Journal of Law, Information and Science
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CHRISTOPHER TAY[Θ]
The law of contract has developed from a time when electronic communication was not even contemplated or dreamt of by judges and the legislature. The spectacular growth of electronic commerce, the Internet and technology in general presents new challenges for the law of contract.
This paper aims to examine the growth and evolution of the law of contract as technology and invention presented and continues to present new issues and concepts for the law to examine. The creation of the telegram, telex, fax, phone, computers and the Internet have all impacted upon the way a contract can be “created”. Recent technological advances have seen first shrink-wrap licences and now, click-wrap agreements pose further questions for legislators and judges. Traditional ideas surrounding the formation of contracts and what is offer and acceptance are now being re-examined. The challenge for the legislature, judges and the law today is to evolve and adapt to this new technology so that these new advances can be allowed to grow and develop to the benefit of the world, within both fair and certain legal principles.
Contracts between parties for goods or services are perhaps the most basic business transaction in the world. Traditional rules of contract law governing such transactions developed when pens and paper were the dominant form of communication and record keeping between people. However, the development of new technology – first telexes, faxes and phones, and now computers, modems, smart cards and the Internet – has created a new challenge for the law of contract.
In this paper, it is my aim to explore some of the difficulties surrounding contracting with new technologies. In particular, I aim to explore the difficulties for contract law with the rise of the shrink-wrap licence and the click-wrap agreement. Thus, my basic contention is that the law of contract has had to continually develop and evolve along with the changes to society and technology. New methods of communication and new products will require new techniques and reasoning. The advent of electronic commerce is slowly making the written signature obsolete in many commercial transactions. Without this evolution of the law, we will not be able to fully take advantage of the advances and promises of the Information Age.
This first point is linked to my second contention. This is that the law in Australia surrounding electronic contracts, click-wraps and shrink-wraps, and electronic commerce more generally is severely underdeveloped. The evolution in the law seems to have been passed over by the speed of technological change. Measures need to be taken to remedy this situation. Moves by the Australian government’s Electronic Commerce Expert Group Report to the Attorney-General, Electronic Commerce: Building the Legal Framework and the United Nations Commission on International Trade Law’s (UNCITRAL) Model Law on Electronic Commerce are steps in this direction. The Federal government has also just released the Draft Electronic Transactions Bill. However, further work and practical action in implementing a workable legal framework is required.
In the first two parts of this paper, I will begin with a brief discussion of the law of contract relating to basic agreements. In Part 3, I will discuss some of the early historical changes to the law of contract relating to technology. Examples will illustrate how the law has developed along with the introduction of the telegram, telex and the fax.
In Part 4, I move on to look at two specific forms of contracting, the shrink-wrap and the click-wrap. In Part 5, I will specifically discuss the development of the shrink-wrap licence. Broadly, the shrink-wrap licence is a standard form of contract provided with goods (typically software). The name comes from the fact that the product is sealed with ‘shrink-wrapped’ plastic. The actual terms of the purchase are either enclosed inside the package or are on the package. The basic principle of the licence is that when the purchaser removes the plastic shrink-wrap, he or she is agreeing to accept the terms of the agreement. The shrink-wrap licence has been a response in part to contracting over the phone or by mail and the attempts of software owners to maintain control over their products.
The case law in America, in cases such as Step-Saver Data Systems Inc. v Wyse Technology[1] and ProCD Inc. v Zeidenberg[2] have shown how, with great reluctance, the courts have accepted the shrink-wrap as an enforceable contract. This gradual development reflects the acknowledgment of the courts that the software industry requires a form of protection that can cope with the digital age. Computer software is a part of the computer age and so the law must evolve to reflect this.
The one British case in this area, Beta v Adobe[3], is from Scotland. Unfortunately, it fails to give any guidance on the topic of shrink-wraps because it relied upon the principle of jus quaesitum tertio (rights conferred upon third parties from a contract) to decide the case. This principle is more widely favoured in Scottish law than in other jurisdictions. In Australia, there has been no judicial authority on shrink-wraps. The closest analogous cases are the so-called ‘ticket’ cases. Unfortunately, the ticket cases and Beta v Adobe serve to highlight the complete lack of clarity and development of the law in this area.
In Part 6, I examine the click-wrap agreement. This agreement is designed for on-line or computer based transactions. Purchasers will be asked to click ‘yes’ or ‘I agree’ to accept the terms of the agreement. There is no need for paper work or a written signature in such agreements. Click-wrap agreements are the next logical step down the technological pathway from shrink-wraps and faxes. Since such agreements are entirely software based, they are ideal for Internet commerce.
The small number of American cases on this area reflects the growing change in American jurisprudence. However, the complete lack of judicial authority in Australia and Great Britain again highlights the enormous gaps technology has created in Australian law.
Finally, in Part 7, I turn to some of the current moves in Australia to deal with the electronic contract and electronic commerce more generally. Whilst no breakthrough legislation has been created yet, there is a considerable amount of discussion occurring. The adoption of some of the recommendations of interested bodies can hopefully lead to greater certainty and clarity for the future of electronic transactions.
So as the dawn of the new century arrives, it presents many challenges for human society and the law. The so-called information age has brought instantaneous communication and potential immediate distribution of data and property. It is this challenge that the law of contract must rise to meet. Whilst there have been some stumbles along the way, it would seem that both Australian and international law makers have already began to develop, effectively manage and overcome this latest challenge presented by the ever growing and changing creature called ‘technology’.
There are a number of basic principles of contract law that govern the way contracts are formed and enforced. First, there must be a basic offer and acceptance between two parties. This involves communication of the offer and the subsequent communication of an acceptance by the offeree. By accepting the offer, the offeree is agreeing to be bound by the terms of the offer. There also must be an intention to create legal relations, and some form of consideration (ie. payment).[4]
Whilst agreement can take many different forms, the question of what exactly constitutes ‘communication’ of an acceptance has been one that has caused a number of difficulties. Questions relating to the acceptance of unknown terms and conditions have also been the cause of problems for the law.
The postal rule is one major exception to the traditional rule that acceptance does not occur until communication has been made. The postal rule deems acceptance to be effective once the letter is posted, even though the letter may be delayed or that it may never be delivered.[5] The justifications for the rule are that it protects the offeree against delay and a revocation of the offer after the acceptance has been posted.[6]
In an ideal situation, contracts formed are between two parties that clearly have the requisite intention and communication. However, in the world of litigation, it is issues of intent, terms of the contract, communication and timing of communication that cause the most difficulty. Thus, commercial transactions are typically made in writing, with terms set out and signatures representing consent and acceptance.[7]
The original English Statute of Frauds 1677 was the beginning of the need to have contracts in a written form.[8] The Statute of Frauds basically required contracts to have some form of signed written note or memorandum.[9] The aim was to prevent fraud (as its name would suggest), especially in property cases. This was done by providing adequate evidence, providing a cautionary function by making parties think before entering into contracts, and by creating the use of standard forms of contracts.[10] However, the Statute of Frauds was designed for an era where technology did not create new modes of communication. As we shall see later, such new and different modes of communication can lead to additional and unforeseen difficulties in the law of contract.
As noted above, traditional commercial contracting envisaged pens, paper and signatures between contracting parties. The written contract was the dominant form in trade. However, with the development of new technology, this has all changed.
In Thomas v McInnes[11], Chief Justice Griffith noted that the Statute of Frauds contemplated three types of signatures. These were either a signature by hand, a signature made by someone else but under the direction and in the presence of that person (ie. through inability to write), or through an agent with the requisite authority.[12] This reflected the need to make sure that a person knew exactly what the contract was about when accepting the terms. Proof of terms was the key issue. A signature represented the ultimate in agreement between the parties by demonstrating a physical intention to contract.
