Today, we examine a case that deals with contracts in the modern world of technology and internet contract. Many of you use web based services such as Google, Facebook or apps on your phone like Uber or Seemless. Do you remember the last time you read through the terms and conditions of any of those service contracts? Have you wondered why some services require you to separately click a button to accept the terms and conditions, whereas others do not. These issues are raised in Specht versus Netscape, a 2002 case, that was heard by the Second Circuit. The decision was authored by Judge Sotomayor, who as you know is now a Supreme Court justice. Before we turn to the case, let's take a moment to learn a few key concepts. Click wrap refers to an electronic agreement in which a user indicates agreement to terms by clicking on a radio button, checking a box or the like, usually as a condition of using the device or a piece of software. Browse wrap refers to terms of use often found via link or website's main page that purport to bind to users solely by virtue of his or her continued use of the site. These terms come from the use of 'Shrink wrap contracts' which were frequently litigated in the 1990's. Shrink wrap contracts were commonly used in box software packages which contained a notice that by on the outside of the box that by tearing open the Shrink wrap, the user was assenting to the software terms enclosed with it. In this bract case, the plaintiffs-appellees downloaded defendant Netscape smart download program. This was a program which facilitated transmission of files online. Underneath the download button in a non-obvious position was a link to the terms associated with the download and use of the smart download software. An arbitration clause was included among those terms. The smart download program allowed Netscape to record any subsequent downloads obtained by smart download users. Plaintiffs claimed that this feature violated federal privacy laws. Netscape moved to compel arbitration in accordance with the terms associated with the smart download terms and conditions as well as Netscape communicator and associated program. The plaintiffs argued that arbitration would not be appropriate because they hadn't agreed to it. In other words, plaintiffs argued that the arbitration clause hidden underneath the download button was not enforceable. The district court denied the defendant's motion to compel arbitration. The instance court affirmed the district court's ruling. The main issue in the case as you can already tell is whether the plaintiffs are bound by the terms of a download program if they could have reasonably downloaded the program without becoming aware of the existence of the terms. In other words, the main issue is whether the browser app agreements in this case are enforceable. The second circuit sided with the plaintiffs. They ruled that an offeree must receive clear notice of a contracts associated terms, if a download is to constitute acceptance of those terms. A contract requires mutual assent because plaintiffs did not assent to the contractual terms and could not be expected to be aware of the terms existence. They are not bound by the arbitration clause. So, what law did the court apply to this transaction where the subject matter is a license of intangible software? The court's answer here is the common law. We're impressed, some courts might apply the UCC by analogy to supplement the common law. However, remember that the UCC Article 2 only applies to the sale of goods. Something else that might apply is the Uniform Computer Information Transactions Act, UCITA. The model act was designed to govern computer information transactions. Section 103A of that act has defined computer information, and information in electronic form which is obtained from or through the use of the computer, or which is in a form capable of being processed by a computer. Section 112A would have dealt with click wrap and browse wrap, stating that a person manifests assent if she intentionally authenticates the term or engages in behavior that is likely to be perceived as manifesting assent. But, only two states, Virginia and Maryland, have enacted UCITA. The project has been abandoned by the National Conference of Commissioners after several states enacted legislation prohibiting UCITA from regulating transaction within their borders. The American Law Institute adopted principles of the law of software contracts in 2009. But it remains to be seen how influential these principles will have, how much impact they'll have on judicial opinions. However, this doesn't mean that browser wrap agreements are never okay. The court held that browser wrap agreements may be enforced if the browsing user ascends to it. This is going to be done on a case by case basis and there are no bright line rules. But the key is that a given agreement must be sufficiently conspicuous. What are some ways to make a browser wrap agreement highly visible? Well, some suggest that the icon for the terms of the user agreement can be placed in the upper left hand quadrant of the homepage. Because internet pages, open from the upper left hand quadrant, this guarantees that the user will be able to see the icon. Think back to the last time you used google, not gmail, or google chat, or some other google service but google the search engine. Did you remember, accepting the terms and conditions for Google search? Google