Internet Law 2006
Brooklyn Law School
Professor Wendy Seltzer, email wendy.seltzer@brooklaw.edu
Visiting Assistant Professor of Law, Brooklyn Law School
Fellow, Berkman Center for Internet & Society at Harvard Law School
September 28, 2006
- Shrinkwrap: Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255 (5th Cir. 1988)
- ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)
- Browsewrap: Specht v. Netscape, 306 F.3d 17 (2d Cir. 2001)
- Free Software: GNU General Public License (GPL)
- Creative Commons: Commons Deed and Legal Code to Attribution-ShareAlike 2.5
- Free Software Foundation, Philosophy of the GNU Project
- The Cathedral and the Bazaar, Eric S. Raymond
For further reading (optional):
- Yochai Benkler, Coase's Penguin, or Linux and the Nature of the Firm, 112 Yale L.J. (2002)
- Jessica Litman, Sharing and Stealing, 26 Comm/Ent 1 (2004)
- Mark Lemley, Beyond Preemption: The Federal Law and Policy of Intellectual Property Licensing, 87 Cal. L.Rev. 111 (1999)
- "The Simple Economics of Open Source" Josh Lerner and Jean Tirole, Journal of Industrial Economics 50 (2002)
- Lawrence Lessig, The Limits in Open Code: Regulatory Standards and the Future of the Net,
14 BERKELEY TECH. L.J. 759 (1999).
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Reading Notes
A key feature of online commerce and digital intellectual property is the rise
of licensing. Here, we examine two distinct aspects of that shift: The primacy
of contractual private ordering and the open source revolution.
The owner of a copyright has the exclusive rights, under 17 U.S.C. § 106, to reproduce, distribute, create derivative works, publicly perform, publicly display, and publicly digitally perform. Once an author has obtained copyright (by fixing an original work), he or she can exploit that copyright directly, transfer the copyright to another party, or license out some or all of the copyright rights.
Note that "[o]wnership of a copyright … is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object." 17 U.S.C. § 202. That means when you buy a book, you own the physical object, and the right to re-sell that object, but not the copyright or the right to reproduce the book's text. Most books come with language like "All rights reserved."
Much software claims to be licensed, not sold, with the terms of an End User License Agreement ("EULA") dictating what you can and can't do with the product. One can hardly venture online without encountering (claimed) contracts. ISPs condition connection to
the Internet on acceptance of terms of service; websites offer up terms of
use; digital purchases carry shrink-wrap or click-wrap licenses. Contractual private ordering allows parties
to customize the legal rules of their interactions when the defaults dont suit.
Yet this private ordering raises intertwined substantive and procedural questions. Substantively, should we
permit parties to opt out of legal rules with a signature or the
click of a mouse? Why do the courts in Vault v. Quaid and
ProCD v. Zeidenberg reach different conclusions about the preemption of state contract law
and the enforceability of contract? Think about the limits of these arguments: Would
Judge Reavley (Vault) invalidate a negotiated agreement that granted access to software conditioned
on a corporate users agreement not to reverse engineer it? Would Judge Easterbrook
(ProCD) permit software publishers to eliminate any possibility of reverse engineering even where
it is fair use under copyright law by including prohibitory terms in click-wraps
for all future software packages? How do efficiency and fairness choices factor in
the decisions?
At the procedural level, even before we get to the terms of a
contract, we must ask whether a contract was validly formed. Compare the ProCD
and Specht contracts: Was there offer and acceptance? meeting of the minds?
Now for something completely different.
Others choose to license their copyrights very differently, using it to create entirely new ways of doing business.
The GNU General Public License (GPL) is a copyright license that uses copyright
to enforce not closure but openness. The GPL encourages users to modify software
and redistribute it provided they do so on the same terms: with the
source code to enable their users to do the same. Read the text
of the GPL and watch how it accomplishes these copyleft attributes.
Since the GPLs introduction in 1984, a whole ecosystem of Free Software and
open source development has emerged. As the Free Software Foundation puts it, you
should think of free as in free speech, not as in free beer.
The GPL-licensed Linux kernel and GNU software power everything from embedded devices to
TiVo digital video recorders (see <http://www.tivo.com/linux/linux.asp>) to Google. Companies such as RedHat sell packaging
and services around Free Software.
The GPL has rarely been litigated because most
companies confronted with evidence of violations have preferred to settle. See, e.g., Aaron
Weiss, The Open Source WRT54G Story, Wi-Fi Planet, <http://www.wi-fiplanet.com/tutorials/article.php/3562391>. It is often said that most of the Internet runs on Free and open source software ("open source" is the name used by the more pragmatically oriented branch of the movement).
Read the GPL to see how this works legally, then read the Cathedral and The Bazaar to see the kind of social structures that support Free and open source software.
Creative Commons has more recently turned the open-source spirit to non-software copyrights. Look
again at the Creative Commons model in the Commons Deed and Legal Code
to the Attribution-ShareAlike license reproduced here options for authors and artists to publish
with some rights reserved. Creative Commons now writes that Yahoo! reports over 50,000,000
link-backs to our licenses and 24 international jurisdictions have ported license to their
legal systems.
How do Free and open-source software and Creative Commons licensing fit into broader
copyright law? How do their licenses compare with the shrink-wrap of ProCD?
Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255 (5th Cir. 1988)
REAVLEY, Circuit Judge:
Vault brought this copyright infringement action against Quaid seeking damages and preliminary and
permanent injunctions. The district court denied Vault's motion for a preliminary injunction, holding
that Vault did not have a reasonable probability of success on the merits.
Vault Corp. v. Quaid Software Ltd., 655 F.Supp. 750 (E.D.La.1987). By stipulation of
the parties, this ruling was made final and judgment was entered accordingly. We
affirm.
I
Vault produces computer diskettes under the registered trademark "PROLOK" which are designed to
prevent the unauthorized duplication of programs placed on them by software computer companies,
Vault's customers
. Each version of PROLOK has been copyrighted and Vault includes a
license agreement with every PROLOK package that specifically prohibits the copying, modification, translation,
decompilation or disassembly of Vault's program. Beginning with version 2.0 in September 1985,
Vault's license agreement contained a choice of law clause adopting Louisiana law.
Quaid's product, a diskette called "CopyWrite," contains a feature called "RAMKEY" which unlocks
the PROLOK protective device and facilitates the creation of a fully functional copy
of a program placed on a PROLOK diskette.
Quaid first developed RAMKEY in September 1983 in response to PROLOK version 1.0.
In order to develop this version of RAMKEY, Quaid copied Vault's program into
the memory of its computer and analyzed the manner in which the program
operated. When Vault developed version 1.07, Quaid adapted RAMKEY in 1984 to defeat
this new version.