Over time, humans have been developing faster and more precise methods of communication. From mail to telex, to telephone and fax to computers and the Internet. Each method of new communication has created a new mechanism for facilitating contracts. And each of these new methods has created problems for determining if a contract has been validly signed (offer and acceptance), if the terms are those agreed to and when the contract was ‘signed’. The signature was no longer an essential part of contracting.
Electronic commerce and contracting over the Internet is the latest of these technological advances. The Internet had its origins in the Advanced Research Project Agency (ARPA) of the United States Defense Department. Whilst it was originally a device aimed at maintaining communications between university researchers and military suppliers,[13] it is clear that the growing commercialisation of the Internet will soon make on-line contracts one of the most common form of contracting in the world. On-line and electronic transactions can be made faster and more efficiently than other methods.[14]
It has been estimated that sums up to hundreds of billions of dollars could exchange hands electronically within the next ten years.[15]
The law of contract has had to deal with developments in technology long before the Internet was born. Telegrams were commonly used to communicate messages between distant parties in the late 19th and early 20th centuries. The development of the telex then created a new industry standard for communication for most of the early twentieth century. Soon after, facsimile machines (which had existed for over one hundred years) became more commonly used through greater uniformity in manufacture. Finally, the age of computers, credit cards and telesales has lead to first, the shrink-wrap licence and now, with on-line transactions, the click-wrap agreement.
Samuel Morse first operated the telegram in May 1844. Messages could be relayed over long distances through code, which was received by an operator at the other side. The code was translated into writing and then passed on to the recipient. It took only 12 years before the telegram became the subject of a court case. In Durkee v Vermont C. Ry.[16], the plaintiff, Durkee, was undertaking a transaction with a lender named Holbrook. Durkee requested authorisation from his superiors to finalise the loan agreement. John Peck, who was authorised to act on behalf of Durkee’s superiors responded with a telegram to Durkee saying ‘Yes; effect it with Holbrook’. The Vermont Supreme Court held that the telegram was proper proof of an original statement. This acceptance of the telegram as a valid means of communication was repeated in Trevor v Wood.[17] In this case, involving currency dealers making an agreement to contract by telegraph, it was held that the sending of a telegram could be deemed as accepting an offer.[18] It was the intention of the parties that was crucial.
English and Australian authority has also accepted the telegram as a method of communication. Cases such as Tinn v Hoffman & Co.[19] and Stevenson Jaques and Co. v McLean[20] illustrate this. In Dehle v Denham[21], the Full Court of the Tasmanian Supreme Court held that an exchange of telegrams between parties in different cities was enough to make the contract valid. Further cases held that a sequence of telegrams is proof, when read together, of offer and acceptance. The final acceptance did not have to contain all of the terms of the contract because this could be seen from the sequence of telegrams.[22]
The arrival of the telex created similar problems for the law. Although there was now direct access between users, issues of when, where and whether a contract was formed were raised again.
Once again, the absence of an authenticating signature on a telex was not enough for the Court to invalidate contracts made through telex. American cases in particular have noted that it is the intent of the author to authenticate their correspondence through some sort of mark or other method, that is the key issue. Typed words at the end of document were held to be enough under the American descendant of the Statute of Frauds.[23]
In terms of when a contract created by telex was formed, Lord Denning noted in Entores Ltd. v Miles Far East Corporation[24] that the general rule for contracts still applied. For the purposes of jurisdiction, the contract is formed when the acceptance is received. Thus, the contract is formed at the place of receipt. The House of Lords affirmed this rule in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH[25]. Lord Wilberforce did, however, note that there can be no universal rule for such cases.[26] This reasoning was affirmed in Australia by Justice Rogers of the Supreme Court of New South Wales in Mendelson-Zeller Co Inc v T & C Providores Pty Ltd.[27]
The common use of the fax in the business world was the next major development in communications. The fax allowed hand writing to be directly transmitted through telephone lines. It is no great surprise that the rule from Entores was held to be applicable for cases involving faxes.[28]
In Reese Bros Plastics v Hamon-Sobelco Australia Pty Ltd,[29] the New South Wales Court of Appeal expressly approved of Entores. In Reese Bros, an exchange of faxes between Sydney and Auckland for the sale of PVC grids was held to be made in New South Wales because that was where the acceptance was received.
Further, in Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd,[30] Justice Young of the New South Wales Supreme Court held that in cases of facsimile exchange and the validity of a contract, it was important to look at all of the surrounding circumstances. In particular, one must look to surrounding factors such as whether a deposit was given, the complexity of the transaction and whether firm words of contractual intent have been used. In this case, the surrounding material did not evidence an intention to make a binding contract.
In terms of identification instead of a signature, the imprint of a fax machine has not been held to satisfy the Statute of Frauds. The American case of Parma Tile Mosaic & Marble Co. v Estate of Short[31] held that the imprint of a fax machine was not in itself enough. This was because the authentication in a fax machine imprint was automatically done. For the imprint to be a substitute for a signature, it had to have the same intent of authentication. A fax machine imprint did not have such intent. In Calabrese v Springer Personnel of New York Inc[32], the cover sheet of a fax transmission was also held to be inadequate authentication.[33] Once again, it was the intention of the parties that counted the most.
The challenges posed by the development of the telegram, the telex and then the fax have not posed significant difficulties for the law of contract. American courts in particular have decided that there is little difference between contracting in person and through new technologies. In particular, it is the intention of the parties that is examined, rather than examining the actual method of communication. In many ways, courts have shown a willingness to adapt to new products and machines. This evolution was clearly technologically driven. In Parts 4 to 6, I will examine how the law of contract has responded to the growth of electronic commerce and computers, by exploring the development of the shrink-wrap licence and the click-wrap agreement.
The development of new technology has invariably led to changes in the way people contract. The very nature of computers and especially computer software means that special care must be taken with contracts and licences.[34] In particular, we have seen the rise of the so-called ‘shrink-wrap’ licence. Shrink-wrap licences have been a response to the demands of selling software and are commonly used for the retail sale of computer programs. They are also used in the sale of programs over the telephone and over the Internet. New technology now means that computer software can be copied, distributed and sold by anyone, anywhere within seconds. As such, the creation of first computers and software, and then the information super-highway (ie. super-fast telephone links, cable systems and the Internet), has meant that laws protecting computer software must go beyond traditional views of offer and acceptance. The gradual acceptance of the shrink-wrap licence into the law, despite the fact that shrink-wraps do not conform to the traditional ‘offer and acceptance’ model, has been one significant step towards regulation of these new technologies.
Click-wrap agreements are the next step towards entirely the electronic transaction. They have become one of the most popular forms of computer agreements. Numerous software applications use click-wrap agreements at the time of installation and click-wraps are the choice of many Internet transactions. Both forms of transactions have forced the law to adapt to the development of new technologies.
A shrink-wrap licence (also known as ‘break the seal’, ‘web-wrap’ or ‘box-top’ licences) commonly refer to the standard form licence agreement supplied with software products. There is no signature by either party. Instead, the purchaser is given the option of returning the product and receiving a refund if he or she refuses to accept the terms of the shrink-wrap licence.[35] The name comes from the fact that computer programs come in boxes sealed by plastic that is ‘shrink-wrapped’ around the box. The contents cannot be accessed without removing the plastic. Manufacturers and software producers use shrink-wraps to avoid software being purchased, copied and then returned.
Often, the terms of the agreement will be enclosed under the plastic film in small print. Alternatively, the print may say that the terms and conditions are inside the box. The difficulty here is in cases like telephone sales or when the actual terms of the agreement are contained inside the box.[36]
Since the purchaser is not aware of the terms (which usually contain restrictions over distribution and copying software) when they accept the terms of the offer, there is a question mark over the validity of the licence.[37] The key issue with shrink-wraps is whether it is legal to bind a person to terms in a contract that they are not aware of.
