Click Wrap Licenses

Many Web site owners include as part of their home page a stated restriction on the downloading and reuse or retransmission of their Web site material. Typically this involves a license agreement that purports to bind end users who access the site. The more sophisticated of these agreements utilize "click-wrap" agreements, requiring an end user to register by name and to click an "I agree" button before gaining full access to the site.

Click Wrap, Shrink Wrap, and Browse Wrap Cases

1. Ticketmaster v. Tickets.com, 54 U.S.P.Q.2d 1344 (C.D. Cal. 2000). In considering the claim that defendant breached the terms and conditions of plaintiff’s web site, the court declined to apply earlier holdings that “shrinkwrap” agreements are enforceable. (The term "shrinkwrap license" comes from the packaging on the outside of a CD, which states that opening the package constitutes adherence to the license agreement.) The provisions in the terms and conditions were not obvious and apparent, and the agreement never asked the user to click “I agree” (or a similar form of consent) to view the site in full. The court distinguished “shrinkwrap license” agreements from the Ticketmaster terms and conditions, which required the customer to scroll down to the bottom of the home page to find them.
2. Pollstar v. Gigmania Ltd., 170 F. Supp. 2d 974, 981 (E.D. Cal. 2000) (finding no reasonable notice of the terms of a browsewrap agreement when a hyperlink to the terms appeared in small gray print on a gray background).
3. Softman Prods. Co. v. Adobe Sys., Inc., 171 F. Supp. 2d 1075 (C.D. Cal. 2001). Plaintiff unbundled packages of Adobe software to sell the titles individually. Adobe countersued for copyright infringement based upon plaintiff’s distribution of the software in violation of Adobe’s End User License Agreement (“EULA”). The court held that the transfer of the software to the plaintiff was a sale, not a license, and that the EULA was not binding because the plaintiff never assented to the terms.
4. Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002). The court held that "browse-wrap" licenses are not enforceable when 1) associated with free software downloadable at the click of a button, without the use of an “I accept” button, and 2) when the terms of the software license are located on part of the screen below the download button. The court held 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 Netscape's invitation to download free software. See id. at 32. Further, the court concluded, "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." Id. The court added, "when the writing does not appear to be a contract and the terms are not called to the attention of the recipient . . . no contract is formed with respect to the undisclosed term."
5. I.Lan Sys., Inc. v. Netscout Serv. Level Corp., 183 F. Supp. 2d 328 (D. Mass. 2002). Citing Specht, above, the district court enforced a software license agreement’s limitation of liability clause where plaintiff had to click on an “I agree” button before installing defendant’s software. The court applied Article 2 of the UCC to analyze the enforceability of the click wrap license but acknowledged that there exists a “legislative void” with respect to treatment of software licenses.
6. Moore v. Microsoft Corp., 293 A.D.2d 587 (N.Y. 2002). The court held that the terms of an End User License Agreement were enforceable where the EULA was “prominently displayed on the program user’s computer screen before the software could be installed,” and the user was required to click an “I agree” icon before downloading the software. Id. at 587.
7. Comb v. PayPal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002). The court denied Paypal’s challenge to a class action certification on the unconscionability of an arbitration clause in Paypal’s User Agreement. The User Agreement was not automatically displayed to customers prior to signing up for Paypal’s services, but was accessible through a link positioned on the same page as the “I Agree” button. While the court implied that plaintiffs might not be bound by the User Agreement at all, it ultimately declined to rule on this issue and instead refused to grant Paypal’s challenge based upon the unconscionability of the arbitration clause.
8. Forrest v. Verizon Communications, Inc., 805 A.2d 1007, 1010-11 (D.C. Cir. 2002) (upholding click-wrap agreement)
9. American Airlines, Inc. v. Farechase, Inc., Case No. 067-194022-02 (Texas, 67th Dist., Mar. 8, 2003). A Texas state court granted American Airlines’ application for a temporary injunction against software vendor FareChase on grounds of trespass to chattels and misappropriation. The court also found that FareChase was in breach of contract, enforcing an ‘if you use this site you agree’ terms of service statement on American Airlines’ web site, AA.com. American Airlines alleged that FareChase was accessing and “scraping” the AA.com site and also selling to travel agents and online travel systems “Web Automation” software. (Web Automation software gathers data from AA.com, such as flight schedules and information about American’s discount “webfares.”) The court enjoined FareChase from accessing, using, or scraping AA.com, actually or by means of an automated system, and from distributing software with such capabilities.
10. DeJohn v. The .TV Corp., 245 F. Supp. 2d 913 (N.D. Ill. 2003). The court held that a click-wrap contract is valid even when the terms of the agreement are not prominently displayed, as long as the party has an opportunity to review the terms by clicking on a link to the text.
11. Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2nd Cir. 2004) The court held that a web development service provider was effectively on notice to contract terms presented after the receipt of requested information. The provider was submitting numerous queries daily and each provided notice.
12. Motise v. America Online, Inc., 346 F.Supp.2d 563 (S.D.N.Y.,2004). The court held that the stepson of an AOL customer was a sublicensee of the customer and therefore subject to the forum selection clause in the terms of service, even though the stepson himself did not see or agree to the terms.
