Internet Contracts Project

This website is dedicated to compiling sources on internet contracts and issues related to contracting through the internet. Most ligation has focused on contract formation and the acceptance portion of the contract. On this website there will be links to these cases, secondary sources, and discussion of future contracts.

Click Here for the development of Shrink-wrap, Browse-wrap, and Click-wrap agreements as they relate to internet contracts.

Shrink-Wrap Agreements

When translating contract concepts to a new factual background we encounter questions that courts have not yet answered. Internet contracts first encountered issues with Shrink-Wrap agreements for software, in which the entire license agreement was printed on the outside of the box.

This resulted in litigation starting with ProCD v. Zeidenberg in 1996, Click Here for the Full Case Text. In this case, Zeidenberg purchased a non-commercial copy of a database and published the database online. In this case the court ruled that by using the software and clicking through the software terms once accessed, Zeidenberg agreed to the terms and therefore was liable for the breach of contract. “Licenses may have other benefits for consumers: many licenses permit users to make extra copies, to use the software on multiple computers, even to incorporate the software into the user’s products. But whether a particular license is generous or restrictive, a simple two-party contract is not “equivalent to any of the exclusive rights within the general scope of copyright” and therefore may be enforced.”

Further shrink-wrap cases focused on whether copying or reverse engineering violated the terms of a contract. Most notably in Bowers v. Baystate Technologies in 2003, Click Here for the Full Case Text. In this case, Baystate filed for a declaratory injunction declaring that a patent Bowers held was invalid, unenforceable, and that Baystates software did not violate Bowers patent. The court found through evidence that the similarities in their software led them to believe Baystate had reverse engineered the software. Therefore, they had breached the shrink-wrap agreement of Bowers software by reverse-engineering. “The record amply supports the jury’s finding of a breach of that agreement.  As discussed above, the district court erred in instructing the jury that copyright law limited the scope of Mr. Bowers’ contract protection. Notwithstanding that error, this court may affirm the jury’s breach of contract verdict if substantial record evidence would permit a reasonable jury to find in favor of Mr. Bowers based on a correct understanding of the law. ”

For more information on Shrink-Wrap Agreements see these sources.


Browse-Wrap Agreements

Some internet groups and websites have tried instilling agreements to terms and conditions simply by browsing through a website. Terms and conditions are usually noted and notice is given that by using the site you agree to the terms etc.

In 2000, we saw the first phase of litigation on this subject with Ticketmaster v. Click Here for Full Case Text. This case was mostly an argument about deep-linking on web-pages. One of the arguments Ticketmaster made against was that the deep-linking by violated the terms of use of the website. The court ruled that this argument was not valid as the terms of use were not displayed openly so that could view them.

Litigation continued in 2002, in Specht v. Netscape Communications. Click Here for the Full Case Text.  In this case Netscape brought suit against Specht for a download plug-in for Netscape Browser. Netscape wanted to compel arbitration as specified in the End-User License Agreement. The problem was that these terms were not explicitly stated, and Netscape was arguing that by downloading the program that Specht agreed to these terms. The court ruled that just downloading did not manifest assent well enough to count as agreement. So the arbitration agreement was not enforceable.

Connected to this was the litigation in in Re Zappos Inc.  Click Here for Full Case Text. In this case Zappos were victims of a data breach and were subsequently sued by users whos data was lost. The court in this case ruled that the terms were not presented in a prominent enough place for  a browse-wrap agreement to be binding.

In the most recent case a court ruled that even prominent hyperlinks were not enough to enforce a browse-wrap agreement. In Nguyen v. Barnes & Noble, Click Here for Full Case Text, Nguyen purchased multiple tablets from Barnes & Noble in a sale, Barnes & Noble subsequently cancelled the sale. Nguyen and others filed a class action lawsuit alleging deceptive advertising. Barnes & Noble wanted to enforce an arbitration clause in the terms and conditions which were linked on every page of the website. The court ruled that even though the links were clear and explained what they were they did not constitute enough for the user to assent to those terms.

For more sources on Browse-Wrap Agreements see these links.


Click-Wrap Agreements

The final type of agreement to discuss are click-wrap agreements which are now fairly common for terms of use and end user license agreements. These agreements require that the user click something acknowledging they were presented with the terms of use and that they agree to them. This has spawned litigation about various terms within these contracts but courts will enforce these contracts at times.

