Shrinkwrap, Clickwrap and Beyond

Contracts – Prof. Merges

Feb. 22, 2011

ProCD v. Zeidenberg

Judge Frank Easterbrook

SELECT PHONE is on 5 CDs, contains 90 million listings from both White and Yellow Pages of 77.8 million residential and 13.8 million businesses. You can search for listings on any field: name, address, city, state, ZIP, area code, business heading and SIC code. But SELECT PHONE does more! It offers reverse search capability, matches addresses or phone numbers with names and provides counts by business heading or SIC code. And its fast - just a second or two to search for the listing you want. In addition you have unlimited downloading of listings into a database, word processor, spreadsheet or contact management program. The value and utility of this should be apparent to any salespeople, fundraisers, research and market testing firms, law enforcement agencies, private investigators and so on.

SMALL FRY GO ONLINE – 11/1995Technology lets even tiny businesses

outmarket the giants

Pro CD Inc., Database America, Cole Publications (a unit of MetroMail), and Dun & Bradstreet all sell nationwide telephone listings on compact disks, including names and addresses, for as little as $175. The CDs let you search by name, zip code, and, in some, by income or business type

Matthew Zeidenberg

ProCD

• Procedural History

ProCD

• Procedural History

• District court rationale

District court holding

• Was there a K?

• What were its terms?

License vs. sale

• Matters for purposes of copyright law

• “First sale” doctrine permits buyer to resell purchased copy (e.g., used books)

• But this rule does NOT apply for “licensed” works (seller may exert post-sale control)

What term is at issue in ProCD?

What term is at issue in ProCD?

• “No commercial use” restriction

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

Price Discrimination

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Hardcover

Softcover

Total Revenue

Without Price Discrimination

With Price Discrimination

$510 $710

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Commer-cial Users

Non-commercial Users

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Commer-cial Users

Arbitrage!

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

“Perfect Arbitrage”

Arbitrageurs’ profits

Price Discrimination: Review

• US Naval Institute: Why hardcover 1st?

– Other examples of this?

• Airline tickets• Theatre tickets• New electronic products

Why might this term not be enforceable?

• Not part of the K

• Stated only in restrictions inside the box

• Did not form part of purchase K

Note Easterbrook’s approach

• “But why would Wisconsin fetter the parties’ choice in this way?”

• P. 212

7th Circuit Holding

• When is K formed?

• Who is offeror? What is mode of acceptance?

UCC 2-204

• K can be formed by offer, then conduct

• What “conduct” is called for here?

UCC 2-204

• Seller (offeror) ships or transmits product, with terms of use

• Buyer reads terms, uses product: this is acceptance of seller’s offer

Easterbrook: why is this good policy?

• Business motive

• “Freedom of K”

• Consumer benefits

Freedom of Contract in ProCD

• What happens if we prohibit “rolling K formation”?

Freedom of Contract in ProCD

• What happens if we prohibit “rolling K formation”?

All sorts of beneficial K’s will be prohibited; prices will rise; progress will be halted (p. )

Hill v. Gateway

• Facts

• History

Hill v. Gateway

• What is the precise issue, as Easterbrook sees it?

Hill v. Gateway

“Terms inside Gateway’s box stand or fall together. If they constitute the parties’ contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced.”

Hill v. Gateway

“ProCD is about the law of contract, not the law of software. Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products.”

• License vs. sale

• Why might it matter?

– IP Law issues . . .

The question in ProCD was not whether terms were added to a contract after its formation, but how and when the contract was formed—in particular, whether a vendor may propose that a contract of sale be formed, not in the store (or over the phone) with the payment of money or a general “send me the product,” but after the customer has had a chance to inspect both the item and the terms. ProCD answers “yes,” for merchants and consumers alike

Notice of terms?

Gateway’s ads state that their products come with limited warranties and lifetime support. How limited was the warranty—30 days, with service contingent on shipping the computer back, or five years, with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things.

3 ways to discover terms

• Ask for copy in advance

• 3rd party sources, eg websites

• Inspect terms upon delivery

Trends in the caselaw

• Clickwrap agreements: generally enforcable, subject to usual limitations (eg, unconscionability)

• Browsewrap agreements often enforced too – reasonable notice typically required

ALI principles

• Market pressure vs legal force

• Need for both

P. 133

Hubbert v. Dell Corp., 835 N.E.2d 113, 122 (Ill.App. 2005) (“statement that the sales were subject to the defendant’s ‘Terms and Conditions of Sale,’ combined with making the ‘Terms and Conditions of Sale’ accessible online by blue hyperlinks, was sufficient notice to the plaintiffs that purchasing the computers online would make the ‘Terms and Conditions of Sale’ binding on them.”).

§ 2.01 Standard-Form Transfers of Generally Available Software; Enforcement of the Standard Form

(a) This Section applies to standard-form transfers of generally available software as defined in § 1.01(j).

(b) A transferee adopts a standard form as a contract when a reasonable transferor would believe the transferee intends to be bound to the form.

(c) A transferee will be deemed to have adopted a standard form as a contract if (1) the standard form is reasonably accessible electronically prior to initiation of the transfer at issue;

(2) upon initiating the transfer, the transferee has reasonable notice of and access to the standard form before payment or, if there is no payment, before completion of the transfer;

(3) in the case of a standard form presented• electronically, the transferee signifies

agreement at the end of or adjacent to the standard form, or in the case of a standard form printed on or attached to a package or separately wrapped from the software, the transferee does not return the software unopened within a reasonable time after the transfer; and

(4) the transferee can store and reproduce the standard form if presented electronically.

Limits

• Intelligibility

• Unconscionability

Register.com v. Verio

• Facts

• History

Judge Pierre Leval

Term in dispute

By submitting a WHOIS query, you agree that you will use this data only for lawful purposes and that under no circumstances will you use this data to ··· support the transmission of mass unsolicited, commercial advertising or solicitation via email.

Specific K Issue

Verio contends that it nonetheless never became contractually bound to the conditions imposed by Register's restrictive legend because, in the case of each query Verio made, the legend did not appear until after Verio had submitted the query and received the WHOIS data. Accordingly, Verio contends that in no instance did it receive legally enforceable notice of the conditions

Verio was daily submitting numerous queries, each of which resulted in its receiving notice of the terms Register exacted. Furthermore, Verio admits that it knew perfectly well what terms Register demanded. Verio's argument fails.

“Fruit stand” analogy

D's view is that he never agreed to pay for the apple. Thereafter, each day, several times a day, D revisits the stand, takes an apple, and eats it. D never leaves money.

P sues D in contract for the price of the apples taken. D defends on the ground that on no occasion did he see P's price notice until after he had bitten into the apples.

Contrast with ProCD/Hill?

D may well prevail as to the first apple taken. D had no reason to understand upon taking it that P was demanding the payment. In our view, however, D cannot continue on a daily basis to take apples for free, knowing full well that P is offering them only in exchange for 50 cents in compensation, merely because the sign demanding payment is so placed that on each occasion D does not see it until he has bitten into the apple.

Specht v. Netscape Communications Corp., 306 F.3d

17 (2d Cir.2002).

We ruled against Netscape and in favor of the users of its software because the users would not have seen the terms Netscape exacted without scrolling down their computer screens, and there was no reason for them to do so. The evidence did not demonstrate that one who had downloaded Netscape's software had necessarily seen the terms of its offer.

Online Assent

We recognize that contract offers on the Internet often require the offeree to click on an “I agree” icon. And no doubt, in many circumstances, such a statement of agreement by the offeree is essential to the formation of a contract . . .