Article - Contract Formation and the Shrink Wrap License

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Source:
http://www.nesl.edu/lawrev/VOL32/2/MORRILL.HTM
November 7, 2008

Contract Formation and the Shrink Wrap License: A Case Comment on ProCD, Inc. v. Zeidenberg
  Introduction
When a consumer walks into a retail store and buys a mass marketed item of software, what rights to the software do they acquire, and what legal control over it does the vendor retain? Are their respective rights determined by federal copyright law, in addition to any expressly negotiated terms? Or, can the vendor dictate the rights of the parties by asserting that the sale is conditioned on a shrink-wrap license, the presence of which the consumer is most likely not aware until he gets the product home? In their limited legal history, shrink-wrap licenses have not fared well. Courts typically have either found them unenforceable or modified them.⁽¹⁾ In a break from prior jurisprudence on this issue, the Seventh Circuit Court of Appeals, in ProCD, Inc. v. Zeidenberg,⁽²⁾ held the terms of a shrink-wrap license fully enforceable.⁽³⁾
ProCD is distinguishable from prior shrink-wrap cases in that it deals with a pure retail/over-the-counter transaction.⁽⁴⁾ Retail stores sell an enormous amount of software each year.⁽⁵⁾ It is the average consumer, making such an over-the-counter purchase, who requires the greatest protection from sales terms hidden in shrink-wrap licenses.⁽⁶⁾ The Seventh Circuit holding in ProCD represents a substantial shift in power to software vendors, if seen as strong precedent. Herein lies the importance of this case.
This Comment examines ProCD's departure from prior jurisprudence on shrink-wrap licenses.⁽⁷⁾ It explores the court's logic to determine whether the holding is an anomaly, based on the unusual facts of the case, or a signal of where the law is heading on this issue.⁽⁸⁾
There are many legal issues in play when the enforceability of a shrink-wrap license is challenged.⁽⁹⁾ Contract formation and interpretation questions, copyright issues, and federal preemption are commonly involved.⁽¹⁰⁾ Whether the license is enforceable turns, in large part, on how one views the sales contract for the particular copy of software involved.⁽¹¹⁾ When the consumer properly accepted the vendor's offer to sell then becomes the pivotal question.⁽¹²⁾ The decision of the Seventh Circuit hinged on this point.⁽¹³⁾ This timing question is the primary focus of this Comment.⁽¹⁴⁾
Part II of the Comment discusses shrink-wrap licenses in general and explains why vendors of software so commonly utilize them.⁽¹⁵⁾ Part III of the Comment examines how prior courts have handled shrink-wrap licenses, including the significance of treating shrink-wrap licenses as terms of the sales contract versus actual licenses.⁽¹⁶⁾ Part IV.A-B examines the ProCD case, specifically, the facts of the case and the district court's holding.⁽¹⁷⁾ The Seventh Circuit Court of Appeals' reversal of the district court is then reviewed in Part IV.C.⁽¹⁸⁾ Part V analyzes the reasoning of the appeals court.⁽¹⁹⁾
This Comment concludes that, while justice was done in this particular case, the reasoning employed by the Seventh Circuit in reaching its decision was flawed.⁽²⁰⁾ It argues that this case should not be looked to as precedent for the common consumer transaction.⁽²¹⁾ The Comment takes the position that the Seventh Circuit overlooked some fundamentals of contract formation, which lead to a contrary conclusion in the retail setting.⁽²²⁾ Finally, Part VI proposes some simple steps to avoid the problems posed by point of sale presentment of shrink-wrap licenses.⁽²³⁾
  Background

A.  What is a Shrink-Wrap License Anyway?
Much of what consumers buy comes encased in plastic shrink-wrapping.⁽²⁴⁾ Books, food products, cigarettes, and over-the-counter drugs are commonly sold with the package covered with shrink-wrap.⁽²⁵⁾ Shrink-wrap is typically used to preserve the product and ensure that no one tampers with the contents.⁽²⁶⁾
Legal innovation being what it is, shrink-wrap has been given an added function when used on packages of computer software.⁽²⁷⁾ Vendors of computer software use the plastic shrink-wrap as a mechanism of attaching the terms under which they purport to make their product available.⁽²⁸⁾ Software vendors have followed this practice throughout their history.⁽²⁹⁾ In the mass market/consumer context, the shrink-wrap license provides an efficient way for the software vendor to dictate the terms of each sale.⁽³⁰⁾ When a business purchases a specialized software program, it typically negotiates, with the vendor, its rights of use in the software.⁽³¹⁾ In the mass market setting, however, the negotiation of terms for each sale is clearly impractical.⁽³²⁾
In response to this problem, software vendors adopted the practice of attaching licensing language to the packaging of each copy of their software sold.⁽³³⁾ These licenses are known commonly as "box top licenses," "shrink-wrap licenses" and "tear me open licenses."⁽³⁴⁾ Vendors of software often call them "end user licenses."⁽³⁵⁾ While the language informing the purchaser of the presence of the license is often imprinted on the shrink-wrap that encases the product, hence the common nickname, this is not always the case.⁽³⁶⁾ Notice of the terms is often printed on the box in which the software is sold.⁽³⁷⁾ Typically, the complete licensing agreement is found inside of the package, in the software itself, or both.⁽³⁸⁾ Whatever their precise form, the general idea is the same. By opening the product, or by continuing to use the product after viewing the license terms, the user is said to have manifested assent to be bound by the license.⁽³⁹⁾ The problem is that the average consumer is highly unlikely to be aware of the license before they pay for the software and take it home.⁽⁴⁰⁾ Indeed, by their very nature, the acts called for as acceptance of the license, opening the product and using it, would not take place in the store--the point where the reasonable consumer would see the sales contract as having been consumated.
B.  The General Goals of Shrink-Wrap Licenses
Vendors of computer software routinely assert that they do not sell copies of their program; rather they license the right to use particular copies.⁽⁴¹⁾ This practice is in large part designed to "preserve [the] proprietary rights" of the owner of the software copyright.⁽⁴²⁾ Computer software is highly susceptible to abuses that infringe the proprietary rights of the copyright holder.⁽⁴³⁾ Licenses commonly seek to prevent resale of the software, renting of the software, use of the software in multiple machines by the original purchaser, and reverse engineering of the software to obtain its object code for use in designing a competing software package.⁽⁴⁴⁾ In addition, such licenses typically purport to disclaim any implied warranties and limit the vendor's liability.⁽⁴⁵⁾
C.  The Benefits to the Vendor of Calling It a License Instead of a Sale
The characterization of the transfer as granting a license, as opposed to making a sale, has tremendous legal consequences for consumers and vendors alike.⁽⁴⁶⁾ The main benefit to the vendor, of such a characterization, is that they retain a greater degree of control over the copy, and thus greater protection of their interests, than they would have if the copy was actually sold.⁽⁴⁷⁾ In the past, such licenses provided the only protection available to software vendors.⁽⁴⁸⁾ Today, software vendors are afforded protection under federal law.⁽⁴⁹⁾
When shrink-wrap licenses first came into use, software was not afforded extensive legal protection.⁽⁵⁰⁾ In the 1970s and early 1980s whether copyright and/or patent law even applied to computer software was a matter for debate.⁽⁵¹⁾ Eventually, the law began to address the unique problems facing software, and greater protection was extended to software producers.⁽⁵²⁾
In an interesting development, software makers who, acting defensively, once sought protection where the law afforded them little, now attempt to take away consumer rights held under federal law--a shift to the offense.⁽⁵³⁾ Indeed, the very attempt to characterize the transaction as licensing as opposed to a sale is, in large part, designed to block consumer rights held under the first sale doctrine of federal copyright law.⁽⁵⁴⁾ The first sale doctrine grants the purchaser of a copy of a copyrighted item, including software, the right to resell that particular copy.⁽⁵⁵⁾ As software is easily copied and downloaded onto hard-drives, this doctrine poses a special threat to software vendors. The Copyright Act was amended to address this problem.⁽⁵⁶⁾ Nonetheless, the threat of software being shared by multiple parties or resold remains under the first sale doctrine.⁽⁵⁷⁾ If a software vendor can assert that a particular copy of its program has not actually been sold, the first sale doctrine does not apply.⁽⁵⁸⁾
Additionally, certain elements of computer software are ineligible for copyright protection. For example, in the case at hand, ProCD's alphebetical phone lists are ineligible for copyright protection under the Feist doctrine.⁽⁵⁹⁾ In such circumstances, the shrink-wrap provides an efficient way to gain the desired level of protection.⁽⁶⁰⁾
D.  Application of the Uniform Commercial Code to Shrink-Wrap Licenses
Software vendors prefer to state that they grant to consumers only a license to use their program.⁽⁶¹⁾ Most courts agree, however, that a consumer purchase of software is a sale of goods.⁽⁶²⁾ A sale "consists in the passing of title from the seller to the buyer for a price."⁽⁶³⁾ Generally speaking, a license is a temporary right of use.⁽⁶⁴⁾ The typical elements of a license agreement are: (1) the licensee makes periodic payments; (2) the licensor retains the title to the goods; and (3) the license expires at a definite time.⁽⁶⁵⁾ In the typical software sales transaction, none of these indicia are present.⁽⁶⁶⁾ Accordingly, "[b]ecause the shrink-wrap license does not meet these criteria, the prevailing view is that the transaction is a sale of goods and not a true license agreement."⁽⁶⁷⁾ The consequence of this determination is that Article 2 of the Uniform Commercial Code (U.C.C.), in addition to the common law of contracts, determines the rights and liabilities of the parties to the transaction.⁽⁶⁸⁾
  Pre-ProCD Jurisprudence on Shrink-Wrap Licenses

A.  Prior Federal Court Rulings
As the appeals court in ProCD accurately points out, the volume of literature on shrink-wrap licenses exceeds, by a substantial margin, the actual number of cases dealing with them.⁽⁶⁹⁾ The three major cases on point, prior to ProCD, are discussed below.⁽⁷⁰⁾ None of these cases touch on the over-the-counter/retail transaction involved in the case at hand.