Click-wrap agreements or contracts refer to a form of contracting through computers. Such agreements are entirely electronic, relying upon software to complete the transaction. Typically, there will be a text of terms and conditions attached to the purchase of a product or the use of a service. The customer will be required to ‘click’ on the button bar or icon marked ‘I agree’ or ‘I accept’ to indicate consent to the terms of the offer. Click-wraps are completed entirely over the computer. Clearly, such an electronic and paperless agreement takes the evolution of forms of communication a further step beyond the telex and fax. Click-wraps perhaps present the existing ‘end point’ of current human communication – the Internet and the entirely computer based transaction.[38]
Shrink-wrap licences are a response to the need of the computer industry to try and control its products. In many ways, the shrink-wrap represents the movement of the law of contract into the territory of computer programming. Shrink-wraps are used predominantly in retail and phone sales.
The basic justification for shrink-wraps is that they give licensors the ability to protect information that may not be subject to patent or copyright protection. However, such protection is of questionable enforceability because there is no ‘meeting of minds’ or acceptance of terms by the purchaser.[39]
Analogous cases such as the old ticketing cases (discussed below) are also likely to find shrink-wraps unenforceable.
Most of the important cases relating to shrink-wraps have been American.[40] It must also be noted that American cases cannot be relied upon in Australia due to the unique nature of the American system and the impact of the Uniform Commercial Code (UCC) upon the cases.[41] The first of these cases, Step-Saver v Wyse Technology dealt with the ordering of software over the phone.
The facts of ‘Step-Saver’ involved a computer company, Step Saver combining hardware and software into one streamlined and fully integrated package for consumers. This package would be marketed directly to particular professions such as doctors and lawyers. In particular, Step-Saver developed what was known as the Multi-user system. This system allowed terminals access to the central computer and all the programs on it.
As part of their package, Step-Saver used a program called Multilink Advanced, written by TSL. An IBM AT central computer and WY-60 terminals made by Wyse completed the package. The programs packaged in the whole system included several MS-DOS programs and some custom Step-Saver software. When problems and complaints from customers occurred, Step-Saver turned to Wyse and TSL. Wyse and TSL attempted to escape responsibility for the problems. A jury in the District Court found in favour of Wyse and the claims against TSL were dismissed. Step-Saver appealed.
It was on the question of what terms made up the agreement (and thus whether Step-Saver could make Wyse and TSL responsible) that brought the shrink-wrap licence into the case. The court had to decide whether or not the shrink-wrap could be enforced against a re-seller (Step-Saver).[43] Each package of the TSL software had a shrink-wrap on the box. Step-Saver had originally trialed an early version of the TSL software on a free basis. Eventually, Step-Saver tested their programs on a later version of Multilink (which TSL represented as being 90% compatible with common MS-DOS programs) and decided to buy copies of the upgraded Multilink. Around 142 copies were bought between August 1986 to March 1987.
These purchases were typically done over the phone in batches. TSL would promise to deliver the goods over the phone once the order was placed. Step-Saver would send a written confirmation outlining the price and payment terms. TSL would then ship the goods together with an invoice that repeated the terms given by Step-Saver. There was no reference to the agreement made on the telephone.
Since the shrink-wrap said that TSL ‘disclaimed all express and implied warranties’[44], Step-Saver argued that the agreement was made over the telephone. The use of a shrink-wrap was a complete change to the original terms of the agreement. TSL argued that the agreement did not come into force until Step-Saver received the goods and saw the shrink-wrap and then opened the packaging. Even if this was not the case, the sale over the phone was subject to the shrink-wrap licence.
The Third Circuit Court reversed the decision of the district court by finding that Step-Saver had never assented to the terms of the shrink-wrap. The new terms in the shrink-wrap were not previously offered and so could not be a part of the contract.[45] The new terms in the shrink-wrap were additional terms.[46] The parties had not intended for the terms of the shrink-wrap to become a part of ‘the complete and final expression of the terms of their agreement.’[47] As such, the shrink-wrap was not enforceable. The agreement that was enforceable was that made over the telephone. Completion was when the vendor sent the goods. In short, the offer made by TSL (which was accepted by Step-Saver) did not include the shrink-wrap terms.
Whilst the decision does stop short of proclaiming all shrink-wraps unenforceable, it does mean that vendors will have to clearly demonstrate acceptance of the terms in the shrink-wrap. It is not enough to say on the package that opening the box constitutes acceptance. Purchasers must be able to see the whole licence before opening. The Court also made it clear that for a conditional acceptance, vendors must show an unwillingness to proceed if the shrink-wrap is not accepted. This can be very difficult in a transaction, as the terms of the shrink-wrap may not be mentioned.[48]
This was a very technical and straightforward application of the law of contract by the American judges. Whilst this may have been a correct decision in that sense, the courts left the burgeoning software industry with a significant problem in protecting their products. The Court did not seem to take into account the easy and simple ability of new technology, such as computer programs, to be copied and redistributed.
However, the Court did leave open the possibility of enforcing shrink-wraps that offered purchasers the opportunity to return products if they did not agree to the terms of the licence.[49]
Other American decisions have also held shrink-wraps to be unenforceable in specific situations. In Vault Corp. v Quaid Software Ltd. [50], the shrink-wrap licensing agreement that prevented decompilation of a program was held to be unenforceable. The Louisiana statute that allowed shrink-wraps was also invalid.[51]
In Arizona Retail Systems Inc. v The Software Link Inc. [52], a warranty disclaimer was held to be unenforceable in a case involving a telephone order.[53] The licence was only enforceable if the buyer had had the opportunity to read the agreement first.
These decisions suggest that software producers have little recourse against unauthorised use by end-users. If this remained the case, software producers would face enormous difficulties in maintaining control over their products. However, this trend changed in the case, ProCD v Zeidenberg (‘ProCD’).
5.a.ii. ProCD Inc. v Zeidenberg[54]
ProCD was the first American case to specifically focus on shrink-wraps. In ProCD, the American Court of Appeals for the Seventh Circuit overturned the judgment of the Wisconsin District Court[55] and held that shrink-wrap licences were enforceable. This decision was a landmark one in that it was a recognition of the need to protect computer software producers and it made clear that the law of contract would evolve with the changes in technology and society since the Statute of Frauds.
The facts of the case involved ProCD, a company that spent millions of dollars compiling and developing a comprehensive directory of residential and business listings. Some 95 million addresses were compiled from over 3,000 different publicly available directories. The listings contained full names, addresses, phone numbers, postcodes and a form of industry code. The information was then sold on CDs under the name ‘Select Phone’. The discs were sold in a box with a user guide and a single-user licence (which was printed in the user guide). The agreement was mentioned in small print on the box.[56]
In 1994, Zeidenberg bought one copy of the Select Phone CD. Zeidenberg decided that he could use the data as a commodity on the Internet and so set about selling the information to people through the Internet. He purchased two more copies as updates. Zeidenberg then set up his own company and began the business. Zeidenberg was aware of the licence agreement but believed that it had no binding effect. He used his own program to enable users to search the database.
The Wisconsin District Court followed the reasoning of previous decisions such as Step-Saver and Arizona Retail Systems. The Court held, inter alia, that there was no assent to the shrink-wrap licence agreement. The terms of the shrink-wrap were not presented to Zeidenberg at the time of the sale and he was not given any time to consider the conditions because the terms were enclosed inside the packaging.[57]
The Appeals Court, however, overturned that decision. Judge Easterbrook held that the message on the outside of the box gave Zeidenberg notice, at the time of purchase, of the additional terms within the shrink-wrap. Allowing the purchaser the right to return the goods if they were unhappy with the licence agreement absolved the vendor of the need to place all of the terms of the licence on the outside of the box. Thus, the purchaser could enter into an agreement without knowing all of the terms. This was a conditional agreement, subject to acceptance or rejection of the terms of the licence.[58]
Judge Easterbrook stated that there were many other instances of contracts being formed with the payment occurring before the detailed terms were received.[59] Airline tickets, tickets to a concert or theatre, consumer goods like a radio, insurance and medicine were examples listed.[60]
In this case, Zeidenberg could have prevented the contract by returning the product. By inspecting the terms and retaining the goods, he was deemed to have accepted the terms of the shrink-wrap. The District Court believed that such conditional contracts were not valid as the acceptance could only occur if all the terms were known. The Appeals Court overturned this view by saying that notice of the further conditions and the option to return the goods was enough to make the agreement valid.[61]
The effect of the decision was to validate the use of shrink-wrap licences. The Appeals Court had moved away from the more narrow and traditional view of ‘offer and acceptance’ in allowing shrink-wraps to be enforceable. More significantly, ProCD allows for the future of contracting over the phone and Internet, by allowing contracts and transactions, like the one in ProCD, to be governed by shrink-wraps. The subsequent case of Hill v Gateway 2000 Inc.[62] has expanded the law in this area by holding that competent adults are bound by shrink-wrap licences even if they have not read them.[63]
This protection for vendors can only help regulate the growing world of Internet transactions.
