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Specht v. Netscape

No. 01-7860 (L) (2d Cir., October 1, 2002)

Affirming the decision of the court below, the Second Circuit Court of Appeals holds that plaintiffs are not bound by the terms of a license agreement purporting to govern the use of a software product they downloaded because plaintiffs neither had reasonable notice thereof, nor adequately manifested their assent to be bound thereby.  The software in question could be downloaded from a page on defendant Netscape's web site by clicking on a button which said "download".  The terms of the license agreement in question were not contained on this web page, however, and the only notice the user received of the license agreement was found on a portion of the web page below the download button.  Typically, this notice appeared "below the fold" and was not on that portion of the page which first appeared on the user's screen when he went to download the program.  This notice informed the user that his use of the software would be governed by the terms of a license agreement, which terms could be seen by clicking on a link provided on the web page.  Once the program was downloaded, the user received no further notice of either the license agreement or its terms.  The Court held that this procedure did not create a binding contract between the parties.

The Second Circuit further held that the terms of a license agreement plaintiffs did agree to, governing their use of Netscape's browser, did not obligate them to arbitrate the claims they raised in this litigation.  These included claims that Netscape violated both the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act by causing Netscape's Smart Download software, a Netscape browser 'plug in', to send information to Netscape about plaintiffs' downloading activities. 

Plaintiffs commenced three separate putative class actions against defendant Netscape arising out of plaintiffs' use of Netscape's Smart Download software application.  Smart Download is a 'plug in' which works in conjunction with Netscape's browsers.  Plaintiffs claimed that Smart Download improperly sent information concerning plaintiffs' downloading activities to Netscape in violation of both the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act.

Netscape sought to compel plaintiffs to arbitrate their claims pursuant to the terms of licensing agreements found on Netscape's web site.  Finding that plaintiffs were not bound by the terms of the Smart Download license agreement, and that the Communicator license agreement did not cover the dispute at bar, the district court denied defendant's motion to compel arbitration.  On appeal, the Second Circuit affirmed.

The software in question could be downloaded from a web page on Netscape's web site titled "Smart Download Communicator."  Users wishing to download this application commenced the process by clicking on a button on this web page which said simply "download."  The terms of the license agreement at issue were not contained on this web page.  Indeed, there was no mention of a license agreement anywhere between the top of the "Smart Download Communicator" web page, and the "download" button.  Instead, the first mention of the license agreement occurred on a portion of the web page below the "download" button.  Typically, this notice was "below the fold" - unlike the "download" button, it was not displayed on that portion of the "Smart Download Communicator" web page which first appeared on the user's computer screen when he went to download the program.  To locate the notice, the user had to scroll down the page.  Once there, he found the following language:

The use of each Netscape software product is governed by a license agreement.  You must read and agree to the license agreement terms before acquiring a product.  Please click on the appropriate link below to review the current license agreement for the product of interest to you before acquisition.  For products available for download, you must read and agree to the license agreement terms before you install the software.  If you do not agree to the license terms, do not download, install or use the software.

Below this notice appeared a list of license agreements, the first of which was a "License Agreement for Netscape Navigator and Netscape Communicator Product Family." Clicking on this link took the user to the terms of a license agreement which informed the user that by installing or using Netscape Smart Download software, he consented to be bound by the terms of the license agreement, which contained an arbitration provision.

Nowhere else was the user given notice of this license agreement.  Thus, if he proceeded to download and use the Smart Download software application, he was given no further notice of the software license, either when he first went to use the program or in any subsequent use thereof.

This contrasted sharply with the steps a user was required to take to download and use Netscape's Communicator browser.  When users went to install this software, they were greeted with a scrollable screen containing the terms of a license agreement governing use of Communicator.  The user was not permitted to complete his installation of the browser software without clicking on an "I agree" button, indicating assent to be bound by the license agreement.

The Second Circuit held that under these circumstances, plaintiffs were not bound by the terms of the license agreement because they did not receive sufficient notice that their act of clicking on the "download" button, or using the software, would constitute an assent to be bound by the terms of the license agreement.  Said the court:

[A] consumer's clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms … (citations omitted).  California's common law is clear that "an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious." (citations omitted).

Defendant argued that plaintiffs were bound by the terms of the license agreement because they were put on "inquiry notice" both of the agreement and of the fact that their act of downloading the software would bound them to its terms.  The Second Circuit  rejected this argument, holding that placement of a notice below the "download" button did not obligate plaintiffs to inquire as to the existence of a license agreement between the parties.  Said the court:

We disagree with the proposition that a reasonably prudent offeree in plaintiffs' position would necessarily have known or learned of the existence of the SmartDownload license agreement prior to acting, so that plaintiffs may be held to have assented to that agreement with constructive notice of its terms. …  We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms. …  [T]here is no reason to assume that viewers will scroll down to subsequent screens simply because screens are there. …  Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility.  We hold that a reasonably prudent offeree in plaintiffs' position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload's license terms hidden below the "Download" button on the next screen.

The court also rejected defendant's argument that

plaintiffs were obligated to arbitrate their disputes with Netscape under the terms of the license agreement which governed their use of Netscape's Communicator browser, by which agreement plaintiffs were bound.  In reaching the conclusion that these disputes were outside the scope of those the parties agreed to arbitrate, the court contrasted the terms of the Smart Download license, which expressly applied to "Netscape Communicator, Netscape Navigator and Netscape Smart Download" with those of the Communicator license, which applied only to "Netscape Communicator and Netscape Navigator."  Because plaintiffs alleged that their claims arose out of the operation of the Smart Download software, and not the Communicator browser, they were not covered by the arbitration provisions contained in the Communicator license agreement.

The full text of the court's decision can be found on a web site maintained by Findlaw.

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