II
Vault brought this action against Quaid seeking preliminary and permanent injunctions to prevent
Quaid from advertising and selling RAMKEY, an order impounding all of Quaid's copies
of CopyWrite which contain the RAMKEY feature, and monetary damages in the amount
of $100,000,000. Vault asserted three copyright infringement claims cognizable under federal law, 17
U.S.C. § 101 et seq. (1977 & Supp.1988) (the "Copyright Act"), which included: (1)
that Quaid violated 17 U.S.C. §§ 501(a) & 106(1) by copying Vault's program into
its computer's memory for the purpose of developing a program (RAMKEY) designed to
defeat the function of Vault's program; (2) that Quaid, through RAMKEY, contributes to
the infringement of Vault's copyright and the copyrights of its customers in violation
of the Copyright Act as interpreted by the Supreme Court in Sony Corp.
of Am. v. Universal City Studios, 464 U.S. 417, 104 S.Ct. 774, 78
L.Ed.2d 574 (1984); and (3) that the second version of RAMKEY, which contained
approximately thirty characters from PROLOK version 1.07, and the latest version of RAMKEY,
constitute "derivative works" of Vault's program in violation of 17 U.S.C. §§ 501(a) &
106(2). Vault also asserted two claims based on Louisiana law, contending that Quaid
breached its license agreement by decompiling or disassembling Vault's program in violation of
the Louisiana Software License Enforcement Act, La.Rev.Stat.Ann. § 51:1961 et seq. (West 1987), and
that Quaid misappropriated Vault's program in violation of the Louisiana Uniform Trade Secrets
Act, La.Rev.Stat.Ann. § 51:1431 et seq. (West 1987).
C. Contributory Infringement
Vault contends that, because purchasers of programs placed on PROLOK diskettes use the
RAMKEY feature of CopyWrite to make unauthorized copies, Quaid's advertisement and sale of
CopyWrite diskettes with the RAMKEY feature violate the Copyright Act by contributing to
the infringement of Vault's copyright and the copyrights owned by Vault's customers. Vault
asserts that it lost customers and substantial revenue as a result of Quaid's
contributory infringement because software companies which previously relied on PROLOK diskettes to protect
their programs from unauthorized copying have discontinued their use.
While a purchaser of a program on a PROLOK diskette violates sections 106(1)
and 501(a) by making and distributing unauthorized copies of the program, the Copyright
Act "does not expressly render anyone liable for the infringement committed by another."
Sony, 464 U.S. at 434, 104 S.Ct. at 785. The Supreme Court in
Sony, after examining the express provision in the Patent Act which imposes liability
on an individual who "actively induces infringement of a patent," 35 U.S.C. § 271(b)
& (c), and noting the similarity between the Patent and Copyright Acts, recognized
the availability, under the Copyright Act, of vicarious liability against one who sells
a product that is used to make unauthorized copies of copyrighted material. Id.
at 434-42, 104 S.Ct. at 785-89. The Court held that liability based on
contributory infringement could be imposed only where the seller had constructive knowledge of
the fact that its product was used to make unauthorized copies of copyrighted
material, id. at 339, 104 S.Ct. at 787, and that the sale of
a product "does not constitute contributory infringement if the product is widely used
for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing
uses." Id. at 442, 104 S.Ct. at 789.
While Quaid concedes that it has actual knowledge that its product is used
to make unauthorized copies of copyrighted material, it contends that the RAMKEY portion
of its CopyWrite diskettes serves a substantial noninfringing use by allowing purchasers of
programs on PROLOK diskettes to make archival copies as permitted under 17 U.S.C.
§ 117(2), and thus that it is not liable for contributory infringement
. [W]e find
that RAMKEY is capable of substantial noninfringing uses and thus reject Vault's contention
that the advertisement and sale of CopyWrite diskettes with RAMKEY constitute contributory infringement.
The focus of Vault's allegation of contributory infringement in its amended complaint is
that CopyWrite, through RAMKEY, enables purchasers of PROLOK protected programs to infringe the
copyrights of Vault's customers and that, as a result, Vault has suffered damages
due to its loss of customers. While Vault does not own the copyrights
to its customer's programs, it does own the copyright to the program it
places on each PROLOK diskette. This program operates in conjunction with the "fingerprint"
to prevent the duplication of Vault's customer's programs. Uncontroverted testimony established that both
Vault's protective program and its customer's program are copied onto a CopyWrite diskette
when an individual executes a computer's "copy" function in order to duplicate the
customer's program from a PROLOK diskette onto a CopyWrite diskette, and that RAMKEY
then interacts with Vault's program to defeat its protective function and to make
the computer operate as if the original PROLOK diskette was in one of
its disk drives. Therefore, CopyWrite diskettes, through RAMKEY, facilitate not only the copying
of Vault's customer's software programs but also the copying of Vault's protective program,
and, in addition, RAMKEY interacts with Vault's program to destroy its purpose.
2. Substantial Noninfringing Uses of RAMKEY
Vault's allegation of contributory infringement focuses on the RAMKEY feature of CopyWrite diskettes,
not on the non-RAMKEY portions of these diskettes. Vault has no objection to
the advertising and marketing of CopyWrite diskettes without the RAMKEY feature, and this
feature is separable from the underlying diskette upon which it is placed. Therefore,
in determining whether Quaid engaged in contributory infringement, we do not focus on
the substantial noninfringing uses of CopyWrite, as opposed to the RAMKEY feature itself.
The issue properly presented is whether the RAMKEY feature has substantial noninfringing uses.
The starting point for our analysis is with Sony. The plaintiffs in Sony,
owners of copyrighted television programs, sought to enjoin the manufacture and marketing of
Betamax video tape recorders ("VTR's"), contending that VTR's contributed to the infringement of
their copyrights by permitting the unauthorized copying of their programs. 464 U.S. at
419-20, 104 S.Ct. at 777. After noting that plaintiffs' market share of television
programming was less than 10%, and that copyright holders of a significant quantity
of television broadcasting authorized the copying of their programs, the Court held that
VTR's serve the legitimate and substantially noninfringing purpose of recording these programs, as
well as plaintiffs' programs, for future viewing (authorized and unauthorized time-shifting respectively), and
therefore rejected plaintiffs' contributory infringement claim. Id. at 442-55, 104 S.Ct. at 789-95.
