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Shrink-Wrap Licenses - Internet Library of Law and Court Decisions - Updated May 9, 2006

Affirming the court below, a Florida District Court of Appeals holds that the plaintiff is not bound by the terms of an online user agreement, despite the fact that the written contract between that parties expressly states that it was "subject to all of SkyNetWeb's terms, conditions, user and acceptable use policies" located at a designated website.  As a result, the District Court of Appeals affirmed the denial of defendant's motion to compel arbitration, given that the arbitration provisions on which defendant relied were only contained in the Online User Agreement held not to be part of the parties' contract.

Contract terms shipped along with computer to customer govern parties' relationship, where the customer receives a notice that informs her that the terms govern the parties relationship unless the product is returned within 30 days, and the customer fails to return the product within 30 days

Court holds that Gateway's Standard Terms and Conditions, supplied along with and inside the packaging of a computer purchased by the plaintiff, do not create a binding contract with that consumer under either the law of either Missouri or Kansas. The court reached this conclusion despite the fact that the Standard Terms provide that they will constitute the terms of such an agreement if the consumer retains the computer for more than 5 days, and the consumer so retained the computer. Applying UCC section 2-207, the court holds that such terms constitute an acceptance of plaintiff's offer to purchase the computer that contains additional terms, which additional terms are not binding because not expressly accepted by the consumer.

(Court held that license terms shipped along with software to purchaser formed part of the contract between the parties, including the provisions therein which limited the consequential damages the purchaser could recover. The software at issue was shipped in sealed envelopes on the outside of which appeared the full text of the license agreement. The license agreement was also set forth on the inside cover of the user manual shipped with the product. A reference to the license agreement appeared on the program's introductory screen each time the program was 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 full refund of the purchase price. Relying on the Seventh Circuit's decisions in ProCD and Hill, the court held that this was a permissible "accept-or-return" license which bound the purchaser.

The court reached this conclusion notwithstanding the fact that the purchaser agreed to buy the software after a negotiation of price in which the license was not mentioned, and confirmed its agreement in a purchase order sent to the software company's dealer prior to its receipt of the license terms at issue.)

Court holds that plaintiff entered into a valid agreement by clicking on an icon indicating its assent to be bound to displayed software license terms, and thereafter using defendant's software and services.  As a result, the Court, honoring a forum selection clause found in the parties' agreement, transferred the case before it from Kansas to California, the venue for suit designated in the forum selection clause.  In reaching this result, the Court rejected plaintiff's claim that it was not bound to the agreement because its assent had been given by an individual who lacked the authority to bind it to such an agreement.  The Court found that plaintiff had failed to establish this contention due to its failure to identify the individual(s) who give their assent.  In any event, plaintiff was bound because it had ratified its agent's acts by using the software and associated services for a period of six years.

Affirming the decision of the court below, the Second Circuit Court of Appeals holds that plaintiffs are not bound by the terms of a license agreement purporting to govern the use of a software product they downloaded because plaintiffs neither had reasonable notice thereof, nor adequately manifested their assent to be bound thereby.  The software in question could be downloaded from a page on defendant Netscape's web site by clicking on a button which said "download".  The terms of the license agreement in question were not contained on this web page, however, and the only notice the user received of the license agreement was found on a portion of the web page below the download button.  Typically, this notice appeared "below the fold" and was not on that portion of the page which first appeared on the user's screen when he went to download the program.  This notice informed the user that his use of the software would be governed by the terms of a license agreement, which terms could be seen by clicking on a link provided on the web page.  Once the program was downloaded, the user received no further notice of either the license agreement or its terms.  The Court held that this procedure did not create a binding contract between the parties.

The Second Circuit further held that the terms of a license agreement plaintiffs did agree to, governing their use of Netscape's browser, did not obligate them to arbitrate the claims they raised in this litigation.  These included claims that Netscape violated both the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act by causing Netscape's Smart Download software, a Netscape browser 'plug in', to send information to Netscape about plaintiffs' downloading activities.

Court holds that act of downloading software does not indicate assent to be bound by terms of license agreement, where a link to such terms appears on, but below that portion of the web page that appears on the user's screen when such downloading is accomplished. As a result, the Court holds that under California law, plaintiffs are not bound by the terms of such license agreement, or the arbitration clause contained therein, despite language in the license agreement which provides that by installing or using the software, the user consents to be bound by the terms of the license agreement.

Following Hill v. Gateway 2000, Inc., the court held that plaintiff, an intended beneficiary of a third parties' purchase of a computer from defendant, entered into a contract with defendant by retaining that computer for 30 days in accordance with the terms of the agreement provided her at the time she received the computer. The court further held plaintiff bound to the arbitration clause contained in those terms, even though she received the computer as a gift.

For additional cases see Contract.