Inconspicuous Online Software License Unenforceable
PLANO, TX - DECEMBER 2, 2002 - Richard L. Armstrong & Associates, a Plano, TX based law firm, advised today the law governing viability of online contracts gained significant strength on October 1st, when the 2nd U.S. Circuit Court of Appeals ruled that Internet users cannot be bound by a license for a free downloaded software program when the terms of that license are not conspicuous.
In Specht v. Netscape Communications Corp., the Court held that the downloading and use of the program by Internet users was insufficient to form a binding contract, even though the license terms could have been viewed by simply scrolling down the Web page containing the downloadable software.
The case arose when users of a plug-in software program (called SmartDownload Communicator) provided by Netscape and downloaded for free from the Internet filed class actions alleging privacy rights violations by Netscape and its parent AOL. The plaintiffs claimed that their use of the program triggered the transmission of personal information to Netscape in violation of federal law. Thereafter, Netscape sought to compel arbitration of the dispute as specified under the terms of the license agreement for SmartDownload.
The 2nd Circuit, upholding a lower court decision, held that Netscape could not compel arbitration under the license agreement because no contract was formed between the user and Netscape. Under the theory of constructive notice one normally cannot avoid a contract on the grounds that they failed to read it, but the Court noted that there is an exception where the terms of the contract are not called to the attention of the recipient. In this case, the website urged consumers to download a software program with the click of a mouse, but without first being required to view the license agreement or assent to its terms. The Court concluded that "reasonably conspicuous notice of the existence of contract terms and unambiguous assent to those terms by consumers is essential if electronic bargaining is to have integrity and credibility."
"When utilizing an online license or similar agreement, always provide reasonably conspicuous notice of contract terms," said Richard L. Armstrong, principal. "This will increase chances of its being enforceable".
He added, "If you are uncertain whether notice is conspicuous enough to hold up, we suggest you employ a "clickwrap" agreement. Such a contract requires a user to assent to such a contract by clicking on an "agree" button before proceeding further. Clickwrap agreements have been held by courts to be enforceable."
The more a contract looks like an "arms' length" bargain (i.e., by each consumer requiring an affirmative decision and action), the more likely a court is to find that a contract has been formed.
For further information regarding application of the information contact Richard Armstrong at richard@richardarmstronglaw.com .
The Law Offices of Richard L. Armstrong & Associates P.C. emphasizes the following major areas: Business Tort Litigation, including but not limited to trade secrets and restraint of competition, corporate representation and employment litigation. Litigation prevention, including but not limited to representing top companies in their fields in preventing, or pursuing, employee-related litigation as well as representing top management employees in employment negotiation and litigation. The firm is based in Plano, TX and may be visited on the Internet at www.richardarmstronglaw.com.
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