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The enforceability of ubiquitous terms of use posted on most commercial and informational Web sites has been the subject of only a handful of state and federal court decisions over the past five years since the advent of e-commerce. These posted terms of use purport to have the force of binding contracts that define the Web site policies and restrictions imposed by the site owner, including such onerous provisions as forum selection and mandatory arbitration clauses. Yet lacking from many of these on-line agreements is the traditional first-year law school contract requirement of enabling a firm offer and acceptance. As noted by that eminent contract scholar E. Allan Farnsworth, “assent to the formation of a contract [must] be manifested in some way, by words or other conduct, if it is to be effective.” [FOOTNOTE 1] Many commercial sites do not require the user to affirmatively acknowledge his or her “acceptance” of the site’s usage agreement. Often, the terms are posted and made available for the user to scroll through, but as a practical matter, few, if any, users have any incentive to read through these often verbose terms if not forced to do so as a condition of use. The bane of the lawyer practicing in this area are those providers who are reluctant to compel their site users to scroll through terms of use and acknowledge any assent to those terms out of fear that it will deter visitors from accessing the site. Other providers seek to strike a balance and have users simply acknowledge that they have read the terms of use, or that use of the site constitutes acceptance, without affirmatively requiring users to scroll through the posted terms of use. Still others — those who likely take to heart the cogent advice of their counsel — require users to scroll through the usage terms and then affirmatively “accept” them (such as by clicking an “I accept” button). The latter category falls closest to traditional notions of contract acceptance required at common law. The technology explosion over the past half decade certainly has presented many new legal challenges that have required courts to adapt existing common law principles to novel situations. Yet, while the businesses spawned by this revolution have birthed an entirely new legal lexicon (witness terms such as “shrink-wrap,” “click-wrap” and “browser-wrap”), fundamental common law legal principals still apply, just as they did at the dawn of the industrial age when similar challenges no doubt were presented. CASE OF FREE DOWNLOADS In an important decision, Specht v. Netscape Communications Corp., a New York federal district court in the Southern District recently considered the issue of contract acceptance in the context of free software downloads available from Netscape Communications’ Web site, which was hosted on servers based on California. [FOOTNOTE 2] Users who downloaded a software program from the Netscape Web site were not required to affirmatively acknowledge their assent to a posted software license agreement. The court held, under California law (which was applied under New York’s choice of law policies), that no valid assent occurred to create a binding agreement. Therefore, a mandatory arbitration clause covering all disputes relating to the software and specifying California as the venue was held not binding on the plaintiffs who had downloaded the Netscape program. Netscape provides a free download of its “SmartDownload” software program, which makes it easy for users to download files or other programs from the Internet without losing their interim progress if a connection is lost or the user engages in other tasks. A user simply clicks his or her mouse in a designated box to initiate the download process. Although Netscape posts on its site an End User License Agreement covering the SmartDownload software, the sole reference to that license appears in text after a user scrolls through the download page and goes on to the next screen. Thus, the existence of the license is not known to any user who simply clicks on the download initiation button and does not bother to scroll down any further on that page. If, however, a user does scroll all the way through, the text reference to the license then invites the user to read the posted license terms before downloading the program, a case of too little too late. At that point, a user who then accesses the license terms will see a notice highlighting the need to read and agree to the license terms “BEFORE” acquiring a product off the site or installing any downloaded software. The license terms include an arbitration clause that requires nearly all disputes to be submitted to binding arbitration in Santa Clara, Calif. APPLYING EXISTING CASE LAW The plaintiffs, including residents of the states of Florida, New Jersey and Louisiana, brought class actions against Netscape under the Computer Fraud and Abuse Act [FOOTNOTE 3] and the Electronic Communications Privacy Act, [FOOTNOTE 4] alleging that the SmartDownload software surreptitiously transmitted to Netscape private information about the users’ file transfer activity on the Internet, which constituted illegal electronic surveillance. Netscape sought to compel arbitration pursuant to its posted license agreement. The court then proceeded to consider whether the Web site provided sufficient notice of the existence and terms of the license agreement and “whether the act of downloading the software sufficiently manifested Plaintiffs’ assent to be bound by the License Agreement.” After emphasizing that contractual assent may be manifested by written or spoken words or by other conduct, the court looked to existing case law that has examined “shrink-wrap” retail software agreements. Shrink-wrap license agreements are typically included inside a shrink-wrapped container or wrapper that packages software, generally on CD-ROM media. A notice on the outside of the packaging advises the purchaser that use of the software is subject to the terms of the enclosed license and that if a purchaser does not wish to enter into the license agreement, the product must be returned for a refund within a specified time period. In the seminal 1996 case of ProCD, Inc. v. Zeidenberg, [FOOTNOTE 5] the 7th U.S. Circuit Court of Appeals upheld