Contracting via the Click

3 March 2000
The Uniform Computer Information Transaction Act (UCITA) is a 350-page proposed new law. It's an industry-driven attempt to make it easier for software companies to license and sell their software. Basically, it's traditional commercial law with a digital twist.

Software Licensing

If you're in the mass-market software business, you can use what are called shrinkwrap and clickwrap licenses as a convenient way to license the use of your software to end-users.

Shrinkwrap Licenses

Shrinkwrap agreements are the terms and conditions of use that accompany software that's distributed in computer stores. Typically, buyers find the terms and conditions of use on an envelope that's holding the disk with the software in the box. They usually read something like, "By opening this envelope, you are bound by the terms and conditions of the license."

Many have questioned whether a shrinkwrap license is even an enforceable contract. After all, usually you know what a contract is before you pay your money, not after you take the product home and start to install it.

The shrinkwrap deal is that you pay your money and then later find out what the arrangement is.

Clickwrap License "Clickwrap" is a variation of "shrinkwrap." It's used on the Net when a web surfer clicks "I accept" to website terms and conditions of use online. The same term can apply to software when a person clicks "I accept" for the honor and privilege of finishing the installation of software.

I know that I skipped the step about anybody actually reading the contract first because I know that few people do.

By the way, did you ever notice that when you're installing software and are being asked to click "I accept" that there's no print button handy? Everywhere else Windows software offers you a convenient "print" command. It makes you wonder if anyone really wants you to read the license before you agree to it.

Case Law

Early cases viewed the enforceability of shrinkwrap and clickwrap agreements with skepticism. These types of cases held that terms "inside the box" are not enforceable because the parties form the contract at the time of purchase. The courts considered additional terms added after the formation of the contract void.

Recently, the pendulum has swung towards easing the burdens and formalities in forming a license agreement. If the consumer has found what she's looking for, she should be able to obtain the rights to use it easily and quickly. The software industry has been a driving force behind this sea change.

Gateway More recent cases have held that once the consumer has the opportunity to read the terms of a license agreement, even if that chance is after she purchased the software, her use of the product equals acceptance of the terms.

In other words, giving the consumer a fair, albeit limited, opportunity to return the product strikes a happy medium between consumer and industry protection.

For example, in 1997, the Hills bought a Gateway computer over the telephone. Of course, the Gateway rep didn't read the agreement to the Hills over the telephone. I don't blame him. It would put the best of us to sleep.

Gateway's contract, contained in the box with the computer, said if they kept the computer for more than 30 days, they agreed to be bound by the terms in the contract. The Hills had the computer for more than 30 days and then filed a class action suit arguing, among other things, that the product's shortcomings made Gateway a racketeer.

The question the court had to answer was, "Are these terms effective as the parties' contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer's assent?"

Gateway's licensing terms required the Hills to settle the dispute with arbitration. The Hills, on the other hand, wanted to take care of this the good, old-fashioned way. They wanted to sue Gateway in court.The court held that the Hills had to follow the terms set forth in the licensing agreement because the Hills accepted those terms by using the computer. This case is seen as a clear victory for Gateway and clickwrap agreements.

ProCD

In another big case in this area, ProCD was a software seller who compiled information from more than 3,000 telephone directories into a computer database. The database costs more than $10 million to compile and was very expensive to keep current. ProCD charged different prices to different users of the database. An individual consumer user paid a lot less than an institutional user.

Matthew Zeidenberg bought the consumer version of the software. His software included a shrinkwrap license that stated that he could only use it for non-commercial purposes.

He ignored the license and began to resell the database on the Internet to anyone willing to pay its price which, needless to say, was less than ProCD charged its commercial customers.

Zeidenberg argued that ProCD could not enforce the restrictions on his use of the software because those restrictions didn't appear on the face of the box. He never had the opportunity, he argued, to reject those terms.

The court disagreed. It felt that Zeidenberg had the opportunity to review the terms of the license before they became effective. Yet, this case was another victory for shrinkwrap.

A Law for All 50 States? With the software industry growing rapidly, and with state law governing clickwrap and shrinkwrap agreements differing on a state-by-state basis, the software industry decided it was the perfect time to proffer uniform legislation.

The industry first pushed an additional article to the Uniform Commercial Code ("UCC"). The industry designed a new article, Article 2B, to speak specifically to the sale of software and other digital products. This first attempt at uniform legislation backfired because the industry probably tried to accomplish too much at one time. After two years of debate, the article died. This was largely because the article was so broad that it applied not only to software licensing, but also to the licensing of information for other industries like music, movies, publishing, and the arts.

A more limited industry push has produced the Uniform Computer Information Transaction Act (UCITA).

UCITA has also been the subject of much heated debate. If adopted, it will set uniform guidelines for most shrinkwrap and clickwrap licenses.

UCITA proponents claim that it will improve upon current law in many ways. They say that it will clarify state laws that apply to computer information transactions and that consumer protection laws apply to licensing transactions.

They also claim that it will stabilize the balance that needs to be struck between a software publisher's legitimate interest in preventing illegal copying and theft of its software code and copyright law's interest in furthering commercial development.

UCITA Unraveled

UCITA drafters intend to extend and expand current Federal and state consumer protection laws and to streamline the contracting process.

Opponents of UCITA claim that it will be the first law to validate shrinkwrap agreements. The problem with that position is that's simply not the case.

Shrinkwrap licenses are likely enforceable today. All UCITA does is codify their validity and create a statutory right to have unconscionable terms thrown out.

The draft law specifically states that it doesn't alter the applicability of the doctrine of unconscionability, fundamental public policy, or the obligation of good faith. Further, provisions of UCITA will not be enforceable if those provisions are preempted by federal law.

Opponents of UCITA also claim that it will allow software publishers to sell defective and virus infected products without liability. Again, that's incorrect.

UCITA extends current warranty rules (like informing a customer when she buys a product "as is") to software licenses and, under certain circumstances, requires that a warranty disclaimer be conspicuous.

Without uniform laws governing digitally-based transactions, conducting digital business becomes inefficient and almost impossible. Internet-based businesses will settle where the law is settled. Maybe this should be a wake-up call to our legislature to support UCITA.




Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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