Quaid asserts that RAMKEY serves the legitimate purpose of permitting purchasers of programs
recorded on PROLOK diskettes to make archival copies under § 117(2) and that this
purpose constitutes a substantial noninfringing use. At trial, witnesses for Quaid testified that
software programs placed on floppy diskettes are subject to damage by physical and
human mishap and that RAMKEY protects a purchaser's investment by providing a fully
functional archival copy that can be used if the original program on the
PROLOK protected diskette, or the diskette itself, is destroyed. Quaid contends that an
archival copy of a PROLOK protected program, made without RAMKEY, does not serve
to protect against these forms of damage because a computer will not read
the program into its memory from the copy unless the PROLOK diskette containing
the original undamaged program is also in one of its disk drives, which
is impossible if the PROLOK diskette, or the program placed thereon, has been
destroyed due to physical or human mishap. ...
A copy of a PROLOK protected program made with RAMKEY protects an owner
from all types of damage to the original program, while a copy made
without RAMKEY only serves the limited function of protecting against damage to the
original program by mechanical and electrical failure. Because § 117(2) permits the making of
fully functional archival copies, it follows that RAMKEY is capable of substantial noninfringing
uses. Quaid's advertisement and sale of CopyWrite diskettes with the RAMKEY feature does
not constitute contributory infringement.
.
IV. Vault's Louisiana Claims
Seeking preliminary and permanent injunctions and damages, Vault's original complaint alleged that Quaid
breached its license agreement by decompiling or disassembling Vault's program in violation of
the Louisiana Software License Enforcement Act (the "License Act"), La.Rev.Stat.Ann. § 51:1961 et seq.
(West 1987), and that Quaid misappropriated Vault's program in violation of the Louisiana
Uniform Trade Secrets Act, La.Rev.Stat.Ann. § 51:1431 et seq. (West 1987). On appeal, Vault
seeks an injunction to prevent Quaid from decompiling or disassembling PROLOK version 2.0.
Louisiana's License Act permits a software producer to impose a number of contractual
terms upon software purchasers provided that the terms are set forth in a
license agreement which comports with La.Rev.Stat.Ann. §§ 51:1963 & 1965, and that this license
agreement accompanies the producer's software. Enforceable terms include the prohibition of: (1) any
copying of the program for any purpose; and (2) modifying and/or adapting the
program in any way, including adaptation by reverse engineering, decompilation or disassembly. La.Rev.Stat.Ann.
§ 51:1964. The terms "reverse engineering, decompiling or disassembling" are defined as "any process
by which computer software is converted from one form to another form which
is more readily understandable to human beings, including without limitation any decoding or
decrypting of any computer program which has been encoded or encrypted in any
manner." La.Rev.Stat.Ann. § 51:1962(3).
Vault's license agreement, which accompanies PROLOK version 2.0 and comports with the requirements
of La.Rev.Stat.Ann. §§ 51:1963 & 1965, provides that "[y]ou may not ... copy, modify,
translate, convert to another programming language, decompile or disassemble" Vault's program. Vault asserts that
these prohibitions are enforceable under Louisiana's License Act, and specifically seeks an injunction
to prevent Quaid from decompiling or disassembling Vault's program.
The district court held that Vault's license agreement was "a contract of adhesion
which could only be enforceable if the [Louisiana License Act] is a valid
and enforceable statute." The court noted numerous conflicts between Louisiana's License Act and
the Copyright Act, including: (1) while the License Act authorizes a total prohibition
on copying, the Copyright Act allows archival copies and copies made as an
essential step in the utilization of a computer program, 17 U.S.C. § 117; (2)
while the License Act authorizes a perpetual bar against copying, the Copyright Act
grants protection against unauthorized copying only for the life of the author plus
fifty years, 17 U.S.C. § 302(a); and (3) while the License Act places no
restrictions on programs which may be protected, under the Copyright Act, only "original
works of authorship" can be protected, 17 U.S.C. § 102. The court concluded that,
because Louisiana's License Act "touched upon the area" of federal copyright law, its
provisions were preempted and Vault's license agreement was unenforceable.
In Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct.
784, 11 L.Ed.2d 661 (1964), the Supreme Court held that "[w]hen state law
touches upon the area of [patent or copyright statutes], it is 'familiar doctrine'
that the federal policy 'may not be set at naught, or its benefits
denied' by the state law." Id. at 229, 84 S.Ct. at 787 (quoting
Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173, 176, 63 S.Ct.
172, 173, 87 L.Ed. 165 (1942)). See Compco Corp. v. Day-Brite Lighting, Inc.,
376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964)
. Section 117 of
the Copyright Act permits an owner of a computer program to make an
adaptation of that program provided that the adaptation is either "created as an
essential step in the utilization of the computer program in conjunction with a
machine," § 117(1), or "is for archival purpose only," § 117(2). The provision in Louisiana's
License Act, which permits a software producer to prohibit the adaptation of its
licensed computer program by decompilation or disassembly, conflicts with the rights of computer
program owners under § 117 and clearly "touches upon an area" of federal copyright
law. For this reason, and the reasons set forth by the district court,
we hold that at least this provision of Louisiana's License Act is preempted
by federal law, and thus that the restriction in Vault's license agreement against
decompilation or disassembly is unenforceable.
V. Conclusion
We hold that: (1) Quaid did not infringe Vault's exclusive right to reproduce
its program in copies under § 106(1); (2) Quaid's advertisement and sale of RAMKEY
does not constitute contributory infringement; (3) RAMKEY does not constitute a derivative work
of Vault's program under § 106(2); and (4) the provision in Vault's license agreement,
which prohibits the decompilation or disassembly of its program, is unenforceable.
The judgment of the district court is AFFIRMED.
ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)
EASTERBROOK, Circuit Judge.
Must buyers of computer software obey the terms of shrinkwrap licenses? The district
court held not, for two reasons: first, they are not contracts because the
licenses are inside the box rather than printed on the outside; second, federal
law forbids enforcement even if the licenses are contracts.
[W]e disagree with the
district judge's conclusion on each. Shrinkwrap licenses are enforceable unless their terms are
objectionable on grounds applicable to contracts in general (for example, if they violate
a rule of positive law, or if they are unconscionable).
I
ProCD, the plaintiff, has compiled information from more than 3,000 telephone directories into
a computer database. We may assume that this database cannot be copyrighted, although
it is more complex, contains more information (nine-digit zip codes and census industrial
codes), is organized differently, and therefore is more original than the single alphabetical
directory at issue in Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991). ProCD sells a version
of the database, called SelectPhone, on CD-ROM discs. (CD-ROM means "compact disc-read only
memory." The "shrinkwrap license" gets its name from the fact that retail software
packages are covered in plastic or cellophane "shrinkwrap," and some vendors, though not
ProCD, have written licenses that become effective as soon as the customer tears
the wrapping from the package. Vendors prefer "end user license," but we use
the more common term.)
