Cassandra Neese
CLS98
Research Paper
April 16, 1998
 

      Software Transactions and Electronic Contracting
 
 

                       I. Introduction

     Electronic contracts, also called "point-and-click" or

"clickwrap" contracts, are becoming quite prevalent as more

and more business is being conducted online.  These

contracts are executed entirely online, usually without any

paper changing hands.  It is estimated that as much as $600

billion will be spent on consumer goods purchased by means

of the Internet by the year 2000.1  By means of an

electronic contract, sellers and consumers enter into

agreements previously accomplished by traditional paper

contracts.  For example, a software producer may advertise

the products it offers for sale on its Internet web site.  A

purchaser can indicate their acceptance of the offer by

clicking on a button which states, "Buy" or "I Accept."2

Generally, the enforceability of online contracts is

governed by ordinary contract principles.  There is nothing

fundamentally different about contracting online than on

paper.3

     Electronic contracts are obviously desirable for

sellers because of their ease of administration.  No face to

face meeting is required and the transaction as a whole is

highly efficient in terms of time and other costs. Consumers

also benefit from the ease and convenience with which they

are allowed to purchase software products without leaving

the comfort of their homes.

     The purchase of mass-marketed software products is a

common online transaction.  Software may be purchased and

downloaded directly from the internet.  Transactions

involving mass-marketed software are usually subject to

licensing agreements, the terms of which often disclaim

express and implied warranties and limit the products' use.

     Much debate has surrounded the enforceability of

clickwrap contracts in the context of mass-market software

transactions. The licensing agreements which result from

these transactions have been criticized as being

unenforceable for a variety of reasons.  In most commentary,

the question of the enforceability of clickwrap has revolved

around the validity of shrinkwrap agreements.  While there

will be some similarities between clickwrap and shrinkwrap,

shrinkwrap is relevant only with regard to software

transactions, and has very unique characteristics.  It is

these unique characteristics that pose the greatest threat

to shrinkwrap's validity.

     The issues at the heart of the debate center on the

typical terms of  mass-market software shrinkwrap and

clickwrap agreements, and not on the more general legal

question of whether contracting online has the same

requirements and validity as contracting on paper.4  Because

online contracts will be subject to the same analysis as to

their validity as ordinary contracts,  this paper focuses on

those elements of shrinkwrap and clickwrap software

agreements which are questionable in light of ordinary

contract law.  Additionally, some of the difficulties with

shrinkwrap can be avoided in the clickwrap context.5

     Part II of this paper discusses the various aspects of

both shrinkwrap and clickwrap software agreements which pose

problems for the enforceability of such contracts under

ordinary contract principles.  Part III outlines existing

caselaw surrounding shrinkwrap and concludes that the courts

have not yet come to grips with how to treat modern mass-

market software agreements.  Part IV briefly outlines the

purposes and scope of the proposed Article 2B of the Uniform

Commercial Code and looks at some of the commentary for and

against enactment of this new article.  Part V consists of

the author's conclusions about the general enforceability of

shrinkwrap and clickwrap software agreements and the likely

success and impact of the new Article 2B.

 

   Part II.  Distinguishing Characteristics of Mass-Market

                    Software Transactions

 

     The use of shrinkwrap agreements for software

transactions has recently been upheld by the Seventh

Circuit.6  Shrinkwrap contracts occur when a consumer has

purchased a software product and the terms of the software

licensing agreement are either printed on the outside of the

package, or, more commonly, enclosed inside the packaging.

The consumer is deemed to have agreed to the terms of the

contract by opening the package.7  Often, this will be the

first time a consumer has access to the terms of the

transaction into which they have already entered by

purchasing and opening the software.  These "post-sale"

terms have been central in court decisions dealing with

shrinkwrap enforceability.

     Shrinkwrap and clickwrap contracts for mass-market

software may not be enforceable if an end user is not given

an opportunity to review and affirmatively assent to the

terms of a license prior to the consummation of the

transaction.8  Pinpointing the moment at which the

transaction becomes consummated is critical, then, to

determining whether a given license agreement is

enforceable.