1.  Vault Corp. v. Quaid Software Ltd.
In 1988, the Fifth Circuit Court of Appeals held a shrink-wrap license, which prohibited decompilation and disassembly of a software program, unenforceable.⁽⁷¹⁾ Vault Corp. (Vault), produced a program called PROLOK, which was designed to prevent the copying of computer software programs.⁽⁷²⁾ Each copy of PROLOK sold came with a licensing agreement which stipulated that use of PROLOK constituted acceptance of the license.⁽⁷³⁾ Among other things, the license purported to prohibit the decompilation and disassembly of PROLOK and contained a warranty disclaimer.⁽⁷⁴⁾ A later version of this agreement included a "choice of law clause adopting Louisiana law."⁽⁷⁵⁾
At that time, Louisiana had a licensing act that gave greater protection than the federal copyright act.⁽⁷⁶⁾ Quaid Software Ltd. (Quaid) developed a product, RAMKEY, designed specifically to defeat PROLOK.⁽⁷⁷⁾ Vault brought an action against Quaid for copyright infringement and violation of the licensing agreement.⁽⁷⁸⁾ The majority of the Vault decision dealt with the federal copyright claims.⁽⁷⁹⁾ The Fifth Circuit Court of Appeals upheld the district court's dismissal of Vault's copyright claims.⁽⁸⁰⁾
The appeals court then turned to the state law challenge grounded on the alleged breach of the license agreement.⁽⁸¹⁾ Vault asserted that, in decompiling PROLOK to design RAMKEY, Quaid had violated the license's prohibition against such activity.⁽⁸²⁾ The court found that section 117 of the Copyright Act was in conflict with Louisiana's License Act as to its prohibition of decompilation or disassembly, and, thus, the state statute was preempted.⁽⁸³⁾ Due to the preemption, the prohibition in the license was unenforceable.⁽⁸⁴⁾
2.  Step-Saver Data Systems v. Wyse Technology
In 1991, the Third Circuit Court of Appeals refused to enforce a shrink-wrap license using a "battle of the forms" analysis.⁽⁸⁵⁾ Step-Saver Data Systems (Step-Saver) marketed computer systems, software, and hardware together.⁽⁸⁶⁾ Step-Saver selected an operating system from The Software Link (TSL) and terminals from Wyse Technology (Wyse).⁽⁸⁷⁾ As soon as the systems were put in place, Step-Saver began receiving complaints from their customers.⁽⁸⁸⁾ Step-Saver asked Wyse and TSL to look into the problems.⁽⁸⁹⁾ When the three were not able to reach a resolution, Step-Saver filed suit against both for breach of warranty, and against TSL for intentional misrepresentation.⁽⁹⁰⁾ The district court dismissed TSL from the action based on warranty disclaimers that were contained in the box-top license that accompanied their product.⁽⁹¹⁾
The court began by noting that in the contract negotiation process, Step-Saver and TSL did not discuss the terms of the box-top license.⁽⁹²⁾ The court stated that the dispute was not whether a sales contract existed, but rather what its terms were.⁽⁹³⁾ The court viewed the box-top license as "a written confirmation containing additional terms," namely, the license.⁽⁹⁴⁾ The court held that because the license would materially alter the parties' agreement, it was not part of the agreement.⁽⁹⁵⁾
3.  Arizona Retail Systems v. Software Link, Inc.
In 1993, in a case involving multiple transactions between a vendor and purchaser, the United States District Court for the District of Arizona held one license enforceable and subsequent ones unenforceable.⁽⁹⁶⁾ The specific matter at issue in this case was the enforceability of warranty disclaimers and liability limitations included in the shrink-wrap license.⁽⁹⁷⁾ The Software Link (TSL) "designs and sells software."⁽⁹⁸⁾ Arizona Retail Systems (Arizona Retail) "is a . . . retailer that, among other things . . . markets . . . multi-user computer systems."⁽⁹⁹⁾ Arizona Retail ordered a copy of one of TSL's software packages.⁽¹⁰⁰⁾ Arizona Retail received two copies of the system, a live copy and a test copy.⁽¹⁰¹⁾ The discs containing the software came encased in plastic shrink-wrap that included a "Limited Use License Agreement."⁽¹⁰²⁾ Arizona Retail evaluated the system, read the license, and elected to keep the product.⁽¹⁰³⁾ For the next year, Arizona Retail made numerous purchases, over the phone, of additional copies of the product.⁽¹⁰⁴⁾ Problems then developed with the product, and Arizona Retail sued for breach of warranty.⁽¹⁰⁵⁾
The court held that the software license, which was included with the original live disc sent to Arizona Retail, was enforceable.⁽¹⁰⁶⁾ The court based its decision on the fact that Arizona Retail was fully aware of the terms of the license from use of the test disc and had received notice on the outside of the live disc package that the same terms applied.⁽¹⁰⁷⁾ The court further reasoned that Arizona Retail accepted TSL's offer to sell by opening the envelope containing the live copy, and that acceptance included the terms of the license.⁽¹⁰⁸⁾
As to the subsequent sales, the court held that the license did not apply.⁽¹⁰⁹⁾ The distinction between the latter sales and the original one was that the negotiation for the latter sales were completed over the phone, and the warranty and liability terms were never discussed.⁽¹¹⁰⁾ The licenses, however, were attached to each copy of the program sent.⁽¹¹¹⁾ TSL argued that the license agreement was enforceable either as: (1) a valid contract modification under U.C.C. § 2-209; (2) "a conditional acceptance of ARS's offer to purchase;" or (3) non-material terms that, under § 2-207, became part of their contract.⁽¹¹²⁾ TSL asserted that the license agreement was a valid part of their contract under either of the three options.⁽¹¹³⁾ The court rejected all three arguments.⁽¹¹⁴⁾ It also noted that to allow this to be termed a conditional acceptance would violate the goal of U.C.C. § 2-207 to end "the battle of the forms."⁽¹¹⁵⁾ The court further opined that the realities of the marketplace make it easier for the seller to make clear the terms they purport to sell their goods under, than to impose a duty of inspection and rejection upon the buyer.⁽¹¹⁶⁾
  The Case: ProCD, Inc. v. Zeidenberg

A.  The Facts of the Case
ProCD, Inc. (ProCD) is a Delaware corporation, with its principal place of business in Danvers, Massachusetts.⁽¹¹⁷⁾ The corporation compiled a vast phone directory and then placed it on CD-ROM discs.⁽¹¹⁸⁾ The product is marketed under the name "Select Phone."⁽¹¹⁹⁾ Select Phone holds over 95 million residential and commercial listings.⁽¹²⁰⁾ ProCD sells commercial and non-commercial versions of Select Phone.⁽¹²¹⁾ While the two versions contain essentially the same data, the commercial version is more expensive.⁽¹²²⁾ This price discrimination is practiced because it is believed that the average consumer will not buy Select Phone at the higher commercial price.⁽¹²³⁾ In order to enlarge their market, therefore, ProCD sells Select Phone to non-commercial users at a lower rate.⁽¹²⁴⁾ Since it is impossible for ProCD to know who takes Select Phone off the store shelf, one of the terms of ProCD's license restricts the non-commercial version to non-commercial uses only.⁽¹²⁵⁾
Select Phone is sold "in boxes containing a set of [CD-ROM] discs and a user guide."⁽¹²⁶⁾ The Select Phone directory includes the "full names, street addresses, telephone numbers, zip codes and industry or `SIC' codes" of the parties in it.⁽¹²⁷⁾ ProCD spent approximately $10 million collecting this information from more than 3000 publicly available telephone directories.⁽¹²⁸⁾ In addition to the raw data, Select Phone includes application software that is "used to access, retrieve and download the data."⁽¹²⁹⁾ The software enables a search of the database by use of several different search commands.⁽¹³⁰⁾
ProCD purports to sell copies of Select Phone subject to a "`Single User License Agreement.'"⁽¹³¹⁾ The agreement is mentioned on the outside of the box, "in one place in small print."⁽¹³²⁾ Inside the box is a users guide in which the text of the license is contained.⁽¹³³⁾ The beginning of the licensing agreement states:
Please read this license carefully before using the software or accessing the listings contained on the discs. By using the discs and the listings licensed to you, you agree to be bound by the terms of this License. If you do not agree to the terms of this License, promptly return all copies of the software, listings that may have been exported, the discs and the User Guide to the place where you obtained it.⁽¹³⁴⁾
In addition, the software is designed so that when used, a reminder flashes across the screen stating that the product is subject to the licensing agreement.⁽¹³⁵⁾ This notice states: "The listings contained within this product are subject to a License Agreement. Please refer to the Help menu or to the Users Guide."⁽¹³⁶⁾ Other screens flash additional warnings.⁽¹³⁷⁾
Matthew Zeidenberg, the defendant, was a Wisconsin resident pursuing a Ph.D. in computer science.⁽¹³⁸⁾ In 1994, Zeidenberg purchased a copy of Select Phone.⁽¹³⁹⁾ He decided that he could "download data from Select Phone and make it available to third parties over the Internet for commercial purposes."⁽¹⁴⁰⁾ Though he was aware of ProCD's assertions that his use of the product was contingent on a licensing agreement, Zeidenberg disregarded it, believing that it was not binding.⁽¹⁴¹⁾ Zeidenberg asserted that he was not, and could not have been, aware of the license at the time of purchase.⁽¹⁴²⁾
In April of 1995, after purchasing an updated version of Select Phone, Zeidenberg opened a business, Silken Mountain Web Services, Inc. (Silken Mountain).⁽¹⁴³⁾ Zeidenberg created the corporation to "[make] a database of telephone listings available over the Internet."⁽¹⁴⁴⁾ Silken Mountain compiled their own database, in part, by downloading data that had been loaded into Zeidenberg's personal computer from Select Phone and adding it to its own database.⁽¹⁴⁵⁾ While Zeidenberg used Select Phone's raw data (i.e. the phone lists), he wrote his own software program to access this data.⁽¹⁴⁶⁾ His software allowed for a more limited search than could be done on the Select Phone software.⁽¹⁴⁷⁾
Subsequently, Zeidenberg/Silken Mountain entered into a contract with Branch Information Systems (Branch), under which Branch gave Zeidenberg access to the Internet to make his product available.⁽¹⁴⁸⁾ ProCD learned of this activity and "demanded that [Zeidenberg/Silken Mountain] discontinue their activity immediately."⁽¹⁴⁹⁾ Zeidenberg refused.⁽¹⁵⁰⁾ In response to ProCD's complaint, Branch stopped doing business with Zeidenberg.⁽¹⁵¹⁾ Zeidenberg then entered into a contract with another Internet access provider, Ivory Tower Information Services (Ivory Tower).⁽¹⁵²⁾ Anticipating a renewed challenge from ProCD, this contract required Ivory Tower to continue making the product available until "ordered by a court to stop."⁽¹⁵³⁾
B.  The District Court's Ruling

1.  Procedural Developments
In September of 1995, ProCD brought an action against Zeidenberg seeking injunctive relief and monetary damages for alleged violations of their license agreement.⁽¹⁵⁴⁾ ProCD asserted that Zeidenberg had violated the license agreement by transmitting the product to a third party and by using it for commercial purposes.⁽¹⁵⁵⁾ The action was brought under the Federal Copyright Act,⁽¹⁵⁶⁾ the Wisconsin Computer Crimes Act,⁽¹⁵⁷⁾ and Wisconsin contract and tort law.⁽¹⁵⁸⁾ After a hearing on September 22, 1995, ProCD's motion for preliminary injunction was granted.⁽¹⁵⁹⁾ ProCD and Zeidenberg filed cross motions for summary judgment.⁽¹⁶⁰⁾ The district court allowed Zeidenberg's motion, denied ProCD's, and dissolved the preliminary injunction.⁽¹⁶¹⁾ In addition to the shrink-wrap license, the court had to contend with several other issues.⁽¹⁶²⁾
2.  The Copyright Issues
First, the court addressed and rejected ProCD's contention that what Zeidenberg had done amounted to an infringement of its copyright.⁽¹⁶³⁾ The court examined the raw data and the software used to access the data separately.⁽¹⁶⁴⁾ Citing to a recent United States Supreme Court decision, which held the contents of the white pages of a phone book ineligible for federal copyright protection,⁽¹⁶⁵⁾ the court rejected ProCD's claim that their phone lists were entitled to copyright protection.⁽¹⁶⁶⁾