The database in SelectPhone cost more than $10 million to compile and is
expensive to keep current. It is much more valuable to some users than
to others. The combination of names, addresses, and SIC codes enables manufacturers to
compile lists of potential customers. Manufacturers and retailers pay high prices to specialized
information intermediaries for such mailing lists; ProCD offers a potentially cheaper alternative. People
with nothing to sell could use the database as a substitute for calling
long distance information, or as a way to look up old friends who
have moved to unknown towns, or just as a electronic substitute for the
local phone book. ProCD decided to engage in price discrimination, selling its database
to the general public for personal use at a low price (approximately $150
for the set of five discs) while selling information to the trade for
a higher price. It has adopted some intermediate strategies too: access to the
SelectPhone database is available via the America On-line service for the price America
Online charges to its clients (approximately $3 per hour), but this service has
been tailored to be useful only to the general public.
If ProCD had to recover all of its costs and make a profit
by charging a single price--that is, if it could not charge more to
commercial users than to the general public--it would have to raise the price
substantially over $150. The ensuing reduction in sales would harm consumers who value
the information at, say, $200. They get consumer surplus of $50 under the
current arrangement but would cease to buy if the price rose substantially. If
because of high elasticity of demand in the consumer segment of the market
the only way to make a profit turned out to be a price
attractive to commercial users alone, then all consumers would lose out--and so would
the commercial clients, who would have to pay more for the listings because
ProCD could not obtain any contribution toward costs from the consumer market.
To make price discrimination work, however, the seller must be able to control
arbitrage. An air carrier sells tickets for less to vacationers than to business
travelers, using advance purchase and Saturday--night-stay requirements to distinguish the categories. A producer
of movies segments the market by time, releasing first to theaters, then to
pay-per-view services, next to the videotape and laserdisc market, and finally to cable
and commercial tv. Vendors of computer software have a harder task. Anyone can
walk into a retail store and buy a box. Customers do not wear
tags saying "commercial user" or "consumer user." Anyway, even a commercial-user-detector at the
door would not work, because a consumer could buy the software and resell
to a commercial user. That arbitrage would break down the price discrimination and
drive up the minimum price at which ProCD would sell to anyone.
Instead of tinkering with the product and letting users sort themselves--for example, furnishing
current data at a high price that would be attractive only to commercial
customers, and two-year-old data at a low price--ProCD turned to the institution of
contract. Every box containing its consumer product declares that the software comes with
restrictions stated in an enclosed license. This license, which is encoded on the
CD-ROM disks as well as printed in the manual, and which appears on
a user's screen every time the software runs, limits use of the application
program and listings to non-commercial purposes.
Matthew Zeidenberg bought a consumer package of SelectPhone in 1994 from a retail
outlet in Madison, Wisconsin, but decided to ignore the license. He formed Silken
Mountain Web Services, Inc., to resell the information in the SelectPhone database. The
corporation makes the database available on the Internet to anyone willing to pay
its price--which, needless to say, is less than ProCD charges its commercial customers.
II
Following the district court, we treat the licenses as ordinary contracts accompanying the
sale of products, and therefore as governed by the common law of contracts
and the Uniform Commercial Code. Whether there are legal differences between "contracts" and
"licenses" (which may matter under the copyright doctrine of first sale) is a
subject for another day.
Zeidenberg [argues], and the district court held, that placing
the package of software on the shelf is an "offer," which the customer
"accepts" by paying the asking price and leaving the store with the goods.
In Wisconsin, as elsewhere, a contract includes only the terms on which the
parties have agreed. One cannot agree to hidden terms, the judge concluded. So
far, so good--but one of the terms to which Zeidenberg agreed by purchasing
the software is that the transaction was subject to a license. Zeidenberg's position
therefore must be that the printed terms on the outside of a box
are the parties' contract--except for printed terms that refer to or incorporate other
terms. But why would Wisconsin fetter the parties' choice in this way? Vendors
can put the entire terms of a contract on the outside of a
box only by using microscopic type, removing other information that buyers might find
more useful (such as what the software does, and on which computers it
works), or both. The "Read Me" file included with most software, describing system
requirements and potential incompatibilities, may be equivalent to ten pages of type; warranties
and license restrictions take still more space. Notice on the outside, terms on
the inside, and a right to return the software for a refund if
the terms are unacceptable (a right that the license expressly extends), may be
a means of doing business valuable to buyers and sellers alike.
Doubtless a
state could forbid the use of standard contracts in the software business, but
we do not think that Wisconsin has done so.
Transactions in which the exchange of money precedes the communication of detailed terms
are common. Consider the purchase of insurance. The buyer goes to an agent,
who explains the essentials (amount of coverage, number of years) and remits the
premium to the home office, which sends back a policy. On the district
judge's understanding, the terms of the policy are irrelevant because the insured paid
before receiving them. Yet the device of payment, often with a "binder" (so
that the insurance takes effect immediately even though the home office reserves the
right to withdraw coverage later), in advance of the policy, serves buyers' interests
by accelerating effectiveness and reducing transactions costs. Or consider the purchase of an
airline ticket. The traveler calls the carrier or an agent, is quoted a
price, reserves a seat, pays, and gets a ticket, in that order. The
ticket contains elaborate terms, which the traveler can reject by canceling the reservation.
To use the ticket is to accept the terms, even terms that in
retrospect are disadvantageous. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585
(1991); see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 115
S. Ct. 2322 (1995) (bills of lading). Just so with a ticket to
a concert. The back of the ticket states that the patron promises not
to record the concert; to attend is to agree. A theater that detects
a violation will confiscate the tape and escort the violator to the exit.
One could arrange things so that every concertgoer signs this promise before forking
over the money, but that cumbersome way of doing things not only would
lengthen queues and raise prices but also would scotch the sale of tickets
by phone or electronic data service.
Consumer goods work the same way. Someone who wants to buy a radio
set visits a store, pays, and walks out with a box. Inside the
box is a leaflet containing some terms, the most important of which usually
is the warranty, read for the first time in the comfort of home.
By Zeidenberg's lights, the warranty in the box is irrelevant; every consumer gets
the standard warranty implied by the UCC in the event the contract is
silent; yet so far as we are aware no state disregards warranties furnished
with consumer products. Drugs come with a list of ingredients on the outside
and an elaborate package insert on the inside. The package insert describes drug
interactions, contraindications, and other vital information--but, if Zeidenberg is right, the purchaser need
not read the package insert, because it is not part of the contract.