     Normally, when purchasing goods the offer is made by

placing an item for sale on the shelf of a retail

establishment.  The buyer accepts by remitting the purchase

price at the check-out.  Once payment has been made, a

contract is formed.  However, shrinkwrapped software often

contains vital terms of the license inside the box, so that

the terms are only available for a buyer's perusal after

payment has been made and the software taken home.  Caselaw

has, until recently, comported with the idea that such post-

sale license terms were not part of the agreement which was

made at the time of purchase, and thus were unenforceable.9

It has been asserted, however, that "the ability of

licensors in mass-market transactions to use post-sale terms

in shrink-wrap and click-wrap licenses is essential to the

continued existence of a retail software market."10  Whether

     these terms actually comport with traditional contract and

other law is the focus of this Part.
 
 

Contract Formation and Traditional Contract Principles

     Analysis of traditional contract formation is guided

primarily by the Restatement (Second) of Contracts (1981)

and Article 2 of the Uniform Commercial Code, which deals

with contracts for the sale of goods.11  A contract generally

requires an offer, acceptance and consideration.12  An offer

is "a manifestation of willingness to enter into a bargain

so made as to justify another person in understanding that

his assent to that bargain is invited and will conclude it."13

Assent to be bound to an agreement may be indicated by

conduct.14

     There is nothing conceptually difficult in thinking of

shrinkwrap and clickwrap contracts as fitting into this

analysis.  In a clickwrap contract, for example, an

advertisement and invitation to buy a product posted on a

web page constitutes an offer.  An individual surfing the

Web may come upon the invitation and decide he likes the

offer and wishes to accept it.  He clicks on a "buy" button,

submits the required information such as his Visa number and

shipping address, and by such conduct consummates the

transaction.  In the case of shrinkwrap, the analysis is

somewhat more difficult given that most terms of a license

to use software are read by the consumer (if at all) only

after purchasing the product and, hence, "it is difficult to

say that there has been a `meeting of the minds' sufficient

to indicate contract formation."15
 
 

Mass-Market Software Transactions and Contract Law

     Mass-market software transactions are usually standard

form contracts.  Standardized contracts are also generally

known as "contracts of adhesion."  Invalid adhesion

contracts are standard form or boilerplate contracts which

contain terms that would not have been agreed to by the

party manifesting assent had she known the terms were part

of the contract.16  While not invalid per se, contracts of

adhesion give rise to the possibility that a contract might

be invalid because it would be unfair or unconscionable to

enforce it.17  Unconscionability involves unequal bargaining

power between contracting parties and unreasonable or

patently unfair contract terms.18  In the mass-market

software transaction, the contract is a non-negotiated

document written by the seller of the software.  There is

often no opportunity for consumers to read warranties and

disclaimers before they actually purchase the product.19

Even if the terms of a software license agreement are

available to consumers before they download a software

product, consumers often do not read the terms they are

"agreeing to" by clicking an "accept" button.20
 
 

Mass-Market Software Transactions and Copyright Law

     Even if shrinkwrap and clickwrap are ultimately

accepted as valid contracts, the enforcement of these

contracts may be problematic in light of federal copyright

law. Through the use of software licensing, licensors

attempt to limit the ways purchasers (licensees?) may use

software products.21  These limitations are in addition to

already existing limits in place by virtue of copyright

laws.  For example, section 117 of the Copyright Act allows

an "owner" of a copy of a computer program to make copies or

adapt computer programs if it is "an essential step in the

utilization of the computer program in conjunction with a

machine . . ., or "for archival purposes only . . . ."22  Yet

many software license agreements prohibit copying the

licensed software.23   As another illustration, section 107

of the Copyright Act  allows for the "fair use" of a

copyrighted work.24  Software transactions typically prohibit

the reverse engineering of its software.  Both copying and

reverse engineering of computer software have been held to

be a "fair use" of software in some situations.25   Thus,

even if a potential use would be considered a "fair use"

under copyright law, licensors can achieve greater

protection and prohibit such use by way of a shrinkwrap or

clickwrap license.