The court then addressed the copyrightability of the software used to search the phone lists.⁽¹⁶⁷⁾ The court held that the software is entitled to copyright protection as the product of "original expression and creativity."⁽¹⁶⁸⁾ However, the district court concluded that, as Zeidenberg had not copied the software, he had not infringed on ProCD's copyright.⁽¹⁶⁹⁾
3.  The License Agreement
The court next addressed the software license agreement.⁽¹⁷⁰⁾ The court stated that it would treat Zeidenberg's purchase as a sale of goods under the U.C.C., as opposed to a license.⁽¹⁷¹⁾ The court's analysis focused on the timing question--when was the contract for sale of the software formed?⁽¹⁷²⁾ The court also considered whether the license, if not part of the original agreement, could be integrated into the contract by some other means.⁽¹⁷³⁾
The court noted that U.C.C. § 2-206 sets out the basic framework for contract formation, offer and acceptance.⁽¹⁷⁴⁾ By placing its product on the shelf of a retail store, ProCD made an offer under § 2-206.⁽¹⁷⁵⁾ By taking the product off the shelf, taking it to the counter, and exchanging money for it, Zeidenberg accepted ProCD's offer in a manner reasonable under the circumstances, as called for under § 2-206(1)(a).⁽¹⁷⁶⁾ The exchange of money for goods was seen as "conduct sufficient to create a contract under section 2-204."⁽¹⁷⁷⁾ The district court rejected ProCD's contention that action beyond payment of the sale price was required to form the sales contract.⁽¹⁷⁸⁾
The court next addressed ProCD's argument that Zeidenberg was vested with a right of inspection, and his acceptance was "subject to [his] right of inspection and revocation that [he] did not exercise."⁽¹⁷⁹⁾ In ProCD's view, Zeidenberg's failure to return Select Phone, after having an opportunity to inspect the software and the license, constituted acceptance of its offer to sell.⁽¹⁸⁰⁾ The court found inspection and revocation rights inoperative in this context.⁽¹⁸¹⁾ "Plaintiff argues that defendant's acceptance of the software was contingent upon their rights of inspection, rejection or revocation, but sections 2-204 and 2-206 do not mention any such rights. Sections 2-602 and 2-608 . . . offer such rights, yet these sections do not apply in this context."⁽¹⁸²⁾ The court noted that § 2-602 refers to the right to inspect goods prior to acceptance to protect the buyer from being stuck with "damaged or . . . otherwise unsatisfactory" goods.⁽¹⁸³⁾ As to § 2-608, the court noted that it applies to situations where the goods do not conform to what was contracted for.⁽¹⁸⁴⁾ The court observed that the dispute between ProCD and Zeidenberg did not involve any allegation of defect or non-conformity.⁽¹⁸⁵⁾ Rather, the dispute was how the sales contract would limit Zeidenberg's use of the product.⁽¹⁸⁶⁾ Ultimately, the court saw § 2-207⁽¹⁸⁷⁾ and § 2-209⁽¹⁸⁸⁾ as the controlling Code sections.⁽¹⁸⁹⁾
The court reviewed Step-Saver Data Systems, Inc. v. Wyse Technology⁽¹⁹⁰⁾ and Arizona Retail Systems v. Software Link.⁽¹⁹¹⁾ It interpreted these cases as supporting two possible ways to view ProCD's license.⁽¹⁹²⁾ Either "the terms of the user agreement were incorporated into plaintiff's sales offer by the reference on the outside of the Select Phone package"⁽¹⁹³⁾ or "the user agreement was not included in plaintiff's sales offer and represents either a proposed modification to the sales agreement under U.C.C. § 2-209 or a written confirmation of a previously established contract under U.C.C. § 2-207."⁽¹⁹⁴⁾
In Arizona Retail, a set of shrink-wrap terms were held enforceable where the license was known to the party seeking to challenge the license at the time of contract formation.⁽¹⁹⁵⁾ The court in ProCD found that, unlike the party in Arizona Retail, Zeidenberg did not know of the license terms at the time the sales contract was formed.⁽¹⁹⁶⁾ As a result, the terms were not part of the initial contract.⁽¹⁹⁷⁾ The court also struck down ProCD's assertion that the terms should be binding as to the subsequent purchases by Zeidenberg because he was clearly aware of the license at the time of the subsequent sales from his prior use of Select Phone.⁽¹⁹⁸⁾ The court also rejected ProCD's classification of the terms as valid modifications of the contract, to which Zeidenberg assented by using the product after becoming aware of them.⁽¹⁹⁹⁾ The district court held that § 2-209 requires express assent to proposed contract modifications; the assent cannot be implied.⁽²⁰⁰⁾
The court also refused to hold the terms of the license binding under either § 2-209 or § 2-207.⁽²⁰¹⁾ Section 2-209 was found invalid because assent is required for contract modification and none was present here.⁽²⁰²⁾ Regarding § 2-207, the court opined that "[b]ecause [it] is concerned primarily with contract wars between merchants, it is preferable to analyze the Select Phone user agreement under 2-209."⁽²⁰³⁾ The court held however that § 2-207 would still strike the user agreement because there was no showing that Zeidenberg assented to the terms.⁽²⁰⁴⁾ The remainder of the court's decision focused on issues relating to preemption of the state law causes of action.⁽²⁰⁵⁾ The court held that even if the terms are in the contract, federal copyright law would preempt any state based contract rights.⁽²⁰⁶⁾
C.  The Seventh Circuit Court of Appeals Reverses

1.  Contract Formation Issues
ProCD appealed the district court's holding to the Seventh Circuit Court of Appeals.⁽²⁰⁷⁾ On June 20, 1996, the appeals court overturned the district court, holding the shrink-wrap license enforceable.⁽²⁰⁸⁾ The appeals court followed the same analytical road as the district court, treating the license as terms of a contract, in a sale of goods, governed by the U.C.C.⁽²⁰⁹⁾ If the shrink-wrap license terms are viewed as contract terms, then whether or not they are part of the contract depends on when the contract was formed.⁽²¹⁰⁾ The only terms that a court will enforce are those known to the parties, at the time of contract formation, and to which the parties agree.⁽²¹¹⁾ The district court held that the contract was formed at the counter of the retail store, at which time the consumer did not know the terms of the license, and thus had not agreed to them.⁽²¹²⁾ The appeals court, however, rolled the moment of contract formation ahead to a time when Zeidenberg either knew of the license terms or had a reasonable opportunity to know of them, resulting in their becoming part of the contract.⁽²¹³⁾ As a result, the appeals court found that the shrink-wrap license would be enforceable "unless [the] terms are objectionable on grounds applicable to contracts in general."⁽²¹⁴⁾
The appeals court held that ProCD's offer was not properly accepted by simply exchanging money for the product and leaving the store.⁽²¹⁵⁾ As the "master of the offer" the seller can specify what constitutes acceptance.⁽²¹⁶⁾ The court stated that a seller is not limited to a money for goods exchange as the only means of acceptance they can require.⁽²¹⁷⁾ In the court's view, ProCD required something more.⁽²¹⁸⁾ The additional conduct called for by ProCD was for Zeidenberg to take Select Phone home, have the opportunity to view the license terms, and then elect to keep it.⁽²¹⁹⁾ All terms known to Zeidenberg, according to ProCD, when he accepted in this manner, became part of the contract.⁽²²⁰⁾ The appeals court held that Zeidenberg performed the acts called for by ProCD, and, therefore, the contract included the license.⁽²²¹⁾
2.  Money Now, Terms Later As Routine Commercial Practice
The appeals court found that post payment presentment of terms is a routine commercial practice.⁽²²²⁾ It noted that "[t]ransactions in which the exchange of money precedes the communication of detailed terms are common."⁽²²³⁾ To support this conclusion, the court provided examples of other consumer transactions where this occurs, such as the purchase of: insurance, airline tickets, concert tickets, radios, and prescription drugs.⁽²²⁴⁾
The court also noted that a growing percentage of software sales take place on-line where there is no tangible object transferred.⁽²²⁵⁾ It opined that, in on-line transactions, because there is no box, there is no opportunity to present the license terms prior to the transfer of the product.⁽²²⁶⁾ The court seemed to believe that requiring the terms to be presented prior to the sale would result in on-line transactions being free of any restrictive licensing terms. This reasoning, however, is directly challenged by other commentators.⁽²²⁷⁾
3.  Power To Return The Software
The appeals court held that vesting Zeidenberg with power to return the software, after reviewing it, is consistent with Article 2 of the U.C.C. and demonstrates that the U.C.C. recognized that, in certain transactions, the purchaser can receive the goods, and still not be finally bound to keep them.⁽²²⁸⁾ The court pointed to § 2-606(b) to "reinforce"⁽²²⁹⁾ the position that it is acceptable under the U.C.C. for the maker of the offer to allow an inspection of the goods prior to the buyer being bound to keep them.⁽²³⁰⁾ Under § 2-606(1)(b), "acceptance of the goods occurs when the buyer (b) fails to make an effective rejection . . . [after] the buyer has had a reasonable opportunity to inspect [the goods]."⁽²³¹⁾ Recognizing that this did not pertain to the formation of the contract, the court presented § 2-206(1)(b) to support the assertion that the U.C.C. allows "the parties to structure their relationship so that the buyer has a chance to make a final decision after a detailed review."⁽²³²⁾ However, the court does appear to intermingle the concept of acceptance of goods with acceptance of an offer.⁽²³³⁾
4.  Placement And Prominence Of The Shrink-Wrap Terms
Having found that the contract was formed after Zeidenberg took the software home and used it, the appeals court next turned to the placement of the notice of the licensing terms.⁽²³⁴⁾ The appeals court took the position that the U.C.C. does not require notice of the shrink-wrap terms to be given with any "special prominence."⁽²³⁵⁾ The appeals court further stated that none of the prior cases dealing with shrink-wrap licenses provide any guidance on the issue of the shrink-wrap license at hand.⁽²³⁶⁾
5.  Shrink-Wrap Terms As Part of The Product
The court also observed that the workings of the marketplace offer protection to the consumer from undesirable shrink-wrap license/contract terms.⁽²³⁷⁾ It opined that the license is part and parcel of the product, and it would be unfair to software vendors to allow consumers to "pick and choose" what parts of the product they want.⁽²³⁸⁾ The court asserted that if a consumer doesn't like the makeup of a particular product--including the license--they should simply buy another product.⁽²³⁹⁾ It stated that it would be an improper exercise of judicial power, and bad for consumers as a whole, to allow Zeidenberg to take what he likes and disregard what he does not like.⁽²⁴⁰⁾ In the court's view, a consumer, empowered with the right of rejection under the U.C.C., who finds a software licensing agreement unpalatable can return the product and seek out one with less restrictive terms.⁽²⁴¹⁾
  Analysis
On the unusual facts of this case, the appeals court reached the correct result, but for the wrong reasons.⁽²⁴²⁾ In reaching its conclusion, the court ignored some basic principles of contract law and warped others.⁽²⁴³⁾ The holding of the appeals court is likely attributable to its attempt to reach justice in this one case and molding the law to achieve that goal. Zeidenberg was, in all likelihood, fully aware of the license when he purchased Select Phone, yet chose to ignore it.⁽²⁴⁴⁾ ProCD was represented by a large and powerful law firm; Zeidenberg was not.⁽²⁴⁵⁾ The combination of this David versus Goliath contest and the unsympathetic position of Zeidenberg was likely the driving, yet unspoken, reason for this decision. The danger with such judicial wand-waving, however, is that it establishes faulty precedent.⁽²⁴⁶⁾
A.  The Seventh Circuit Court of Appeals' Logic Was Flawed
The appeals court stated that it would decide the case following the U.C.C. and the common law of contracts.⁽²⁴⁷⁾ Under the U.C.C. and common law, however, the contract was formed when the consumer paid for the good and walked out of the store.⁽²⁴⁸⁾ This is the fatal flaw in the court's logic.
