Specht v. Netscape Communications Corp.

Nature of the Case

This was an appeal by Netscape (D) from a denial of a motion to compel arbitration pursuant to a license agreement on software it allowed to be downloaded from the web.

Facts

Specht (Ps) brought suit, individually and on behalf of all others similarly situated, against Netscape (D) alleging that a plug-in software program available free on its website invaded the plaintiffs’ privacy by transmitting personal information to the software provider when the plug-in program was used to browse the Internet. The plaintiffs alleged that when they first used Netscape’s Communicator software the program created and stored on each of their computer hard drives a small text file known as a ‘cookie’ that functioned as a kind of electronic identification tag for future communications between their computers and the defendant. The plaintiffs further alleged that when they installed SmartDownload-a separate software plug-in that served to enhance Communicator’s browsing capabilities-the program created and stored on their computer hard drives another string of characters, known as a ‘Key,’ which similarly functioned as an identification tag in future communications with the defendant.

Each time a computer user employed Communicator to download a file from the Internet, SmartDownload assumed from Communicator the task of downloading the file and transmitted to Netscaps the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload. Plaintiffs claim that these processes constituted unlawful eavesdropping on users of Netscape’s software products as well as on Internet websites from which users employing SmartDownload downloaded files.

Plaintiffs acknowledge that when they proceeded to initiate installation of Communicator, they were automatically shown a scrollable text of that program’s license agreement and were not permitted to complete the installation until they had clicked on a ‘Yes’ button to indicate that they accepted all the license terms. If a user attempted to install Communicator without clicking ‘Yes,’ the installation would be aborted. Plaintiffs expressly agreed to Communicator’s license terms by clicking ‘Yes.’ The Communicator license agreement that these plaintiffs saw made no mention of SmartDownload or other plug-in programs, and stated that the terms apply to Netscape Communicator and Netscape Navigator and that all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights) are subject to binding arbitration in Santa Clara County, California.

Netscape moved to compel arbitration under the license agreements. pursuant to the Federal Arbitration Act (‘FAA’), 9 U.S.C. § 4, arguing that the disputes reflected in the complaints, like any other dispute relating to the SmartDownload license agreement, are subject to the arbitration clause contained in that agreement. The trial court found that Netscape’s webpage, unlike typical examples of clickwrap, neither adequately alerted users to the existence of SmartDownload’s license terms nor required users unambiguously to manifest assent to those terms as a condition of downloading the product, the court held that the user plaintiffs had not entered into the SmartDownload license agreement. The district court also ruled that the separate license agreement governing use of Communicator, even though the plaintiffs had assented to its terms, involved an independent transaction that made no mention of SmartDownload and so did not bind plaintiffs to arbitrate their claims relating to SmartDownload. Netscape appealed.

Issues

  1. Does the act of downloading software indicate assent to be bound by terms of license agreement, where a link to such terms appears on, but below that portion of the web page that appears on the user’s screen when such downloading is accomplished?
  2. Is downloading in the absence of conspicuous terms an act that binds plaintiffs to those terms?

Holding and Rule of Law

  1. No. The act of downloading software does not indicate assent to be bound by terms of license agreement, where a link to such terms appears on, but below that portion of the web page that appears on the user’s screen when such downloading is accomplished.
  2. No. Downloading in the absence of conspicuous terms is not an act that binds plaintiffs to those terms.

A transaction, in order to be a contract, requires a manifestation of agreement between the parties. Clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking would signify assent to those terms. Conduct of a party is not effective as a manifestation of assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.

California’s common law is clear that an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.

Disposition

Affirmed.


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