Second Circuit Clarifies E-Commerce Contract Formation Requirements

A common concern with online terms of use and other electronic contracts is that, on their face, they do not meet all of the required elements necessary for the formation of an enforceable contract. It can be difficult to determine whether a single contract or a series of smaller contracts was formed. Questions surrounding offers, acceptance and counteroffers may complicate the analysis. These difficulties can bring into question whether there was a meeting of the minds between a company and its customer, and may open the door to questions regarding the timing of contract formation and its effect on the terms later provided.

Shrink-wrap v. Click-wrap v. Browse-wrap Contracts

Shrink-wrap contracts entered widespread use in the 1980s and 1990s. Many of the leading cases regarding contracts that contain additional terms after the purchase of the products were developed in connection with software purchases. Due to spatial limitations, the only way to include all of the terms of a contract was to separate some of the terms and enclose them within the packaging. Even though required elements of contract formation were missing such as notice of the terms, and mutual assent thereto, courts slowly came to accept shrink-wrap contracts provided that the customer was able to return the product within a reasonable period of time. In ProCD v. Zeidenberg,1 the Seventh Circuit held that Zeidenberg was bound by the terms and conditions of a software license included in a users' manual within the packaging, and which was displayed on a computer screen upon installation and use of the software. The Seventh Circuit held that "[Shrink-wrap] licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general."2

Browse-wrap contracts display the terms and conditions of a contract somewhere on a webpage but do not require the customer to acknowledge the terms. Proponents of browse-wrap contracts have argued that they are logically indistinguishable from shrink-wrap contracts insofar as additional terms are available to the customer, even if there is no actual notice and assent. However, the seminal case regarding the enforceability of such contracts in e-commerce is Specht v. Netscape Communications.3 In Specht, the Second Circuit held that downloading free software from Netscape's website without manifesting assent to the software license terms located at the bottom of the webpage did not form an enforceable contract.4 The...