In the United Kingdom, the Courts have also found the issue of shrink-wraps a difficult one to contend with. As such, there has been very little useful judicial authority on the issue. However, one case does throw some light upon the difficulties of shrink-wrap licences, although the fact situation is slightly different to the American cases.
‘Beta v Adobe’ was a decision of the Scottish High Court.[65] In this case, Adobe had ordered a package of software called Informix (made by a third party) from Beta by phone. When it arrived, it had a shrink-wrap licence, which stated that opening the package constituted agreement to the terms and conditions. Adobe decided that they did not want the software and so returned it without opening the package. Adobe refused to pay and Beta sued for the cost.[66]
Adobe argued that in cases like this where there was no opportunity to inspect the exact terms of the licence, the purchaser had an absolute right to return the goods. If this right was exercised, then the contract was not completed. Beta argued that this was a case of an unqualified order for a product. Beta was simply supplying the product ordered by Adobe. Beta had no interest or concern with the manufacturers and was not some sort of intermediary for the manufacturers.[67]
The Court found that there was no new contract entered into by the unwrapping of the product. There could be no consensus or ‘meetings of minds’ until all of the shrink-wrap’s terms were given to the purchaser (Adobe). As such, the Court found in Adobe’s favour. However, it was made quite clear that it was not possible to generalise about cases and software transactions. Each case was different.
Lord Penrose held that when a distributor (Beta) supplies a third party’s (Informix’s) software, it does this subject to the legal rights of the third party. So, when the supplier sells the software to the purchaser, it is done subject to the rights of the authors. This means that the final purchaser buys the product subject to the original shrink-wrap licence (in this case from Informix).[68] If this was the case, the final agreement could not be completed until the licensing conditions from Informix were presented to Adobe. Adobe then had the option of consenting to the licence and completing the agreement or declining the final offer. The returning of the product was a refusal to contract.
This decision by Lord Penrose, however, seems highly problematic. Firstly, if Lord Penrose’s position is taken to the extreme, if there is no contract between the purchaser and supplier until the shrink-wrap is accepted, then in theory, the purchaser could keep the unused product for months without attracting any obligation. Acceptance could then occur months or years later. This would be completely unsatisfactory. A better approach would be similar to that taken by Judge Easterbrook in ProCD. This would make the contract complete at the time of sale but subject to the acceptance of the shrink-wrap licence. Rejection or acceptance must occur within a reasonable time. This would remove this problem.[69]
A further problem with this decision is that in reality, there is usually a distributor or retailer acting as an intermediary between the software producer and the purchaser. The contract is between the purchaser and the retailer, not the purchaser and the software producer. Lord Penrose solved this problem by relying upon the idea of a contract conferring rights on third parties (jus quaesitum tertio). This notion is particularly wide in Scottish law and would be unlikely to find favour in any other common law countries. Perhaps an extension of the law of implied licence would work here to overcome the problem of contracting between two parties.[70]
So the net result is that the British authority provides little or no help with shrink-wrap licences. In essence, Beta v Adobe highlights the dearth of British law in this area.
One other way to try and determine the enforceability of shrink-wraps is to look to the past and find some analogous situations. Perhaps the most basic analogy to shrink-wrap cases in the law, is through the well-known ‘ticket’ cases. Whilst there is no real ‘new ‘ technology in tickets (although car park ticket machines are a form of machinery), the cases are a useful illustration of how the law has dealt with undisclosed terms and conditions. In these cases, an offer is made to contract on terms referred to in a separate document or ticket. Assent to the contract and terms stated, is through retaining the ticket.[71] In such cases, the purchasers have no prior opportunity to read the conditions. An analysis of this authority shows that the ticket cases are unlikely to support the enforceability of shrink-wraps (although this is far from clear).
In this case, the plaintiffs deposited bags in a cloakroom run by the defendant. Payment had been made and a ticket for the bags was handed out. On the back of the ticket, the terms and conditions specified that packages worth more than £10 were not the responsibility of the defendant. When the plaintiffs lost their bags (apparently worth around £24 and £50), they sued. The defendant tried to escape liability on the basis of the clause written on the back of the ticket.
The English Court of Appeal held that evidence of knowledge of the terms was irrelevant. Assent to the terms and conditions could be found in the failure of the plaintiffs to hand back the ticket. Orders were made for a new trial.
In this case, the plaintiff, Thornton sought damages for injuries suffered in an accident in a car park. Whilst the defendants conceded that they were at fault, they believed that the terms of the car park excluded them from liability.
The plaintiff had not previously been to the car park. Outside the car park was a sign that said ‘All Cars Parked at Owner’s Risk’. Tickets were obtained from a machine, which said conditions were posted on a nearby pillar. These conditions excluded the defendants from any liability. The plaintiff saw this print but did not read it.[74]
The English Court of Appeal found in favour of the plaintiff this time. This was because it was a machine that was delivering the ticket. This meant that Thornton could not negotiate and that notification of the terms and conditions was not sufficient. Whilst this decision went against the trend of other ticketing cases, Lord Denning MR made it clear that part of the reason for the decision was because the exclusions in the terms and conditions were unusually wide and vague. Megaw LJ also noted that this decision was an exception in ticketing cases.[75]
This case, whilst not involving a car park ticketing machine, is relevant in terms of how the English Court of Appeal dealt with the issue of onerous terms and notification of terms. The defendants telephoned the plaintiffs, who ran a photo library, asking to receive a selection of photos. This was the first time they had dealt with each other. The plaintiffs delivered 47 transparencies with a note stating that there would be a charge of £5 per day for each transparency if the transparencies were held for longer than 14 days. The defendants did not know about this and were duly invoiced for almost £4,000.[77]
It was held (following the decision in Thornton) that due to the onerous nature of the clause; there had been insufficient notice. In this case, the fee was printed amongst a number of other conditions on the delivery note. No particular attention was drawn to the clause about the fee. Dillon LJ thus held that the £5 per day fee was not a part of the contract.[78] Orders were made to scale back the fee to a more reasonable amount.
Three factors for determining these cases can be extrapolated from the decisions:
• Did the person who received the ticket know that there was writing on the ticket?
• Did that person know that the ticket referred to terms?
• Did the party relying upon the terms do what was reasonable to bring notice of the existence of the terms to the other party’s intention?[79]
These points (and the cases) raise some interesting issues relating to shrink-wrap licences. The first is the question of sufficient notice. As in Onterfoto Picture Library Ltd. v Stilletto Visual Programmes Ltd., onerous terms require a special effort to notify the purchaser. It would seem that shrink-wrap licences do not impose particularly onerous licensing agreements upon users. If this were the case, sufficient notice would be achieved through wording on the outside of the box. In fact, later cases have held that insufficient notice about the existence of terms is enough to invalidate the principles developed in these cases: Oceanic Sun Line Special Shipping Co. Inc. v Fay.[80]
The second issue raised comes from Lord Denning’s decision in Thornton. The ticket machine was seen as a machine that could not be negotiated with. As Lord Denning noted, with an automatic ticketing machine, once you pay the money, you cannot refuse the ticket. ‘It [the ticket machine] will remain unmoved. He [the purchaser] is committed beyond recall.’[81] Shrink-wraps can be distinguished from this decision in that there is the option of returning the product. Even a telephone or Internet transaction will usually have an address for return. Thus, this point supports the enforceability of shrink-wraps.