1.  The Court's Reliance on U.C.C. § 2-204
The heart of the appeals court's logic is that ProCD called for acceptance of its offer by conduct beyond simple tender of payment and walking out of the store with the software.⁽²⁴⁹⁾ The court stated, "ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure."⁽²⁵⁰⁾ As the consumer was aware of the license at that time, the court reasoned, the license was enforceable.⁽²⁵¹⁾ In reaching this conclusion the court relied on U.C.C. § 2-204(1).⁽²⁵²⁾
Both the district court and the appeals court walk their analyses through the basic notions of offer and acceptance.⁽²⁵³⁾ Section 2-204 lays out some basic principals of contract formation.⁽²⁵⁴⁾ It makes formation an easier and less rigid process than it was under the common law.⁽²⁵⁵⁾ The U.C.C. is basically silent on what constitutes an offer.⁽²⁵⁶⁾ Under § 1-103, when the U.C.C. is silent on an issue, common law principals govern.⁽²⁵⁷⁾ The Second Restatement of Contracts defines an offer as "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it."⁽²⁵⁸⁾ U.C.C. § 2-206 lays out the specific rules for acceptance.⁽²⁵⁹⁾
2.  Retail Sales Contracts Normally Complete at Store
As noted by the district court, in Wisconsin, a "sales contract results when [the] customer pays [the] purchase price and departs with [an] item."⁽²⁶⁰⁾ Numerous courts have similarly held that in a retail context, the sales contract is completed by the time the consumer departs from the store.⁽²⁶¹⁾ It is presumed by both the district court and the appeals court that the presence of the good on the shelf constituted an offer.⁽²⁶²⁾ There is also a substantial body of law which holds that advertisement of goods, or their placement in a store, is a mere solicitation of offers.⁽²⁶³⁾ Under either view, however, the outcome is the same in that the contract is formed by the time the buyer departs from the store.
3.  ProCD Failed to Clearly Convey Their Desired Mode of Acceptance
ProCD sought something beyond this ordinary means of acceptance.⁽²⁶⁴⁾ In addition to paying the purchase price and taking physical possession of the good, ProCD purported to require reading, or having the chance to read, the license and then electing to keep the good.⁽²⁶⁵⁾ U.C.C. § 2-206 states, "[u]nless otherwise unambiguously indicated by the language or circumstances: (a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances."⁽²⁶⁶⁾ Point one of the official comment to §2-206 notes, "[a]ny reasonable manner of acceptance is intended to be regarded as available unless the offeror has made quite clear that it will not be acceptable."⁽²⁶⁷⁾ The offeror is free to require anything as acceptance, however bizarre,⁽²⁶⁸⁾ but "[i]f the mode of acceptance is unclear . . . the ambiguity is resolved against the offeror."⁽²⁶⁹⁾ In such a circumstance, § 2-206(a) allows any means of acceptance reasonable under the circumstances.⁽²⁷⁰⁾ The Second Restatement of Contracts also notes that, "[u]nless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances."⁽²⁷¹⁾
The only notice provided, at stores where Select Phone is sold, to suggest that something more than the usual means of acceptance was sought by ProCD, was presented in fine print on the bottom of the box.⁽²⁷²⁾ A reasonable person would not find such stealthy notice "quite clear" or "unambiguous."⁽²⁷³⁾ Webster's New World Dictionary defines ambiguous, in part, as "not clear."⁽²⁷⁴⁾ The official comment to § 2-206 states that to be unambiguous for purposes of § 2-206, the offeror must be "quite clear."⁽²⁷⁵⁾ It is axiomatic that something can only be clear to you if you are consciously aware of it.⁽²⁷⁶⁾ The notice on the box failed to "clearly" convey its message due to its hidden placement.⁽²⁷⁷⁾
Where ProCD failed to make their special requirement clear, the Code tells us the fallback position is any means of acceptance "reasonable in the circumstances."⁽²⁷⁸⁾ As discussed above, tender of payment and taking possession of the item is universally seen, in the consumer context, as reasonable.⁽²⁷⁹⁾ ProCD's failure to make a proper § 2-206 "special" offer gave Zeidenberg the ability to accept and consummate the sales contract by paying the price and taking possession of Select Phone.⁽²⁸⁰⁾
4.  The "License" Was Not Part of the Contract to which the Consumer Agreed
The Seventh Circuit Court of Appeals stated that the license would be treated as a provision of the contract.⁽²⁸¹⁾ Both the district court and the appeals court agreed that the only contract terms a court will enforce are those to which the parties have agreed.⁽²⁸²⁾ A consumer who is not aware of, and could not reasonably be aware of, a term cannot be said to have agreed to it.⁽²⁸³⁾ So the question presented is this: when a consumer walks out of a retail store, with a copy of Select Phone, what sales contract terms has the consumer agreed to? While one may have agreed to other terms, it is clear that the consumer has not agreed to the license, as it has not yet been presented.⁽²⁸⁴⁾ The result is that the license fails to become part of the contract.⁽²⁸⁵⁾
B.  Notice of the License Should Have Been More Prominent
ProCD's license/contract purports to alter the nature of what is transferred.⁽²⁸⁶⁾ ProCD provides little to no notice to the consumer, prior to the sale, that such license terms apply.⁽²⁸⁷⁾ The Seventh Circuit Court of Appeals justifies this tactic by holding that, unless the U.C.C. explicitly requires a contract term to be presented with special prominence, the term can be as inconspicuous as its proponent desires to make it.⁽²⁸⁸⁾ From this premise, the court concluded that notice of shrink-wrap license terms requires no special prominence.⁽²⁸⁹⁾ Specifically, the appeals court stated:
A disclaimer of the implied warranty of merchantability must be `conspicuous.' Promises to make firm offers . . . must be `separately signed.' These special provisos reinforce the impression that, so far as the U.C.C. is concerned, other terms may be as inconspicuous as the forum selection clause on the back of the cruise ship ticket in Carnival Lines.⁽²⁹⁰⁾
A review of other U.C.C. provisions, however, shows this to be a false premise.⁽²⁹¹⁾
1.  U.C.C. § 2-316 and Prominent Placement of Language
Section 2-316 of the U.C.C. covers "Exclusion or Modification of Warranties."⁽²⁹²⁾ Section 2-316(2), quoted by the district court, requires a conspicuous writing to disclaim the implied warranty of merchantability.⁽²⁹³⁾ The appeals court stated that, because the Code explicitly uses the word "conspicuous" in this setting, anytime a contractual provision needs special prominence, the Code will say so.⁽²⁹⁴⁾ In the absence of such mention, according to the court, special prominence is not required.⁽²⁹⁵⁾ One need look no further than § 2-316(3)(a), and some of the case law interpreting it, to see that this is a faulty assertion.⁽²⁹⁶⁾
Section 2-316(3)(a) also speaks to the exclusion of implied warranties.⁽²⁹⁷⁾ It states that if words like "as is," which are commonly seen as disclaiming warranties, are used then the warranties are effectively disclaimed.⁽²⁹⁸⁾ Nowhere in this section of the U.C.C., nor in any point of the official comment, is there a requirement that the words "as is" be conspicuous. Following the logic of the appeals court, one would conclude that such language requires no special prominence to be effective.⁽²⁹⁹⁾
Other courts have come to a contrary conclusion. In 1970, the Superior Court of New Jersey decided Gindy Manufacturing Corp. v. Cardinale Trucking Corp.,⁽³⁰⁰⁾ in which the maker of semi-trailers sought to recover a sales price from a buyer.⁽³⁰¹⁾ As a defense, the buyer asserted that the trailers were faulty when delivered.⁽³⁰²⁾ The maker of the trailers claimed that the sales contract contained the language "as is" and, consequently, any warranties as to quality were effectively disclaimed.⁽³⁰³⁾ The maker, in a motion for summary judgment, asserted that the warranty was the only defense and, because "as is" was used in the contract, there was no warranty.⁽³⁰⁴⁾ The court denied the summary judgment motion on a number of unrelated grounds.⁽³⁰⁵⁾ As to the presence of the term "as is," the New Jersey Superior Court noted that "[m]y preference . . . is to find that there is a requirement of conspicuousness when terms like `as is' are used to exclude an implied warranty of merchantability or fitness."⁽³⁰⁶⁾ The court noted that, although the U.C.C. does not explicitly state that the "as is" term must be conspicuous in order to create a valid waiver of warranties, such a requirement "harmonizes with the basic purpose of the Code to protect the buyer from surprise."⁽³⁰⁷⁾
In 1987, the Court of Appeals for Idaho also held that such an "as is" term must have prominent placement.⁽³⁰⁸⁾ Western Rail Road Builders purchased used railroad maintenance equipment from Fernandez.⁽³⁰⁹⁾ After the machinery was found to be defective Western stopped payment on its check.⁽³¹⁰⁾ Fernandez brought an action for payment of the sale price.⁽³¹¹⁾ Western asserted that, due to the problem with the machines, it could rescind the sale.⁽³¹²⁾ In response, Fernandez pointed to the words "as is" on the sales ticket to support his position that the goods did not have to conform to a merchantability standard, nor conform to a "particular description."⁽³¹³⁾ The trial court granted Western's motion for a recission of the sales contract and Fernandez appealed.⁽³¹⁴⁾
The court of appeals vacated the trial court's ruling and remanded the case.⁽³¹⁵⁾ In part, the court noted that "[a]lthough the U.C.C. does not explicitly require the term `as is' to be conspicuous, an inconspicuously inserted term may fail to `[make] plain that there is no implied warranty.'"⁽³¹⁶⁾
2.  U.C.C. § 2-719 and Prominent Placement of Language
Other terms have been held to require "special prominence," even though the U.C.C. does not explicitly require it.⁽³¹⁷⁾ Section 2-719 deals with "Contractual Modification or Limitation of Remedy."⁽³¹⁸⁾ As the name states, this section addresses the parties' rights to, by contract, limit the remedies available in the case of a dispute.⁽³¹⁹⁾ "Under this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect."⁽³²⁰⁾ A review of § 2-719 reveals no requirement that such a limitation be "conspicuous."⁽³²¹⁾
Here too, other courts have required, in the absence of a direct statutory command, that a term be given special prominence in order to achieve the goals of the Code. For example, the Appellate Court of Illinois has held, "[t]o be a part of the bargain, a provision limiting . . . liability must, unless incorporated into the contract through prior course of dealings or trade usage, have been bargained for, brought to the purchasers attention or be conspicuous."⁽³²²⁾ Likewise, the Court of Appeals of Nebraska agreed that a limitation of liability needs special prominence.⁽³²³⁾ Adams v. American Cyanamid Co. dealt with a farmer's suit against an herbicide manufacturer for, among other things, breach of warranty.⁽³²⁴⁾ The warranty disclaimer in issue contained a limitation on consequential damages.⁽³²⁵⁾ The Nebraska court noted that "[t]he Code does not require that a limitation of remedy be conspicuous."⁽³²⁶⁾ The court, however, concluded that "in order for a limitation of remedy to be effective, it must also be conspicuous and a buyer must be afforded a reasonable opportunity to read it."⁽³²⁷⁾ These cases, interpreting other sections of the U.C.C. directly contradict the Seventh Circuit Court of Appeals' presumption that, if the U.C.C. does not explicitly require that a contract term be conspicuous, it can be as inconspicuous as a party decides to make it.⁽³²⁸⁾
One of the policy considerations underlying the U.C.C. is protection of parties from surprise.⁽³²⁹⁾ Section 2-316, "Exclusion or Modification of Warranties," states in point one of the official comment that it seeks to "protect the buyer from surprise."⁽³³⁰⁾ Most consumers purchasing a software package that is sold in a glossy box, with bright graphics announcing its wonderful capabilities, would be extremely surprised to later find that on the bottom of the box, in small print, the vendor had attached restrictive contract language.⁽³³¹⁾ It is a clear contravention of an underlying policy of the Code to allow such an important statement to be given effect where its proponent chose to hide it from the purchaser.