Next consider the software industry itself. Only a minority of sales take place
over the counter, where there are boxes to peruse. A customer pay place
an order by phone in response to a line item in a catalog
or a review in a magazine. Much software is ordered over the Internet
by purchasers who have never seen a box. Increasingly software arrives by wire.
There is no box; there is only a stream of electrons, a collection
of information that includes data, an application program, instructions, many limitations ("MegaPixel 3.14159
cannot be used with BytePusher 2.718"), and the terms of sale. The user
purchases a serial number, which activates the software's features. On Zeidenberg's arguments, these
unboxed sales are unfettered by terms--so the seller has made a broad warranty
and must pay consequential damages for any shortfalls in performance, two "promises" that
if taken seriously would drive prices through the ceiling or return transactions to
the horse-and-buggy age.
According to the district court, the UCC does not countenance the sequence of
money now, terms later.
One of the court's reasons--that by proposing as part
of the draft Article 2B a new UCC sec. 2-2203 that would explicitly
validate standard-form user licenses, the American Law Institute and the National Conference of
Commissioners on Uniform Laws have conceded the invalidity of shrinkwrap licenses under current
law, see 908 F. Supp. at 65566--depends on a faulty inference. To propose
a change in a law's text is not necessarily to propose a change
in the law's effect. New words may be designed to fortify the current
rule with a more precise text that curtails uncertainty. To judge by the
flux of law review articles discussing shrinkwrap licenses, uncertainty is much in need
of reduction--although businesses seem to feel less uncertainty than do scholars, for only
three cases (other than ours) touch on the subject, and none directly addresses
it. See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d
Cir. 1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 268-70 (5th
Cir. 1988); Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F. Supp.
759 (D. Ariz. 1993). As their titles suggest, these are not consumer transactions.
Step-Saver is a battle-of the-forms case, in which the parties exchange incompatible forms
and a court must decide which prevails. See Northrop Corp. v. Litronic Industries,
29 F.3d 1173 (7th Cir. 1994) (Illinois law); Douglas G. Baird & Robert
Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of sec.
2-207, 68 Va. L. Rev. 1217, 1227-31 (1982). Our case has only one
form; UCC sec. 2-207 is irrelevant. Vault holds that Louisiana's special shrinkwrap-license statute
is preempted by federal law, a question to which we return. And Arizona
Retail Systems did not reach the question, because the court found that the
buyer knew the terms of the license before purchasing the software.
What then does the current version of the UCC have to say? We
think that the place to start is sec. 2-204(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." A
vendor, as master of the offer, may invite acceptance by conduct, and may
propose limitations on the kind of conduct that constitutes acceptance. A buyer may
accept by performing the acts the vendor proposes to treat as acceptance. And
that is what happened. ProCD proposed a contract that a buyer would accept
by using the software after having an opportunity to read the license at
leisure. This Zeidenberg did. He had no choice, because the software splashed the
license on the screen and would not let him proceed without indicating acceptance.
So although the district judge was right to say that a contract can
be, and often is, formed simply by paying the price and walking out
of the store, the UCC permits contracts to be formed in other ways.
ProCD proposed such a different way, and without protest Zeidenberg agreed. Ours is
not a case in which a consumer opens a package to find an
insert saying "you owe us an extra $10,000" and the seller files suit
to collect. Any buyer finding such a demand can prevent formation of the
contract by returning the package, as can any consumer who concludes that the
terms of the license make the software worth less than the purchase price.
Nothing in the UCC requires a seller to maximize the buyer's net gains.
Section 2-606, which defines "acceptance of goods", reinforces this understanding. A buyer accepts
goods under sec. 2-606(1)(b) when, after an opportunity to inspect, he fails to
make an effective rejection under sec. 2-602(1). ProCD extended an opportunity to reject
if a buyer should find the license terms unsatisfactory; Zeidenberg inspected the package,
tried out the software, learned of the license, and did not reject the
goods. We refer to sec. 2-606 only to show that the opportunity to
return goods can be important; acceptance of an offer differs from acceptance of
goods after delivery, see Gillen v. Atalanta Systems, Inc., 997 F.2d 280, 284
n.1 (7th Cir. 1993); but the UCC consistently permits the parties to structure
their relations so that the buyer has a chance to make a final
decision after a detailed review.
Some portions of the UCC impose additional requirements on the way parties agree
on terms. A disclaimer of the implied warranty of merchantability must be "conspicuous."
UCC sec. 2-316(2), incorporating UCC sec. 1-201(10). Promises to make firm offers, or
to negate oral modifications, must be "separately signed." UCC secs. 2-205, 2-209(2). These
special provisos reinforce the impression that, so far as the UCC is concerned,
other terms may be as inconspicuous as the forum-selection clause on the back
of the cruise ship ticket in Carnival Lines. Zeidenberg has not located any
Wisconsin case--for that matter, any case in any state--holding that under the UCC
the ordinary terms found in shrinkwrap licenses require any special prominence, or otherwise
are to be undercut rather than enforced. In the end, the terms of
the license are conceptually identical to the contents of the package. Just as
no court would dream of saying that SelectPhone must contain 3,100 phone books
rather than 3,000, or must have data no more than 30 days old,
or must sell for $100 rather than $150--although any of these changes would
be welcomed by the customer, if all other things were held constant--so, we
believe, Wisconsin would not let the buyer pick and choose among terms. Terms
of use are no less a part of "the product" than are the
size of the database and the speed with which the software compiles listings.
Competition among vendors, not judicial revision of a package's contents, is how consumers
are protected in a market economy. Digital Equipment Corp. v. Uniq Digital Technologies,
Inc., 73 F.3d 756 (7th Cir. 1996). ProCD has rivals, which may elect
to compete by offering superior software, monthly updates, improved terms of use, lower
price, or a better compromise among these elements. As we stressed above, adjusting
terms in buyers' favor might help Matthew Zeidenberg today (he already has the
software) but would lead to a response, such as a higher price, that
might make consumers as a whole worse off.
III
The district court held that, even if Wisconsin treats shrinkwrap licenses as contracts,
sec. 301(a) of the Copyright Act, 17 U.S.C. sec. 301(a), prevents their enforcement. The relevant part of
sec. 301(a) preempts any "legal or equitable rights [under state law] that are equivalent
to any of the exclusive rights within the general scope of copyright as
specified by section 106 in works of authorship that are fixed in a tangible
medium of expression and come within the subject matter of copyright as specified
by sections 102 and 103". ProCD's software and data are "fixed in a tangible
medium of expression", and the district judge held that they are "within the
subject matter of copyright". The latter conclusion is plainly right for the copyrighted
application program, and the judge thought that the data likewise are "within the
subject matter of copyright" even if, after Feist, they are not sufficiently original
to be copyrighted.
