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I.Lan Systems, Inc. v. Netscout Service Level Corp.

Court holds that plaintiff is bound by the terms of a license agreement that appeared on its computer screen when it loaded defendant's software, because plaintiff indicated its assent to be bound thereby by clicking on an "I agree" icon at the foot of the license agreement. Court reached this conclusion despite the fact that the plaintiff had ordered the software in a purchase order it sent to defendant before clicking on the "I agree" icon, which purchase order did not contain the limitation of damage clause found in the license agreement. The court held such a result was appropriate under UCC Section 2-204, which states that "a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." (Emphasis added). The court further held that such a result was appropriate under UCC Section 2-207, which permits the addition of additional terms to a contract, here the purchase order, either on explicit or implicit consent. The court found the requisite explicit consent present in plaintiff's act of clicking on the "I agree" icon. The necessary implicit consent was also present because the additional terms in the license agreement came as no surprise to, and caused no hardship for, the plaintiff.

Defendant sells software that monitors networks. In 1998, plaintiff and defendant entered into a Value Added Reseller Agreement ("VAR"), pursuant to which plaintiff agreed to resell defendant's software to customers. This agreement contained a limitation of liability clause, and incorporated by reference into the VAR the terms of the license agreement found on the software that was subject of the VAR.

In 1999, plaintiff ordered software from defendant pursuant to the terms of a purchase order it issued. This purchase order contained no limitation of liability clause.

Plaintiff thereafter loaded software it received pursuant to this purchase order on its computer. There, it encountered a license agreement. After scrolling through the agreement, plaintiff was confronted by an "I agree" icon, which it clicked. This license agreement contained a limitation of liability clause very similar to that found in the VAR agreement.

A dispute arose between the parties, which resulted in litigation. Defendant argued that its maximum liability for damages was as set forth in the click-wrap license agreement, which limited defendant's damages to the price paid by plaintiff for the software ($85,231.42). The court agreed, and granted defendant's motion for partial summary judgment.

The court determined that it would resolve this dispute under Article 2 of the UCC. The court noted that this statute applies to the sale of goods, and the transaction at issue was a license of software in which ownership to the software was not transferred. Nonetheless, the court decided to apply the UCC to this dispute as had other Massachusetts courts. In reaching this conclusion, the court noted that "the UCC best fulfills the parties' reasonable expectations."

The court then analyzed the case under both UCC 2-204 (Formation of Contract) and 2-207 (Additional Terms in Acceptance or Confirmation).

UCC 2-204 provides that "a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." By clicking on an "I agree" icon, plaintiff had indicated sufficient assent to be bound by the terms of the license agreement under Section 2-204. Said the court:

If the proper analysis is pursuant to UCC Section 2-204, the analysis is simple: i.Lan manifested assent to the clickwrap license agreement when it clicked on the box stating "I agree," so the agreement is enforceable. (citation omitted).

The court also determined that under UCC 2-207, plaintiff was bound by the terms of the click-wrap license agreement. This provision governs the circumstances under which additional terms proposed by one party to an existing contract, or in response to a contract proposal, become part of the binding agreement between the parties. As explained by the court, such additional terms become binding if the party to whom the additional terms are proposed explicitly indicates his assent to be bound thereby. Such additional terms also becomes part of the parties' agreement if that party implicitly indicates his assent. As stated by the court "between merchants, if a party never objects to the additional terms, and the additional terms are not material, then the UCC deems the party to have accepted the additional terms implicitly."

The court held that plaintiff had agreed to any additional terms contained in the click wrap license agreement that were not found in plaintiff's purchase order, including the limitation of liability provisions, both explicitly and implicitly. Plaintiff explicitly agreed by clicking on the "I agree" icon.

The court held that plaintiff implicitly agreed because a) it failed to object to the additional terms and b) the additional terms were not material. Under the UCC, terms are not material if "there can be no unreasonable surprise or hardship to i.Lan from enforcing the limitation of liability." The court held that given the fact that the VAR contained a limitation of liability provision, and referenced the click wrap license agreement, the addition of such terms in the click wrap license agreement to the parties' contract should neither unreasonably surprise nor cause hardship to i.Lan. The court accordingly held that the terms of the click wrap license agreement were binding on plaintiff, including the clause therein which limited plaintiff's damages to the amount it paid for the software in question.

Lastly, the court noted that plaintiff was not entitled to specific performance of that portion of its agreement which it claimed gave it the right to perpetual upgrades of defendant's software and unlimited technical support. While such a remedy was not precluded by operation of defendant's limitation of liability clause, plaintiff was not entitled to such relief under UCC 2-716 because the goods in question were not unique. As stated by the court, to determine whether goods are unique, "basically courts now determine whether goods are replaceable as a practical matter -- for example, whether it would be difficult to obtain similar goods on the open market." Because there were a number of competing software products on the market, defendant's "software is not unique or irreplaceable as a practical matter, so the Court would not award specific performance."

The full text of the court's decision can be found on a web site maintained by the United States District Court for the District of Massachusetts.