     It is argued that the use of shrinkwrap and clickwrap

to contract around copyright law is unfair and even

illegitimate.  Federal copyright laws effect a delicate

balance of interests intended to optimize creativity.26

Congress enacted the 1976 Copyright Act  pursuant to its the

"copyright clause."27  Congress later enacted the Computer

Software Copyright Act of 1980, which extended copyright

protection to computer software.28  "The primary rationale

for extending copyright protection to computer programs was

the need for an economic incentive to create programs, which

can be copied far less expensively than they can be

produced."29  The Computer Software Copyright Act attempts

to"strike a careful balance between the rights of copyright

owners on the one hand and program users on the other . . .

."30

     State contract law might be preempted by the Copyright

Act by virtue of section 301(a), which provides that "all

legal or equitable rights that are equivalent to any of the

exclusive rights within the general scope of copyright . .

.are governed exclusively by

this title."31  Thus, if the rights which are created under

software license agreements are indeed equivalent to the

rights granted under the "general scope of copyright," then

they would be preempted.32
 
 

                III.      Shrinkwrap Caselaw

 

     Cases addressing the enforceability of shrinkwrap are

few.  Most have held that specific shrinkwrap agreement

terms are not enforceable.  There are two circuit court

cases invalidating certain provisions in specific shrinkwrap

agreements and one circuit court case upholding shrinkwrap

agreements generally.  While these cases do not provide

clear guidance as to whether shrinkwrap agreements will be

enforced, they highlight some of the important issues

surrounding the use of shrinkwrap.

     In Vault Corporation v. Quaid Software Ltd., Vault

Corporation ("Vault") made diskettes with a copyrighted

protective device called "PROLOK," which was designed to

prevent unauthorized copying of software programs loaded on

to them.33  Packages of PROLOK were accompanied by a license

agreement which prohibited copying, modification,

decompilation or disassembly of the program.34  Quaid

Software Limited ("Quaid") created a product with the

capability to unlock the PROLOK protective device, allowing

the reproduction of software programs on the PROLOK

diskettes.35  Vault sued Quaid for copyright infringement

based on the fact that Quaid copied Vault's program into its

computer's memory and contributed to the unauthorized

copying of programs placed on its PROLOK diskettes.36  Quaid

also sued for breach of the license agreement.37  The

district court held that the shrinkwrap license in that case

was an unenforceable contract of adhesion.38   The court also

found that a Louisana statute which purported to make

shrinkwrap contracts enforceable was preempted by federal

copyright law.39

     The Fifth Circuit affirmed on appeal, holding that

section 117(1) of the Copyright Act permits the copying of a

program into a computer's memory, regardless of the intent

behind this act.40  Thus, "Quaid did not infringe Vault's

exclusive right to reproduce its program in copies under

section 106(1)."41  The court also held that the Louisiana

statute provisions which allowed owners of computer programs

to prohibit "the adaptation of its licensed computer program

     by decompilation or disassembly" were preempted by section

117 of the Copyright Act.42  The Fifth Circuit did not speak

directly to the "contract of adhesion" issue.

     Another case addressing shrinkwrap enforceability is

Step-Saver Data Systems, Inc. v. Wyse Technology.43  In that

case, Step-Saver Data Systems, Inc., a value-added reseller,

purchased software from The Software Link, Inc. ("TSL").44

Step-Saver placed its orders with TSL by phone and TSL

promised during the call to ship the orders promptly.45  The

parties exchanged purchase orders and invoices with price,

quantity, shipping and payment terms.46  A "Limited Use

Agreement," printed on the software packaging, purported to

disclaim all express and implied warranties that the

software would be free of defects and excluded any

liabilility on the part of TSL.47

     After receiving complaints from its customers and after

attempting to reach a solution with Wyse and TSL, Step-Saver

brought breach of warranties claims against the companies

and alleged that TSL had made intentional

misrepresentations.48  The Third Circuit held that a valid

contract was formed by the course of conduct of the parties

after they exchanged phone calls, purchase orders, and the

order invoices and then TSL shipping the product.49  Thus,

the subsequent License Agreement which accompanied the

product altered the terms of the contract and thus were not

part of the agreement.  The court came to its conclusion by

applying U.C.C. 2-20750, and finding that the license

agreement proposed additional, material terms which were not

     accepted by Step-Saver.51

     In ProCD v. Zeidenburg,52 the Seventh Circuit held 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 unconscionable)."53  ProCD sells a database