One function of sec. 301(a) is to prevent states from giving
special protection to works of authorship that Congress has decided should be in
the public domain, which it can accomplish only if "subject matter of copyright"
includes all works of a type covered by sections 102 and 103, even if
federal law does not afford protection to them. Cf. Bonito Boats, Inc. v.
Thunder Craft Boats, Inc., 489 U.S. 141 (1989) (same principle under patent laws).
But are rights created by contract "equivalent to any of the exclusive rights
within the general scope of copyright"? Three courts of appeals have answered "no."
National Car Rental Systems, Inc. v. Computer Associates International, Inc., 991 F.2d 426,
433 (8th Cir. 1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501
(5th Cir. 1990); Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th
Cir. 1988). The district court disagreed with these decisions, but we think them
sound. Rights "equivalent to any of the exclusive rights within the general scope
of copyright" are rights established by law--rights that restrict the options of persons
who are strangers to the author. Copyright law forbids duplication, public performance, and
so on, unless the person wishing to copy or perform the work gets
permission; silence means a ban on copying. A copyright is a right against
the world. Contracts, by contrast, generally affect only their parties; strangers may do
as they please, so contracts do not create "exclusive rights." Someone who found
a copy of SelectPhone on the street would not be affected by the
shrinkwrap license--though the federal copyright laws of their own force would limit the
finder's ability to copy or transmit the application program.
Think for a moment about trade secrets. One common trade secret is a
customer list. After Feist, a simple alphabetical list of a firm's customers, with
address and telephone numbers, could not be protected by copyright. Yet Kewanee Oil
Co. v. Bicron Corp., 416 U.S. 470 (1974), holds that contracts about trade
secrets may be enforced--precisely because they do not affect strangers' ability to discover
and use the information independently. If the amendment of sec. 301(a) in 1976 overruled
Kewanee and abolished consensual protection of those trade secrets that cannot be copyrighted,
no one has noticed--though abolition is a logical consequence of the district court's
approach. Think, too, about everyday transactions in intellectual property. A customer visits a
video store and rents a copy of Night of the Lepus. The customer's
contract with the store limits use of the tape to home viewing and
requires its return in two days. May the customer keep the tape, on
the ground that sec. 301(a) makes the promise unenforceable?
. [S]ome applications of the
law of contract could interfere with the attainment of national objectives and therefore
come within the domain of sec. 301(a). But general enforcement of shrinkwrap licenses
of the kind before us does not create such interference.
Everyone remains free to copy and disseminate all 3,000 telephone books that have
been incorporated into ProCD's database. Anyone can add sic codes and zip codes.
ProCD's rivals have done so. Enforcement of the shrinkwrap license may even make
information more readily available, by reducing the price ProCD charges to consumer buyers.
To the extent licenses facilitate distribution of object code while concealing the source
code (the point of a clause forbidding disassembly), they serve the same procompetitive
functions as does the law of trade secrets. Rockwell Graphic Systems, Inc. v.
DEV Industries, Inc., 925 F.2d 174, 180 (7th Cir. 1991). Licenses may have
other benefits for consumers: many licenses permit users to make extra copies, to
use the software on multiple computers, even to incorporate the software into the
user's products. But whether a particular license is generous or restrictive, a simple
two-party contract is not "equivalent to any of the exclusive rights within the
general scope of copyright" and therefore may be enforced.
REVERSED AND REMANDED
Specht v. Netscape Comm. Corp., 306 F.3d 17 (2d. Cir. 2002)
SOTOMAYOR, Circuit Judge:
This is an appeal from a judgment of the Southern District of New
York denying a motion by defendants-appellants Netscape Communications Corporation and its corporate parent,
America Online, Inc. (collectively, "defendants" or "Netscape"), to compel arbitration and to stay
court proceedings. In order to resolve the central question of arbitrability presented here,
we must address issues of contract formation in cyberspace. Principally, we are asked
to determine whether plaintiffs-appellees ("plaintiffs"), by acting upon defendants' invitation to download free
software made available on defendants' webpage, agreed to be bound by the software's
license terms (which included the arbitration clause at issue), even though plaintiffs could
not have learned of the existence of those terms unless, prior to executing
the download, they had scrolled down the webpage to a screen located below
the download button. We agree with the district court that a reasonably prudent
Internet user in circumstances such as these would not have known or learned
of the existence of the license terms before responding to defendants' invitation to
download the free software, and that defendants therefore did not provide reasonable notice
of the license terms. In consequence, plaintiffs' bare act of downloading the software
did not unambiguously manifest assent to the arbitration provision contained in the license
terms
.
We therefore affirm the district court's denial of defendants' motion to compel arbitration
and to stay court proceedings.
BACKGROUND
I. Facts
In three related putative class actions,1 plaintiffs alleged that, unknown to them, their
use of SmartDownload transmitted to defendants private information about plaintiffs' downloading of files
from the Internet, thereby effecting an electronic surveillance of their online activities in
violation of two federal statutes, the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510
et seq., and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.
In the time period relevant to this litigation, Netscape offered on its website
various software programs, including Communicator and SmartDownload, which visitors to the site were
invited to obtain free of charge. It is undisputed that five of the
six named plaintiffs
downloaded Communicator from the Netscape website
. no clickwrap presentation accompanied
the [download of SmartDownload]. Instead, once plaintiffs
had clicked on the "Download" button
located at or near the bottom of their screen, and the downloading of
SmartDownload was complete, these plaintiffs encountered no further information about the plug-in program
or the existence of license terms governing its use.9 The sole reference to
SmartDownload's license terms on the "SmartDownload Communicator" webpage was located in text that
would have become visible to plaintiffs only if they had scrolled down to
the next screen.
Had plaintiffs scrolled down instead of acting on defendants' invitation to click on
the "Download" button, they would have encountered the following invitation: "Please review and
agree to the terms of the Netscape SmartDownload software license agreement before downloading
and using the software." Plaintiffs Gibson, Gruber, Kelly, and Weindorf averred in their
affidavits that they never saw this reference to the SmartDownload license agreement when
they clicked on the "Download" button. They also testified during depositions that they
saw no reference to license terms when they clicked to download SmartDownload, although
under questioning by defendants' counsel, some plaintiffs added that they could not "remember"
or be "sure" whether the screen shots of the SmartDownload page attached to
their affidavits reflected precisely what they had seen on their computer screens when
they downloaded SmartDownload.10
In sum, plaintiffs Gibson, Gruber, Kelly, and Weindorf allege that the process of
obtaining SmartDownload contrasted sharply with that of obtaining Communicator. Having selected SmartDownload, they
were required neither to express unambiguous assent to that program's license agreement nor
even to view the license terms or become aware of their existence before
proceeding with the invited download of the free plug-in program. Moreover, once these
plaintiffs had initiated the download, the existence of SmartDownload's license terms was not
mentioned while the software was running or at any later point in plaintiffs'
experience of the product.
