Electronic commerce requires fast and efficient transactions, Business methods have evolved to accommodate e-commerce transactions with shrinkwrap and clickwrap agreements. A shrinkwrap license is a license provided inside the software product packaging, and a clickwrap agreement allows contract execution on a website with a mouseclick. While these devices offer practical benefits for e-commerce transactions, contract enforceability remains a concern. Shrinkwrap licensing is frowned upon since the terms of the license are unknown to the purchaser until after the sale. Similarly, clickwrap contracts are problematic when they include detailed terms which the buyer scrolls through quickly without a thorough review. Moreover, many contracts typically require a written document with the signatures of the parties. Since a clickwwap contract is generated electronically, arguably, there is no writing and (there are) no actual signatures,
Commercial law governing contracts, which was adopted prior to the online revolution, has lagged behind changes in business methods. This has left the courts to resolve online contract enforceability issues. In ProCD, Inc. v. Zeidenberg, ProCD’s SelectPhone software, which contained 95 million residential and business listings, was sold to Matt Zeidenberg with a shrinkwrap license included inside the box. Once the product was installed on Zeidenberg’s computer, a screen put him on notice that the software was subject to the license, which included terms prohibiting copying or distribution.
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Zeidenberg ignored the license terms and posted the telephone listings on the Internet for free distribution. In a lawsuit by ProCl), the court held that the license was not enforceable because it was inside the box, thus depriving the purchaser of the opportunity to review all of its terms prior to purchase. On appeal, however, that decision was reversed in a ruling that buyers of software must obey the licenses. The appeals court recognized that “notice of the license terms on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable may be a means of doing business valuable to buyers and sellers alike.” ProCD was the first court decision which held that shrinkwap licenses are enforceable contracts.
In Hotmail Corporation v Van$ Money Pie, Inc., the court addressed the enforceability of a clickwrap agreement. Hotmail, an e-mail provider, sought to enjoin a user from sending unsolicited bulk email, referred to as spam, through the Hotmail system. The clickwrap agreement provided that Hotmail could terminate the account of spammers. Money Pie spammed thousands of Internet e-mail users and falsely included Hotmail’s return address. The activity used Hotmail’s computer space and resulted in delays, costs and damages to its reputation. In ruling on a preliminary injunction motion, the court indicated that the clickwrap agreement would likely be enforceable.
While these courts have ruled that online contracts are valid, adoption of commercial laws encompassing electronic transactions will remove remaining uncertainty surrounding contract validity. A major effort is under way to validate e-commerce contract methods by adoption of the Uniform Computer Information Act (LJCITA). UCITA, formerly known as Article 213, is a proposed uniform act which will govern Internet contracts and transactions in software and licensed information. UCITA provides solutions to some of the problems associated with electronic contract formation. For example, a “record” would be offered as an alternative to a “writing.” A “signature” would be replaced by a means of “authentication.” Significantly, electronic agents can be programmed to form a contract with no actual review of the terms of an agreement by the parties.
Enactment of UCITA awaits approval this summer by the National Conference of Commissioners on Uniform State Laws. It will then be submitted to the various states for ratification in the fall. Until a uniform e-commerce law is adopted, businesses conducting electronic commerce should consider complying with case holdings and contract drafting tips, as follows:
Notice
Make it clear to the buyer that the transaction is subject to an agreement at the time of purchase;
The notice should be clearly visible with warnings concerning proper conduct in accepting a license;
Term Disclosure
Disclose all license terms at the time of purchase or at the start of the use of the product;
Acceptance
The buyer’s acceptance should involve taking a specific action such as clicking a box or typing an acknowledgment;
The buyer should be offered a refund if she decides to reject the terms;
Unique or unusual terms, which may surprise a buyer, should be clearly highlighted.
Copyright
Do not attempt to narrow copyright privileges that are inconsistent with the Federal Copyright Act (fair use, educational uses, back-up copies, etc,).
So, if your firm uses contracts on the Internet or sells software items, the above-mentioned points will help to maximize contract enforceability.
Kevin McNeely is a lawyer at the Providence law firm of Partridge, Snow & Hahn, LLP, and can be reached for comment at kim@psh.com.
