ELECTRONIC COMMERCE ADVISORY
November 13, 2002
DECISION CARRIES IMPLICATIONS ON EFFECTIVE CYBERSPACE
CONTRACTING
The enforceability of “Webwrap” or “click wrap” agreements continues to present novel
questions of law for courts and litigants. A recent federal Appeals Court decision in
Specht, et al. v. Netscape Communications Corp., et al., addresses certain fundamental issues of contract formation in Internet-based transactions as governed by general
California contract law.1 At issue in the case was whether the terms of an online license
agreement are enforceable if it can be argued that the licensees did not have reasonable
notice of the license terms, and did not manifestly agree to them. The court’s decision
provides important guidance to companies using online click-through agreements.
LEGAL BACKGROUND
The plaintiffs in Specht alleged that their use of Netscape’s SmartDownload software
transmitted to Netscape private information about the plaintiffs’ downloading of files from
the Internet. Effectively, the plaintiffs alleged this resulted in an electronic surveillance
of their online activities, which violated two federal statutes, and they brought suit in
federal court. Netscape moved to compel arbitration under the terms of the license
agreement associated with SmartDownload.
The central issue before the court was whether a contract had been formed when the
plaintiffs downloaded the program from Netscape’s Web site, thereby rendering the
arbitration provision enforceable. It was undisputed that the download page for the
program contained a link to license terms, that the link was not immediately apparent in
most browser windows, and that there was no obvious indication that the act of clicking
on the download link was also a manifestation of assent to licensing terms.
However, Netscape argued that a reasonably prudent person would have scrolled down
the download page and discovered the reference and link to the licensing agreement,
which would put the user on constructive or “inquiry” notice of the license provision at
issue. Notably, in some circumstances, the law places a duty on a party to a contract
to familiarize himself with its terms. Thus, a party may be bound by a certain term
even though he was not actually aware of the specific provision. Accordingly, Netscape
argued, the plaintiffs should be bound by the arbitration provision regardless of whether
they actually viewed or read the online agreement.
1
See Slip Opinion, Docket No. 01-7860(L) (2d Cir. 2002).
www.alston.com
1
COURT’S DECISION
The Second Circuit disagreed with Netscape and affirmed the lower court’s ruling,
holding that the constructive or “inquiry” notice cases did not apply. The court noted
that in the vast majority of constructive notice cases, the party to be bound by the
agreement was either aware of the existence of the agreement or should have been,
given the transactional context, and that “receipt of a physical document containing
contract terms or notice thereof is frequently deemed, in the world of paper transactions, a sufficient circumstance to place the offeree on inquiry notice of those terms.”
In reaching its conclusion in Specht v. Netscape, however, the court pointed to the fact
that the agreement at issue was not immediately before the plaintiffs, and there was
no indication that downloading the program was at the same time a manifestation of
assent to the terms of a licensing agreement.
The court underscored the difference between the electronic and “paper” contexts,
opining that “[w]hen products are ‘free’ and users are invited to download them in the
absence of reasonably conspicuous notice that they are about to bind themselves to
contract terms, the transactional circumstances cannot be fully analogized to those in
the paper world of arm’s-length bargaining.”
We note that the Second Circuit refused to decide whether UCC Article 2 applies to
Internet transactions and dismissed any application of the concepts in the Uniform
Computer Information Transactions Act (UCITA), once the proposed UCC Article 2B,
because in reviewing the matters at issue, no substantive differences existed among
UCC Article 2, UCITA, and the common law of contracts.
IMPLICATIONS FOR CONDUCTING BUSINESS ONLINE
Arguably, this decision represents a narrow holding under California law with respect
to terms of an agreement that are all but concealed in the course of an Internet-based
transaction. Nonetheless, two key elements are present that may have a significant
impact on the development of this area of the law, and consequently, how companies
transact online contracting. First, the Second Circuit’s reluctance to analogize electronic transactions to “paper” ones indicates that courts may in the future more closely
scrutinize the manner in which terms of an Internet-based transaction are presented.
Second, and more specifically, other courts may pick up on the “reasonably conspicuous” language employed by the Second Circuit, which suggests a higher standard for
notice than that which may be applicable in the “paper” context. Businesses may wish
to compare their online contracting processes to the guidance provided by the court
in Specht v. Netscape.
2
This Electronic Commerce Advisory is published by Alston & Bird to provide a summary of significant developments to our clients and friends.
It is intended to be informational and does not constitute legal advice
regarding any specific situation. The material may also be considered
advertising under the applicable court rules. This advisory may be
reprinted without the express permission of Alston & Bird so long as it is
reprinted in its entirety including the Alston & Bird name and logo. If you
have any questions or would like additional information please contact
your Alston & Bird attorney or any of the following:
Andrea E. Bates
404-881-7699
abates@alston.com
James A. Harvey
404-881-7328
jharvey@alston.com
Kevin D. Sheldon
404-881-4653
ksheldon@alston.com
Alan Behr
212-210-9479
abehr@alston.com
Michael D. Hauser
404-881-4785
mhauser@alston.com
Jay E. Sloman
404-881-7916
jsloman@alston.com
Mary Ann Capria
202-756-3384
mcapria@alston.com
Dickson M. Lupo
704-444-1015
dlupo@alston.com
George M. Taulbee
704-444-1023
gtaulbee@alston.com
James J. Casey
202-756-3332
jcasey@alston.com
Todd S. McClelland
404-881-4789
tmcclelland@alston.com
David S. Teske
404-881-7935
dteske@alston.com
Heather L. Clauson
404-881-7464
hclauson@alston.com
James E. Meadows
404-881-7329
jmeadows@alston.com
E. Michelle Tyde
404-881-7965
mtyde@alston.com
Robert B. Cunningham
404-881-7833
rcunningham@alston.com
Robert C. Reynolds
404-881-7560
rreynolds@alston.com
Katherine M. Wallace
404-881-4706
kwallace@alston.com
Martin J. Elgison
404-881-7167
melgison@alston.com
Karen M. Sanzaro
404-881-7275
ksanzaro@alston.com
ATLANTA
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
404-881-7000
CHARLOTTE
Bank of America Plaza
101 South Tryon Street
Suite 4000
Charlotte, NC 28280-4000
704-444-1000
NEW YORK
90 Park Avenue
New York, NY 10016-1387
212-210-9400
RESEARCH TRIANGLE
3201 Beechleaf Court
Suite 600
Raleigh, NC 27604-1062
919-862-2200
If you would like to receive future Electronic Commerce Advisories electronically, please
forward your contact information including e-mail address to
ecommerce.advisory@alston.com. Be sure to put “subscribe” in the subject line.
WASHINGTON, D.C.
601 Pennsylvania Avenue, N.W.
North Building, 10th Floor
Washington, D.C. 20004-2601
202-756-3300
www.alston.com
© Alston & Bird LLP 2002