The final issue is notice by itself. Whilst shrink-wraps usually include some form of notice on the box, it is unlikely that the terms and conditions of the licence have been brought to the attention of the purchaser. Telephone, retail and Internet sales are unlikely to include an adequate notice. Using Interfoto Picture Library as authority for cases of basic notice would lead to the conclusion that the courts would not enforce shrink-wrap licences.[82]
The net result from these cases is that shrink-wraps are unlikely to be enforceable but the result is still far from clear. By using the ticket cases as authority, shrink-wrap licences can be seen as enforceable, if they do not include unnecessarily onerous conditions and the purchaser is given notice of any additional terms.[83]
So what relevance do these cases have for the Australian situation? While there is no definite Australian authority on the issue, it can be said that shrink-wrap licences in Australia are generally not regarded as contracts. This would be because the most persuasive current authority would be the ticket cases. The three points noted above can perhaps serve as a guide to how the Australian courts may treat shrink-wraps.
Whilst the American authorities have supported shrink-wraps, it is unlikely that ProCD would have much weight in Australia. Either way, the issue of the enforceability of shrink-wraps in Australia still remains unsolved due to the lack of any adequate development of the law.
One significant policy issue that is raised by this discussion is whether or not the shrink-wrap licence is fair, in that the purchaser has never read the terms. It follows that if the terms become more and more onerous, where will the courts draw the line on enforceability? In such a situation, decisions based along the lines of the ticket cases would be preferable to that of Beta v Adobe. It would be unsatisfactory if the contract was not completed until the terms of the licence are accepted (the solution posited by Lord Penrose). Instead, a stricter notification test, such as put in the ticket cases, for onerous terms would lead to a fairer result. Such a test would not leave consumers open to unreasonable conditions that they did not know of.
The second policy issue that comes to mind is whether or not the courts should put limits on the form of shrink-wraps. Shrink-wraps are clearly necessary and useful for the expanding software industry. However, shrink-wraps must not become a licence for vendors to impose unnecessary terms upon consumers. As such, the American approach in ProCD to shrink-wraps is clearly more desirable. Consumers must be given the opportunity to refuse the goods. Without this opportunity, the shrink-wrap cannot be enforced.
From the above discussion, it is apparent that the advances in technology, transmission, and in particular, distribution and copying of software, have created a number of difficulties for contracts. Shrink-wrap licences have been one of the main devices created to help protect software producers from unauthorised use.
Whilst there is no direct Australian authority on the issue, a number of useful points can be taken from the existing case law and overseas decisions. Shrink-wraps have an undoubted utility in providing protection for software producers. However, in terms of fairness to consumers, there must be some limits placed upon the extent of such licences. Perhaps a combination of the old ticket cases and American authority can be used to develop an approach that is both flexible and strict. Consumers must be given notice of onerous terms and the opportunity to refuse the goods. If they accept the items as competent adults, then they must comply with the terms.
In many ways, the development and grudging acceptance of the shrink-wrap licence reflects the evolution of the law with technology. Hopefully, the underdeveloped Australian law will follow the lead of the Americans in ProCD and give shrink-wraps a more generous interpretation.
A click-wrap agreement or contract is one that is predominantly used over the Internet. The purchaser is asked to ‘click’ on the icon or button to indicate acceptance of the terms and conditions of the contract.[84] Typically, the icon or button bar will have ‘I agree’ printed on it. Click-wraps are the evolution of technology into the totally electronic contract and are the latest challenge for the developing law relating to contracts and electronic commerce.
There has been close to no judicial authority on click-wraps around the world. However, there has been some recent American authority that discussed the issue of click-wraps. The first and most significant case was Hotmail v Van Money Pie Inc. [85]
In Hotmail, the case surrounded the issue of ‘spamming’. Spamming is the sending of unsolicited emails (usually advertising) to email account holders or subscribers. The defendants, Van Money had used the free email services of Hotmail to send unsolicited advertising over the Internet. The defendants altered the return addresses of their emails to indicate that it was a Hotmail account that sent the spam. They then set up accounts through Hotmail to receive any replies.[86]
Hotmail’s free email service required users to agree on-line to certain conditions through a click-wrap agreement. One of these conditions was that the accounts would not be used for spamming.[87] Hotmail argued, inter alia, that the use of their service for spamming breached the terms of the click-wrap. The Court agreed with Hotmail and issued a preliminary injunction preventing the defendants from using the Hotmail service. The court expressly acknowledged the validity of click-wraps when issuing this injunction. A permanent injunction was subsequently issued in June 1998.[88]
This decision does not, however, validate every click-wrap agreement. What it does do is say that click-wraps, subject to normal contract law provisions, can be valid. Hotmail also emphasises the need for vendors to display the terms and conditions of contracts prominently on their web sites so that purchasers can be made aware of the terms before any transaction has been made.
Hotmail is also only a decision on the issuing of a preliminary injunction from the District Court of San Jose, California. Thus, Judge James Ware’s acknowledgment of click-wrap agreements has a limited value as precedent.
However, Hotmail is the only case of note on click-wraps and it would seem that there is no real clarity in the area of click-wraps because there has been no other major judicial pronouncements on the issue.[89]
Once again, the lack of development in the law, both statute and case law leaves the on-line world in a state of uncertainty.
The above discussion is notable for the lack of Australian authority. This is because there has been no judicial pronouncements on the areas of shrink-wraps and click-wraps in Australia. However, there has been a significant amount of activity relating to electronic commerce issues in Australia. In many ways, this activity is the beginning of an effort by the Australian government to create a workable legal framework for the developing technologies in electronic commerce. This section is a brief outline of some of the recommendations, organisations and reports in this area.
There have been a number of major Australian government initiatives that deal with electronic contracts and new technology. The main initiative has been the report put out by the Electronic Commerce Expert Group to the Attorney-General, titled Electronic Commerce: Building the Legal Framework (‘the ECEG Report’). Its findings dealt with a range of issues relating to the setting up of some form of infrastructure to help deal with electronic commerce in general.[90]
In particular, the ECEG Report aimed to create a basic national legislative framework that ‘reduces uncertainty about the use of electronic commerce’.[91]
The basic goals of the Group were to make recommendations that would help achieve functional equivalence between paper based and electronic commerce, and to ensure technology neutrality.[92] Among the recommendations the Report made were:
• That information, records and signatures should not be restricted to traditional mechanisms;
• That the legal requirement of ‘writing’ should include electronic data messages;
• Electronic signatures, with appropriate verification standards, should be considered legal ‘signatures’;
• There should be a clear expression of what elements are required for an on-line contract;
• The onus of proving identification should be the addressee; and
• That provisions covering the time and place of receipt need to be developed.
Much of these recommendations were based upon the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce.[93] UNCITRAL’s Model Law was completed in 1996.[94] It was designed to be a helpful set of principles for nations to use as a guide to formulating policy on electronic commerce.[95]
The government has also set up the National Office for the Information Economy (NOIE). NOIE works under the Ministry for Communications, Information Economy and the Arts. It aims to facilitate the development and co-ordination of policy in the electronic commerce arena.[96]
The Australian Tax Office has also put out a report titled Tax and the Internet.[97] The report notes that the Internet has the capacity to change the way international taxation and terms such as residency and place of permanent residency are defined. It recommends the creation of a legal infrastructure to control and develop electronic commerce in Australia.[98]
In October 1997, the Office of Government Information Technology (OGIT) established the project ‘Gatekeeper, A strategy for public key technology use in the Government’. The aim of the project is to create a Government Public Key Authority (GPKA), to manage the development of Public Key Encryption systems and to oversee the accreditation of certification authority service providers and related products.[99] Public Key Encryption is a form of authenticating and identifying users electronically. It is the basis of electronic signatures. An electronic signature is simply a way of verifying the identity, integrity or validity of a person or document.