In addition, it is common practice to include a limitation of liability in shrink-wrap licenses.⁽³³²⁾ Other courts have held that such limitations of liability require special prominence.⁽³³³⁾ The inclusion of such language in a shrink-wrap license would bring it within the class of terms requiring such prominence.
C.  The Court's Ruling Was Correct on These Facts
As explained above, the logic of the Seventh Circuit Court of Appeals was flawed.⁽³³⁴⁾ However, as to this particular transaction involving Zeidenberg, the court's conclusion was just.⁽³³⁵⁾ In fact, the result would be sound under either the view of the transaction taken by the district court or that taken by the appeals court.⁽³³⁶⁾ The reason is that Zeidenberg, as a graduate student in computer science, would have a greater level of understanding, than the average consumer, of how software is typically sold.⁽³³⁷⁾ As a result of this understanding he would clearly know that software vendors assert that they do not sell, but license.
1.  Usage of Trade and Zeidenberg
The practice of selling software with a license attached is almost universal.⁽³³⁸⁾ U.C.C. § 1-205(2) states, "[a] usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question."⁽³³⁹⁾ Section 1-205(3) further states that "[a] course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware of give particular meaning to and supplement or qualify terms of an agreement."⁽³⁴⁰⁾ As it is an almost universal practice to sell software contingent on a license, this should qualify as a usage of trade under § 1-205.⁽³⁴¹⁾ It is reasonable to conclude that one who has reached the level of graduate student in computer science is aware of this custom. Under § 1-205(3), Zeidenberg's knowledge, from being in the software vocation and seeking to get into the trade of selling a software program of his own, should "give particular meaning to and supplement or qualify"⁽³⁴²⁾ the terms of his contract with ProCD.⁽³⁴³⁾ In addition, under § 1-205(2), the fact that Zeidenberg was in the vocation, and arguably trade, of software would lead to "justify an expectation that it [the license] be observed with respect to the transaction in question."⁽³⁴⁴⁾
2.  Zeidenberg Could Have Examined the Terms Prior to the Sale
As noted above, Zeidenberg, unlike the average consumer, was most likely aware the license was present prior to buying the product.⁽³⁴⁵⁾ Had Zeidenberg tried, he could have examined the software license prior to paying for Select Phone.⁽³⁴⁶⁾ Zeidenberg's assertion that he "did not know, and could not have known the terms of this license prior to sale of the product because the terms were only printed in the User Guide which was inside the product box and were unavailable for inspection prior to sale" is simply wrong.⁽³⁴⁷⁾ Regardless of which time the court selects as the moment the sales contract was formed, at the counter or later, Zeidenberg would have every reason to have known of the terms, and if he so chose, to have examined them.⁽³⁴⁸⁾ The district court stated that the terms of the license agreement "were not presented to defendants at the time of sale."⁽³⁴⁹⁾ It looked to Arizona Retail⁽³⁵⁰⁾ for the proposition that if the terms are visible, or if the party had an "opportunity to read" them prior to the sale being completed then they are enforceable.⁽³⁵¹⁾ Zeidenberg, unlike the average consumer who lacks his expertise, clearly had an opportunity to read the terms prior to the sale taking place. All he had to do was examine the box, see the notice of the terms, and then open the box and read them.⁽³⁵²⁾ He should be estopped from asserting, as a defense to the enforcement of the terms, his own failure to do so.
  Conclusion
ProCD was the first major case to deal with a shrink-wrap license in a purely consumer context. By rolling the moment of contract formation ahead, the Seventh Circuit Court of Appeals found the "license" enforceable.⁽³⁵³⁾ This was the just result on these facts. The holding, however, creates bad precedent and should be restricted to situations in which it can be demonstrated that the consumer had reason to know of the license terms at the point of purchase. This was a consumer transaction.⁽³⁵⁴⁾ The average consumer lacks the special knowledge that Zeidenberg possessed.⁽³⁵⁵⁾ As a result they would have no reason to expect such terms to attach to the sale. Given that, it would be an inequitable shift in power to allow a software vendor to effectively convert a sale to a license via contract terms which are only mentioned, prior to the sale, in fine print and hidden away.
If it is important enough to software vendors to have the license be part of the contract, there are some simple steps they can take. If the vendors simply place notice of the license in a more prominent position, with larger type, or even have a tear-off sheet on each box, that must be signed prior to the sale, stating that the purchaser assents to the license, then there would be no dispute that each purchaser was made fully aware of the license, and agreed to it. While it is understandable that for marketing reasons vendors wish to use the visible package space for glossy enticements, the minor space lost will be well spent in the pursuit of giving reasonable notice of the presence of the license. Until such steps are taken, these problems will persist.
As the court in Arizona Retail so aptly put it, "[r]equiring the seller to discuss terms it considers essential before the seller ships the goods is not unfair; the seller can protect itself by not shipping until it obtains assent to those terms it considers essential."⁽³⁵⁶⁾ How true it is.
Robert J. Morrill^*
1. See Thomas A. O'Rourke, Recent Developments in Shrink-Wrap Licenses, 14 A.B.A. Sec. of Intell. Prop. Law 7-8 (1996); see also Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988); Arizona Retail Sys. v. Software Link, 831 F. Supp. 759 (D. Ariz. 1993).
2. 86 F.3d 1447 (7th Cir. 1996), rev'g, 908 F. Supp. 640 (W.D. Wis. 1996).
3. See id. at 1449.
4. See Arizona Retail Sys., 831 F. Supp. at 760 (noting that the transaction in that case was between a designer/seller of software and a retailer of computer systems); see also Step-Saver Data Sys., Inc., 939 F.2d at 93-94 (indicating that Step-Saver, a value added retailer of computers, purchased the software in question from Wyse Technology); Vault Corp., 847 F.2d at 256-57 (observing that Vault sells its product to "software computer companies").
5. See Jacqueline Savaiano, Grade Expectations, Entertainment Wkly., June 30, 1995, at 102 (stating that "1994 software retail sales were $4 billion in the U.S. alone").
6. See infra notes 345-54 and accompanying text.
7. See infra notes 70-241 and accompanying text.
8. See infra notes 207-356 and accompanying text.
9. See infra notes 46-68 and accompanying text.
10. See infra notes 46-68 and accompanying text.
11. See David F. Simon, Computer Law Handbook 241-45 (1990) (discussing different views of the "shrink-wrap contract").
12. This issue is the main focus of this Comment. See infra notes 248-85 and accompanying text for an in-depth discussion of the timing question.
13. See infra notes 213-21 and accompanying text.
14. See infra notes 248-85 and accompanying text.
15. See infra notes 24-60 and accompanying text.
16. See infra notes 69-116 and accompanying text.
17. See infra notes 117-206 and accompanying text.
18. See infra notes 207-41 and accompanying text.
19. See infra notes 242-352 and accompanying text.
20. See infra notes 242-352 and accompanying text.
21. See infra notes 353-56 and accompanying text.
22. See infra notes 247-333 and accompanying text.
23. See infra notes 353-56 and accompanying text.
24. See The Wiley Encyclopedia of Packaging Technology 335 (Marilyn Bakker & David Eckroth eds., 1986) [hereinafter Wiley Encyclopedia]. "The shrink-wrapping process was first introduced in 1948 as a protective-packaging technique for frozen poultry." Id. at 708. Generally, the process of shrink-wrapping a product "involves the use of thermoplastic films that have been stretched . . . during the manufacturing process and shrink with the application of heat . . . . These films are sealed around a product . . . and passed through a hot air tunnel, where the heated air shrinks the film tightly around the configuration of the product." Id.; see also The Random House College Dictionary 1219 (Jess Stein ed., 1984) (defining "shrink-wrap" as "to wrap and seal [a book, a food product, etc.] in a flexible film that, when exposed to heat, shrinks to the contour of the merchandise").
25. See The Random House College Dictionary 1219 (Jess Stein ed., 1984).
26. See Wiley Encyclopedia, supra note 24, at 708.
27. See infra notes 33-40 and accompanying text.
28. See infra notes 33-45 and accompanying text.
29. See Lloyd L. Rich, Mass Market Software and the Shrinkwrap License, 23 Colo. Law., June 1994, at 1321 ("Ever since the development of mass market computer software, companies have relied on the `shrinkwrap license' for protection of their intellectual property rights."); see also ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 650 (W.D. Wis. 1996) ("Software companies have included such agreements, commonly known as `shrinkwrap licenses' with their products since the advent of mass market software."), rev'd, 86 F.3d 1447 (7th Cir. 1996); Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1238, 1241 n.5 (1995) ("Exactly who first used a shrinkwrap license provision in a software transaction is a fact lost in the arcane mists of computer history. Certainly, they were a feature of the licensing landscape by the early 1980s.").
30. See Michael Schwarts, Tear-Me-Open Software License Agreements: A Uniform Commercial Code Perspective on an Innovative Contract of Adhesion, 7 Computer L.J. 261, 262 (1986) (noting the difficulty of obtaining signed contracts from each mass market purchaser, and how the shrink-wrap solves the problem).
31. See David A. Rice, Licensing the Use of Computer Program Copies and the Copyright Act First Sale Doctrine, 30 Jurimetrics J. 157, 177 (1989) ("Custom software contracts ordinarily are negotiated.").
32. See Mark L. Gordon, Computer Software Contracting For Development and Distribution 396-97 (1986); see also ProCD, 908 F. Supp. at 650. ("Shrink-wrap licenses are intended to take the place of any bargains or agreements between mass market software producers and users, because the typical software transaction does not involve bargained agreements . . . ."); Schwarts, supra note 30, at 262.
33. See Schwarts, supra note 30, at 262.
34. Gordon, supra note 32, at 397.
35. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
36. See ProCD, 908 F. Supp. at 654. ProCD placed notice of the license on the bottom of the box itself. See id.
37. See id.
38. See id. at 644-45.
39. See Rich, supra note 29, at 1321 ("Acceptance of the license terms and conditions is acknowledged by the purchaser when the purchaser opens the software shrink-wrap or other packaging, or by using the software.").
40. See id. at 1322 ("In most transactions, the purchaser does not become aware of the terms of the license until after the sale is consummated . . . .").
41. See infra Part II.D.
42. Duncan M. Davidson & Jean A. Davidson, Advanced Legal Strategies for Buying and Selling Computers and Software 363 (1986).
43. See Rice, supra note 31, at 157 ("Copy use licensing seeks to maximize the economic value of computer program copyright and trade secret protection."). The first sale doctrine of copyright law allows the owner of a particular copy of copyrighted material to resell that copy. See 17 U.S.C. § 109(a) (1994). This poses a threat to software vendors by making copying of their product more likely to occur. See infra notes 59-63 and accompanying text for a discussion of the first sale doctrine and its effect on software.
44. See Davidson & Davidson, supra note 42, at 364-67; see also Rich, supra note 29, at 1321.
45. See Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F. Supp. 759, 761 (D. Ariz. 1993); see also infra notes 301-38 and accompanying text for a discussion of the Uniform Commercial Code's approach to warranty waivers and limitations on liability.
46. See infra notes 61-68 for a discussion of whether the term "license" is accurate, or whether the typical consumer software transaction is actually a sale dressed up as a license.
47. See Robert W. Gomulkiewicz & Mary L. Williamson, A Brief Defense of Mass Market Software License Agreements, 22 Rutgers Computer and Tech. L.J. 335, 353 (1996) ("Standardized software terms . . . allow publishers to withhold rights . . . which are particularly costly or risky to the software publisher if granted.").