One of the most descriptive cases of these decisions was the Combs v. Paypal case. Click Here for Full Case Text. In this case Paypal required that users click through their user agreement which contained various clauses. In this case the court ruled that while the user did assent to be bound by the contract, the contract taken as a whole was unconscionable. So Paypal could not compel arbitration because the contract was not enforceable. The takeaway being that the court will still assess the contract for being unconscionable.

In a case where the court upheld the contract, Feldman v. Google, Click Here for Full Case Text, the court found that a forum selection clause was enforceable as the plaintiff assented to the terms. It was therefore reasonable to assume he saw the terms and agreed to the terms. The court said unless the plaintiff could prove fraud or deception in the terms than most of the terms would be enforceable.

See these cases for more litigation over click-wrap agreements.

In re RealNetworks, Inc. Privacy Litigation, No. No. 00-1366, 2000 WL 631341 (D. Ill. May 8, 2000) (upholding an arbitration clause)

Hotmail Corp. v. Van$ Money Pie, No. 98-20064, 1998 WL 388389 (N.D. Cal. Apr. 16, 1998) (granting preliminary injunction for alleged breach of contract for violating the terms of service by using a Hotmail account to send spam or pornography). The court said that clicking the clickwrap button after notice gave consent.

I. Lan Sys., Inc. v. Netscout Serv. Level Corp., 183 F. Supp. 2d 328, 336 (D. Mass. 2002) (upholding a clickwrap agreement on two grounds: first, clickwrap is simply “Money now, terms later” contract formation; second, the court found that the “additional terms” of the clickwrap license was not material under UCC (§207(2)(b)).

Caspi v. Microsoft, LLC, held a forum selection clause in an online membership agreement was consented to when the user clicked the “I agree” symbol of the agreement in order to proceed with registration.

In A.V., et al. v iParadigms, LLC, Judge Claude M. Hilton granted summary judgment on the students’ complaint in favor of iParadigms/Turnitin, because they had accepted the click-wrap agreement on the Turnitin website.

Scarella v. America Online, forum selection clause accepted but not enforced as matter of public policy.”


For more information on Click-Wrap Agreements see these sources.


Other Internet Contract Litigation and Issues

There has been other internet contract litigation apart from litigating the agreement portion of contract formation. In a fascinating case the court had to determine whether instant messaging online could modify the terms of a contract. In CX Digital v Smoking Everywhere, Click Here for Full Case Text, these companies agreed to a marketing contract where Smoking Everywhere would pay CX Digital for every sale they would make after a marketing campaign. In an instant message conversation representatives agreed to change a restriction on invoicing. The court ruled that this agreement was enforceable after the instant messages.

Additionally, some have pushed the the boundaries of prosecution. In the Wiseguys Tickets Litigation, Click Here for Full Case Text, Wiseguys were charged with breaking the Captcha on multiple websites in order to buy tickets for their scalping business. The Captcha was part of the agreement to use the sites which sold the tickets. Prosecutors argued that by breaking these parts of the agreement this company violated federal laws preventing electronic intrusion and hacking.

Another issue regarding internet contracts is  e-signatures. Electronic signatures or e-signatures are the process which people use to sign contracts online. For the law in the United States Click Here or Click Here.

For more information on e-signatures see these sources.


Smart Contracts and the Future of Internet Contracts

Smart Contracts were proposed by Nick Szabo in a 1996 paper, some have speculated that Szabo was part of the creation of the first blockchain currency, Bitcoin. To see the full paper on smart contracts Click Here.  The idea behind the creation of smart contracts was that many provisions in a contract might be self-executing, and that a smart contract could be designed to self-enforce provisions. This would reduce transactions costs as people will be protected and can trust the system.

In recent times Ethereum has created a system for smart contracts, “Like many ideas in the blockchain industry, a general confusion shrouds so called ‘smart contracts’. A new technology made possible by public blockchains, smart contracts are difficult to understand because the term partly confuses the core interaction described. While a standard contract outlines the terms of a relationship (usually one enforceable by law), a smart contract enforces a relationship with cryptographic code. Put differently, smart contracts are programs that execute exactly as they are set up to by their creators.” (How do Ethereum Contracts Work?). To read more about the Ethereum project visit their website, Click Here.

While it is impossible for smart contracts to fully replace lawyers in all contracting scenarios people definitely have a reason to be excited.

For more information on Smart Contracts see these sources.