Public key encryption (or asymmetric cryptography) has become the popular method of identification in electronic payment mechanisms because it allows the users to remain anonymous. It uses two ‘keys’ or codes (as opposed to the one secret key in the private key method) which are mathematically related. One key is publicly available (the digital signature of the bank or issuing institution), while the second key is known only to the holder. Information is sent to the recipient, who can decode the message using the public key and his or her own private key. The private key of the sender (the signature), whilst mathematically related to the other keys, is not transmitted and remains confidential. This allows the two parties to retain anonymity.[100] There has also been significant discussion surrounding the use of electronic signatures overseas (see below). In Australia, electronic signatures are discussed in the Draft Electronic Transactions Bill.
On 28 January 1999, the Federal Government released its Draft Electronic Transactions Bill.[101] It is a Bill that recognises the validity of electronic transactions because it does not distinguish between traditional paper commerce and electronic commerce.[102] The Bill aims to ‘facilitate electronic transactions’ and it does this by promoting the general principle of equality between paper and electronic transactions.
Section 8(1) highlights this aim by noting that ‘for the purposes of a law of the Commonwealth, a transaction is not invalid because it took place wholly or partly by means of one or more electronic communications.’ As such, under Section 9 of the Bill, if the law requires information to be provided in writing, an electronic means will be acceptable.
The issue of electronic signatures is dealt with in Section 10 of the Bill. Electronic signatures can be ‘signatures’ under Commonwealth law if the identity and consent of the person can be clearly determined and the method used for the determination is reliable and appropriate to the circumstances. Interestingly, the legislators have decided to leave the definition of ‘signature’ out of the Bill. This avoids the risk of a too narrow and inflexible definition becoming law. Instead, the Courts and further developments in the law will decide what can be considered a ‘signature’.
The final point of interest in the Bill is Division 3, regarding the time and place of dispatch and the receipt of electronic communications. The Bill places the time of dispatch as when the electronic communication enters an outside information system (ie. a system not controlled by the sender). The time of receipt is when the electronic communication enters this new information system. This wording, however, leads to the obvious problem of a communication that has arrived in the ‘system’ but is not accessible by the intended recipient. This situation is arguably a variation of the Postal Rule, and no different to a letter waiting for collection at a Post Office overnight or over the weekend. Acceptance is deemed when the letter is posted or in the outside ‘system’.
Whilst the Bill has generated some criticism over its coverage in state jurisdiction, it is another small step towards filling the existing vacuum in Australia. The moves in Australia to adopt the UNCITRAL’s Model laws, through this Bill, are important steps towards filling the gaping hole surrounding regulation of agreements involving developing technologies and electronic transactions. It is hoped that the continuing development of a legal framework can improve the underdeveloped laws that presently govern many new technologies in Australia.
Whilst Australia has been mostly talking about the impact of electronic commerce, the rest of the world has been highly pro-active in this area in terms of legislation, bills and reports. Whilst it is impossible to cover all of the current activity in detail, there are hundreds of attempts at legislation or proposed legislation around the world.[103]
The most notable of these attempts has been the UNCITRAL Model Law on Electronic Commerce[104]. The Model Law aims to facilitate the use of electronic commerce, provide equal treatment for paper and electronic information and foster cooperation and efficiency in international trade. The Model Law seeks to use traditional laws that prescribe paper-based signatures and writing as a starting point for new laws. This so-called ‘functional equivalent approach’ allows for existing laws to be adapted to encompass the new directions and needs of electronic commerce. For example, the Model Law looks at the reasons and requirements behind a law that requires paper-based information. If these same criteria can be met by an electronic message, then the electronic form can receive equivalent legal recognition. Hence, laws that deal with written signatures can be extended to include the electronic equivalent if the electronic method can reliably verify consent and identity of parties (the main purposes of a written signature).[105]
This aspect of the UNCITRAL Model Law is seen clearly in the Australian Electronic Transactions Bill. In terms of electronic signatures, there has also been significant activity overseas. In the United States, close to fifty states have either enacted or proposed legislation in this area, since the introduction of the Utah Digital Signature Act in 1995.[106] Federal bills include the Electronic Securities Transaction Act, the Millennium Commerce Act, the Digital Signature Act and the Electronic Signatures in Global and National Commerce Act. Some 15 countries and numerous organisations have also begun to explore the area too, ranging from the European Union’s Directive on a Common Framework for Electronic Signatures and Draft Report of the European Electronic Signature Standardisation Initiative, the United Nations’ Commission on International Trade Law’s draft Uniform Rules on Digital Signatures, the American Bar Association’s Digital Signature Guidelines, to Singapore’s Electronic Transactions Act 1998 and Electronic Transactions (Certification Authority) Regulations 1999.[107]
The law of contract has been changing and evolving with time and society. The impact of new forms of communication and products has forced the law to move beyond the basic ‘offer and acceptance’ model for contracting. The introduction of telegrams, telexes and faxes was just the beginning of the technological incursion into the law.
The creation of the computer and computer software has lead to, amongst other things, the development of shrink-wrap licences. Whilst not complying with traditional contractual standards, the shrink-wrap licence has typically been employed by software manufacturers to protect their intellectual property. After an initial reluctance to recognise the shrink-wrap, American law, through the decision in ProCD, has held that the shrink-wrap is enforceable in law. This was a clear sign that the American judges had recognised the fact that the shrink-wrap was essential to the protection of software producers’ products. Although the shrink-wrap did not fit into the narrow and strict model of an agreement, the courts chose to extend the law to encompass this new technology. A similar willingness to adapt to change has seen the first recognition of click-wrap agreements in Hotmail.
Australian courts have yet to encounter the shrink-wrap or click-wrap and there is still uncertainty surrounding their validity. Thus, the law surrounding electronic contracts, click-wraps and shrink-wraps is gravely underdeveloped. However, the current government seems to be moving quickly to set up a legislative framework for dealing with new technologies such as the electronic contract. Numerous organisations and reports have focussed upon the need to create something to regulate the burgeoning electronic commerce sector. Such attempts are a positive step to achieving and implementing a workable legal framework for all.
[Θ] BA LLB (Hons) La Trobe University, Solicitor, Phillips Fox Melbourne.
The author would like to thank Dr. Gerry Bean, Partner, Phillips Fox Melbourne for his comments and feedback, and Dr. Dan Hunter, Senior Lecturer, University of Melbourne for his encouragement and ideas.
[1] [1991] USCA3 829; 939 F.2d 91 (3rd Cir. 1991).
[2] 86 F.3d 1447 (7th Cir. 1996).
[4] See generally J.W.Carter & D.J.Harland, Contract Law in Australia, 3rd Edition, Butterworths, Sydney, 1996 and D.W.Greig & J.L.R.Davis, The Law of Contract, LBC, Sydney, 1987.
[5] An example is Bressan v Squires [1974] 2 NSWLR 460.
[6] Carter & Harland, Op Cit, pp.48-53.
[7] Richard Alan Horning, ‘The Enforceability of Contracts Negotiated in Cyberspace’, (1997) 5 (2) International Journal of Law and Information Technology 109, pp.112-3.
[8] Of course, there is no requirement that a contract be written down. Contracts can be oral or partly oral. Writing may be required by statute in some cases. See Carter & Harland, Op Cit, p.163.
[9] Section 4 of the Statute of Frauds 1677. A number of these provisions have been incorporated into statutes in the common law countries such as Australia and the USA.
[10] Horning, Op Cit, pp.114-5.
