ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, August 16, 2006

Lemley on Terms of Use

Aaa_63 One of the hottest topics in contract law these days is the rise of new forms of mass-market contracts.  These include "shrinkwrap" (contract terms included inside a closed box), "clickwrap" (those screens that require you to click "I agree" to various terms), and "browsewrap" (terms put on a web site that you don't actually have to click to agree with).

These practices are controversial, with proponents pointing out that they streamline transactions and allow businesses to better control their liabilities, while opponents point out the dangers of oppressive terms that can be hidden from the buyer.

Mark Lemley (Stanford) has written about this stuff before, but he has a new piece, Terms of Use, in which he takes a wide view and offers some potential solutions.  Click on "continue reading" for the abstract.

[Frank Snyder]


Electronic contracting has experienced a sea change in the last decade. Ten years ago, courts required affirmative evidence of agreement to form a contract. No court had enforced a "shrinkwrap" license, much less treated a unilateral statement of preferences as a binding agreement. Today, by contrast, it seems widely (though not universally) accepted that if you write a document and call it a contract, courts will enforce it as a contract even if no one agrees to it. Every court to consider the issue has found "clickwrap" licenses, in which a user clicks "I agree" to standard form terms, enforceable. A majority of courts in the last ten years have enforced shrinkwrap licenses, on the theory that people agree to the terms by using the software they have already purchased. Finally, and more recently, an increasing number of courts have enforced "browsewrap" licenses, in which the user does not see the contract at all but in which the license terms provide that using a Web site constitutes agreement to a contract whether the user knows it or not. Collectively, we can call these agreements "terms of use" because they control (or purport to control) the circumstances under which buyers of software or visitors to a public Web site can make use of that software or site.

The rise of terms of use has drawn a great deal of attention because of the mass-market nature of the resulting agreements. Terms of use are drafted with consumers or other small end users in mind. Commentators - myself among them - have focused on the impact of this new form of contract on consumers. But in the long run they may have their most significant impact not on consumers but on businesses. The law has paid some attention to the impact of terms of use on consumers. Virtually all of the cases that have refused to enforce a browsewrap license have done so in order to protect consumers; conversely, virtually all the cases that have enforced browsewrap licenses have done so against a commercial entity. And shrinkwrap and clickwrap cases, while enforcing some contracts against consumers, have protected those consumers against certain clauses considered unreasonable. Businesses, however, are presumed to know what they are doing when they access another company's Web site, so courts are more likely to bind them to that site's terms of use. Sophisticated economic entities are unlikely to persuade a court that a term is unconscionable. And because employees are agents whose acts bind the corporation, the proliferation of terms of use means that a large company is likely "agreeing" to dozens or even hundreds of different contracts every day, merely by using the Internet. And because no one ever reads those terms of use, those multiple contracts are likely to have a variety of different terms that create obligations inconsistent with each other and with the company's own terms of use.

We have faced a situation like this before, decades ago. As business-to-business commerce became more common in the middle of the 20th Century, companies began putting standard contract terms on the back of their purchase orders and shipment invoices. When each side to a contract used such a form, courts had to confront the question of whose form controlled. After unsuccessful judicial experimentation with a variety of rules, the Uniform Commercial Code resolved this "battle of the forms" by adopting a compromise under which if the terms conflicted, neither party's terms became part of the contract unless the party demonstrated its willingness to forego the deal over it. Rather, the default rules of contract law applied where the parties' standard forms disagreed, but where neither party in fact insisted on those terms.

I have three goals in this paper. First, I explain how courts came to enforce browsewrap licenses, at least in some cases. Second, I suggest that if browsewraps are to be enforceable at all, enforcement should be limited to the context in which it has so far occurred - against sophisticated commercial entities who are repeat players. Finally, I argue that even in that context the enforcement of browsewraps creates problems for common practice that need to be solved. Business-to-business (b2b) terms of use are the modern equivalent of the battle of the forms. We need a parallel solution to this "battle of the terms." In Part I, I describe the development of the law to the point where assent is no longer even a nominal element of a contract. In Part II, I explain how the recent decisions concerning browsewrap licenses likely bind businesses but not consumers, and the problems that will create for commercial litigation. Finally, in Part III, I discuss possible ways to solve this coming problem and some broader implications the problem may have for browsewrap licenses generally.

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