containing telephone directories called SelectPhone (tm),

available at different prices for commercial and non-

commercial users.54  Its software packages are wrapped in

plastic "shrinkwrap."  The packaging for non-commercial

users states on its exterior that an enclosed license

imposes restrictions of the use of the product.55  One such

restriction included in the license stated that the software

was to be used for non-commercial purposes only.56

     The ProCD court treated the licenses as "ordinary

contracts accompanying the sale of products, and therefore

as governed by the common law of contracts and the Uniform

Commercial Code."57  The court declined to analyze the

possible legal differences between licenses and contracts.58

The defendant, Matthew Zeidenberg, argued that a contract

was formed by ProCD placing the product on the retailer's

shelves, constituting an offer, and his payment of the

purchase price, indicating acceptance of the offer.  The

terms of the license agreement were not part of the offer or

the acceptance, and thus, the defendant argued, were not a

valid part of the agreement.

     Judge Easterbrook, writing the decision of the court,

rejected this argument.  The license terms were incorporated

by reference to them on the outside of the package.  The

contract was not consummated until Mr. Zeidenberg read the

license terms and failed to reject them, and the offer, by

returning the software.59  The court stated: "Pro CD proposed

a contract that a buyer would accept by using the software

after having an opportunity to read the license at leisure."

(emphasis added).60

     Judge Easterbrook's decision relied on U.C.C. and

Restatement (Second) of Contracts principles, as well as

examples of other "money now, terms later" transactions.61

He started with U.C.C. section 2-204(1) "A contract for the

sale of goods may be made in any manner sufficient to show

agreement, including conduct by both parties which

recognizes the existence of such a contract."  The court

read this as conferring a broad right on a software vendor

to be "master of the offer" and invite acceptance in a

specified manner.62

     As a matter of contract law, the ProCD decision does

not appear problematic.  It is possible, however, that other

courts may not follow Judge Easterbrook's analysis.

Instead, courts newly addressing this issue may follow the

analysis in Step-Saver and consider post-sale terms such as

the ones in the license agreement at issue in ProCD

unenforceable as terms introduced after a contract was

already consummated.63  However, given the enforceability of

post-sale terms in other kinds of transactions,64 and the

public policy noted by Judge Easterbrook of making contracts

efficient in the mass-marketed software industry,65 the

enforceability of shrinkwrap agreements seems fairly well-

grounded.66

     No case has yet answered the question of whether

clickwrap contracts are enforceable.67  Yet these agreements

are less problematic than shrinkwrap in most cases, since it

is quite easy for the vendor of software available on the

internet to provide the full terms of the license on one or

more screens which require the potential customer to

manifest agreement before she may download the software.

Thus, the possible problem of post-sale terms can be

entirely avoided.  Most commentators believe that clickwrap

agreements will be held to be enforceable.68
 
 

                 IV.  Article 2B to the UCC

 

     Some of the uncertainty surrounding electronic and

shrinkwrap contracting would be resolved with the adoption

of a proposed Article 2B of the Uniform Commercial Code.

This new article has been in the works since 1993, when a

committee of the National Conference of Commissioners on

Uniform State Laws began drafting revisions of UCC Article 2

in order to address software licensing.69  In 1995, a new

committee was formed to draft UCC Article 2B, which is

expected to set out standards of electronic contracting

specifically.  Advocates from all possible interest groups

have participated in committee meetings, including software

and consumer representatives.70   Various drafts, including

the February 1998 version, are available on the Internet at

the official site of the National Conference of

Commissioners of Uniform State Laws:

<http://www.law.upenn.edu/library/ulc/ulc.htm>.