[11] Thomas v McInnes [1911] HCA 30; (1911) 12 CLR 562.
[12] Carter & Harland, Op Cit, p.173.
[13] Christoph Glatt, ‘Comparative Issues in the Formation of Electronic Contracts’, (1998) 6(1) International Journal of Law and Information Technology 34, pp.35-6.
[14] See Andrea Beatty, Mark Aubrey & Rhys Bollen, ‘E-Payments and Australian Regulation’, (1998) 21(2) UNSWLJ <http://www.austlii.edu.au/au/other/unswlj/thematic/1998/vol21no2/beatty.html> pp.1-2 and I.Walden & N.Savage, ‘The Legal Problems of Paperless Transactions’ (1989) 3 Journal of Business Law 102.
[15] John Kavanagh, ‘Purchases on the Internet “Could potentially exceed $200bn by Year 2000”’, Financial Times, November 1, 1995, p.12. Also see Greg Tucker, ‘Some Legal issues Relating to Digital Cash’, (1997) 8(1) Journal of Law and Information Science 46 and Melissa De Zwart, “Electronic Commerce: Promises, Potential and Proposals”, (1998) 21(2) UNSWLJ <http://www.austlii.edu.au/au/other/unswlj/thematic/1998/vol21no2/dezwart.html> p.1.
[16] Durkee v Vermont C. Ry. 29 Vt. 127 (1856).
[17] Trevor v Wood 36 NY 307, 93 Am. Dec. 262 (1867).
[18] Horning, Op Cit, pp.131-32.
[19] Tinn v Hoffman & Co. (1873) 29 LT 271.
[20] Stevenson Jaques and Co. v McLean (1880) 5 QBD 346.
[21] Dehle v Denham (1899) 1 N & S 128.
[22] We can see cases such as Brewer v Horst & Lachmund Co. 127 Cal 643, 60 P.418 (1900) and Gibson v De La Salle Institute 66 Cal. App. 2d 609, 152 P.2d 774 (1944). In both cases, it was held that the exchange of telegrams was enough to communicate offer and acceptance, when read together. And in Thomas v McInnes [1911] HCA 30; (1911) 12 CLR 562, Griffith CJ noted that as long as the writings could be construed in such a way that they were intended to be read together, then the contract was valid.
[23] See A.&G. Construction Co. v Reid Bros. 547 P.2d 1207(1976).
[24] Entores Ltd. v Miles Far East Corporation [1955] EWCA Civ 3; [1955] 2 All ER 493.
[25] Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1982] 1 All ER 293.
[26] Horning, Op Cit, P.140.
[27] Mendelson-Zeller Co Inc v T & C Providores Pty Ltd [1981] 1 NSWLR 366. See note by C.C.Hodgekiss, (1982) 56 ALJ 365. Also see Express Airway v Port Augusta Air Services [1980] Qd R 543 and Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244.
[28] See Gunac Hawkes Bay Ltd. v Palmer [191] 3 NZLR 297, Joan Balcom Sales Inc. v Poirer 28 ACWS 3d 551 (Nova Scotia County Court, Canada), and Asher v Goldman Sachs & Co. [1991] 1 QB 129.
[29] Reese Bros Plastics v Hamon-Sobelco Australia Pty Ltd (1988) 5 BPR 11-106.
[30] Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd (1989) 6 BPR 13-448.
[31] Parma Tile Mosaic & Marble Co. v Estate of Short 87 NY 2d 524, 655 NE 2d 704, 631 NYS 2d 607 (1996).
[32] Calabrese v Springer Personnel of New York Inc 25 BCLR (2d) 377 (1988).
[33] Horning, Op Cit, pp.140-4.
[34] Anna Sharpe, ‘Shrink-wrap licences’, (1988) 58(3) Australian Accountant 79, p.79.
[35] Paul Gardner, ‘Shrink-wrap Licences: Beta v Adobe’, (1996) 7 Computers and Law 5, p.5.
[36] Richard Raysman & Peter Brown, ‘Computer Law: Shrink Wrap License Agreements’, The New York Law Journal, April 9, 1996, <http://www.nylj.com/tech/complaw40996> p.1.
[37] ‘Are shrink-wrap licences legally effective?’ (1997) 10 Australian Intellectual Property Law Bulletin 91, p.91.
[38] Who knows where technology and human communication will be in ten, twenty of one hundred years time? Perhaps the next major issue the law will need to deal with will be contracting with intelligent agents that can ‘accept’ an offer independently of any human instruction. See Nimmer, Raymond, ‘Electronic Contracts: Part 1’, (1996) 7(1) Computers and Law 36 and
Levi, Stuart & Sporn, Robert, ‘Can Programs Bind humans to Contracts?’ The National Law Journal, January 1997, <http://prod01.ljextra.com/internet/0113shrink.html> .
[39] William Streff & Jeffrey Norman, ‘Courts, UCC Tackle Shrink-Wrap Licences’, The New York Law Journal, October 14, 1997, <http://www.nylj.com.tech/101497t5.html> pp.1-2.
[40] Each of these cases dealt with a number of issues but I will only discuss issues relevant to the point on shrink-wraps, and not discuss the copyright and other issues.
[41] ‘Are shrink-wrap licences legally effective?’ Op Cit, p.91.
[42] Step-Saver Data Systems Inc. v Wyse Technology and the Software Link Inc [1991] USCA3 829; 939 F.2d 91 (3rd Cir. 1991).
[43] Raysman & Brown, Op Cit, p.6.
[44] Step-Saver [1991] USCA3 829; 939 F.2d 91 (3rd Cir. 1991) at 96. The only thing they warranted was that the disks themselves were free from defects.
[45] This was due to the application of the American Uniform Commercial Code (UCC) §2-207, which provided that additional or new terms to a contract could not be incorporated into the original agreement unless provision had been made for them previously.
[46] Raysman & Brown, Op Cit, p.6.
[47] Step-Saver [1991] USCA3 829; 939 F.2d 91 (3rd Cir. 1991) at 108.
[48] David Hayes, ‘Shrink-wrap Licence Agreements, New Light on a Vexing Problem’, 1992 <http://www.fenwick.com/pub/shrink.html> Pp.7-8.
[49] Allowing the purchaser the option of returning the product if he or she did not wish to be bound by the terms of the licence was held to be valid by the Washington Court of Appeals in the recent case of M.A.Mortenson Company, Inc. v Timberline Software Corporation, 970 P.2d 803 (February 1, 1999).
[50] Vault Corp. v Quaid Software Ltd. [1988] USCA5 922; 847 F.2d 255 (5th Cir, 1988).
[51] Streff & Norman, Op Cit, p.2.
[52] Arizona Retail Systems Inc. v The Software Link Inc. 831 F.Supp 759 (D.Ariz. 1993).
[53] Joseph Wang, ‘ProCD Inc v Zeidenberg and Article 2B: Finally, the validation of Shrink-wrap licences’, (1997) 17(2) The John Marshall Journal of Computer and Information Law 439, p.441.
[54] ProCD Inc. v Zeidenberg 86 F.3d 1447 (7th Cir. 1996).
[55] 908 F.Supp 640 (W.D. Wis. 1996).
[56] Jennifer Hawkins, ‘ProCD Inc. v Zeidenberg: Enforceability of Shrink-wrap Licences Under the Copyright Act’ (1997) 3 Richmond Journal of Law Technology 6 <http://www.urich.edu/jolt/v3il/hawkins.html> pp.3-5.
[57] ProCD, 908 640 (W.D. Wis. 1996) at 654.
[58] Hawkins, Op Cit, pp.7-8.
[59] Wang, Op Cit, p.449.
[60] ProCD 908 640 (W.D. Wis. 1996) at 1451.
[61] Hawkins, Op Cit, p.8.
[62] Hill v Gateway 2000 Inc 105 F.3d 1147 (7th Cir. 1997).
