How to click-wrap contracts benefit over shrink-wrap contracts

By David Callan

The concept of traditional contract law understands that for a party to be bound by the terms of the contract, a party must have first agreed to it’s terms and consequently signed it.

Since the 1980’s PC use has continued to grow by phenomenal amounts in both business and residential environments. It’s hardly surprising that software has been released at a similar pace to run on all these PC’s, more recently with the advent of the Internet software is easily available for direct download to the end-users machine.

Software companies need to protect themselves from damages claims stemming from damage caused by improper and proper use of their software by end users and profits lost by users making illegal copies of their software among other things. This is done through a contract.

It would be virtually impossible and very impractical to have the buyer of a software package to sign a traditional paper based contract relating to the software prior to purchasing it as in the IT industry software is rarely sold directly in person by the publishing company to the end-users.

Thus there needed to be some mechanism whereby the purchaser agrees to the terms of the license without actually signing on the dotted line. Enter shrink-wrap and click-wrap contracts.

Shrink-wrap contracts, the earlier of the two are the terms and conditions that accompany software distributed in a retail computer store. Shrink-wrap contracts usually read something like “By opening the packaging on this box you agree to the terms and conditions of the license.” The terms and conditions of the license are more often than not located inside the box.

Click-wrap contracts were developed in response to the massive growth of the Internet and Internet technology. A party enters into a click-wrap contract when they click the “I agree” or “I accept” button which are preceded by terms and conditions. Examples of where click-wrap contracts can be regularly seen include before you download software, before you book an airline ticket online, before you download music and many more.

Both shrink-wrap and click-wrap contracts have their advantages and disadvantages for the consumer and the company offering the terms and conditions themselves. This report focuses however on the advantages of click-wrap contracts over shrink-wrap contracts and hence I will now continue to discuss this.

The main advantage of click-wrap contracts over shrink-wrap contracts to me seems to be the fact that with click-wrap contracts you’re given a clear opportunity to read through the terms and conditions of the contract before you agree to them. With shrink-wrap contracts the fundamental problem is that the consumer doesn’t get to know the key terms of the contract until they open the box, by which point it is often too late to get the money back for the software product.

In traditional contract law, the parties have to come to a ‘meeting of the minds’ over key terms of the contract agreement. With this in mind Mark Lemley an intellectual property professor at the University of Texas school of law said:

“software licences change that assumption by saying that when you take the software home and you take it out of the box, you agree to a whole host of other terms that you didn’t agree to at the store.”

Should these “other terms” as Lemley puts it be allowed to extend the contract between the consumer and the retailer? or do these extra terms in fact create a whole new contract altogether in which case the question of does breaking open a box containing software have the same legal force as a written signature on a negotiated document? has to be raised. Well it is these questions that bring us to another advantage of click-wrap contracts over shrink-wrap contracts.

Click-wrap contracts are more enforceable than shrink-wrap contracts thus offering the software company more peace of mind. Shrink-wrap contracts have questionable enforceability. Although it is true to say that shrink-wrap contracts are gaining wide acceptance, this lack of full legal acceptance is seen as a worrying fact for software companies that want to precisely control the terms and conditions for use, limitation of liabilities and warranties and warranty disclaimers of software for their protection.

Click-wrap contracts on the other hand have gained almost universal acceptance as law binding contracts. The reason behind this is that with click-wrap contracts you cannot proceed unless you click the “I agree” or “I accept” button, if you don’t acknowledge your agreement to the terms and conditions set in front of you by pressing one of these buttons then you cannot proceed to use the downloaded software, downloaded music, you cannot book that €18 flight to Glasgow for the Celtic match with ryanair.com or can’t do or use any other of the things you might expect to be protected by a click-wrap contract.

If on the other hand you do agree with the terms and conditions and click on the appropriate button, the law will say that you had time to read the contract, the chance to reject the contract but you clearly have agreed to it and so are legally bound by the same.

It’s not all rosy for click-wrap contracts though as along with shrink-wrap contracts, they are often referred to as adhesion contracts, whereby one party has no ability to bargain with the other. This can lead to terms and conditions, which seem very restrictive and unfair to the consumer. However it is these restrictive terms and conditions which enable software to be sold at comparatively cheap prices as if software companies had to assume the risk of the possible consequences that end-users might face, they would have to charge far greater amounts for their products in order to make the assumption of that risk financially prudent.

In closing I would have to say that neither shrink-wrap nor click-wrap contracts are fully ideal for either the consumer or for businesses wishing to sell software or other intangible products online. Of the two however click-wrap is the superior, this is due mainly to the ‘fairness’ it offers consumers in the ability to view the terms first and also because of the level of enforcement click-wrap contracts have achieved in the courts, albeit US based.

Sources: Mark Lemley – UT School of Law