13. Ariz. Cartridge Remanufacturers Ass’n v. Lexmark Int’l, Inc., 421 F.3d 981 (9th Cir. 2005). The court upheld the validity of a box-wrap license prohibiting the transfer of used printer cartridges to anyone other than Lexmark. Since consumers had received a reduced price for the cartridge, and the box provided clear notice of the terms, the court held that a valid contract had been made when the box was opened.
14. Davidson & Associates, Inc. v. Internet Gateway, Inc., 334 F. Supp. 2d 1164 (E.D. Mo. 2004). The court held a computer game's click-wrap EULA and TOU were enforceable and not unconscionable. The contracts prohibited reverse engineering, disassembling, and making derivative works. Defendants developed a competing online service to play plaintiff's games. The terms of the contract were not unconscionable because the defendants had the choice to select a different game, were expert users familiar with the language used in the contract, and received adequate notice that the game was subject to the agreement.
15. Affinity Internet, Inc., d/b/a SkyNetWeb v. Consolidated Credit Counseling Services, Inc., 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006). A statement that a contract is "subject to a user agreement" found at a stated website is not sufficient to incorporate the agreement into the contract. The contract must sufficiently describe the document or "so much of it as is referred to, [] to be interpreted as part of the writing."
16. Dix v. ICT Group, __ P.3d _, 2005 WL 372483 (Ct. App. Wash., Feb. 17, 2005) AOL users sued to recover fees for new accounts they claim they did not create. Plaintiffs argued the Terms of Service forum selection clause was not enforceable because AOL unilaterally created the secondary accounts, and therefore the TOS from the original account did not apply. The court found that the forum selection clause was enforceable because the TOS expressly defined "account" to include "all sub-accounts or other accounts opened under your original account."
17. Cairo, Inc. v. CrossMedia Services, Inc., 2005 WL 756610 (N.D. Cal., April 1, 2005). The court held that a party's repeated and automated use of another's website could form the basis of imputing knowledge of and binding him/her to the terms of service agreement.
18. Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. App. Ct. 2005). The court upheld the validity of an arbitration clause contained in the Terms and Conditions of Sale accessible via hyperlink on several pages in the online ordering process and also shipped with the computer. Since the last web page in the ordering process stated that the order was subject to the "Terms and Conditions of Sale," this portion was essentially another page of the contract and thus its terms were binding.
19. Feldman v. Google (E.D. Penn. March 28, 2007) [1]. Distinguishing Specht above, the court held that an online click-wrap agreement was enforceable against the plaintiff, who claimed he had never read the terms at issue. The court reasoned that a "reasonably prudent internet user" would have been on notice of the terms, the contract was a reasonable length and font, and the user was forced to click "I agree" to assent. The court also held that the Google click-wrap agreement was not procedurally or substantively unconscionable.
20. RealPage, Inc. v. EPS, Inc., 560 F. Supp. 2d 539, 545 (E.D. Tex. Sept. 5, 2007). The court held that click-wrap agreements are valid even if they do not require the user to scroll through all the terms before indicating acceptance.
21. Southwest Airlines Co. v. BoardFirst, L.L.C., 2007 WL 4823761 (N.D. Tex. Sept. 12, 2007). Discussing the differences between Specht and Register.com, the court noted that "the validity of a browsewrap license turns on whether a website user has actual or constructive knowledge of a site's terms and conditions prior to using the site." Thus, the court held the browse-wrap agreement was enforceable where the defendant had actual knowledge of the terms upon receiving plaintiff's cease-and-desist letter and continued to use the site thereafter.
22. A.V. v. iParadigms, L.L.C., 544 F. Supp. 2d 473 (E.D. Va. Mar. 11, 2008) (reversed in part on other grounds in A.V. v. iParadigms, L.L.C., 562 F.3d 630 (4th Cir 2009)). A group of students sued Turnitin.com, a website used to detect plagiarism, for copyright infringement in digitally archiving their submitted papers. The court upheld the click-wrap agreement against plaintiffs, despite being minors, because they retained the benefits of the agreement (i.e. remaining in good stead with their schools and having standing to bring suit).
23. Hines v. Overstock.com, Inc., ___ F. Supp. 2d ___, 2009 WL 2876667 (E.D.N.Y. Sept. 8, 2009). Overstock.com attempted to dismiss plaintiff's suit based on a mandatory arbitration provision in the posted "Terms and Conditions" linked to at the bottom of the web page. Applying "Specht", the court held this browse-wrap agreement did not create a valid contract "because the website did not prompt [the user] to review the Terms and Conditions and because the link to the Terms and Conditions was not prominently displayed so as to provide reasonable notice."
24. Burcham v. Expedia, Inc., 2009 WL 586512 (E.D. Mo. Mar. 6, 2009). Plaintiff argued he was not bound to defendant website's click-wrap agreement because others had access to his computer and could have created an account on his behalf without him seeing the terms. The court held that even if this were true, he was still bound because at the bottom of pages visited by plaintiff, there were visible links to the user agreement, which, if followed, stated that access and use of the site was conditioned on the user's consent to the agreement.
25. Major v. McCallister, ___ S.W.3d ___, 2009 WL 495994 (Mo. App. Dec. 23, 2009). The court rejected plaintiff's argument that online terms do not provide adequate notice to a reasonably prudent user unless presented in a click-wrap format. Instead, the court enforced the browse-wrap agreement in this case because, adjacent to the "submit" button clicked by plaintiff, there was a notice that read "By submitting you agree to the Terms of Use" with a blue hyperlink to the terms (in addition to other visible links to the terms on the site).