     Proposed Article 2B (Licenses) generally provides that

mass-market software transactions are enforceable.71  It

"attempts to strike a balance between the need for post-sale

terms in mass-market licenses and the danger they pose to

the unwary."72  It covers all transactions (sales and

licenses) in software and all "licenses" of other

"information," i.e., an online newspaper.73  In a contract

which would require a signed writing under the UCC Article

2, a "record" would replace the usual requirement of a

writing and "authentication" would replace signature

requirements.74  2B also provides for the enforceability of,

and sets forth rules for, "mass-market licenses," which are

standard form licenses for purchasers of software available

to the general public in the retail market.75

     Under Article 2B, if a purchaser manifests assent by

affirmative conduct before or during the initial use of the

software, the mass market agreement will be enforceable.76

This would effectively overrule the Step-Saver decision,

discussed above, which held that the time of contract

formation was at the time the order for the product was

placed.  As the court in ProCD reasoned, the contract is

consummated only after a purchaser has taken the software

home, read the license agreement, and has had an opportunity

to reject the terms.  Under ProCD and Article 2B, the

license terms are no longer additional terms to an already

     existing contract.

     If adopted, UCC Article 2B would broaden the scope of

contract law in order to deal with the relatively unique

attributes of software licensing.  "It is clear that the

U.C.C. draft represents a significant change in the

direction of greater enforceability of shrinkwrap licenses

in general and of individual terms of those licenses."77  It

is projected that 2B will be ready for presentation to state

legislatures for their consideration by the fall of 1998.78
 
 

                       V.   Conclusion

 

     Shrinkwrap and clickwrap contracts in the mass-market

software context appear to be gaining widespread acceptance

both in the business world and recently in the courts.

While there appear to be some concerns for consumer

protection under these contracts of adhesion, injustices can

be dealt with adequately within the realm of traditional

contract law using concepts such as unconscionability.  The

proposed Article 2B of the UCC has broad support and will

probably be adopted as states become interested in

establishing standards for mass-market software

transactions.
 
 
 
 
 
 

_______________________________

1  Richard D. Harroch, Online, Draftsmanship is Still

Pivotal (February 2, 1998)

<http://www.ljx.com/internet/0202webks.html>.  A U.S.

Department of Commerce report issued in April, 1998 projects

there will be about $300 billion in commercial online

transactions by the year 2002.  U.S. Sees Big Growth in

Electronic Commerce, (April 15, 1998)

<http://127.0.0.1:15841/v1?catid=655619&md5=eb6e57fd510afd68

0db75483fdf31729.

2  For an example of a clickwrap agreement, see

<http://www.viarch.org/html/spec/clickwrap_agreement.htm>.

The act of copying or downloading software is usually the

act of assent to license terms in online contracts:

     IMPORTANT - READ BEFORE COPYING OR DOWNLOADING THE
     ATTACHED VI ARCHITECTURE SPECIFICATION.
     By downloading or copying the attached VI
     Architecture Specification ("Specification"), you
     . . . agree to abide by the terms and conditions
     of this License Agreement ("Agreement").  Do not
     copy or download this specification until you have
     carefully read and agreed to the following terms
     and conditions.  If you do not wish to agree to
     these terms and conditions do not download or copy
     this specification.
 
<http://www.viarch.org/html/spec/clickwrap_agreement.htm>.

This clickwrap goes on to claim that, except for the license

agreement, "no other license or right is granted to you

under any patents, copyrights, trade secrets, or other

intellectual property rights by this Agreement, either

directly or by implication, estoppel, or otherwise.  Any

further license under such intellectual property rights must

be express and in writing."  Id.  The clickwrap provides

that the specification is supplied "as is," and disclaims

"any express or implied warranty of any kind including

warranties of merchantability, noninfringement, or fitness

for a particular purpose."  Id.  Additionally, the license

purports to excuse the company from liability "for any

damages whatsoever . . . ."  Id.

3  The main issues affecting the validity of  clickwrap are

the fact that there is no written agreement and the fact

that the statute of frauds requires a signed writing for the

purchase of goods over $500.  U.C.C. section 2-201(1).