48. See infra notes 50-52 and accompanying text; see also Lemley, supra note 29, at 1242-43.
49. See John T. Soma et al., Software Interoperability and Reverse Engineering, 20 Rutgers Computer & Tech. L.J. 189, 203 (1994); see also Thomas L. Lockhart & Richard J. McKenna, Software License Agreements in Light of the UCC and the Convention on the International Sale of Goods, 70 Mich. Bar J. 646, 646 (1991) ("The Copyright Act has been interpreted to provide protection for source code, object code, and individual screen displays of computer software."). See generally David A. Rice, Public Goods, Private Contract and Public Policy: Federal Preemption of Software License Prohibitions Against Reverse Engineering, 53 U. Pitt. L. Rev. 543 (1992).
50. See Lemley, supra note 29, at 1242.
51. See id. at 1242-43. "Whether copyright law protected computer programs at all was an open question . . . not resolved until the enactment of the 1980 amendments to the Copyright Act." Id. at 1242. Following the recognition of copyright protection, the extent of the protection continued to be disputed. See id. at 1242-43.
52. See id.
53. See Rich, supra note 29, at 1321 ("By retaining title to the software, the computer software company theoretically attempts to impose conditions on the licensee (the purchaser) that are not otherwise permissible under federal copyright law."); see also Lemley, supra note 29, at 1246.
54. See Davidson & Davidson, supra note 42, at 369 ("[S]elf-executing licenses are intended primarily to avoid the effect of the `first sale doctrine.'"); see also 17 U.S.C. § 109(a) (1988). Recognizing the threat this doctrine posed to software vendors if their products could be rented like video tapes, the statute was amended to prohibit the renting or leasing of software for commercial purposes. See id. § 109(b)(1)(A).
55. See 17 U.S.C. § 109(a) (1994) (providing that "the owner of a particular copy . . . lawfully made . . . is entitled, without the authorization of the copyright owner, to sell or otherwise dispose of the possession of that copy"); see also Walt Disney Prods. v. Basmajian, 600 F. Supp. 439, 442 (S.D.N.Y. 1994) ("The first sale doctrine, 17 U.S.C. § 109(a), states that where the copyright owner sells or transfer[s] a particular copy of his copyrighted work, he divests himself of the exclusive right in that copy and the right to sell passes to the transferee.").
56. See 17 U.S.C. § 109(b)(1)(A) (1994).Not withstanding the provisions of subsection (a), unless authorized by the owners of copyright . . . in a computer program (including any tape, disk, or other medium embodying such program), neither the owner . . . nor any person in possession of a particular copy of a computer program . . . may, for the purposes of direct or indirect commercial advantage, dispose of [said program], by rent [], lease, or lending.Id.
57. See Rice, supra note 31, at 163.
58. See Davidson & Davidson, supra note 42, at 369; see also 17 U.S.C. § 109 (1994) (noting that the doctrine applies to the sale of a copy); Microsoft Corp. v. Harmony Computers & Elecs., 846 F. Supp. 208, 212 (E.D.N.Y. 1994) ("Plaintiff's counsel declares that Microsoft only licenses and does not sell its products. Entering a license agreement is not a `sale' for purposes of the first sale doctrine.").
59. See Feist Publications, Inc. v. Rural Telephone Servs. Co., 499 U.S. 340 (1991) (holding alphabetical listings in a phone book lack the minimal degree of originality and creativity required for copyright protection).
60. See, e.g., ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 647 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996).
61. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996); ProCD, 908 F. Supp. at 650-51; see also Lemley, supra note 29, at 1244 n.23.
62. See Lemley, supra note 29, at 1244 n.23 ("[A]lmost all courts and commentators that have considered the issue have concluded that a shrink-wrap license transaction is a sale of goods rather than a license, and is therefore covered by Article 2 of the current U.C.C. . . . .").
63. U.C.C. § 2-106(1) (1996).
64. See Black's Law Dictionary 920 (6th ed. 1990) (defining license, in part, as "[l]eave to do thing which licensor could prevent").
65. See Rich, supra note 29, at 1322.
66. See id.
67. Id.
68. See id.; see also ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996). The U.C.C. is currently undergoing revision designed, in part, to enhance the enforceability of shrink wrap licenses. See O'Rourke, supra note 1, at 37. The current U.C.C. revision process involves Article 2B for licensing of software. Draft § 2B-307 reads, "[e]xcept as otherwise provided . . . a party adopts the terms of a record, including a standard form, if the party agrees to or manifests assent to the record before or in connection with the initial performance use or access to the information." U.C.C. § 2d-307 (Proposed Draft 1997). See generally Diane W. Savage, The Impact of Proposed Article 2B of the Uniform Commercial Code on Consumer Contracts for Information and Computer Software, 9 Loy. Consumer L. Rep. 251 (1997) (discussing proposed amendments to the U.C.C. and their potential effect on, among other aspects of the consumer software transaction, shrink-wrap licensing).
69. See ProCD, 86 F.3d at 1452 ("[O]nly three cases (other than ours) touch on the subject, and none directly address it."). In the retail context, this is likely due to the relative power of the involved parties. How many consumers have the resources, or reason for that matter, to take on a company the size of Microsoft? A review of the appellate briefs in the case at hand demonstrates the result of taking on such a fight. See Brief for Appellant, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139); Brief for Appellees, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139). Zeidenberg was represented by, what appears to be, a solo practitioner; ProCD was represented by one of the most powerful law firms in Boston.
70. See infra notes 71-116 and accompanying text.
71. See Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 270 (5th Cir. 1988). In basic terms, decompilation and disassembly involve dissecting a computer program to obtain the code which was used to write the program, that information can be used to engineer a competing program. See Rice, supra note 31, at 158 n.2.
72. See Vault, 847 F.2d at 256.
73. See id. at 257 ("Each version of PROLOK has been copyrighted and Vault includes a license agreement with every PROLOK package that specifically prohibits the copying, modification, translation, decompilation or disassembly of Vault's program.").
74. See id.
75. Id.
76. See id. at 268-69. The court noted numerous conflicts between Louisiana's License Act and the Copyright Act, including:
(1) while the License Act authorizes a total prohibition on copying, the Copyright Act allows archival copies and copies made as an essential step in the utilization of a computer program, 17 U.S.C. § 117; (2) while the License Act authorizes a perpetual bar against copying, the Copyright Act grants protection against unauthorized copying only for the life of the author plus fifty years, 17 U.S.C. § 302 (a); and (3) while the License Act places no restrictions on programs which may be protected, under the Copyright Act, only `original works of authorship' can be protected, 17 U.S.C. § 102.Id. at 269 (citing Vault Corp. v. Quaid Software Ltd., 655 F. Supp. 750, 762-63 (E.D. La. 1987).
77. See id. at 257.
78. See Vault, 847 F.2d at 258.
79. See id. at 258-68.
80. See id.
81. See id. at 268.
82. See id. at 258.
83. See id. at 270.
84. See Vault, 847 F.2d at 270.
85. Step-Saver Data Sys. v. Wyse Tech., 939 F.2d 91, 99-100 (3d Cir. 1991).
86. See id. at 93.
87. See id. at 94.
88. See id.
89. See id.
90. See id. at 94-95.
91. See Step-Saver, 939 F.2d at 94-95.
92. See id. at 95-96.
Step-Saver would typically purchase copies of the program in the following manner. First, Step-Saver would telephone TSL (The Software Link), and place an order . . . . TSL would accept the order and promise, while on the telephone, to ship the goods promptly. After the telephone order, Step-Saver would send a purchase order . . . . TSL would ship the order . . . along with an invoice.Id. at 95-96. Regarding the warranty disclaimer, the court observed that "[n]o reference was made during the telephone calls, or on either the purchase orders or the invoices with regard to a disclaimer of any warranties." Id. at 96. The warranty disclaimer, however, was contained in the box-top license. See id.
93. See id. at 98. "TSL has shipped the product, and Step-Saver has accepted and paid for each copy of the program. The parties performance demonstrates the existence of a contract. The dispute is . . . not over the existence of a contract, but the nature of its terms." Id.
94. Id. at 105-06.
95. See id. at 106.
96. See Arizona Retail Sys. v. Software Link, Inc., 831 F. Supp. 759, 763-66 (D. Ariz. 1993).
97. See id. at 760.
98. Id.
99. Id.
100. See id. at 761.
101. See id. There was some dispute whether Arizona Retail had ordered a live copy of the program and was sent in addition to that a test copy, or whether it had ordered a test copy, and was sent, in addition to it, a live copy. See id. at 761. The court concluded that the latter had occurred, stating, "it appears . . . that [Arizona Retail] did order an evaluation disc with the intent to first test the system." Id. at 763.
102. Arizona Retail, 831 F. Supp. at 761.
103. See id. Arizona also believed the license was "unenforceable." Id.
104. See id. During these phone orders, the quantity of copies, the specific goods, and the price were agreed upon prior to the goods being sent. See id. Neither the warranty disclaimers nor the liability limitations were discussed prior to the goods being sent, but they were included on the software packages that were subsequently sent. See id.
105. See id. at 760.
106. See id. at 764.
107. See id. at 763. This distinction was key. Arizona Retail ordered an evaluation disc and intended to test it prior to buying a copy. See id. at 760. Part of that review included the license agreement. See id. at 761. The live copy was "sealed in an envelope, the outside of which stated that by opening the envelope the user acknowledges `acceptance of this product, and [consents] to all provisions [of] the Limited Use License Agreement.'" Id. at 764.
108. See Arizona Retail, 831 F. Supp. at 764.
109. See id. at 766.
110. See id. at 764.
111. See id.
112. Id. at 764. The court found that by the time Arizona Retail received the software the contract was already formed. See id. at 765.
113. See id.
114. See Arizona Retail, 831 F. Supp. at 764-65. As to the § 2-209 argument, the court stated that express assent is required for any proposed modification to a pre-existing contract to be enforceable. See id. at 764. Here there was no such express assent, consequently, it would fail as an effective modification. See id. The court also rejected the argument that The Software Link's acceptance of Arizona's offer to buy was conditional on Arizona's assent to the license terms. See id. at 764-65. "By agreeing to ship the goods to ARS [Arizona Retail Systems], or, at the latest, by shipping the goods, TLS [The Software Link] entered into a contract with ARS. After entering into the contract, TLS was not free to treat the license agreement as a conditional acceptance . . . ." Id. at 765 (citations omitted). The court rejected, almost out of hand, TSL's assertion that the terms were non-material. See id. at 766.
115. See id. at 766. The "battle of the forms" was a pre-Code phenomenon where a party purporting to accept a written offer would do so with their own form. John E. Murray, Jr., Murray on Contracts 157-62 (1990). If their form did not match the offer exactly, their form was construed as a counter-offer. See id. The result was that the last form sent controlled; this was also known as the "last shot rule." Id.; see also Arizona Retail, 831 F. Supp. at 766. "Section 2-207 was drafted to ensure neutrality between contracting parties--i.e., to ensure that a party . . . does not gain an advantage merely by being the last one to send a form." Id.
116. See Arizona Retail, 831 F. Supp. at 766 ("Requiring the seller to discuss terms it considers essential before the seller ships the goods is not unfair; the seller can protect itself by not shipping until it obtains assent to those terms it considers essential.").
117. See ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 644 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996).
118. See id.
119. Id.
120. See id.
121. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
122. See id.
123. See id.
124. See id. The court noted that such "price discrimination" is common in other contexts, observing that airlines charge higher rates to business travelers by dropping the airfare if a trip includes a Saturday night stay over. Id. at 1450.
125. See id.
126. ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 644 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996).
