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The terms of a software license agreement were part of the contract between a software manufacturer and a software purchaser, and use of the software constituted the user’s assent to the agreement, including the license terms, the Supreme Court of Washington held, affirming summary judgment in favor of the manufacturer ( M.A. Mortenson Company Inc. v. Timberline Software Corp., Wash., No. 67796-4, 5/4/00). M.A. Mortenson Co. is a general construction contractor with its corporate headquarters in Minnesota and numerous regional offices, including a northwest regional office in Bellevue, Wash. Since at least 1990, Mortenson has used Bid Analysis software from Timberline Software Corp. of Beaverton, Ore., to assist with its preparation of bids. Mortenson had used Medallion, an earlier version of Bid Analysis, at its Minnesota headquarters and its regional offices. In early 1993, Mortenson installed a new computer network operating system at its Bellevue office and discovered — from Mark Reich, president of Softworks Data Systems Inc. of Kirkland, Wash., Timberline’s local authorized dealer — that the Medallion software was incompatible with Mortenson’s new operating system. Reich informed Mortenson that Precision, a newer version of Bid Analysis, was compatible with its new operating system. Mortenson wanted multiple copies of the new software for its offices, including copies for its corporate headquarters in Minnesota and its northwest regional office in Bellevue. Reich informed Mortenson he would place an order with Timberline and would deliver eight copies of the Precision software to the Bellevue office, after which Mortenson could distribute the copies among its offices. After Reich provided Mortenson with a price quote, Mortenson issued a purchase order dated July 12, 1993, confirming the agreed-upon purchase price, set up fee, delivery charges, and sales tax for eight copies of the software. The purchase order indicated that Softworks, on behalf of Timberline, would “furnish current versions of Timberline Precision Bid Analysis Program Software and Keys” and “provide assistance in installation and system configuration for Mortenson’s Bellevue Office.” The purchase order also contained the following notations:
Provide software support in converting Mortenson’s existing Bid Day Master Files to a format accepted by the newly purchased Bid Day software. This work shall be accomplished on a time and material basis of $85.00 per hour. Format information of conversion of existing D-Base Files to be shared to assist Mortenson Mid-West programmers in file conversion. System software support and upgrades to be available from Timberline for newly purchased versions of Bid Day Multi-User. At some future date should Timberline upgrade “Bid Day” to a windows version, M.A. Mortenson would be able to upgrade to this system with Timberline crediting existing software purchase toward that upgrade on a prorated basis to be determined later.

Below the signature line was the following statement: “Advise purchasing promptly if unable to ship as required. Each shipment must include a packing list. Substitutions of goods or changes in costs require our prior approval.” The purchase order did not contain an integration clause. Reich signed the purchase order and ordered the requested software from Timberline. When Reich received the software, it came in three large shipping boxes which contained several smaller boxes, containing program diskettes in plastic pouches, installation instructions, and user manuals. One of the larger boxes also contained the sealed protection devices for the software. All Timberline software is distributed to its users under license. Both Medallion and Precision Bid Analysis are licensed Timberline products. In the case of the Mortenson shipment, the full text of Timberline’s license agreement was set forth on the outside of each diskette pouch and the inside cover of the instruction manuals. The first screen that appears each time the program is used also references the license and states, “This software is licensed for exclusive use by: Timberline Use Only.” Further, a license to use the protection device was wrapped around each of the devices shipped to Mortenson. The following warning preceded the terms of the license agreement:

CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS BEFORE USING THE PROGRAMS. USE OF THE PROGRAMS INDICATES YOUR ACKNOWLEDGEMENT THAT YOU HAVE READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY RETURN THE PROGRAMS AND USER MANUALS TO THE PLACE OF PURCHASE AND YOUR PURCHASE PRICE WILL BE REFUNDED. YOU AGREE THAT YOUR USE OF THE PROGRAM ACKNOWLEDGES THAT YOU HAVE READ THIS LICENSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS.