Neither of these issues pose particular problems for

clickwrap as compared to traditional paper contracts.  There

are numerous instances in which transactions are conducted

without any actual written contract being involved,

including service contracts such as those for dry cleaning

and parking one's car in a garage.  See Fred M. Greguras,

et.al., Electronic Commerce: On-Line Contract Issues, 452

PLI/Pat 11, 16 (1996).  Additionally, parties contracting to

purchase software over $500 will likely have some written

confirmation of the sale in conjunction with their online

transaction.  Id. at 17.  Additionally, proposed Article 2B

would solve this potential problem by imposing different

requirements for software transactions.  See discussion of

the proposed Article 2B of the U.C.C., infra.

4 The main issues for clickwrap are the fact that there is

no written agreement and the fact that the statute of frauds

requires a signed writing for the purchase of goods over

$500.  U.C.C. 2-201.  Neither of these issues pose

particular problems for clickwrap as compared to traditional

paper contracts.  There are numerous instances in which

transactions are conducted without any actual written

contract being involved, including service contracts such as

those for dry cleaning and parking one's car in a garage.

See Fred M. Greguras, et.al., Electronic Commerce: On-Line

Contract Issues, 452 PLI/Pat 11, 16 (1996).  Additionally,

parties contracting to purchase software over $500 will

likely have some written confirmation of the salein

conjunction with their onlinetransaction.  Id. at 17.

5 Clickwrap can avoid the problem of post-sale terms by

requiring purchasers to affirmatively assent to contract

terms before being allowed access to the software.  Maureen

A. O'Rourke, Fencing Cyberspace: Drawing Borders in a

Virtual World, 82 Minn. L. Rev. 609, 688-89 (1998).  "The

main advantage of on-line software distribution is that it

avoids the major contractual obstacles to the enforceability

of shrinkwrap licenses.  Apik Minassian, The Death of

Copyright: Enforceability of Shrinkwrap Licensing

Agreements, 45 U.C.L.A. L. Rev. 569, 576 (1997)(noting that

online software transactions requiring the that the

purchaser agree to all terms before receiving the software

allows a vendor to ensure that all terms become part of the

transaction at the outset).

6  ProCD v. Zeidenburg, 86 F.3d 1447 (7th Cir. 1996).

7  Kent Stuckey, Shrink-Wrap/Point-and-Click Agreements,

(visited March 1, 1998)

<http://www.ljx.com/internet/excerpt.html>.

8  See Draft U.C.C. section 2B-112, 2B-113, 2B-307.

9  See, e.g., Step-Saver v. Wyse Technology, 939 F.2d 91

(3rd Cir. 1991); Arizona Retail Sys. Inc. v. The Software

Link Inc., 831 F. Supp. 759 (D. Ariz. 1993).

10  William A. Streff Jr. and Jeffrey S. Norman, Courts, UCC

Tackle Shrink-Wrap Licenses, (October 14, 1997)

<http://www.ljx.com/internet/1014shrink.html>.

11  There is some dispute about whether the purchase of

software is really a sale of goods or whether it is more

acurately characterized as a licensing arrangement.

"[A]lmost all courts and commentators that have considered

the issue have concluded that t shrinkwrap license

transaction is a sale of goods rather than a license, and is

therefore covered by Article 2 of the current U.C.C."  Mark

A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68

S. Cal. L. Rev. 1239, 1244, n. 23 (1995)(citing cases).

12  "[T]he formation of a contract requires a bargain in

which there is a manifestation of mutual assent to the

exchange and a consideration."  Restatement (Second) of

Contracts section 17(1) (1981).

13 Restatement (Second) of Contracts section 24 (1981).

14  "A contract for sales of goods may be made in any manner

sufficient to show agreement, including conduct by both

parties which recognizes the existence of such a contract."

UCC 2-204(1).

15  William A. Streff Jr. and Jeffrey S. Norman, Courts, UCC

Tackle Shrink-Wrap Licenses, (October 14, 1997)

<http://www.ljx.com.internet/1014shrink.html>.

16   See Restatement (Second) of  Contracts section 211(3)

(1988).

17  UCC section 2-302(1) provides that a court need not

enforce an unconscionable contract.

