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Internet users who downloaded free software from a Web site were not bound by a license agreement that appeared on the site, a New York federal judge has ruled. In a case of first impression, U.S. District Judge Alvin K. Hellerstein found that because the users did not have to agree to or even review the license agreement before downloading the software, the requisite assent was missing, and thus no agreement was reached. In setting an outer boundary beyond which assent to an agreement will not be implied, the decision provides guidance — as well as warning flags — to companies who are offering or selling products over the Internet. Joshua Rubin, of the New York law firm Abbey Gardy, who is representing the plaintiff users in the case, said, “This may be the first decision that affirmatively holds that, in cyberspace, as elsewhere, people cannot be bound to a contract they did not agree to.” The court reached the issue in a putative class action, Specht v. Netscape Communications Corp., 00 Civ. 4871, against Netscape and its parent company, America Online Inc., alleging that usage of its software, SmartDownload, transmits private information about the user’s file transfer activity to Netscape in violation of federal law. Netscape moved to compel arbitration, arguing that the disputes in the complaint, like all others relating to use of the software, were subject to a binding arbitration clause in a license agreement entered into by the software’s users. The clause subjected parties to arbitration in Santa Clara County, Calif., with the losing party paying all costs. But the court disagreed with Netscape. Applying California law, it found that because of the manner in which the license agreement was presented, there was no assent. Users could download the software without viewing the license or even being made aware of its existence, let alone expressly accept its terms. In so holding, the court distinguished the license from so-called click-wrap licenses commonly used on the Internet. Such licenses, which courts in Illinois and California have found to be valid, require the user to click “yes,” indicating assent to the license agreement, in order to obtain the software. The court found the license at issue to be more like a “browse-wrap” license, in which a notice in the form of an icon appears on the Web site, but the user is not required to click on the icon or view the license to proceed. The court expressed doubt that such browse-wrap licenses were enforceable, but found the case at hand to be even more extreme. “The only hint that a contract is being formed is one small box of text referring to the license agreement, text that appears below the screen used for downloading and that a user need not even see before obtaining the product.” Moreover, the court wrote, the mild language of the text, asking users to “please review … [the] license agreement,” “read as a mere invitation, not as a condition.” The court also rejected Netscape’s argument that the mere act of downloading indicated assent. To the contrary, the court wrote, “downloading is hardly an unambiguous indication of assent. The primary purpose of downloading is to obtain a product not to assent to an agreement … Netscape’s failure to require users of SmartDownload to indicate assent to its license as a precondition to downloading and using its software is fatal to its argument that a contract is formed.” “Mutual assent is the bedrock of any agreement to which the law will give force. Defendant’s position, if accepted, would so expand the definition of assent as to render it meaningless,” Judge Hellerstein wrote. It thus denied defendants’ motion to compel arbitration pursuant to the agreement. The judge ordered the parties to appear at a status conference on July 26 to discuss a motion for class certification. Defendants are represented by Patrick J. Carome, of the Washington, D.C., office of Wilmer, Cutler & Pickering. Nicholas Graham, spokesperson for AOL, which owns Netscape, said the company was still reviewing the decision.

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