by Kiran Chandramohanan and Dave Lester
During our Monday class, we were introduced to different descriptions of how users enter contracts for software, through clickwrap, browsewrap, and shrinkwrap licenses. What are terms that a user agreement and license can and can not specify? What are limitations that exist to protect consumers? How do various courts view the enforceability of shrinkwrap licenses and forum selection clauses in software contract?
In this blogpost we discuss two cases – Domenic Tricome v. Ebay, Inc., and Brower v. Gateway. These cases introduce us to examples of forum selection, as well as the limitations of remedies clause, and provide contrasting examples to those read for class to highlight contrasting ways that courts have ruled on these issues. We also discuss the initiatives made in the direction of formulating an uniform framework for software contracts.
Enforceability of Forum Selection Clause: Comparing eBay Case and AOL Case
Domenic Tricome v. Ebay, Inc. is an example case where the judgement went in favor of the software/service provider. Any user intending to use eBay’s services for selling or buying products in the online marketplace are required to go through a registration process asking them to accept eBay’s User Agreement and Privacy Policy. This agreement includes a forum selection clause restricting all User – eBay disputes to be resolved through a court action filed in Santa Clara County, California. Ebay terminated plaintiff, Domenic Tricome’s user account resulting in a civil action by Tricome against eBay in Eastern District Court of Pennsylvania. In turn, eBay cited the forum selection clause and moved to dismiss or transfer the case to California.
The plaintiff argued that the forum selection clause is unenforceable as the agreement is a standard form contract which is procedurally and/or substantively unconscionable. The court cited various cases and stated that failure to negotiate a forum selection clause during the agreement or even a failure to read the terms of an agreement is not a defense, not sufficient to render an otherwise valid forum selection clause invalid. The court considered two checks to examine the unacceptability of a forum selection clause:
1. Whether the party challenging the agreement had any meaningful choice regarding acceptance of its provisions.
- Here the plaintiff was an experienced businessman – had opportunity to read the user agreement and accept or reject the conditions stated. He accepted the agreement without any external or undue pressure from eBay’s side.
2. Whether the forum selection clause is so unduly one-sided so as to shock the conscience amounting to being substantively unconscionable.
- Court ruled in favor of eBay in this aspect and concluded it legitimate for a global company like eBay to desire to concentrate its legal defense in a particular forum and didn’t find a shocking motive here.
Its interesting to contrast the eBay case with AOL Case we read this week from a consumer protection standpoint. In AOL Case, the judgement was in favor of the end user whereas in eBay case the ruling went in favor of the software service provider. Understanding the two cases and many other similar cases is important in identifying the options available for consumers in proceeding with software contract based litigations in their choice of forums.
Unconscionability and Limitation of Remedies
When a user enters an agreement or accept a license, a contract is enforceable unless it conflicts with certain limitations, including unconscionablity. In Brower v. Gateway, consumers who purchased computers and software through Gateway’s direct-sales system were sold products that included a shrink-wrap license that specified an arbitration clause, in which claims less than $50,000 in damages required advanced fees of $4,000. These fees were described by the plaintiff as excessive, because the ability to take Gateway to court cost more than the computer products purchased. The plaintiff’s claim of unconscionability fell under New York law, where “unconscionability is generally predicated on the presence of both the procedural and substantive elements.”
The court ruled that the procedural element of unconscionability did not apply, because the agreement did not include “hidden” or “tucked away” language, but instead was only four pages and clear of its terms. The substantive element of unconscionability did, however, apply due to the excessive costs specified by the contract. Although NY State law typically requires that unconscionability require both elements, the court determined that the substantive element was sufficient alone, and ruled that the plaintiff and defendant seek a remedy.
The Supreme Court of Washington ruled that unconscionability did not apply in the Mortenson v. Timberline case. Unlike New York State, which typically requires both elements, Washington recognizes two types of unconscionablity: substantive, and procedural. The difference between how unconscionability is understood by the Supreme Courts of Washington State and New York State can be confusing, and is part of a larger inconsistency in how individual states legally interpret software license agreements.
Quest for an uniform legal framework for software contracts
The Uniform Computer Information Transactions Act (UCITA) proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999 and the “Principles of the Law of Software Contracts” drafted by the American Law Institute (ALI) in 2009 are two definitive steps in setting up an uniform legal framework for software contracts. The UCITA proposes a set of uniform guidelines governing the areas of software licensing, online access and other transactions in computer information. It intends to be the Uniform Commercial Code for information technology transactions. Till date, the act has been passed in two states – Virginia and Maryland and it was defeated in other states. Similarly The Principles of the Law of Software Contracts also recognizes the pressing need for harmonization and clarification in software contracts as a commercial subject matter. Still both these proposals invited wide criticism – UCITA has been opposed for tilting the buyer seller equation unfairly to software vendor’s side by enabling them to disclaim liability on product quality and relaxed limitation of remedies when compared against existing laws and available legal interpretations. The ALI proposal raised concerns from software companies alleging that principles like vendor obligation to buyer on product quality can stifle innovation and raise software costs.
The advent of digital revolution and ensuing proliferation of transactions in computer information products has presented a formidable challenge in terms of ensuring equitable judicial interpretation for litigations involving software contracts containing shrink-wrap licenses and forum selection clauses. There is a clear lack of uniform legal framework against which such legal scenarios can be interpreted, thereby avoiding legal unpredictability and ambiguity. The laws currently interpreted for resolving software contract litigations range from Uniform Commercial Code – Article 2 and common contract law to copyright and intellectual property laws. There is still no clear legal directions on prevalent issues like consumer obligations and rights with a software license contract, limitation of remedies, integration of the contract, consumer choice in selecting forums for litigation etc. There has been no consensus generated in stakeholder communities around the harmonization initiatives like UCITA and ALI proposal.
References
Domenic Tricome v. Ebay, Inc. : http://www.paed.uscourts.gov/documents/opinions/09d1283p.pdf
Brower vs Gateway 2000 http://scholar.google.com/scholar_case?case=14948729709721602284&hl=en&as_sdt=2&as_vis=1&oi=scholarr
Recent Developments in Shrinkwrap, Clickwrap and Browsewrap Licenses in the United States: http://www.murdoch.edu.au/elaw/issues/v9n3/kunkel93nf.html
Principles of the Law of Software Contracts: Some Highlights:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1554546
ALI Principles of the Law of Software Contracts: http://lawprofessors.typepad.com/contractsprof_blog/2009/06/ali-principles-of-the-law-of-software-contracts.html
UCITA : http://www.ucitaonline.com/
Opponents blast proposed U.S. software law: http://articles.cnn.com/1999-07-12/tech/9907_12_ucita.idg_1_ucita-uniform-state-laws-nccusl-new-law/2?_s=PM:TECH
New Software Contract Principles Prompt Worries: http://www.pcworld.com/businesscenter/article/169010/new_software_contract_principles_prompt_worries.html