18  Mark A. Lemley, Intellectual Property and Shrinkwrap

Licenses, 68 S. Cal. L. Rev. 1239, 1254-55 (1995).

19  Wendy R. Leibowitz, In New UCC Software Contracts, Is the

Customer Always Wrong? (February 23, 1998)

<http://www.ljx.com/internet/ircomm.html>.

20  Joseph P. Verdon, Article 2B: Transitions in Software and

`Information,' (August 13, 1997)

<http://www.ljx.com/internet/0813ucc2b.html>.  See also Carl

S. Kaplan, Are Click-Wrap Terms of Agreement Enforceable?

(October 2, 1997)

<http://www.nytimes.com/library/cyber/law/100297law.html>(no

ting that chat room participants virtually never read

clickwrap "terms of use" agreements before "agreeing" to

them).  Note, however, that "[a] contract need not be read

to be effective; people who accept take the risk that the

unread terms may in retrospect prove unwelcome."  Hill v.

Gateway 2000,Inc., 105 F.3d 1147, 1148 (7th Cir. 1997).

21  See Tim Alan Covington, The Future of Shrinkwrap Licenses

(1994) <http://www.fenwick.com/pub/future.html> (discussing

the "four main objectives" of shrinkwrap licenses).

22 17 U.S.C. section 117.  Additionally, section 117 states:

     Any exact copies prepared in accordance with the
     provisions of this section may be leased, sold, or
     otherwise transferred, along with the copy from
     which
     such copies were prepared, only as part of the
     lease, sale, or other transfer of all rights in
     the program.  Adaptations so prepared may be
     transferred only with the authorization of the
     copyright owner.
 
     17 U.S.C. section 117.
23  Lemley at 1266.

24 17 U.S.C. section 107 provides:

      [T]he fair use of a copyrighted work, including
     such use by reproduction in copies or phonorecords
     or by any other means specified by that section,
     for purposes such as criticism, comment, news
     reporting, teaching (including multiple copies for
     classroom use), scholarship, or research, is not
     an infringement of copyright. In determining
     whether the use made of a work in any particular
     case is a fair use the factors to be considered
     shall include--
       (1) the purpose and character of the use,
     including whether such use is of a commercial
     nature or is for nonprofit educational purposes;
       (2) the nature of the copyrighted work;
       (3) the amount and substantiality of the portion
     used in relation to the
      copyrighted work as a whole;  and
     (4)  the effect of the use upon the potential market for or
        value of the copyrighted work.
25  See, e.g., Atari Games Corp. v. Nintendo of Am., Inc.,

975 F.2d 832 (Fed. Cir. 1992)(reverse engineering); Vault

Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir.

1988)(copying and reverse engineering).

26  Apik Minassian, The Death of Copyright: Enforceability of

Shrinkwrap Licensing Agreements, 45 U.C.L.A. L. Rev. 569,

592 (1997).

27  "The Congress shall have the Power . . . [t]o promote the

Progress of Science and useful Arts, by securing for limited

Times to Authors and Inventors the exclusive Right to their

respective Writings and Discoveries . . . .  U.S. Const.

art. I, section 8, cl. 8.

28  Michael E. Johnson, Note, The Uncertain Future of

Computer Software Users' Rights in the Aftermath of MAI

Systems, 44 Duke L. J. 327, 330.

29  Id. at 330-331

30  Id.

31  17 U.S.C. section 301(a)(1994).

32  Apik Minassian, The Death of Copyright: Enforceability of

Shrinkwrap Licensing Agreements, 45 U.C.L.A. L. Rev. 569,

585 (1997).  See also Mark A. Lemley, Intellectual Property

and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239, 1270-1274

(1995) (discussing the extreme complexity of this

determination and discussing cases coming to different

conclusions concerning software transactions and copyright

preemption).

33  Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 256

(5th Cir. 1988).

34  Id. at 257.

35  Id.

36  Id. at 259.

37  Id. at 268.

38  Vault Corp. v. Quaid Software, Ltd., 655 F. Supp. 750,

761 (E.D. La. 1987), aff'd, 847 F.2d 255 (5th Cir. 1988).

39  Id.

40  Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 261

(5th Cir. 1988).