Under a separate subheading, the license agreement limited Mortenson’s remedies and provided:

LIMITATION OF REMEDIES AND LIABILITY. NEITHER TIMBERLINE NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY OF THE PROGRAMS OR USER MANUALS SHALL BE LIABLE TO YOU FOR ANY DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS, LOST SAVINGS, LOSS OF ANTICIPATED BENEFITS, OR OTHER INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE SUCH PROGRAMS, WHETHER ARISING OUT OF CONTRACT, NEGLIGENCE, STRICT TORT, OR UNDER ANY WARRANTY, OR OTHERWISE, EVEN IF TIMBERLINE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY OTHER CLAIM BY ANY OTHER PARTY. TIMBERLINE’S LIABILITY FOR DAMAGES IN NO EVENT SHALL EXCEED THE LICENSE FEE PAID FOR THE RIGHT TO USE THE PROGRAMS.

Reich personally delivered the software to Mortenson’s Bellevue office and was asked to return at a later date for installation. The parties disputed the degree to which Mortenson and his staff were aware of the licensing information during installation. LOWER COURTS AGREE LICENSE PART OF CONTRACT In December 1993, Mortenson utilized the Precision Bid Analysis software to prepare a bid for a project at Harborview Medical Center in Seattle. On the day of the bid, the software allegedly malfunctioned multiple times and gave the following message: “Abort: Cannot find alternate.” Mortenson received this message 19 times that day. Nevertheless, Mortenson submitted a bid generated by the software. After Mortenson was awarded the Harborview Medical Center project, it learned its bid was approximately $1.95 million lower than intended. Mortenson filed an action in King County Superior Court, Wash., against Timberline and Softworks alleging breach of express and implied warranties. After the suit was filed, a Timberline internal memorandum surfaced, dated May 26, 1993. The memorandum stated,

[a] bug has been found [in the Precision software] . . . that results in two rather obscure problems . . . these problems only happen if the following [four] conditions are met . . . given the unusual criteria for this problem, it does not appear to be a major problem.

Apparently, other Timberline customers had encountered the same problem, and a newer version of the software was sent to some of these customers. Timberline moved for summary judgment of dismissal in July 1997, arguing that the limitation on consequential damages in the licensing agreement barred Mortenson’s recovery. Mortenson countered that its entire contract with Timberline consisted of the purchase order and that it never saw or agreed to the provisions in the licensing agreement. The trial court granted Timberline’s motion for summary judgment. The trial judge stated, “[I]f this case had arisen in 1985 rather than 1997, I might have a different ruling” but “the facts in this case are such that even construing them against the moving party, the Court finds as a matter of law that the licensing agreements and limitations pertaining thereto were conspicuous and controlling and, accordingly, the remedies that are available to the plaintiff in this case are the remedies that were set forth in the licensing agreement . . . .” Mortenson appealed the summary judgment order to the court of appeals, which affirmed the trial court and held (1) the purchase order was not an integrated contract; (2) the license terms were part of the contract; and (3) the limitation of remedies clause was not unconscionable and, therefore, enforceable. Mortenson appealed to the Supreme Court of Washington. Mortenson contended that because the purchase order fulfilled the basic requirements of contracting under the U.C.C., it constituted a fully integrated contract. As a result, Mortenson argued the terms of the license, including the limitation of remedies clause, were not part of the contract and, thus, were not enforceable. Timberline countered that the parties did not intend the purchase order to be an exclusive recitation of the contract terms, and pointed to the absence from the purchase order of several key details of the agreement. Timberline argued that the purchase order did not prevent the terms of the license from becoming part of the contract or render the limitation of remedies clause unenforceable. PLAINTIFF ARGUED LICENSE REQUEST TO ADD TERMS Writing the opinion of the Court, Judge Charles W. Johnson stated, “Even if we assume the purchase order could, standing alone, constitute a complete contract under the Uniform Commercial Code, such was not the case here. The language of the purchase order makes this clear. For example, the purchase order sets an hourly rate for Timberline’s provision of �software support,’ but does not specify how many hours of support Timberline would provide. The purchase order also states: �at some future date should Timberline upgrade �Bid Day’ to a windows version, M.A. Mortenson would be able to upgrade to this system with Timberline crediting existing software purchase toward that upgrade on a pro-rated basis to be determined later.’ Finally, the purchase order does not contain an integration clause. The presence of an integration clause �strongly supports a conclusion that the parties’ agreement was fully integrated,” the court wrote, citing Olsen Media v. Energy Sciences Inc., 648 P.2d 493 (1982). “Here, the absence of such a clause further supports the conclusion that the purchase order was not the complete agreement between the parties. The trial court and the court of appeals correctly determined the purchase order did not constitute an integrated contract,” the Court wrote. Mortenson next argued that even if the purchase order was not an integrated contract, Timberline’s delivery of the license terms merely constituted a request to add additional or different terms, which were never agreed upon by the parties. Mortenson claimed under RCW 62A.2-207 the additional terms did not become part of the contract because they were material alterations. Timberline responded that the terms of the license were not a request to add additional terms, but part of the contract between the parties. Timberline further argued that so-called “shrinkwrap” software licenses have been found enforceable by other courts, and that both trade usage and course of dealing support enforcement in the present case. The Court quoted RCW 62A.2-204, which states:

