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Are Shrinkwrap Software License Agreements Legally Enforceable? UCITA aims to make such adhesion contracts enforceable.

Here are some recent court cases involving shrinkwrap and clickwrap licenses.

Klocek v. Gateway, Inc.
June 15, 2000. Here is a link to the decision.

Also see:

Mortenson v. Timberline Software Corporation, et al
In this May 4, 2000 decision (M.A. Mortenson Company, Inc., v. Timberline Software Corporation and Softworks Data Systems, Inc.), the Supreme Court of the state of Washington upheld a lower court ruling that validated a shrinkwrap software license.

In this case, Mortenson (a contractor) purchased bid-making software from Timberline that was governed by a shrinkwrap license agreement. The license agreement contained the following clause that purported to limit consequential damages.

"LIMITATION OF REMEDIES AND LIABILITY
NEITHER TIMBERLINE NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY OF THE PROGRAMS OR USER MANUALS SHALL BE LIABLE TO YOU FOR ANY DAMAGES OF ANY TYPE, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS, LOST SAVINGS, LOSS OF ANTICIPATED BENEFITS, OR OTHER INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE SUCH PROGRAMS, WHETHER ARISING OUT OF CONTRACT, NEGLIGENCE, STRICT TORT, OR UNDER ANY WARRANTY, OR OTHERWISE, EVEN IF TIMBERLINE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY OTHER CLAIM BY ANY OTHER PARTY. TIMBERLINE'S LIABILITY FOR DAMAGES IN NO EVENT SHALL EXCEED THE LICENSE FEE PAID FOR THE RIGHT TO USE THE PROGRAMS."

Mortenson used Timberline's software to prepare a construction bid. A defect in the program produced an erroneous bid price that was $1.95 million off the mark. Mortenson sued Timberline for breach of implied and express warranties. Timberline contended that the license agreement clause limiting consequential damages would prevent Mortenson from recouping damages.

Washington State's Supreme Court affirmed a lower court ruling which found that "the license terms were part of the contract," and "the limitation of remedies clause was not unconscionable and, therefore, enforceable."

In a dissenting opinion, Judge Sanders stated:

"Although the majority states 'this is a case about contract formation, not contract alteration,' Majority at 17, the majority abandons traditional contract principles governing offer and acceptance and relies on distinguishable cases with blind deference to software manufacturers' preferred method of conducting business. Instead of creating a new standard of contract formation--the majority's nebulous theory of 'layered contracting'--I would look to the accepted principles of the Uniform Commercial Code (U.C.C.) and the common law to determine whether Timberline's licensing agreement is enforceable against Mortenson. Because the parties entered a binding and enforceable contract prior to the delivery of the software, I would treat Timberline's license agreement as a proposal to modify the contract requiring either express assent or conduct manifesting assent to those terms."

Here is the Majority Opinion, and the Dissenting Opinion of two judges.

Also see:

  • May 5, 2000. Computer 'shrinkwrap' license binding, court says. AP.
  • May 5, 2000. Washington Supreme Court Upholds Shrinkwrap Licensing. Slashdot.

    Ticketmaster Corp., et al. v. Tickets.com, Inc.
    In a March 27, 2000 decision, Judge Harry L. Hupp of the U.S. District Court for the Central District of California, commented on the conspicuousness of terms governing Ticketmaster's web site.

    'In defending this claim, Ticketmaster makes reference to the "shrink-wrap license" cases, where the packing on the outside of the CD stated that opening the package constitutes adherence to the license agreement (restricting republication) contained therein. This has been held to be enforceable. That is not the same as this case because the "shrink-wrap license agreement" is open and obvious and in fact hard to miss. Many web sites make you click on "agree" to the terms and conditions before going on, but Ticketmaster does not. Further, the terms and conditions are set forth so that the customer needs to scroll down the home page to find and read them. Many customers instead are likely to proceed to the event page of interest rather than reading the "small print." It cannot be said that merely putting the terms and conditions in this fashion necessarily creates a contract with any one using the web site.'

    Hotmail Corporation v. Van$ Money Pie, Inc.
    This case involved a "clickwrap" agreement governing the use of Hotmail's free email service.

    Here is a link to the court's decision.

    Also see:
    A summary of the case from the Harvard Law School's Berkman Center for Internet & Society.

    Hill v. Gateway 2000
    The Hill v. Gateway case was decided on January 6, 1997. The ruling overturned a previous district court decision that would have nullified Gateway's mandatory arbitration clause inserted in a license agreement.

    Here a link to the text of the final decision.

    ProCD, Inc. v. Zeidenberg
    This case was decided on June 20, 1996, overturning a lower district court decision that invalidated the terms of a shrinkwrap license agreement. The utimate decision concluded that

    "Shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are un- conscionable). Because no one argues that the terms of the license at issue here are troublesome, we remand with instructions to enter judgment for the plaintiff."

    Here is a link to the text of the final decision.

    Also see:

  • The Software Industry Issues' page on the 1996 ProCD v. Zeidenberg decisions.

    Step-Saver Data Systems, Inc.v. Wyse Technology and The Software Link, Inc.

    Here is a link to the text of the final decision.
    Also see:

    Questions, comments and suggestions to Vergil Bushnell vbushnell@cptech.org

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