a software license agreement encoded on CD-ROM disks and printed in a user manual, that also appeared on a user’s screen every time the software was run. Placing all the license terms on the outside of the packaging was deemed too impractical; moreover, the user could not use the software until the license was viewed, thereby manifesting the user’s assent. The court held that by such conduct, a user was deemed to have accepted the ProCD license, especially because the license appeared on-screen each time the software was loaded. As noted by the court in Specht, the absence of license terms on the outside of the software box was not material in ProCD because each box notified the purchaser that the product came with enclosed restrictions. The following year, in Hill v. Gateway 2000, Inc., [FOOTNOTE 6] the 7th Circuit upheld license terms that were included in a shipping box for a computer purchased from Gateway, where the customer was notified there was a 30-day period in which to return the computer if the license terms were not acceptable. The court held that the act of retaining the computer beyond 30 days constituted acceptance of the license terms by conduct. A Kansas federal court, however, refused last year to follow Hill in another case against Gateway involving a similar shrink-wrap license agreement that was included inside a box containing the computer. [FOOTNOTE 7] The court held that Kansas and Missouri state courts would likely not follow Hill or ProCD, because the vendor had not made acceptance of the license agreement a condition of the purchaser’s acceptance of the computer. Rather, as noted by the court, merely because Gateway had shipped the computer with the terms attached, that did not communicate to the purchaser any unwillingness to proceed with the sale without the purchaser’s agreement to the enclosed license terms. Other state and federal decisions have upheld on-line license terms where at least some form of assent by the user was manifested, typically by clicking an “accept” button in conjunction with scrolling terms of use. In an early 1996 decision, the 6th Circuit upheld terms of a shareware registration agreement posted by Compuserve, where the plaintiff, who had uploaded shareware for distribution on the Compuserve network, was required to type “agree” at various points during the reading of the text of the on-line agreement. [FOOTNOTE 8] A forum selection clause in AOL’s terms of service membership agreement was upheld by a Rhode Island state court in 1998, the court finding that a subscriber had the option to refuse the AOL agreement by not clicking an “accept” button accompanying the posted terms of use. [FOOTNOTE 9] A similar result was reached in a 1999 New Jersey decision, which upheld the validity of Microsoft’s click-wrap membership agreement for its MSN service where a subscriber had to click “I agree” during or after scrolling through the posted terms of use. [FOOTNOTE 10] Although the argument was raised that MSN’s agreement violated public policy, the court found no fraud or overweening bargaining power, because there were other acceptable service providers and reasonable notice of the forum selection clause within the terms of use was provided. More recently, a federal court in Massachusetts validated a forum selection clause in a domain name electronic renewal notice issued by Network Solutions. [FOOTNOTE 11] The plaintiff had sought to renew a domain name but claimed that he never scrolled down NSI’s Web page during the renewal process to reach a link at the bottom to NSI’s on-line registration agreement, which included a forum selection clause. The registrant, however, subsequently received an e-mailed invoice from NSI stating that by making payment the registrant assented to the terms of the registration agreement. NSI also advised that payment should be accompanied by a hard copy remittance stub. The plaintiff mailed the renewal fee without the stub to the wrong account, and NSI then terminated the registration for non-payment and transferred the domain to someone else. In a suit by the registrant for wrongful termination, the court upheld the forum selection clause, finding that a valid acceptance was created by conduct when payment was mailed, even though the remittance stub was omitted, because return of the stub was not made a condition of acceptance by NSI. The fact that the plaintiff failed to take any steps to ascertain the terms of the agreement did not vitiate its binding effect. ‘BROWSER WRAP’ AGREEMENT These various state and federal court rulings address what has commonly become known as “shrink-wrap” licenses (applicable to software and other electronic media typically sold at retail) and “click-wrap” type licenses (applicable to on-line Web site usage, membership agreements and downloadable programs or other files). In the latter case, true click-wrap agreements require the user to take some affirmative action to acknowledge his or her assent to the posted terms of use. In the majority of the reported decisions to date, these types of agreements have been upheld, as exemplified by the above examples. In Specht, the district court noted, however, that these types of agreements are distinguishable from a third type of software license more recently coined a “browser wrap” agreement, similar to the Netscape license involved in that case. Last year, in Pollstar v. Gigmania, a California federal court expressed serious reservations about a browser wrap agreement that was posted on a Web site but did not require any affirmative acknowledgment of acceptance by the user. [FOOTNOTE 12] In this case, which was cited approvingly by the Specht court, the plaintiff’s Web site contained a notice of a license agreement that covered site usage. The site also contained certain proprietary information that was protected under the license. When the notice of license was clicked on, the user was taken to a separate Web page containing the full text of the license. The user, however, was neither required to click on any icon acknowledging assent nor required to review the license terms before proceeding to use any information from the site. The defendant was accused of copying proprietary information off the site and was sued for breach of the license agreement by the site