Is downloading software contractual consent to the accompanying license agreement?

In one of my articles in this paper, I wrote about entering into paperless or electronic contracts. Well, business enterprises have taken advantage of the Internet for their transactions. Our E-Commerce Act (R.A. 8792) recognizes this reality when it specifically provides that an electronic document is the functional equivalent of a written document under existing law. The Electronic Commerce Act ("ECA") categorically provides that no contract shall be denied validity or enforceability solely on the ground that it is in electronic form.

But this assumes that the elements of a valid contract are present. Note that the ECA, which was patterned after the UNCITRAL Model Law on Electronic Commerce, does not say that anything done via the Internet is automatically considered a contract. The UNCITRAL Model Law is merely a rule of non-discrimination; hence, what it provides is that no contract shall be denied validity or enforceability solely on the ground that it is in electronic form. If there are other grounds that make the agreement invalid, then it can be declared void by the courts of law.

Of course, consent is an essential element of a valid and enforceable contract. No consent, no contract, so to speak.

Consent may be expressed by written or spoken words, or by conduct. It may be manifested by a signature, handshake or any overt act that indicates assent to the agreement.

In electronic contract, consent is often indicated by a click of a computer mouse transmitted across the invisible ether of the Internet. In computer parlance, contracts perfected across the Internet are known as the "click-wrap" and "shrink-wrap" agreements.

The issue of consent in electronic commerce is the subject of a recent US case which is viewed by many as precedent-setting in the realm of e-commerce. In Specht v. Netscape Communications Corp. (150 F. Supp.2d 585 [SDNY 2002]), Netscape, a provider of computer software programs, offered "SmartDownload" software free of charge to all those who visit its website. SmartDownload is a program that facilitates the downloading of files from the Internet without losing the user’s interim progress when he pauses to engage in some other tasks, or if his Internet connection is severed. Surfers wishing to download SmartDownload from Netscape‘s website see a page pertaining to the download of the software. There appears a tinted box, or button, on this page. By clicking the box, the surfer is able to download the program. If the surfer scrolls down the page, there is a reference to a license agreement that is visible only if the visitor scrolls down on the page next to the screen. If the surfer does so, he is invited to review and agree to the license agreement. This text also contains a link which takes the surfer to a separate web page titled "License & Support Agreements." This page, in turn, categorically states that the surfer "must read and agree to the license agreement terms BEFORE [installing] the software and that, if he does do not agree to the license terms, [he should] not download, install or use the software."

This page also contains a link to the full text of the SmartDownload software license. This license agreement provides, in capitalized words, that "BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING X X X NETSCAPE SMART DOWNLOAD SOFTWARE (THE PRODUCT), THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT (LICENSEE) IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT." It likewise provides that "IF LICENSEE DOES NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, THE BUTTON INDICATING NON-ACCEPTANCE MUST BE SELECTED, AND LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE."

Significantly, however, a surfer can download the SmartDownload software without first being required to click the "I Agree" icon. The page containing the download icon does not also require the surfer to view or read the license agreement before downloading the software.

The license agreement contained a mandatory arbitration clause governing disputes between the parties. An arbitration clause precludes the contracting parties from going to court without first submitting their dispute to the arbitrator chosen in accordance with their agreement.

Plaintiffs were individuals who downloaded the SmartDownload software. Claiming that the software improperly transmitted to Netscape private information about the user’s file transfer activity on the Internet, plaintiffs filed a case in court against Netscape.

Netscape moved to compel arbitration as dictated by the license agreement. Netscape argued that under the circumstances, the users’ act of downloading the SmartDownload software, or using and installing it on their PCs, indicated their assent to the terms of the software license, and created a binding contract in accordance with its terms. In short, Netscape argued that that the mere act of downloading indicated consent to the contractual terms of the license agreement, including the arbitration clause contained therein.

The court disagreed with Netscape’s argument. The court found that the parties did not enter into a binding contract because the plaintiffs were not required to assent to the license agreement terms prior to downloading and using the software, such as by the act of a mouse click on an icon. The court also found that the reference to the license agreement was too obscure, the electronic equivalent of buried fine print. According to the court, downloading was hardly an unambiguous indication of assent. The court then concluded that the parties were not bound by the terms of the license agreement, there being no meeting of the minds, and that Netscape could not enforce its arbitration clause. The court ruled that Netscape’s failure to require users of SmartDownload to indicate assent to its license as a precondition to downloading and using its software was fatal to its argument that a contract had been formed. As a result, the court held that, plaintiffs were not bound by the terms of the license agreement, or the arbitration clause contained therein, despite language in the license agreement which provided that by installing or using the software, the user consented to be bound by the terms of the license agreement.

The court distinguished the Netscape case from those cases which upheld the enforceability of "click-wrap" and "shrink-wrap" agreements, stating that in those settings, the user must perform an affirmative action unambiguously expressing assent before they may use the software, such as clicking on the "I agree" icon. The primary purpose of downloading is to obtain a product, not to assent to an agreement. In contrast, clicking on an icon stating "I agree" has no meaning or purpose other than to indicate assent.

(The author is a law professor at the Ateneo de Manila University and a senior partner of the Abello Concepcion Regala Law Offices or ACCRALAW. He can be contacted at [632] 830-8000.)