BINDING ACCEPTANCE OF MASS MARKET SOFTWARE LICENSES UNDER PROPOSED UCC ARTICLE 2B
(1998)

The Uniform Commercial Code ("UCC"), which governs a wide variety of commercial transactions, is continuously monitored by several groups -- including the National Conference of Commissioners on Uniform State Laws ("NCCUSL"), the American Law Institute and the American Bar Association --whose task is to ensure that the UCC remains relevant to modern commercial practice. In 1991, these groups decided that shifts in the U.S. economy (from a goods-based to a service-based model) merited revisions to UCC Article 2, which covers the sale of goods. As part of the revisions, it was decided that separate provisions should govern the treatment of software as many central elements of the current UCC model -- elements such as mode of delivery and transfer of title -- are irrelevant in the context of software licensing. Dean Raymond F. Nimmer is the Reporter assigned to this project and is the principal drafter of the provisions governing software. These provisions, upon final approval of the NCCUSL and the American Law Institute, will become codified as the proposed UCC Article 2B, and will then be proposed for adoption by the various states. Provisions relating to mass market licenses are of central importance to manufacturers of software and providers of Internet-based information or services. Shrink-wrap agreements, a form of mass market licenses, have twice been held enforceable by the Seventh Circuit. In addition, in Hotmail Corp. v. Van Money Pie, Inc., the U.S. District Court for the Northern District of California (Ninth Circuit) ruled, on a motion for preliminary injunction, that click-wrap licenses are likely to be enforceable as well. The current draft of proposed UCC Article 2B is consistent with these holdings, and will firmly establish the legality of such agreements. Under proposed Section 2B-208, a party may find itself bound by the terms of a mass-market license (such as a shrink-wrap or click-wrap license) by manifesting assent, or presumptively agreeing to such terms, in connection with the initial use of or access to the information. Nimmer notes that, due to the relative infrequency of personal contact in electronic commerce, the drafters have chosen an objective standard of manifesting assent and have explicitly rejected the notion that either mere retention of information or a failure to object can bind a party to the terms of the license. Three elements are required before the objective manifestation constitutes binding assent: (1) authority to act, (2) affirmative conduct, and (3) opportunity to review the terms. Nimmer gives the following two examples of licenses that ensure a binding manifestation of assent. The first describes an enforceable click-wrap agreement. The second describes an enforceable shrink-wrap agreement. 1. One on-line company's pre-registration information screen states:

Please read the license. Click here to review the License. If you agree to the License, indicate your agreement by clicking the "I agree" button. If you do not agree to the License, click the "I decline" button. 2. Another company provides a license which is available and readable on the outside of its product envelope containing the diskette. That license states:

OPENING THE ENVELOPE CONTAINING THE DISKETTE WILL CONSTITUTE YOUR AGREEMENT TO THE LICENSE WHICH IS CONTAINED ON THE OUTSIDE OF THE ENVELOPE. WE CALL YOUR ATTENTION SPECIFICALLY TO: Contract Term No. 5, precluding use at home, and Contract Term No. 16, imposing a $100 annual fee if you choose to use the help line. Nimmer notes that in some instances, "clear indications that a product has specific characteristics can become part of an agreement even without a formal manifestation of assent." As an example, he states that a copyrighted software package that conspicuously states "THIS PRODUCT IS LICENSED FOR CONSUMER USE ONLY" without specifying that opening the product operates as an acceptance of this term, is acceptable, because the "terms are an inherent part of the agreement." Finally, in some cases, copyright and other intellectual property notices or restrictions may constitute effective use restrictions on the product, even if there is no manifestation of assent.

Many companies licensing software are already in compliance with the mass market licensing provisions of proposed UCC Article 2B. While proposed UCC Article 2B does not yet have the force of law, it is consistent with cases already interpreting these issues and is likely to be highly persuasive on questions of binding shrink-wrap and click-wrap agreements.

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