So last time I talked about Electronic Agreements I mentioned “clickwrap agreements.” As you go cybershopping for the right gifts, and you invariably sign-up for new services or download new apps to play with on your iPad during the holidays you will come across the clickwrap (aka “clickthrough” or “clickwrap license”). In particular, because of the Electronic Signatures in Global and international Commerce Act, these types of agreements have found legitimacy and therefore, commonplace usage.
What is a Clickwrap?
Before, we get to the clickwrap, you have to understand the shrinkwrap. The shrinkwrap agreement was how boxed software was sold. It basically state on the plastic wrapper that by tearing it open, you as the user, would agree to the terms of the software enclosed. Many people found this unfair that how could you agree to something you did not even see. However, courts upheld these agreements as enforceable (and I will get more into why later).
Thus, as the industry has shifted from boxed CD-ROMs for sell and moved to downloadable apps and packages online the shrinkwrap became the clickwrap. Usually, it is in the form that requires the end-user to manifest your acceptance through clicking a button that says “Ok” or “I Agree” after scrolling through that wall of text that you did not read. If you clicked, “Cancel” or the like, you would be unable to access the product or service. This take-it-or-leave-it approach is usually an adhesion contract, where one party lacks bargaining power and thus are forced to accept terms heavily in favor of the drafter.
Are these Enforceable?
Yes. Despite the imbalance in the bargaining power among the parties, Courts have upheld them. However, like all contracts any provisions that unconscionable, against public policy or law, will not be enforced. With that being said here are some of the grounds or various provisions that agreements have been upheld on:
- by clicking the clickwrap button after notice means consent has been given
- a clickwrap is simply “Money now, terms later”
- forum-selection clause
- arbitration clause*.
*Mandatory Arbitration is that Legal?
It depends. In a case between a user and the virtual world, Second Life, owner, the judge actually struck down a mandatory arbitration clause. The plaintiff argued that it had been "both procedurally and substantively unconscionable and is itself evidence of defendants' scheme to deprive Plaintiff (and others) of both their money and their day in court.” The judge agreed and then struck down the arbitration clause. In general, the court went through a thorough analysis, but the main thing to takeaway was the arbitration would have made it more costly, rather than less costly for the plaintiff and for them to initiate the arbitration the plaintiff would require to advance fees and due to confidentiality no plaintiff would be able to learn from past disputes, thus the company would hold all the cards.
Why is it Referred to as a “License” sometimes?
As a I discuss in my IP Law talk for Small Businesses I discuss that software is actually copyrightable. Software is “written” and reduced to a “tangible medium” which makes it like literary works and sound recordings. Typically, with copyright, in your “bundle of rights” that come packaged with it you reserve the right to control the copying. Thus notice that a famous series of books, the original copyright owner can license parts of the book out to studios for certain characters, duration of time, etc . . . because they own the “right to copy.” Thus, there is no difference between software and their end-users, that the end-user is merely receiving a license to use the copyright owner’s software and is not given the ability to make copies as terms of the End-User License Agreement (EULA).
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*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.