41  Id.

42  Id. at 270.

43  939 F.2d 91 (3rd Cir. 1991).

44  Step Saver Data Systems, Inc. v. Wyse Technology, 939

F.2d 91, 94 (3rd Cir. 1991).

45  Id. at 95-96

46  Id.

47  Id. at 96-97.

48  Id.

49  Id. at 100.

50  U.C.C. section 2-207 provides in part:

     (1)  A definite and seasonable expression of acceptance or a
       written confirmation which is sent within a reasonable time
       operates as an acceptance even though it states terms
       additional to or different from those offered or agreed
       upon, unless acceptance is expressly made conditional on
       assent to the additional or different terms.
     (2)  The additional terms are to be construed as proposals
       for addition to the contract.  Between merchants such terms
       become part of the contract unless: (a) the offer expressly
       limits acceptance to the terms of the offer; (b) they
       materially alter it; or (c) notification of objection to
       them has already been given or is given within a reasonable
       time after notice of them is received . . . .
51 Id.

52  86 F.3d 1447 (7th Cir. 1996).

53 Id. at 1449.

54  Id.

55  Id. at 1450.

56  Id.

57  Id.

58  Id.

59  Id. at 1452-53.

60  Id. at 1452.

61  For example, the purchase of insurance, an airline

ticket, and a theater ticket.  The court also mentioned the

purchase of consumer goods, such as radios and television

sets, where terms including warranties are included inside

the box and are usually first read after the purchaser has

brought the product home.  Id. at 1451.

62  Id.

63  William A. Streff Jr. and Jeffrey S. Norman, Courts, UCC

Tackle Shrink-Wrap Licenses, (October 14, 1997)

<http://www.ljx.com.internet/1014shrink.html>.

64  See, e.g., Carnival Cruise Lines, Inc. v. Shute, 499 U.S.

585 (1991) (upholding a foreign selection clause attached to

a cruise ticket received after purchase of the ticket).

65  "Notice on the outside, terms on the inside, and a right

to return the software for a refund if the terms are

unacceptable . . . may be a means of doing business valuable

to buyers and sellers alike."  ProCD v. Zeidenberg, 86 F.3d

1447, 1451 (1996).

66  See Elizabeth S. Perdue, Challenges of On-Line Contracts

With a Point and a Click (December 1997)

<http://www.ljx.com/internet/97_12click.html>, for a list of

cases citing ProCD without criticism.

67  Actually, in CompuServ, Inc. v. Patterson, 89 F.3d 1257

(6th Cir. 1996), the court implicitly approved the use of

clickwrap agreements in determining that defendant, because

he had entered into clickwrap agreements with plaintiff, had

requisite contacts with plaintiff's state to establish in

personam jurisdiction.

68  Richard D. Harrock, Online, Draftsmanship Is Still

Pivotal, (February 2, 1998)

<http://www.ljx.com/internet/0202webks.html>.

69  Stephen Y. Chow, Contracting in Cyberspace: The Triumph

of Forms? 41-Jun B. B.J. 16, 28 (1997).

70  Joseph P. Verdon, Article 2B: Transitions in Software and

`Information,' (August 13, 1997)

<http://www.ljx.com/internet/0813ucc2b.html>.

71 Id.

72  William A. Streff Jr. and Jeffrey S. Norman, Courts, UCC

Tackle Shrink-Wrap Licenses, (October 14, 1997)

<http://www.ljx.com.internet/1014shrink.html>.

73 Joseph P. Verdon, Article 2B: Transitions in Software and

`Information,' (August 13, 1997)

<http://www.ljx.com/internet/0813ucc2b.html>.

74  Id.

75  Id.

76  U.C.C. Article 2B (February 1998 draft) section 2B-

308(a).

77  Mark A. Lemley, Intellectual Property and Shrinkwrap

Licenses, 68 S. Cal. L. Rev. 1239, 1262 (1995).

78  Joseph P. Verdon, Article 2B: Transitions in Software and

`Information,' (August 13, 1997)

<http://www.ljx.com/internet/0813ucc2b.html>.
 
 

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