Even for a user who, unlike plaintiffs, did happen to scroll down past
the download button, SmartDownload's license terms would not have been immediately displayed in
the manner of Communicator's clickwrapped terms. Instead, if such a user had seen
the notice of SmartDownload's terms and then clicked on the underlined invitation to
review and agree to the terms, a hypertext link would have taken the
user to a separate webpage entitled "License & Support Agreements." The first paragraph
on this page read, in pertinent part:
The use of each Netscape software product is governed by a license agreement.
You must read and agree to the license agreement terms BEFORE acquiring a
product. Please click on the appropriate link below to review the current license
agreement for the product of interest to you before acquisition. For products available
for download, you must read and agree to the license agreement terms BEFORE
you install the software. If you do not agree to the license terms,
do not download, install or use the software.
Below this paragraph appeared a list of license agreements, the first of which
was "License Agreement for Netscape Navigator and Netscape Communicator Product Family (Netscape Navigator,
Netscape Communicator and Netscape SmartDownload)." If the user clicked on that link, he
or she would be taken to yet another webpage that contained the full
text of a license agreement that was identical in every respect to the
Communicator license agreement except that it stated that its "terms apply to Netscape
Communicator, Netscape Navigator, and Netscape SmartDownload." The license agreement granted the user a
nonexclusive license to use and reproduce the software, subject to certain terms:
BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING NETSCAPE COMMUNICATOR, NETSCAPE NAVIGATOR,
OR NETSCAPE SMARTDOWNLOAD SOFTWARE (THE "PRODUCT"), THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT
("LICENSEE") IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO
THIS AGREEMENT. IF LICENSEE DOES NOT AGREE TO ALL OF THE TERMS OF
THIS AGREEMENT, THE BUTTON INDICATING NON-ACCEPTANCE MUST BE SELECTED, AND LICENSEE MUST NOT
INSTALL OR USE THE SOFTWARE.
Among the license terms was a provision requiring virtually all disputes relating to
the agreement to be submitted to arbitration:
Unless otherwise agreed in writing, all disputes relating to this Agreement (excepting any
dispute relating to intellectual property rights) shall be subject to final and binding
arbitration in Santa Clara County, California, under the auspices of JAMS/EndDispute, with the
losing party paying all costs of arbitration.
DISCUSSION
It is well settled that a court may not compel arbitration until it
has resolved "the question of the very existence" of the contract embodying the
arbitration clause. Interocean Shipping Co. v. Nat'l Shipping & Trading Corp., 462 F.2d
673, 676 (2d Cir. 1972). "[A]rbitration is a matter of contract and a
party cannot be required to submit to arbitration any dispute which he has
not agreed so to submit." AT & T Techs., Inc. v. Communications Workers
of Am., 475 U.S. 643, 648 (1986) (quotation marks omitted). Unless the parties clearly provide otherwise, "the
question of arbitrability-whether a[n] . . . agreement creates a duty for the
parties to arbitrate the particular grievance-is undeniably an issue for judicial determination." Id.
at 649.
The district court properly concluded that in deciding whether parties agreed to arbitrate
a certain matter, a court should generally apply state- law principles to the
issue of contract formation
III. Whether the User Plaintiffs Had Reasonable Notice of and Manifested Assent to
the SmartDownload License Agreement
Whether governed by the common law or by Article 2 of the Uniform
Commercial Code ("UCC"), a transaction, in order to be a contract, requires a
manifestation of agreement between the parties. See Windsor Mills, Inc. v. Collins &
Aikman Corp., 101 Cal. Rptr. 347, 350 (Cal. Ct. App. 1972) ("[C]onsent to,
or acceptance of, the arbitration provision [is] necessary to create an agreement to
arbitrate."); see also Cal. Com. Code § 2204(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.").13 Mutual manifestation of
assent, whether by written or spoken word or by conduct, is the touchstone
of contract. Binder v. Aetna Life Ins. Co., 89 Cal. Rptr. 2d 540,
551 (Cal. Ct. App. 1999); cf. Restatement (Second) of Contracts § 19(2) (1981) ("The
conduct of a party is not effective as a manifestation of his assent
unless he intends to engage in the conduct and knows or has reason
to know that the other party may infer from his conduct that he
assents."). Although an onlooker observing the disputed transactions in this case would have
seen each of the user plaintiffs click on the SmartDownload "Download" button, see
Cedars Sinai Med. Ctr. v. Mid-West Nat'l Life Ins. Co., 118 F. Supp.
2d 1002, 1008 (C.D. Cal. 2000) ("In California, a party's intent to contract
is judged objectively, by the party's outward manifestation of consent."), a consumer's clicking
on a download button does not communicate assent to contractual terms if the
offer did not make clear to the consumer that clicking on the download
button would signify assent to those terms, see Windsor Mills, 101 Cal. Rptr.
at 351 ("[W]hen the offeree does not know that a proposal has been
made to him this objective standard does not apply."). California's common law is
clear that "an offeree, regardless of apparent manifestation of his consent, is not
bound by inconspicuous contractual provisions of which he is unaware, contained in a
document whose contractual nature is not obvious." Id.; see also Marin Storage &
Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 107 Cal. Rptr. 2d 645,
651 (Cal. Ct. App. 2001) (same).
Arbitration agreements are no exception to the requirement of manifestation of assent. "This
principle of knowing consent applies with particular force to provisions for arbitration." Windsor
Mills, 101 Cal. Rptr. at 351. Clarity and conspicuousness of arbitration terms are
important in securing informed assent. "If a party wishes to bind in writing
another to an agreement to arbitrate future disputes, such purpose should be accomplished
in a way that each party to the arrangement will fully and clearly
comprehend that the agreement to arbitrate exists and binds the parties thereto." Commercial
Factors Corp. v. Kurtzman Bros., 280 P.2d 146, 147-48 (Cal. Dist. Ct. App.
1955) (internal quotation marks omitted). Thus, California contract law measures assent by an
objective standard that takes into account both what the offeree said, wrote, or
did and the transactional context in which the offeree verbalized or acted.
