Timothy B. McCormack, attorney at law, writes about: Web Site Contracts: Ruling Throws Web Site Terms and Conditions in Doubt

by Timothy McCormack

Timothy B. McCormack, attorney at law, writes about: The vast majority of companies doing business on the Internet have a terms and conditions link somewhere on the Web site. A new legal decision calls into question whether these important contract terms are enforceable.

This recent Federal District Court decision addressing what appears to be a question of first impression for the Internet is significant for anyone using the Internet. The decision, Specht v. Netscape, questions the fundamental ideaof mutual assent in a contract formation.

In particular, the Specht case questions the legitimacy of the "terms and conditions" found on most Web sites.

Web site terms and conditions have generally been thought to create a binding contract between the owner of the Web site and anyone viewing or downloading materials from the site. Typical Web site terms and conditions often reflect important business considerations such as requiring mandatory binding arbitration in a specific local jurisdiction when a dispute arises.

With the law of Internet jurisdiction still in its infancy, many businesses have made conscientious efforts to limit their exposure to lawsuits in inconvenient or foreign jurisdictions by crafting carefully worded terms and conditions (this is actually what happened in the Specht case).

To put the Specht decision in context, it is important to understand the legal landscape of Internet and software licenses. Generally speaking, almost everyone who has used the Internet or owned a computer has been exposed to at least one of three specific kinds of licensing mechanisms.

The most common form of computer-related licensing is referred to as a "shrink-wrap license." A shrink-wrap license is the kind of license that comes prepackaged (wrapped in cellophane) for computer software.

If one takes the time to read one of these license agreements it says that use of the software will create an assent to the terms and conditions contained in the license agreement. Typically for these shrink-wrap licenses to be enforceable, the consumer must have the option of returning the software for a full refund if they find the terms and conditions of the shrink-wrap license unacceptable.

In fact, under the Uniform Commercial Information Transaction Act (UCITA), which has been adopted in two states so far, shrink-wrap licenses are only enforceable if the end user has an opportunity to return any software or product for a full refund if they find terms and conditions of the shrink-wrap license unacceptable.

Another common licensing scheme is referred to as the "click-wrap license." The click-wrap agreement is a screen or a page that presents a Web site's legal terms and conditions to a user and requires the user to click "I agree" or similar wording before gaining access to the site or before completing a transaction.

A third type of software license is referred to as a "browse-wrap" agreement. A browse-wrap agreement is usually accessible through a link at the bottom of a home page site (the review of which is not a condition to obtaining information on the site or completing a transaction). The Specht court found that the terms and conditions in that case were most like a browse-wrap agreement.

The law of enforcing shrink-wrap licenses has become well established. Click-wrap agreements are also generally thought to be enforceable, although one District Court located in Kansas has noted that both Kansas and Missouri courts may not enforce click-wrap agreements.

The question of whether a browse-wrap agreement is enforceable, however, is now clearly in question.

Provided by McCormack Intellectual Property PS and written by Timothy B. McCormack, attorney at law and intellectual property lawyer.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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