Designer Skin LLC v. S & L Vitamins, Inc., et al.
Hill v. Gateway 2000. Inc.
105 F. 3d 1147 (7th Cir. Jan. 6, 1997)
Here, the Seventh Circuit, in reversing the decision of the court below, held that contract terms shipped along with computer to a customer govern the parties' relationship, where the customer receives a notice that informs her that the terms govern the parties' relationship unless the product is returned within 30 days, and the customer fails to return the product within that time period. The court succinctly set forth the pertinent facts of the case. "A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. [These terms include a clause requiring the parties to arbitrate any dispute arising out of their relationship.] Are these terms effective as the parties' contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer's assent?" The Seventh Circuit held that the terms do indeed govern the parties' relationship, validating Gateway 2000's "approve or return" device. The court, in reaching this conclusion, held that the offer of Gateway required acceptance by retaining the computer after receipt of the terms. As such, the parties' contract was not formed until the consumer retained the computer for a period of 30 days, and the terms provided with the computer bound the parties. In so holding, the court rejected plaintiffs' argument that the contract was formed when the consumer gave its credit card number to Gateway 2000, and that the terms therefore did not apply because they were unknown to the consumer at the time of purchase. In rendering its decision, the Seventh Circuit relied heavily on ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th. Cir. 1996)(terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product).
The full text of this decision can be found on a web site maintained by the Emory Law School.