127. Id.
128. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
129. ProCD, 908 F. Supp. at 644.
130. See id. at 645.
131. Id. at 644.
132. Id. at 645. "The box does not detail the specific terms of the license." Id. At the time of the writing of this Comment, this author found notice of the license on the bottom of the Select Phone box in fine print. See infra note 346.
133. See id. at 644.
134. Id. at 644.
135. See ProCD, 908 F. Supp. at 644.
136. Id. at 644-45.
137. See id. at 645.
138. See id. at 644.
139. See id. at 645.
140. Id. at 645.
141. See ProCD, 908 F. Supp. at 645.
142. See Brief for Appellees at 21, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139).
143. See ProCD, 908 F. Supp. at 645. "Defendant Zeidenberg is the sole shareholder, sole employee and sole officer of defendant Silken Mountain Web Services, Inc." Id.
144. Id.
145. See id. In addition to the data from Select Phone, Zeidenberg also used "data from another company's product." Id.
146. See id.
147. See id.
148. See ProCD, 908 F. Supp. at 645.
149. Id.
150. See id.
151. See id.
152. See id.
153. Id.
154. See ProCD, 908 F. Supp. at 643.
155. See id. at 643-44.
156. 17 U.S.C. §§ 101-1010 (1994).
157. Wis. Stat. § 943-70 (1994).
158. See ProCD, 908 F. Supp. at 644.
159. See id. at 645-46.
160. See id. at 644.
161. See id. at 662.
162. See id. at 646-50; see also infra Part II.B.2.
163. See ProCD, 908 F. Supp. at 646-50.
164. See id.
165. See Feist Publications, Inc. v. Rural Telephone Servs. Co., 499 U.S. 340, 345 (1991) (holding that alphabetical listings in a phone book lack the minimal degree of originality and creativity required for copyright protection).
166. See ProCD, 908 F. Supp. at 647.
167. See id.
168. Id.
169. See id. at 647-50. The court noted that both sides agreed that Zeidenberg had only used the software for his own use and did not transmit it to third parties. See id. at 649. The district court went on to state that ProCD's assertion, that making a copy of the software on Zeidenberg's own computer hard-drive was a violation of the Copyright Act, was simply wrong given prior courts' interpretation of the Copyright Act. See id. at 648.
170. See id. at 650.
171. See id. at 650-51. "[T]here are sound reasons for treating a software transaction as a sale of goods under the U.C.C. rather than as a license . . . ." Id. at 651. "In analyzing the parties transaction, [the court] will apply the U.C.C., as adopted by Wisconsin." Id.
172. See ProCD, 908 F. Supp. at 651-52.
173. See id. at 653-55.
174. See id. at 651. "Section 2-206, Wis. Stat sec. 402.206, sets forth the basic notions of offer and acceptance." Id.; see also U.C.C. § 2-206(1)(a) (1996) ("(1) Unless otherwise unambiguously indicated by the language or circumstances: (a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances").
175. See ProCD, 908 F. Supp. at 651-52.
176. See id. at 652; see also U.C.C. § 2-206(1)(a) (1996).
177. ProCD, 908 F. Supp. at 652 (citing U.C.C. § 2-204) Section 2-204 reads, in part: "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." U.C.C. § 2-204 (1996).
178. See ProCD, 908 F. Supp. at 652 ("Plaintiff cannot reasonably expect that further action from defendants would be required to make that sales contract binding. The purchase of the product was sufficient to show agreement between the parties.").
179. Id. at 651.
180. See id.
181. See id. at 652.
182. Id.
183. Id.
184. See ProCD, 908 F. Supp. at 652.
185. See id.
186. See id.
187. U.C.C. § 2-207 (1996).
188. Id. § 2-209.
189. See ProCD, 908 F. Supp. at 652-55.
190. 939 F.2d 91 (3d Cir. 1991); see also supra notes 90-101 and accompanying text.
191. 831 F. Supp. 759 (D. Ariz. 1993); see also supra notes 102-22 and accompanying text.
192. See ProCD, 908 F. Supp. at 653.
193. Id.
194. Id.
195. See Arizona Retail, 831 F. Supp. at 763. See supra notes 106-08 and accompanying text.
196. See ProCD, 908 F. Supp. at 654 ("The terms of the Select Phone user agreement were not presented to defendants at the time of sale.").
197. See id.
198. See id. at 654-55 (holding that where the vendor can change the terms between the times of the various sales, the consumer must be given an opportunity, prior to each and every sale, to review the terms).
199. See id. at 655.
200. See id.
201. See id. at 654-55.
202. See ProCD, 908 F. Supp. at 654-55.
203. Id. at 655.
204. See id. at 654-55.
205. See id. at 656-62.
206. See id.
207. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).
208. See id. at 1449 ("Shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general.").
209. See id. at 1450 ("Following the district court, we treat the license as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code.").
210. See id. at 1452.
211. See id. at 1450.
212. See ProCD, 908 F. Supp. at 654.
213. See ProCD, 86 F.3d at 1452-53.
214. Id. at 1449. Terms may be objectionable, for example, "if they violate a rule of positive law, or if they are unconscionable." Id.
215. See id. at 1452.
216. Id.
217. See id.
218. See id.
219. See ProCD, 86 F.3d at 1452.
220. See id. at 1450-52.
221. See id. at 1450.
222. See id. at 1451 (stating, in dicta, that if it wished, Wisconsin could legislate away the right to use standard form contracts, but has chosen not to).
223. Id.
224. See id.
225. See ProCD, 86 F.3d at 1451-52.
226. See id.
227. See, e.g., Gary H. Moore & J. David Hadden, On-Line Software Distribution: New Life for `Shrink wrap' Licenses?, 13 The Computer Lawyer, Apr. 1996, at 1; Ronald L. Johnston, Contracting and Trade Secrets Online, 7 Computer Lawyer 14 (1997); Michael D. Scott, Protecting Software Transactions Online: The Use of "Clickwrap" Licenses, 482 P.L.I. 103, 108-09 (1997). The court confused the issue; it spoke of terms on a box and focused on the box. The issue in ProCD was notice, while the box was merely the medium used to convey it. With an online transaction, notice can be given, just with an electronic medium.
228. See id. at 1452-53.
229. Id. at 1452.
230. See id. at 1452-53.
231. U.C.C. § 2-606(1)(b) (1996).
232. ProCD, 86 F.3d at 1453.
233. Section 2-606 operates once the contract is made and is concerned with a tender of the goods. See U.C.C. § 2-606 (1996). The heart of the contract issue in ProCD, however, is when and how the contract was consumated--not post-formation tender.
234. See ProCD, 86 F.3d at 1453.
235. Id. The court noted that U.C.C. § 2-316(2) requires that "[a] disclaimer of the implied warranty of merchantability must be `conspicuous.'" Id. (quoting U.C.C. § 2-316(2)). It further observed that §§ 2-205 and 2-209(2) require that "[p]romises to make firm offers, or to negate oral modifications, must be `separately signed.'" Id. (quoting U.C.C. §§ 2-205, 2-209(2)). The absence of any specific provision, in the UCC, addressing shrink-wrap terms indicated, to the appeals court, that they did not have to be presented with any special prominence. Id. "These special provisos reinforce the impression that, so far as the UCC is concerned, other terms may be as inconspicuous as the forum-selection clause on the back of the cruise ship ticket in Carnival Lines." Id. The court went on to note that "Zeidenberg has not located any Wisconsin case--for that matter, any case in any state--holding that under the UCC the ordinary terms found in shrink-wrap licenses require any special prominence, or otherwise are to be undercut rather than enforced." Id. This is an interesting observation by the appeals court in that they themselves made specific mention of how few cases, to date, have addressed shrink-wrap licenses. See id. at 1452.
236. See id. at 1452.
237. See id. at 1453.
238. Id. ("Terms of [the shrink-wrap license] are no less a part of 'the product' than are the size of the database and the speed with which the software compiles listings.").
239. See id. at 1453 ("Competition among vendors, not judicial revision of a package's contents, is how consumers are protected in a market economy." (citing Digital Equip. Corp. v. Uniq Digital Techs., Inc., 73 F.3d 756 (7th Cir. 1996)).
240. See ProCD, 86 F.3d at 1453 ("[A]djusting terms in buyers' favor might help Matthew Zeidenberg today . . . but would lead to a response, such as higher prices, that might make consumers as a whole worse off.").
241. See id.
242. See infra notes 335-52 and accompanying text.
243. See infra notes 248-333 and accompanying text.
244. Zeidenberg was a graduate student in computer science. See supra note 138 and accompanying text. The practice of selling software contingent on a shrink-wrap license is almost universal. See supra note 29 and accompanying text; see also Ronald L. Johnson & Allen R. Grogan, Trade Secret Protection for Mass Distributed Software, 11 The Computer Lawyer, Nov. 1994, at 9, 9 (noting that anyone with computer skills sufficient to reverse engineer a software program would be aware of the existence of shrink-wrap licenses, and their prohibitions against such activity). While Zeidenberg is not alleged to have reverse engineered ProCD's software, he did design his own software. See ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 649 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996). That he had this skill level would support the presumption that he would also be aware of the common use of shrink-wrap licenses.
245. See Brief for Appellant, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139); Brief for Appellee, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139).
246. In other contexts, courts have noted that allowing hidden terms to have effect violates the goals of the UCC, specifically as to unconscionability. See Thomas A. Diamond & Howard Foss, Proposed Standards for Evaluating When the Covenant of Good Faith and Fair Dealing Has Been Violated: A Framework for Resolving the Mystery, 47 Hastings L.J. 585, 623 n.175 (1996) (noting that for the procedural prong of unconscionability, the element of surprise can be determinative). "Surprise exists when a term is hidden so that a party is denied a reasonable opportunity to be aware of the term's inclusion in the contract." Id.
247. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996).
248. See supra notes 260-80 and accompanying text. Generally, this is the same conclusion reached by the district court. See ProCD, 908 F. Supp. at 652.
249. See ProCD, 86 F.3d at 1452.
250. Id.
251. See id. at 1452-53.
252. See id. at 1452; see also U.C.C. § 2-204 (1) (1996) ("A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.").
253. See ProCD, 908 F. Supp. at 650-55; ProCD, 86 F.3d at 1452-53.
254. U.C.C. § 2-204 (1996).
255. See James J. White & Robert S. Summers, Uniform Commercial Code 4-5 (4th ed. 1995).
256. "The Code does not define 'offer' and courts must resort to extra-Code contract law via 1-103 to determine if a party has made an offer." Id. at 26.
257. See id.
258. Restatement (Second) of Contracts § 24 (1981).
259. See U.C.C. § 2-206 (1996).
260. ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 652 (W.D. Wis. 1996) (citing Peeters v. State, 142 N.W. 181 (1913)), rev'd, 86 F.3d 1447 (7th Cir. 1996).
