Shrinkwrap licenses: Consequences of breaking the seal

St. John's Law Review, Fall 1997 by Finkelstein, Thomas, Wyatt, Douglas C

INTRODUCTION

In the last 50 years, computer software has evolved from custom designed programs printed on punch cards for use with huge, million-dollar mainframes into retail items available in the mass market at affordable prices for individual consumers to use with their personal computers.1 The law, however, has played tortoise to technology's hare-it remains to be seen whether legal forms will develop to appropriately resolve the multitude of problems posed by the advent of computer technology.2 One such problem is the status of shrinkwrap licenses.3

Shrinkwrap licensing represents an attempt by software manufacturers to provide greater protection for their products than currently afforded under pure copyright protection.' Purchasers of mass produced software encounter shrinkwrap licenses as the list of fine print terms expressed in complicated legalese which the user is expected to read (though more likely will ignore) prior to using the product.5 Often, the terms are printed on an envelope within the actual purchased package which contains the software diskettes.6 The user may constructively assent to these terms by opening the flap of the envelope.7 Another way a purchaser can consent to the licensing terms is by breaking a plastic seal which tightly fits the software package, hence the name "shrinkwrap."8

Courts have generally refused to recognize the terms of these licenses because the terms were not reviewable by the purchaser until after the price of the item had been paid, and therefore the terms were not part of the bargained-for exchange.9 Some courts have also invoked the Federal Copyright Act to preempt state enforcement of some shrinkwrap contract terms.lo Moreover, shrinkwraps have been held unenforceable as contracts of adhesion because very often users have no notice of the existence of the license, or of the fact that their conduct manifests assent to its terms.ll The sole exception to this general rule of non-enforcement of shrinkwrap licenses is the case of ProCD v. Zeidenberg.12 In ProCD, the Seventh Circuit enforced a shrinkwrap license,l3 creating a split in the circuits with regard to the enforceability of shrinkwraps.14

In an attempt to reconcile the law of shrinkwraps specifically, and to promulgate a set of rules governing commerce of intangible goods generally, the National Conference of Commissioners on Uniform State Laws (NCCUSL) is currently drafting a supplement to Article 2 of the Uniform Commercial Code.15 This supplement, entitled Article 2B-Licenses, aims to consolidate the law of shrinkwraps, and although not yet complete, is expected to be given to the states for ratification in late 1997. Thus, at present, given the divergent case law and the unfinished status of the draft proposal, the law with regard to shrinkwraps is unclear.16

This Note will discuss the development of case law concerning shrinkwraps, the rationales of the various courts deciding the issues, and the questions left unresolved by the judiciary. Next, this Note will focus on the portion of proposed Article 2B which attempts to provide a uniform test for the enforceability of shrinkwraps. Finally, this Note will point out the merits and shortcomings of the "2B" approach. Specifically, this Note will assert that, notwithstanding some minor improvements which could be articulated with respect to the definition of certain terms, proposed Article 2B provides a competent framework for analyzing the legal effect of shrinkwrap licenses.

I. DEVELOPMENT AND CRITIQUE OF SHRINKWRAP LICENSING LAW

A. Step-Saver Data Systems, Inc. v. Wyse Technology: Unenforceability of Shrinkwrap Licenses

The question of enforceability of a shrinkwrap license first17 came before the judiciary in Step-Saver Data Systems, Inc. v. Wyse Technology.18 Step-Saver Data Systems ("Step-Saver") was a value-added retailer of computer software and hardware systems.l9 The company marketed a multi-user computer network comprised of a central computer, provided by defendant Wyse Technology, and several terminals linked through an operating system, provided by another defendant, The Software Link ("TSL").20 When Step-Saver began to receive complaints about its systems from its consumers, it sought assistance from the manufacturers of the hardware and software components of its systems.21 Unable to resolve the dispute amicably, Step-Saver brought suit against the manufacturers, alleging breach of warranty and intentional misrepresentation.22 TSL defended by claiming that the license agreement printed on the box-top of its software constituted the entire agreement between itself and Step-Saver.23 This license agreement disclaimed all product warranties by TSL.24

The central issue before the Step-Saver court was the effect of the box-top license.25 The court, after initially noting that its analysis would be governed by the Uniform Commercial Code ("U.C.C."),26 held that the warranty disclaimers and remedy limitations on the licensing agreement had not become part of the parties' agreement.27 In resolving the dispute, the court used section 2-207(28) of the U.C.C. in its analysis. Applying section 2207, the court first concluded that the behavior of the parties indicated the existence of a contract.29 Thus, as the court stated, "th[is] dispute is ... not over the existence of a contract, but the nature of its terms," and therefore the court applied section 2207 to determine the terms of the contract.3o The court held that the additional terms on the box-top were unenforceable for several reasons. First, the contract was sufficiently definite without regard to the terms of the box-top license.31 Second, the additional terms did not become part of the agreement because the integration clause and the "consent by opening" language in the beginning of the licensing agreement did not expressly state that the seller would be unwilling to proceed absent the buyer's acceptance of the additional terms.32