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Specht v. Netscape Communs. Corp. - 150 F. Supp. 2d 585 (S.D.N.Y. 2001)

Rule:

California courts carefully limit the circumstances under which a party may be bound to a contract. An offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious. This principle of knowing consent applies with particular force to provisions for arbitration.

Facts:

Computer users and website provider filed an action against the defendants, software vendor and its parent corporation, for violating the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act, alleging that usage of the vendor's download software transmitted to the vendor and parent private information about the user's file transfer activity on the Internet, effecting unlawful electronic surveillance. The vendor and parent moved to compel arbitration and stay the proceedings based on the arbitration clause contained in the license agreement.

Issue:

Can a license agreement, made independently of freely offered software and not expressly accepted by a user, bind the user to the arbitration clause contained in the license agreement? 

Answer:

No

Conclusion:

The court denied the vendor's and parent's motion to compel arbitration. The court found that the software allowed a user to download and use it without taking any action that plainly manifested assent to the terms of the associated license or indicated an understanding that a contract was being formed. The mere act of downloading was not an indication of assent. The primary purpose of downloading was to obtain a product, not to assent to an agreement. Unlike the user in the case of "click-wrap" or "shrink-wrap" licenses, a user obtaining the software in question was not made aware that he was entering into a contract. Failure to require a user to indicate assent to the vendor's license as a precondition to downloading and using its software was fatal to its argument that a contract was formed.

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