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M. A. Mortenson Company, Inc. v. Timberline Sofware Corporation, et al.

970 P. 2d 803, 1999 Wash. App. Lexis 185 (Wash. Crt. App., Feb. 1, 1999)

Plaintiff M. A. Mortenson Company ("Mortenson") licensed software from defendant Timberline Software Corporation ("Timberline") which it used to prepare a construction bid. Due to a "bug" in defendant's software, the bid submitted by Mortenson was $2 million less than Mortenson intended it to be. Mortenson brought suit, seeking to recover consequential damages arising out of an alleged breach of warranty.

The central issue before the court was the terms of the contract between the parties. Mortenson argued that the terms were reflected in a purchase order it had sent to one of Timberline's authorized dealers. Timberline argued that the parties' contract included license terms shipped by Timberline to Mortenson along with the software at issue. As this license contained a clause limiting any claim that could be asserted for consequential damages, Timberline sought to dismiss the suit on a motion for summary judgment.

Following the Seventh Circuit's decisions in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir., 1996) and Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir., 1997) the Washington Court of Appeals affirmed the decision of the trial court and held that the license terms sent by Timberline along with its software were part of the contract between the parties.

Timberline shipped its software in sealed envelopes. The full text of its license agreement was set forth on the outside of this sealed envelope. It was also set forth on the inside cover of the user manual shipped by Timberline along with its product. A reference to the license agreement appears on the program's introductory screen each time the program is executed.

The license provided that use of the program constituted an agreement to be bound by the terms of the license. If the user did not wish to be so bound, he was permitted to promptly return the program to Timberline in exchange for a refund of the purchase price. The court held that this was a permissible "accept-or-return" license and "that the terms of the present license agreement are part of the contract as formed between the parties. We find that Mortenson's installation and use of the software manifested its assent to the terms of the license and that it is bound by all terms of that license that are not found to be illegal or unconscionable."

Mortenson argued that this case fell outside of ProCD and Hill because there was no mention of the license in its negotiations with the dealer over the purchase price of the software, and because it sent a purchase order to Timberline confirming its order. Instead, Mortenson argued that the purchase order formed the contract between the parties, and the license was merely a request for additional terms.

The court rejected both of these arguments. In rejecting Mortenson's argument that its purchase order constituted the complete contract between the parties the court stated:

Mortenson's arguments ignore the commercial realities of software sales. Mortenson's purchase of the newer version of the Timberline software package was prompted by its need to upgrade an older version of the program that it licensed at the time. Mortenson licensed other software packages, the licenses of which were similar to Timberline's in that they came with the software, disclaimed warranties, limited remedies and included choice of law and forum selection clauses. Reasonable minds could not differ concerning a corporation's understanding that use of software is governed by licenses containing multiple terms. Even construing the facts in the light most favorable to Mortenson, we find that the facts do not support the conclusion that the purchase order constitutes an integrated contract.

And even if the license was a request for additional terms, concluded the court, "Mortenson's conduct [of installing and using the software] constitutes assent to those additional terms."

As a result, the Court of Appeals affirmed the lower court's award of summary judgment to Timberline, finding that the license provisions limiting consequential damages barred Mortenson's suit. In so holding, the court rejected Mortenson's arguments that those provisions were unconscionable and hence unenforceable. "Limitations on consequential damages in commercial transactions are prima facie conscionable."

The full text of the court's decision can be found on a web site maintained by America Online.

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