Recent Decisions Clarify the Validity of Clickwrap Agreements
More and more transactions are being entered online by means of clickwrap contracts (also known as “web wrap” or “point and click” agreements). Clickwrap agreements are used for a number of different purposes: subscription agreements for online services, such as Internet services or online news services; contracts to sell goods or software via the Internet; and contracts that govern the user’s rights and obligations when visiting a website. Any business that offers goods or services through the Internet should make certain that its clickwrap agreements will be valid and enforceable.
Clickwrap agreements evolved from shrinkwrap agreements for software, which were software contracts printed on the outside of the box or envelope containing software, with a statement that the user accepts the terms by opening the package. Since the U.S. Court of Appeals for the Seventh Circuit’s influential decision in ProCD v. Zeidenberg, 86 F.3d 1447, 39 U.S.P.Q.2d 1161 (7th Cir. 1996), most courts that have considered shrinkwrap agreements have held them enforceable, even if the user made payment before she saw the terms, as long as the user had the opportunity to reject the terms and return the product for a full refund.
Subsequent cases have applied the analysis of ProCD to enforce clickwrap agreements (e.g., i.Lan Systems, Inc. v. Netscout Service Level Corp., 183 F.Supp.2d 328 (D. Mass. 2002)). As a general matter, courts have enforced clickwrap agreements when the party seeking to enforce the agreement can show that the other party clearly evidenced an intent to be bound. This intent may be, and often is, shown by evidence that the party clicked on a button that says “I Agree.”
Careful attorneys have long recommended that businesses make sure that they display all of the terms of a clickwrap license and obtain the user’s consent to the license before permitting the user to download software. (See “Five Easy Ways to Make Online Contracts More Enforceable,” Holland & Knight Intellectual Property and Technology Newsletter, April 2001. A recent decision by the U.S. Court of Appeals for the Second Circuit confirms the wisdom of this advice. Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002).
In Specht, the licensor’s website was arranged so that the user was presented with an invitation to download the software by clicking on a button labeled “Download.” The clickwrap license agreement was not available on that page and it was not displayed during the course of the download or installation process. Instead, to view the clickwrap license, a user needed to scroll down past the “Download” button and click on a hyperlink that directed her to a separate page. Because the court was not persuaded that even a reasonably prudent person would have scrolled past the download button or viewed the license agreement, it concluded 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.” Accordingly, it held the clickwrap agreement unenforceable.
The situation that the court considered in Specht is a common one. Too frequently, the click-wrap agreement is posted in a location that makes the site more friendly, but fails to place the agreement in a position that requires assent to the agreement prior to proceeding. The case serves as a useful reminder of the steps that businesses should take to make clickwrap agreements enforceable:
Present the contract terms, giving the user the opportunity to review and accept or reject the terms, before payment is required or the visitor is permitted to proceed within the site.
Present the contract terms, giving the user the opportunity to review and accept or reject the terms, before delivering the information, software, or goods, or at the latest, during the user’s initial use of or access to information or software.
Require the user to click on an “accept” or “reject” button before being permitted to proceed. If the user accepts, proceed with delivery, access or whatever is the subject matter of the contract. If the user rejects, thank the user for his interest but do not permit him to proceed further. It is recommended that a feature is included requiring the user to reconfirm with a second, reaffirming click.
Present the contract terms in clear and simple English, in a manner designed to call the user’s attention to the terms. Make sure the contract contains, or has links to, all of the terms of the contract. Merely referring the user back to other parts of the website for additional terms may not suffice, unless a link is also provided.
If there are any unusual terms, ensure that the user is given the opportunity to read and specifically consent to those terms. Users often quickly scroll through a contract, or don’t read it at all. So, for example, if there is an unusual arbitration procedure, or any other unusual term in your contract, highlight it and make the user hit a separate “accept” button relating to that specific term as well as the entire contract. That may help avoid an argument of unconscionability.
The terms of the agreement should protect the interests of the website owner without being unreasonable or overreaching.
Consider displaying a reminder notice about the contract terms on the opening software screen and/or at a link on the website, with a link to the actual contract terms. That way, the user can look at the terms at any time, even after the initial acceptance.
Make sure the user can print out or save the text of the contract.
Some vendors try to maintain some flexibility, by saying that their contracts may be automatically amended in the future, with amendments to be posted on their website. While this may be desirable from a business standpoint, it is not yet clear that it will be enforceable. If the agreements are to be amended, it is preferable to keep the term short (and require the user to go through the process again on expiration), or even require users to reconfirm each time they enter the website (although this can be unwieldy from a customer relations point of view).