extend to users of
an ISP even in cases where those users did not receive actual or constmctive notice of the terms of service.
Two recent cases extended contract enforcement to instances where
acceptance was automated, and additional terms appeared via hyperlink
only after the party had assented to the transaction. These cases mark a
further departure from the standard doctrine where an offeree accepts with
the benefit of full knowledge of the terms and conditions of the contract.
As with ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), the
landmark shrinkwrap case, the courts in Register.com, Inc. v. Verio, Inc.
and Cairo, Inc. v. Crossmedia Services held that under some circumstances ex post awareness of contract terms was sufficient to bind a party.
The courts extended contract enforcement to those cases where parties repeatedly and systematically utilized the websites at issue, and thus were
made aware of the additional terms of use.
In Register.com, Inc. v. Verio, Inc. the Second Circuit heard an appeal
from a preliminary injunction granted by the district court. Register.com
was appointed a registrar of domain-names by the Intemet Corporation for
Assigned Names and Numbers (ICANN). Under its agreement with
ICANN, Register.com was to make contact information for domain-name
owners called “WHOIS information” available to the public. Verio was
engaged in the business of selling a variety of website design and operation services. Verio used an automated program to collect WHOIS information from Register.com’s WHOIS database on a daily basis. Subsequent to each receipt of information from Register.com’s database, Verio
also received terms prohibiting the use of the information for mass commercial e-mail, telemarketing, and direct mail. With the contact information for domain-name ovmers in hand, Verio solicited potential customers
via e-mail, telephone, and direct mail. Though this practice violated the
terms accompanying the WHOIS information, Verio claimed that because
the terms were supplied only after delivery of WHOIS information it was
not bound by the restrictions.
The Second Circuit affirmed the grant of a preliminary injunction. The
court reasoned that Verio’s argument might have been persuasive if its use
of the WHOIS information had not been so frequent and systematic. Since
Verio used the service on a daily basis, it received repeated notice of the
restrictions against mass unsolicited e-mail. Verio admitted to knowing of
the restrictions, yet continued regardless.
The facts and reasoning in Cairo, Inc. v. Crossmedia Services mirrored
those in Register.com. Cairo filed a federal suit in Califomia seeking a de-
2006]
CYBERLAW: ADDITIONAL DEVELOPMENTS
555
claratory judgment that it did not breach any contract with the defendant,
Crossmedia Services (CMS). Cairo’s website allowed a user to search its
database of retail sales information. To provide such information, Cairo
used a software robot to automatically collect sales information from the
various retailers’ webpages. CMS, one such retailer, authorized users to
view and download a single copy of content on its website solely for lawful, noncommercial and personal use. Its terms of use also contained a fomm selection clause. These restrictions were made available from CMS’s
home page via a hyperlink labeled “Terms of Use.” Cairo’s computer
search programs could not “read” the Terms of Use, and they did not report the presence of such terms back to Cairo. Cairo asserted that since it
used a robot and never explicitly agreed to CMS’s “Terms of Use,” it was
not contractually bound by the fomm selection provision.
The district court granted the defendant’s motion to dismiss Cairo’s
suit. The court in Cairo concluded that because Cairo’s use of CMS wesites, although automated, was performed thousands of times per month,
knowledge of CMS’s terms of use could be imputed to Cairo. Thus, even
accepting Cairo’s assertion that it did not explicitly agree to the Terms of
Use and fomm selection clause, its use of CMS’s websites created actual
or imputed knowledge of CMS’s terms of use and bound Cairo to those
terms.

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