261. See McQuiston v. K-Mart Corp., 796 F.2d 1346, 1348 (11th Cir. 1986) (holding that the sale of a cookie jar in a retail store had not been completed at time of injury, where the customer lacked the intent to purchase). The McQuiston court noted that "placing goods on a shelf in a self-service store for customer inspection and selection constitutes an offer to sell such goods at the stated price, and the customer's act of taking physical possession of the goods with intent to pay for them constitutes a reasonable mode of acceptance, so as to form a `contract for sale.'" Id.; Fender v. Colonial Stores, 225 S.E.2d 691, 693-94 (Ga. App. 1976) (holding that, in a personal injury action stemming from an explosion of a soda bottle, the sales contract can come into being even prior to tender of payment). "[T]he retailer's act of placing the bottles on the shelf with the price stamped upon them manifested an intent to offer them for sale, the terms of the offer being that it would pass title to the customer when they were presented at the check-out counter and paid for." Id. at 693. The court went on to note, "the . . . act of taking physical possession of the goods with the intent to purchase them manifested an intent to accept the offer . . . ." Id. at 693-94; Steinberg v. Chicago Med. Sch., 371 N.E.2d 634 (Ill. 1977). In a fact pattern unrelated to the case at hand it was observed, in dicta, "[o]nly when the merchant takes the money is there an acceptance of the offer to purchase." Id. at 639; Sheeskin v. Giant Food, 318 A.2d 874, 882 (Md. Ct. Spec. App. 1974) ("[T]he retailer's act of placing the bottles upon the shelf with the price stamped upon the six-pack in which they were contained manifested an intent to offer them for sale, the terms of the offer being that it would pass title to the goods when [the buyer] presented them at the check-out counter and paid the stated price in cash."); Barker v. Allied Supermarket, 596 P.2d 870, 873 (Okla. 1979) ("[T]he only reasonable manner in which a customer of a self-service establishment can accept the store's offer is by taking the goods into his possession."); Connecticut v. Boyd, 260 A.2d 618, 622 (Conn. Cir. Ct. App. Div. 1969) ("Goods offered for sale on the shelves of a self-service store are not accepted, so as to create a contract of sale, until the goods are paid for at the cashier's counter."; see also Joseph M. Perillo, 1 Corbin on Contracts § 2.7, at 130 (1993) ("The customer has the irrevocable power to create a contract at the check-out.").
262. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996); ProCD, 908 F. Supp. at 651-52.
263. See 1 Arthur L. Corbin, Corbin on Contracts § 25, at 75 (1963); Restatement (Second) of Contracts § 26 cmt. B (1981).
264. ProCD, 83 F.3d at 1452.
265. See id.
266. U.C.C. § 2-206(1)(a) (1996) (emphasis added).
267. Id. at cmt. pt. 1 (1996) (emphasis added).
268. See, e.g., Carlill v. Carbolic Smoke Ball Co., 1 QB 256 (1893) (acceptance achieved when Carlill used the "carbolic smoke ball" daily for the set time period stated in the "offer").
269. See Michael A. Stiegel & Debra J. Williams, Offer, Acceptance and Consideration Under Article 2, in Basic UCC Skills 1990: Article 2, at 70 (P.L.I. Commercial Law and Practice Course Handbook Series No. 540, 1990).
270. See U.C.C. § 2-206(a)(1) (1996).
271. Restatement (Second) of Contracts § 30 (1981).
272. See ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 654 (W.D. Wis. 1996) ("The sole reference to the user agreement was a disclosure in small print at the bottom of the package, stating that the defendants were subject to the terms and conditions of the enclosed license agreement."), rev'd, 86 F.3d 1447 (7th Cir. 1996).
273. See Moore & Hadden, supra note 227, at 7 (noting the difficulty of characterizing something that is so universally seen as making a sale as a license):
A problem with attempting to characterize traditional software transfers as licenses is that they look so much like sales. `Transferees' enter stores with money and come out with bags of goods. Though the goods include a piece of paper assuring the transferee that he did not actually buy anything, such a discordant claim is unlikely in many cases to convince either the `purchaser' (assuming he even reads it) or the courts.Id.
274. Websters New World Dictionary 19 (2d ed. 1987).
275. U.C.C. § 2-206, cmt., pt. 1 (1996).
276. See Black's Law Dictionary 250 (6th ed. 1990) (defining clear, in part, as "obvious," "perspicuous," and "evident"); Webster's New World Dictionary 115 (2d ed. 1987) (defining clear, in part, as "easily seen," "not obscure," and "obvious").
277. See supra notes 272-74 and accompanying text.
278. U.C.C. § 2-206(1)(a) (1996).
279. See supra notes 260-63 and accompanying text.
280. See supra notes 260-79 and accompanying text.
281. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996).
282. See id. at 1450-51; see also ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 654 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996).
283. This was the logic of the Arizona Retail court. See Arizona Retail Sys. v. Software Link, 831 F. Supp. 759, 763-65 (D. Ariz. 1993). In that transaction, the sale took place prior to the purchaser being presented with the license. See id. Given that, the court held the license unenforceable. See id.
284. See ProCD, 908 F. Supp. at 654.
285. See supra notes 260-79 and accompanying text.
286. See ProCD, 908 F. Supp. at 644-45. Instead of purchasing a copy of Select Phone, the license tells the consumer he just purchased a license to use the software. See id.
287. See id. at 654 (noting that notice of the license on the Select Phone box is only in one place and in small print).
288. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1453 (7th Cir. 1996).
289. See id.
290. Id. (quoting U.C.C. §§ 2-316(2), 2-205, 2-209(2)) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 587-88 (1991)). The appeals court, in ProCD, used Carnival Lines to support the proposition that certain contract terms can be inconspicuous. See id. A reading of Carnival Lines shows this to be a faulty use of precedent by the appeals court. Carnival Lines dealt with a challenge to the enforceability of a forum selection clause contained in a ticket for a seven day cruise. See Carnival Lines, Inc. v. Shute, 499 U.S. 585, 587 (1991). The clause stated that any conflicts between the cruise line and the customer would be resolved in a Florida court, where the cruise company was based. See id. Mrs. Shute was injured while on the cruise, and brought a personal injury action in federal district court in her home state of Washington. See id. at 588. The United States Supreme Court found the forum selection clause enforceable. See id. at 597. A critical fact was that the consumers in Carnival Lines had notice of the clause prior to contract formation. See id. at 590 ("[W]e do not address the question whether respondents had sufficient notice of the forum clause before entering the contract for passage. [The Shutes] essentially have conceded that they had notice of the forum-selection provision.").
Because they had actual notice of the presence of the term, whether it was conspicuous would be irrelevant. See, e.g., U.C.C. § 2-316 cmt. 1 (1996) (noting that the requirement of conspicuousness for any waiver of the warranty of merchantability is designed to "protect the buyer from surprise"). In Carnival Lines, notice was printed on the front of each ticket in all capitals and partially in bold, instructing customers to read the rest of the contract that was printed elsewhere on the ticket. See id. at 587. The Select Phone box, by comparison, only provides notice of the license in small print, on the bottom of the box. See ProCD, 908 F. Supp. at 654. In fact, had ProCD placed notice of the license in a position as prominent as that used in Carnival Lines, consumers would have no reasonable grounds to argue they were not aware of it prior to the sale. Given this, Carnival Lines provides better precedent for Zeidenberg's position than for that of ProCD.
291. See infra notes 292-333 and accompanying text.
292. U.C.C. § 2-316 (1996).
293. See id.
294. ProCD, 86 F.3d at 1453.
295. See id.
296. See infra note 297 and accompanying text.
297. See U.C.C. § 2-316(3)(a) (1996) ("[U]nless the circumstances indicate otherwise, all implied warranties are excluded by expressions like `as is,' `with all faults,' or other language . . . .").
298. See id.
299. See supra notes 280-90 and accompanying text.
300. 268 A.2d. 345 (N.J. Super. Ct. 1970).
301. See id. at 346.
302. See id.
303. See id.
304. See id.
305. See id. at 348-50.
306. Gindy, 268 A.2d. at 353.
307. Id. at 351.
308. See Fernandez v. Western R.R. Builders, 736 P.2d 1361, 1363 (Idaho Ct. App. 1987).
309. See id. at 1362.
310. See id. at 1363.
311. See id.
312. See id. at 1361.
313. Id. at 1364.
314. See Fernandez, 736 P.2d at 1362.
315. See id.
316. Id. at 1364 (quoting Idaho Code § 28-2-316(3)(a) (1986)).
317. See infra notes 328-42 and accompanying text.
318. U.C.C. § 2-719 (1996).
319. See id.
320. Id. § 2-719 cmt., pt. 1.
321. U.C.C. § 2-719 (1996).
322. See Frank's Maintenance & Eng'g, Inc. v. C.A. Roberts Co., 408 N.E.2d 409, 410 (Ill. App. Ct. 1980).
323. Adams v. American Cyanamid Co., 498 N.W.2d 577, 588 (Neb. App. Ct. 1992).
324. See id. at 581.
325. See id. at 588.
326. Id.
327. Id. The court reasoned that a limitation of remedy relates to "the same subject matter" as disclaimers of the warranty of merchantability. See id. From this premise the court reasoned that the same requirement of conspicuousness, that is called for when disclaiming the warranty of merchantability, should be read into U.C.C. § 2-719. See id. at 588. But see Apex Supply Co. v. Benbow Indus., Inc., 376 S.E.2d 694 (Ga. App. Ct. 1988).
328. See supra notes 292-327 and accompanying text.
329. See Gindy Manufacturing Corp. v. Cardinale Trucking Corp., 268 A.2d. 345, 351 (N.J. Super. Ct. 1970).
330. U.C.C. § 2-316 cmt., pt. 1 (1996).
331. See Johnson, supra note 244, at 9 (contrasting the different expectations of the "unsophisticated consumer[]" and one schooled in software).
332. See Arizona Retail Sys. v. Software Link, 831 F. Supp. 759, 761 (D. Ariz. 1993).
333. See supra notes 317-27 and accompanying text.
334. See supra notes 249-333 and accompanying text.
335. See infra notes 337-52 and accompanying text.
336. See infra notes 337-52 and accompanying text.
337. See supra note 244 and accompanying text.
338. See supra note 29 and accompanying text.
339. U.C.C. § 1-205(2) (1996) (emphasis added).
340. Id. § 1-205(3).
341. See supra note 29 and accompanying text for discussion of universal practice of attaching license language via a shrink-wrap license.
342. U.C.C. § 1-205(3) (1996).
343. See supra notes 138-48 and accompanying text for a discussion of this issue.
344. U.C.C. § 1-205(2) (1996).
345. See supra note 244 and accompanying text.
346. In fact, this author personally went to a large office supply store and examined the Select Phone product. On the bottom of the box is notice of the license agreement. See ProCD Box (1996 edition). This notice reads, in part: "Both the software and data listings are subject to the terms and conditions of the enclosed license agreement which is part of this product and printed in full in the enclosed User Guide. Please fully read the license agreement, and if you disagree with any of its terms and conditions, do not accept this product." Id. The top of the box has a clear piece of tape holding it closed, however, the bottom of the box is not taped or glued closed, and can easily be opened. The author took the box to the store manager, asked and was given permission to open the box, read and was even able to photocopy the full license agreement. Thus, a consumer with reason to know of the presence of the license who elects to take a pro-active role would be able to make themselves aware of the licenses, and if they disapprove of it, simply not buy the product. The box containing the copy Zeidenberg purchased was also available to be opened. "The box was not covered with cellophane or wrapping, or glued or taped, and nothing prevented pre-purchase inspection of its contents." Brief for Appellant at 33 n.15, ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139).
347. Brief for Appellees at 21, ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (No. 96-1139).
348. See supra notes 346-47 and accompanying text.
349. ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640, 654 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996).
350. Arizona Retail Sys. v. Software Link, 831 F. Supp. 759 (D. Ariz. 1993).
351. ProCD, 908 F. Supp. at 654 (citing McCrimmon v. Tandy Corp., 414 S.E.2d 15 (Ga. App. Ct. 1991)).
352. See supra note 346 and accompanying text.
353. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
354. See id. at 1450.
355. See supra note 273 and accompanying text.
356. Arizona Retail Sys. v. Software Link, 831 F. Supp. 759, 766 (D. Ariz. 1993).
*     This Comment is dedicated to my loving wife, Beth, who somehow managed to put up with me throughout this process. Thanks.
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