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

The Court quoted cited ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), in which the Seventh Circuit held that a software shrinkwrap license agreement was a valid form of contracting under Wisconsin’s version of U.C.C. �2-204, and that such agreements are enforceable unless objectionable under general contract law such as the law of unconscionability. The Court also cited Hill v. Gateway 2000 Inc., 105 F.3d 1147 (7th Cir. 1996), and Brower v. Gateway 2000 Inc., 246 A.D. 246 (1998), and concluded, “We find the approach of the ProCD, Hill, and Brower courts persuasive and adopt it to guide our analysis under RCW 62A.2-204. We conclude because RCW 62A.2-204 allows a contract to be formed �in any manner sufficient to show agreement . . . even though the moment of its making is undetermined,’ it allows the formation of �layered contracts’ similar to those envisioned by ProCD, Hill, and Brower. We, therefore, hold under RCW 62A.2-204 the terms of the license were part of the contract between Mortenson and Timberline, and Mortenson’s use of the software constituted its assent to the agreement, including the license terms.” The terms of Timberline’s license were either set forth explicitly or referenced in numerous locations, the Court wrote, noting they were included within the shrinkwrap packaging of each copy of Precision Bid Analysis; were present in the manuals accompanying the software; and were included with the protection devices for the software, without which the software could not be used. “Even accepting Mortenson’s contention it never saw the terms of the license, as we must do on summary judgment, it was not necessary for Mortenson to actually read the agreement in order to be bound by it,” the court wrote. ENFORCEABILITY OF REMEDIES CLAUSE LIMITATIONS Mortenson contended that even if the limitation of remedies clause was part of its contract with Timberline, the clause was unconscionable and, therefore, unenforceable. Washington state recognizes two types of unconscionability — substantive and procedural. Substantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh, the court said, and concluded, “Timberline’s consequential damages clause, when examined at the time the contract was formed, does not shock the conscience in the manner of the Brower mandatory arbitration clause; it is not substantively unconscionable.” Mortenson also contended that the licensing agreement was procedurally unconscionable because “the license terms were never presented to Mortenson in a contractually-meaningful way.” The Court responded, “Examining the contracting process between the parties based on the above factors, we hold the clause to be procedurally conscionable. The clause was not hidden in a maze of fine print. The license was set forth in capital letters on each diskette pouch and on the inside cover of the instruction manuals. A license to use the protection device was wrapped around each such device. The license was also referenced in the opening screen of the software program. This gave Mortenson more than ample opportunity to read and understand the terms of the license. Mortenson is also not an inexperienced retail consumer, but a nationwide construction contractor that has purchased licensed software from Timberline in the past.” Since Mortenson failed to set forth any material issues of fact on the issue of contract formation and to make a threshold showing of unconscionability sufficient to avoid summary judgment, the Court affirmed the court of appeals, upholding the trial court’s order of summary judgment of dismissal and denial of the motions to vacate and amend. Dissenting, Judge J. Sanders wrote, “Because the parties entered a binding and enforceable contract prior to the delivery of the software, I would treat Timberline’s license agreement as a proposal to modify the contract requiring either express assent or conduct manifesting assent to those terms . . . . [B]ecause Mortenson did not expressly assent to the terms of Timberline’s license agreement after a binding contract was made, I would reverse the trial court’s summary judgment order and remand for a determination of whether Mortenson’s conduct constituted assent. If Mortenson did not assent to Timberline’s license agreement, the trial court should allow Mortenson to proceed to a trial on the merits.”

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