By Stephen Filler, Esq.

Businesses that pay attorneys thousands of dollars to draft Web site "terms and conditions" expect those terms to be binding. But agreements may not be enforced unless they are implemented to require the user to "assent," or agree, to the terms.

Web browser Netscape recently learned this lesson the hard way when a New York federal judge refused to enforce license terms for Netscape's SmartDownload software in the case of "Specht et al. v. Netscape Communications Corp. and America Online, Inc."(1)

In the case, the federal court ruled that Netscape's mere placement of license terms on its Web site was insufficient to bind its users.

The case shows that when it comes to Internet-related business disputes, judges still follow centuries of contract law requiring that parties "assent" to agreements. Signatures in blood may be gone, but assent by either words or conduct is mandatory.

In refusing to enforce Netscape's SmartDownload agreement, the judge stated: "Assent may be registered by a signature, a handshake, or a click of a computer mouse transmitted across the invisible ether of the Internet. . .[A]ny sign, symbol or action, or even willful inaction, as long as it is unequivocally referable to the promise, may create a contract." In the Netscape case, Netscape provided SmartDownload without fee to users who clicked a "Download" box on Netscape's Web site. The SmartDownload software permitted users to resume interrupted downloads without having to re-download in entirety.

No reference to license terms appeared at the "Download" box. Only if users happened to scroll to a subsequent screen did they find a link to a license agreement stating that disputes concerning SmartDownload were subject to mandatory arbitration.

Plaintiffs who downloaded the software sued Netscape, claiming that the SmartDownload software unlawfully transmitted private file transfer activity to Netscape in violation of two federal statutes. Netscape asked that the proceeding be dismissed because of the mandatory arbitration provision.

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Users May Assent to Shrinkwrap and Click-thru Agreements By Conduct

In rejecting the license terms and refusing to dismiss the suit, the New York court stated that the assent requirement may be satisfied by writing or orally, or as is frequently the case with software, by a party's consent.

Courts have often found assent by conduct with so-called "shrinkwrap" agreements -- software license agreements contained within plastic-wrapped software packaging.

Frequently, such packaging states that software use is subject to the terms of an enclosed license agreement that permits buyers objecting to such terms to return the software for a refund. Many courts have found that using and failing to return such software are sufficient acts of assent to bind the user to the license terms. (2)

Additionally, in the Netscape case the New York Court recognized the enforceability of "click-thru" (a.k.a "click-wrap") agreements that require assent by clicking on an "I Agree" button, with a prominent link to terms and conditions, before the software can be downloaded.(3)

Between the Drafting and the Implementation Lies the Shadow

Although the federal court found no defect in Netscape's SmartDownload licensing agreement on its face, the implementation was faulty. Because a user could download the software without even being aware of the existence of license terms, the act of downloading could not be deemed an assent.

Rather than being similar to an enforceable "shrinkwrap" or "click-thru" agreement, Netscape's implementation was more like a "browse-wrap" agreement -- the typical Web site terms and conditions linked from the bottom of a Web page that need not be seen, or agreed to, to use the site -- whose validity was questioned recently by a California court. (4)

Because Netscape did not require the user's unambiguous expression of assent before downloading or using the SmartDownload software, the New York Court found that plaintiffs were not bound by the license agreement or its mandatory arbitration provision.

Terms should be Drafted and Implemented Unambiguously

The Netscape decision highlights the importance of careful drafting and implementation of online terms and conditions. Agreements can be made more effective by:

Footnotes to legal references:

(1) See "Specht et al. v. Netscape Communications Corp. and America Online, Inc." (2001 WL 755396 S.D.N.Y., July 5, 2001).

(2) See "ProCD, Inc. v. Zeidenberg", 86 F.3d 1447, 1450 (7th Cir. 1996), "Hill v. Gateway 2000, Inc.", 105 F.3d 1147 (7th Cir. 1997), cert. denied, 522 U.S. 808 (1997), "M.A. Mortenson Co., Inc. v. Timberline Software Corp.", 140 Wash.2d 568, 998 P.2d 305 (Wash. 2000).

(3) See "In re RealNetworks, Inc. Privacy Litigation", No. 00C1366, 2000 WL 63141 (N.D. Ill. May 8, 2000); "Hotmail Corp. v. Van$Money Pie, Inc.", No. C 98-20064, 1998 WL 388389 (N.D. Cal. April 16, 1998).

(4) See "Pollstar v. Gigmania Ltd.", No. CIV-F-00-5671, 2000 WL 33266437 (E.D. Cal. Oct. 17, 2000).

*Stephen Filler is the principal of his own law firm and counsel to Masur and Associates, LLC. His focus includes copyright, trademark, intellectual property, electronic commerce, Internet law, and general business law. He is a chairman of the Intellectual Property Law Committee of New York County Lawyers Association and co-chairman of the Law and Business Special Interest Group of New York New Media Association.

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