A.The Reasonably Prudent Offeree of Downloadable Software
Defendants argue that plaintiffs must be held to a standard of reasonable prudence
and that, because notice of the existence of SmartDownload license terms was on
the next scrollable screen, plaintiffs were on "inquiry notice" of those terms.14 We
disagree with the proposition that a reasonably prudent offeree in plaintiffs' position would
necessarily have known or learned of the existence of the SmartDownload license agreement
prior to acting, so that plaintiffs may be held to have assented to
that agreement with constructive notice of its terms. See Cal. Civ. Code § 1589
("A voluntary acceptance of the benefit of a transaction is equivalent to a
consent to all the obligations arising from it, so far as the facts
are known, or ought to be known, to the person accepting."). It is
true that "[a] party cannot avoid the terms of a contract on the
ground that he or she failed to read it before signing." Marin Storage
& Trucking, 107 Cal. Rptr. 2d at 651. But courts are quick to
add: "An exception to this general rule exists when the writing does not
appear to be a contract and the terms are not called to the
attention of the recipient. In such a case, no contract is formed with
respect to the undisclosed term." Id.; cf. Cory v. Golden State Bank, 157
Cal. Rptr. 538, 541 (Cal. Ct. App. 1979) ("[T]he provision in question is
effectively hidden from the view of money order purchasers until after the transactions
are completed. . . . Under these circumstances, it must be concluded that
the Bank's money order purchasers are not chargeable with either actual or constructive
notice of the service charge provision, and therefore cannot be deemed to have
consented to the provision as part of their transaction with the Bank.").
[R]eceipt of a physical document containing contract terms or notice thereof is frequently
deemed, in the world of paper transactions, a sufficient circumstance to place the
offeree on inquiry notice of those terms. "Every person who has actual notice
of circumstances sufficient to put a prudent man upon inquiry as to a
particular fact, has constructive notice of the fact itself in all cases in
which, by prosecuting such inquiry, he might have learned such fact." Cal. Civ.
Code § 19. These principles apply equally to the emergent world of online product
delivery, pop-up screens, hyperlinked pages, clickwrap licensing, scrollable documents, and urgent admonitions to
"Download Now!". What plaintiffs saw when they were being invited by defendants to
download this fast, free plug-in called SmartDownload was a screen containing praise for
the product and, at the very bottom of the screen, a "Download" button.
Defendants argue that under the principles set forth in the cases cited above,
a "fair and prudent person using ordinary care" would have been on inquiry
notice of SmartDownload's license terms. Shacket, 651 F. Supp. at 690.
We are not persuaded that a reasonably prudent offeree in these circumstances would
have known of the existence of license terms. Plaintiffs were responding to an
offer that did not carry an immediately visible notice of the existence of
license terms or require unambiguous manifestation of assent to those terms. Thus, plaintiffs'
"apparent manifestation of . . . consent" was to terms "contained in a
document whose contractual nature [was] not obvious." Windsor Mills, 101 Cal. Rptr. at
351. Moreover, the fact that, given the position of the scroll bar on
their computer screens, plaintiffs may have been aware that an unexplored portion of
the Netscape webpage remained below the download button does not mean that they
reasonably should have concluded that this portion contained a notice of license terms.
In their deposition testimony, plaintiffs variously stated that they used the scroll bar
"[o]nly if there is something that I feel I need to see that
is on-that is off the page," or that the elevated position of the
scroll bar suggested the presence of "mere[] formalities, standard lower banner links" or
"that the page is bigger than what I can see." Plaintiffs testified, and
defendants did not refute, that plaintiffs were in fact unaware that defendants intended
to attach license terms to the use of SmartDownload.
We conclude that in circumstances such as these, where consumers are urged to
download free software at the immediate click of a button, a reference to
the existence of license terms on a submerged screen is not sufficient to
place consumers on inquiry or constructive notice of those terms.15 The SmartDownload webpage
screen was "printed in such a manner that it tended to conceal the
fact that it was an express acceptance of [Netscape's] rules and regulations." Larrus,
266 P.2d at 147. Internet users may have, as defendants put it, "as
much time as they need[]" to scroll through multiple screens on a webpage,
but there is no reason to assume that viewers will scroll down to
subsequent screens simply because screens are there. When products are "free" and users
are invited to download them in the absence of reasonably conspicuous notice that
they are about to bind themselves to contract terms, the transactional circumstances cannot
be fully analogized to those in the paper world of arm's-length bargaining. In
the next two sections, we discuss case law and other legal authorities that
have addressed the circumstances of computer sales, software licensing, and online transacting. Those
authorities tend strongly to support our conclusion that plaintiffs did not manifest assent
to SmartDownload's license terms.
For the foregoing reasons, we affirm the district court's denial of defendants' motion
to compel arbitration and to stay court proceedings.
GNU GENERAL PUBLIC LICENSE
Version 2, June 1991
Copyright (C) 1989, 1991 Free Software Foundation, Inc.
51 Franklin St, Fifth Floor, Boston, MA 02110-1301, USA
Everyone is permitted to copy and distribute verbatim copies
of this license document, but changing it is not allowed.
The licenses for most software are designed to take away your
freedom to share and change it. By contrast, the GNU General Public
License is intended to guarantee your freedom to share and change free
software--to make sure the software is free for all its users. This
General Public License applies to most of the Free Software
Foundation's software and to any other program whose authors commit to
using it. (Some other Free Software Foundation software is covered by
the GNU Library General Public License instead.) You can apply it to
your programs, too.
When we speak of free software, we are referring to freedom, not
price. Our General Public Licenses are designed to make sure that you
have the freedom to distribute copies of free software (and charge for
this service if you wish), that you receive source code or can get it
if you want it, that you can change the software or use pieces of it
in new free programs; and that you know you can do these things.
To protect your rights, we need to make restrictions that forbid
anyone to deny you these rights or to ask you to surrender the rights.
These restrictions translate to certain responsibilities for you if you
distribute copies of the software, or if you modify it.
For example, if you distribute copies of such a program, whether
gratis or for a fee, you must give the recipients all the rights that
you have. You must make sure that they, too, receive or can get the
source code. And you must show them these terms so they know their
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We protect your rights with two steps: (1) copyright the software, and
(2) offer you this license which gives you legal permission to copy,
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Also, for each author's protection and ours, we want to make certain
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Finally, any free program is threatened constantly by software
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The precise terms and conditions for copying, distribution and
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0.
This License applies to any program or other work which contains
a notice placed by the copyright holder saying it may be distributed
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Activities other than copying, distribution and modification are not
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Whether that is true depends on what the Program does.
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You may copy and distribute verbatim copies of the Program's
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You may charge a fee for the physical act of transferring a copy, and
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Yoyodyne, Inc., hereby disclaims all copyright
interest in the program `Gnomovision'
(which makes passes at compilers) written
by James Hacker.
signature of Ty Coon, 1 April 1989
Ty Coon, President of Vice
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