Unconscionability

Unconscionability is a defense applicable to contracts generally and thus may be raised in defense to provisions of a click wrap contact. Comb v. PayPal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002) (citing Blake v. Ecker, 93 Cal.App.4th 728, 741 (2001) . A provision is unconscionable when there is an absence of meaningful choice for one party on combined with contract terms that are unreasonably favorable to the other party. Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003), cert. denied 540 U.S. 1160.

Unconscionability has both procedural and substantive components. Blake v. Ecker, 93 Cal.App.4th at 742. The procedural component is satisfied by the existence of unequal bargaining positions and hidden terms common in the context of adhesion contracts. Id. The substantive component is satisfied by overly harsh or one-sided results that "shock the conscience." Id. The two elements operate on a sliding scale such that the more significant one is, the less significant the other need be. Id. at 743. A claim of unconscionability cannot be determined merely by examining the face of the contract; there must be an inquiry into the circumstances under which the contract was executed, its purpose, and effect. Id.

Under California statute, when a contract is alleged to be unconscionable, "the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination." Cal. Civ.Code § 1670.5. See also Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 1536 (1997) (this is a "legislative recognition that a claim of unconscionability often cannot be determined merely by examining the face of the contract, but will require inquiry into its setting, purpose, and effect.")

Procedural Unconscionability

A contract or clause is procedurally unconscionable if it is a contract of adhesion. Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 853 (2001) . A contract of adhesion, in turn, is a "standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." Armendariz v. Foundation Health Psychcare Serv., 24 Cal.4th 83, 113 2000) (citations and internal quotation omitted). A click wrap contract will generally be a contract of adhesion. See Comb v. PayPal, Inc., 218 F.Supp.2d 1165 (N.D. Cal. 2002); but see also Tricome v. Ebay, Inc., 2009 WL 3365873 (E.D. Pa. Oct. 19, 2009) (finding that because plaintiff was not required to sell his products on eBay, but merely took advantage of the opportunity to do so "to increase his business opportunities (and thus his profits)," eBay's User Agreement was not a contract of adhesion).

Substantive Unconscionability

"Substantive unconscionability" focuses on the terms of the agreement and whether those terms are "so one-sided as to 'shock the conscience.' " Kinney v. United HealthCare Services, Inc., 70 Cal.App.4th 1322 (Cal.App. 4 Dist., 1999).

Substantive unconscionability has been found in many cases based upon arbitration provisions requiring arbitration of the weaker party's claims but permitting a choice of forums for the stronger party. See, e.g., Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 940-941 (9th Cir. 2001); Mercuro v. Superior Court, 96 Cal.App.4th 167, 176 (2002).

Examples of Unconscionability

Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569, (1st Dep't 1998). The court held an arbitration agreement unconscionable and therefore not enforceable, in part because nonrefundable $4,000 advance fee required to arbitrate was excessive.

While forum selection clauses generally are presumed prima facie valid, a forum selection clause may be unconscionable if the "place or manner" in which arbitration is to occur is unreasonable taking into account "the respective circumstances of the parties." Comb v. PayPal, Inc., 218 F. Supp. 2d 1165 (N.D. Cal. 2002) (citing Bolter v. Superior Court, 87 Cal.App.4th 900, 909 (2001)). In Bolter,the court found that enforcement of a Utah forum selection clause providing would be cost prohibitive in light of fact that the potential claimants located around the country would be required to retain counsel familiar with Utah law.

In California, provisions in contracts of adhesion that require consumers to waive their right to a class action remedy will be found unconscionable where: 1) the contract is made "in a setting in which disputes between the contracting parties predictably involve small amounts of damages," and 2) "it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money." Discover Bank v. Superior Court, 113 P.3d 1100, 1110, 36 Cal. 4th 148 (2005) (interpreting Cal. Civ. Code § 1668), see also Aval v. Earthlink, Inc., 134 Cal. App. 4th 544, 557 (2005) (applying Discover Bank to Earthlink's DSL Terms and Conditions to render the class action waiver unenforceable).

Davidson & Associates, Inc. v. Internet Gateway, Inc., 334 F. Supp. 2d 1164 (E.D. Mo. 2004) The court found that an EULA was not substantively unconscionable because the terms did not "shock the conscience." The court dismissed the defendant's unconscionability argument that no reasonable person would think that acceptance of an EULA was required to play an online video game.

Bragg v. Linden Research, Inc. (E.D.P.A. May 30, 2007) (finding arbitration clause in Terms of Service for virtual world Second Life both procedurally and substantively unconscionable).