Court Strikes Down Shrink-Wrap License
By Eric S. Freibrun, Esq.
Most computer users are quite familiar
with the so-called "shrink-wrap" license agreement that comes with most software
programs for the consumer market. Well, at least most users have seen them, if not
actually strained their eyes to read their small-print terms and conditions. The
shrink-wrap license agreement purports to create a binding legal agreement (so it says)
between the software vendor and the user. The agreement is usually found inside the box
containing the software, printed on the envelope containing the CD-ROM or disks, or stated
in the user manual. At the beginning appears the usual statement warning the user not to
open the software envelope or use the software if he or she does not agree with the terms
and conditions of the agreement.
Use of this type of agreement has become
the legal licensing paradigm of the software industry for consumer mass-market software.
The term "shrink-wrap" derives from the fact that such agreements used to be
included on the outside of the software packaging, visible through the clear plastic
shrink-wrap with which the package was sealed.
But are such "shrink-wrap"
agreements enforceable against the user who breaches their terms? Notwithstanding the
softwares industrys reliance on this method of licensing and protection of
software intellectual property rights, there are few cases on the subject. Recently,
however, a federal district court in Wisconsin provided clear guidance on the
circumstances under which a shrink-wrap agreement will be held invalid and unenforceable.
ProCD, Inc. v. Zeidenberg, 908
F.Supp. 640 (W.D. Wis. 1996), involved the CD-ROM product sold under the trademark
"Select Phone." Its a listing of over 95 million telephone numbers,
bundled with the software that enables a user to access those numbers on his or her
computer, and cost ProCD millions of dollars to develop. The defendant, a computer science
Ph.D. student living in Madison, Wisconsin, purchased copies of Select Phone. He then
copied the telephone listings from the CD-ROM onto his computer, created a software search
engine, and uploaded the whole thing onto a World Wide Web site that soon generated over
20,000 hits a day. Naturally, ProCD sued, alleging copyright infringement, breach of the
express terms of the shrink-wrap license agreement, violation of Wisconsins Computer
Crimes Act, misappropriation and unfair competition. Wouldnt you?
Did Zeidenberg infringe ProCDs
claimed copyright in the telephone listings? The court said no. Relying on a U.S. Supreme
Court decisions only a few years old, Feist Publications, Inc. v. Rural Telephone
Service Co., Inc., 499 U.S. 340, the court stated that mere facts or raw data such as
telephone listings not arranged in an original manner are not entitled to copyright
protection. Because the telephone listings in ProCDs product were not arranged in an
original manner and lacked the minimal degree of creativity necessary to constitute a
copyrightable compilation of facts, they were not protectable under copyright law.
Therefore, Zeidenberg could copy the telephone listings and further distribute them from
his Web site.
Did Zeidenberg violate the terms of the
shrink-wrap license agreement, which expressly stated that copying of the software and the
data (the telephone listings) may be done only for individual or personal use and that
distribution, sublicense or lease of the software or the data was prohibited? The court
again said no. Copying of the data was clearly prohibited by the license agreement. But
the court refused to enforce the agreement. The court stated that the terms of the Select
Phone license agreement were not presented to Zeidenberg or any other purchaser at the
time of sale. The only reference to the agreement was a statement in small print at the
bottom of the package that said users were subject to the terms and conditions of the
enclosed license agreement. Zeidenberg did not have the opportunity to inspect or consider
the terms of the license. The court did not think that mere reference to the terms at the
time of the initial contract formation -- forking over payment at the check-out counter --
presented Zeidenberg with an adequate opportunity to decide whether the license terms were
acceptable or not. Zeidenberg had to have been given the opportunity to read and consider
the terms in their entirety at the time of initial contract formation, which the court
said was the time the retail transaction was consummated. Under Section 2-209 of the
Uniform Commercial Code, the court held that the license agreement terms contained inside
the Select Phone package constituted additional terms to which Zeidenberg did not agree,
nor have the opportunity to agree to, upon the initial agreement -- payment at the
check-out counter in exchange for the copy of the software. Further, the court held, even
if the agreement were enforceable, copyright law would pre-empt the provision of the
agreement prohibiting copying of the uncopyrightable telephone listings.
This case is currently on appeal before
the U.S. Court of Appeals for the Seventh Circuit. The Software Publishers Association,
the principal trade association for the personal computer software industry, has filed an
amicus curiae brief in favor of ProCD arguing that the district courts decision
should be reversed.
While the enforceability of shrink-wrap
software license agreements, as currently used by the software industry, may be dubious,
users should not by any means assume that software is freely copyable. The ProCD case
involved uncopyrightable data -- the telephone listings. Zeidenberg did not copy and
distribute ProCDs original copyrighted software search engine; he created his own.
Had he copied ProCDs software and distributed it from his Web site, he would likely
have been found liable for copyright infringement, notwithstanding the unenforceability of
the shrink-wrap agreement.
Software vendors can take away from this
decision some useful tips. Vendors may want to consider giving users the opportunity to
review their license terms and conditions by printing them on the outside of their
software packaging or otherwise making them available at retail outlets where their
products are sold. For phone orders, vendors may consider providing purchasers copies of
the license agreement in advance of consummating a transaction, or at least informing
purchasers at the time of purchase that the transaction is subject to the terms of the
This article is provided for general
informational purposes only and does not constitute legal advice. Each factual situation
is different and requires specific analysis.
Attorney Eric Freibrun specializes in
Computer law and Intellectual Property protection, providing legal services to information
technology vendors and users. Tel.: 847-562-0099; Fax: 847-562-0033; E-mail: firstname.lastname@example.org.
Copyright © Eric S. Freibrun, Esq., Law Offices of Eric S. Freibrun, Ltd. All rights