owner. Although the court denied the defendant’s motion to dismiss, it agreed with the defendant that many site visitors may not be aware of the license, which was not prominently posted. Apparently uncomfortable with a case of first impression, the court declined to dismiss the action at the outset, while reserving judgment as to the validity of the license. A similar analysis was made in the Ticketmaster Corp. v. Tickets.com case last year, where a lack of contractual assent was found. [FOOTNOTE 13] To reach the terms and conditions posted on Ticketmaster’s site, a user had to scroll down the home page to locate and read them. The court emphasized that Ticketmaster did not require any affirmative “click” to acknowledge assent and that customers were more likely to skip directly to the event page of interest to them rather than read the small print at the bottom. Finally, another Southern District of New York judge recently upheld a license agreement similar to the one in Pollstar under New York law. In Register.com v. Verio, Inc., [FOOTNOTE 14] license terms covering a plaintiff’s database were posted on a Web site alongside a notice stating that “by submitting this query [to the database], you agree to abide by these terms.” No “I agree” click was required. Nevertheless, the court found that because of the quoted sentence at the end of the license terms, “there can be no question that by proceeding to submit a … query, Verio manifested its assent to be bound by Register.com’s terms of use, and a contract was formed and subsequently breached.” IMPORTANCE OF ‘ASSENT’ Although Specht applied California law, the court noted that “whether under California or New York law, the promisee’s assent to be bound is a required condition. …” [FOOTNOTE 15] Netscape’s SmartDownload license agreement was found in Specht to be fundamentally different from both shrink-wrap and click-wrap agreements, and more akin to the browser-wrap type agreement in Pollstar. Unlike click-wrap agreements that require some affirmative action by the user to manifest assent (whether by a click on an “I agree” button or by conduct), users downloading SmartDownload need not take any action that “manifests assent to the terms of the associated license or indicates an understanding that a contract is being formed.” [FOOTNOTE 16] The court emphasized that the need to find knowing consent is particularly compelling when a party seeks to enforce an arbitration clause. Although Netscape argued that the act of downloading the software constitutes conduct that acknowledges assent, the court held that such action is not an unambiguous expression of assent, but only a means to obtain a product and not to enter into any agreement. The user is not even made aware that by downloading the software, which appears “free for the taking,” he or she is entering into a license agreement. Netscape’s small notice requesting a user to “please review” the license terms, observed the court, constitutes a mere invitation and not a condition of download. This “review” notice appears only in a small text box below the screen used for downloading that a user may not even see. At best, this “please review” notice is a “mere invitation” rather than a condition and does not obligate the user to read the license terms. As the Sprecht court emphasized in its parting words, “[t]he case law on software licensing has not eroded the importance of assent in contract formation. Mutual assent is the bedrock of any agreement to which the law will give force. [Netscape's] position, if accepted, would so expand the definition of assent as to render it meaningless.” [FOOTNOTE 17] CONCLUSION In perhaps a testament to our deep common law roots, a growing body of case law concerning enforceability of on-line agreements highlights the adaptability of age-old contract principles to the new technology. No doubt, some cases will present a fine line in assessing whether a Web site user has manifested sufficient assent to on-line terms of use to be bound to sometimes onerous contract provisions (compare the results in Sprecht and Register.com). The more affirmative steps a user is required to undertake as a condition of using a Web site or downloading files, the more likely will the on-line license or terms of use be enforced. Web site operators seeking to control access to proprietary materials or software downloads, or operating a site that permits on-line interaction with members of the public, need to be extra vigilant to ensure that any posted license or terms of use will be upheld in the event of a dispute. This need is heightened when dealing with consumers and the public at large, where pubic policy concerns may affect enforceability of border line assent situations. A common sense approach, putting oneself objectively in the position of the Web site user, may be the best barometer by which to evaluate the manifestation of knowing assent. As the Sprecht court emphasized … ‘[t]he case law on software licensing has not eroded the importance of assent in contract formation.’ Barry Werbin is a partner and head of the intellectual property and new media practice group at Herrick, Feinstein LLP. ::::FOOTNOTES:::: FN1 Farnsworth on Contracts �3.1 (2d ed. 2000). FN2 Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001)(Alvin K. Hellerstein, U.S.D.J.). FN3 18 USC �1030. FN4 18 USC �2510 et seq. FN5 86 F.3d 1447 (7th Cir. 1996). FN6 105 F.3d 1147 (7th Cir.), cert. denied, 522 U.S. 808 (1997). Accord, Brower v. Gateway 2000, Inc., 246 AD2d 246, 676 NYS2d 569 (App. Div. 1998). FN7 Klocek v. Gateway, Inc., 104 F.Supp.2d 1332 (D. Kansas 2000). FN8 Compuserve Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996). FN9 Groff v. America Online, Inc., 1998 WL 307001 (R.I. Super. 1998). FN10 Caspi v. The Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528 (N.J. Super. A.D. 1999). FN11 Kilgallen d/b/a LJK Software, Inc. v. Network Solutions, Inc. 99 F.Supp.2d 125 (D. Mass. 2000). FN12 Pollstar v. Gigmania Ltd., 2000 WL 33266437 (E.D. Cal. Oct. 17, 2000). FN13 Ticketmaster Corp. v. Tickets.com, 2000 U.S. Dist. LEXIS 4553 (C.D. Cal. 2000). FN14 126 F. Supp. 2d 238 (S.D.N.Y. 2000)(Barbara Jones, U.S.D.J.). FN15 150 F. Supp. 2d at 594, n.13. FN16 Id. at 595. FN17 Id. at 596.

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