[63] Fred Greguras, ‘An Introduction to Hot Issues in Electronic Commerce’, (1997) <http://www.oikoumene.com.Echotissues.html> p.3. Also see M.A.Mortenson Company, Inc. v Timberline Software Corporation 970 P.2d 803 (February 1, 1999).
[64] Beta Computers (Europe) Ltd. v Adobe Systems (Europe) Ltd [1996] FSR 367, 35 IPR 147.
[65] As such, it has some persuasive authority in Australian Courts but is not binding.
[66] ‘Are shrink-wrap licences legally effective?’ Op Cit, p.91.
[67] Gardner, Op Cit, p.6.
[68] ‘Are shrink-wrap licences legally effective?’ Op Cit, pp.91-2.
[69] Gardner, Op Cit, p.7.
[70] Ibid, pp.7-8.
[71] Carter & Harland, Op Cit, p.199.
[72] Parker v The South Eastern Railway Co [1877] UKLawRpCP 28; (1877) 2 CPD 416.
[73] Thornton v Shoe Lane Parking Ltd [1970] EWCA Civ 2; [1971] 2 QB 163.
[74] J.W.Carter & D.J.Harland, Cases on Contract Law in Australia, 2nd Edition, Butterworths, Sydney, 1993, p.246.
[75] Carter & Harland, Contract Law in Australia, Op Cit, pp.200-1.
[76] Onterfoto Picture Library Ltd. v Stilletto Visual Programmes Ltd [1989] QB 433
[77] Carter & Harland, Contract Law in Australia, Op Cit, p.201.
[78] Onterfoto Picture Library Ltd. v Stilletto Visual Programmes Ltd. [1989] QB 433 at 437.
[79] Carter & Harland, Cases on Contract Law in Australia, Op Cit, p.199.
[80] Oceanic Sun Line Special Shipping Co. Inc. v Fay [1988] HCA 32; (1988) 165 CLR 197.
[81] Thornton v Shoe Lane Parking [1970] EWCA Civ 2; [1971] 2 QB 163 at 169.
[82] For a variation on these cases, see Penny v Grand Central Car Park Pty Ltd [1965] VicRp 45; [1965] VR 323. Here, the car parking ticket was handed to the driver by an attendant. The car was subsequently stolen by someone. Whilst the exclusion clause was deemed to be valid, judgment was given to the plaintiff on other grounds.
[83] However, the latest and more refined authorities would seem to suggest that simply printing a notification on the box is not enough for the licence to be enforceable – see earlier discussions.
[84] George Chen, ‘Electronic Commerce on the Internet’, (1997) 16(1) The John Marshall Journal of Computer and Information Law77, p.87.
[85] Hotmail Corporation v Van Money Pie Inc , unreported, C98-20064 (N.D. Cal., April 20 1998), US District Court for the Northern District of California.
[86] Martin Samson, ‘Click-wrap Agreement Held Enforceable’, New York Law Journal, June 30, 1998,
<http://www.ljx.com/topstories/063098mew2.htm> p.1.
[87] Ibid, p.2.
[88] ‘Spam (Junk Email) – Hotmail Corp. v Van Money Pie Inc’, <http://www.perkinscoie.com/resource/ecomm/netcase/Cases-23.htm> p.1.
[89] The only other American case of interest that has discussed click-wraps was Groff v America Online, Inc., unreported, CA No. PC 97-0331, (Rhode Island Superior Court, May 27, 1998). In this case, the Superior Court of Rhode Island dismissed an action by the plaintiff for improper venue. In the course of the judgment, Judge Clifton said that by clicking the button marked ‘I agree’ twice, the plaintiff had effectively ‘signed’ and consented to the click-wrap agreement. As such, the plaintiff could not argue that he had not read or seen the terms of the agreement. He was thus bound by the terms of the click-wrap (which included a choice of jurisdiction clause that allowed America Online to succeed in dismissing the action). The full text of the decision can be found at <http://legal.web.aol.com/decisions/dlother/groff.html> . Also see Jonathan Berman, ‘Recent developments in Weblaw’, <http://www.weblaw.co.uk/artic05.htm> p.4.
[90] Mark Sneddon, ‘Proposed Framework Legislation for Electronic Commerce and Issues for Consumers and Small Business’, (1998) 26 Australian Business Law Review 212, pp.212-3.
[91] Report of the Electronic Commerce Expert Group to the Attorney-General, Electronic Commerce: Building the Legal Framework, March 1998, at <http://www.law.gov.au/aghome/advisory/eceg/single.htm> para 4.4.12.]
[92] Chris Connolly, ‘Expert Group releases electronic commerce report’, (1998) 1(3) Internet Law Bulletin 37, p.37.
[93] For a full text version of the Model Law see <http://www.un.org.at/uncitral/en-index.htm> and <http://www.uncitral.org/english/texts/electcom/ml-ec.htm>
See below for more detail.
[94] Leif Gamertsfelder, ‘Electronic Bills of Exchange: Will the Current Law recognise them?’ (1998) 21(2) UNSWLJ <http://www.austlii.edu.au/au/other/unswlj/thematic/1998/vol21no2/gamertsfelder.html> p.1.
[95] De Zwart, Op Cit, pp.9-11.
[96] See generally <http://www.noie.gov.au.>
[97] See generally <http://www.ato.gov.au/ecp/ecp.htm>
[98] De Zwart, Op Cit, pp.7-8.
[99] See <http://www.ogit.gov.au/gatekeeper/>
[100] See Sunny Handa & Marc Branchaud, ‘Re-evaluating Proposals for a Public Key Infrastructure’, (1996) 29(3) Law/technology 1, David Chaum, ‘Security without Identification: Card Computers to make Big Brother Obsolete’ <http://digicash.support.nl/publish/bigbro.html> , David Chaum, ‘Achieving Electronic Privacy’, <http://ganges.cs.tcd.ie/mepeirce/Project/Chaum/sciam.html> or <http://digicash.support.nl/publish/sciam.html> , Benjamin Arnoldy, ‘Current Electronic Payment Schemes’, <http://arts.endow.gov/Archive/Features1/DigitalCash_Ben.html> .
[101] On 30 June 1999, the Bill was introduced into the Commonwealth House of Representatives.
[102] Margaret Banaghanm, ‘E-Commerce Draft Law Hailed as Good First Step’, BRW, February 8, 1999, p.25.
[103] It is impossible to name all of the proposals and laws in this area. Countries that have started activity in this area include the USA, Canada (draft Uniform Electronic Commerce Act), the United Kingdom (Electronic Communications Act), Denmark (draft Bill on Digital Signatures), Finland (Guidelines Concerning the National Cryptography Policy), France (Report by the French Council of State: Conducting a Study into the Legal issues Raised by the Development of the Internet), Ireland (Framework for Policy on Cryptography and Electronic Signatures), Italy (Technical Rules on Digital Signatures), the Netherlands (Electronic Commerce Action Plan, from Ministry of Economic Affairs and Information Technology), India (Information Technology Act), Singapore (Electronic Transactions Act 1998 and Electronic Transactions (Certification Authority) Regulations), South Korea, (The Basic Law on Electronic Commerce), New Zealand (Law Commission publication: Electronic Commerce Part One: A Guide for the Legal and Business Community), Argentina (draft Digital Signature Law) and Colombia. See the McBride Baker & Coles website for a list of links to legislation <http://www.mbc.com/ds_old.html>
[105] Guide to Enactment, UNCITRAL Model Law on Electronic Commerce, see Note 93 for references.
[106] Thomas Smedinghoff & Ruth Hill Bro, ‘Moving with change: Electronic signature legislation as a vehicle for advancing E-Commerce’, (1999) 17(3) The John Marshall Journal of Computer and Information Law 723, pp.723-6.
[107] Adam White Scoville, ‘Clear Signatures, Obscure Signs’, (1999) 17 Cardozo Arts & Ent LJ 345.
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