search terms and conditions are on the bottom right hand corner of its page. As you can guess, it's usually a browser wrap because you don't have to click on any button to accept it. Usage of the service means you're agreeing to the conditions. Let's turn back to the click wrap agreements for a second. There's a little question that click wrap agreements are presumptively enforceable. Courts have held that a click is usually enough to satisfy agreement to an electronic transaction. But both cognitive theory and empirical studies demonstrate that this might not be such a good thing. Professor Robert Hilman and Jeffrey we're Klonsky argue that, while an individual's opportunity to protect yourself against one-sided standard form contracts is arguably greater when contracting by computer than when contracting through written forms, the cognitive perspective that consumers tend to adopt with respect to contractual risks makes it unlikely that many will take advantage of these new electronic tools. In short, almost no one reads the terms of the clip wrap license before a assenting to the program. In a study of 47,000 households over a one month period, the readership of end-user or license agreements was found to be on the order of 0.1 to one percent. Maybe, this explains how the British software retailer Gamestation was able to successfully add an immortal soul clause to its end user license agreement, which stated that the user would give up his or her immortal soul at the seller's request. Making matters worse, consumers sometimes demonstrate something that might be called term optimism. The consumer sometimes believes that the contractual terms are more favorable to them than they actually are. For instance in a survey of consumers concerning insurance, the consumers believed that they had more coverage from different types of harm than the insurance actually offered. So, the consumer tributes more utility to the insurance contract than the contract actually generates for her. Some websites require users to actually click through, and even scroll through to the bottom of the terms before they're able to agree to accept the offer. A few websites even require the term box to be open for a certain amount of time before the offer becomes acceptable to assure that the consumer had enough time to actually read the terms. But the vast majority of websites make it so that the consumer offeree doesn't have to read. And it's possible of course that the consumer offerees don't want the hassle of these extra clicks or these extra precautionary devices. They prefer a BugMeNot approach to contract formation, even if it leads to the problem of term optimism. Now, Section 211 of the restatement of contracts, which is sometimes referred to as the Know Thy customer provision, might provide a little bit of consumer protection against this term optimism. Section 211 states, if the other party has reason to believe that the other party manifesting such assent would not do so, if he knew that the writing contained this term then that term is not a binding part of the agreement. A comment to the section notes, that customers do not, in fact, ordinarily understand or even read the standard terms. They trust the good faith of the party using the form. Although, customers typically adhere to standardized agreements, it doesn't make sense to bind them to unknown terms, which are beyond the range of reasonable expectations. For instance, this comment says a debtor who delivers a cheque to his creditor with the amount blank does not authorize an infinite figure. We're not giving the sellers blank cheques when we click through on these contracts. Professor Alan Schwartz, and I have proposed another solution in an article which we published in The Stanford Law Review. We suggested that seller should be required to disclose a standardized warning box, containing unexpected, unfavorable terms. And this is actually an example of such a box as applied to Facebook. But we also suggested that representative of consumers should be empowered to waive the provision of some of these terms. If it turns out that a majority of consumers would prefer not to be warned, then the seller would be able to forgo providing this warning box of unexpected terms. We suggested that this would together create a form democratization, where customers would have the power to both be warned about unexpected terms, and the power to waive those terms if representative consumers would prefer not to be bugged by them. If the representative consumers find these to be unhelpful, then they wouldn't have to see them. In our paper, we actually tested 25 core questions about Facebook terms concerning privacy, statement of rights, and responsibility. We were trying to see which terms are the terms that people would expect, in which terms are unexpected, and unfavorable. We found five unexpected, unfavorable terms. This slide shows the two that were most unexpected and unfavorable, and we provide the examples that we were trying to disclose to consumers. So, today, we have examined click wrap and browser wrap contracts. We learned that while click wrap agreements are usually enforceable, browser wrap agreements are not enforceable unless they are sufficiently visible. However consumers rarely read click wrap terms, or the terms in a browser wrap agreement either. A better option might be to ensure that sellers disclose terms that are unexpected and unfavorable.
