Court Offers Guidance On Online License Agreements

A federal court in the Southern District of New York ruled recently in a putative class-action suit that an online license that does not require the user to expressly assent to its terms is unenforceable. The interlocutory order in Specht v. Netscape Communications Corp. arose out of efforts by the defendant's parent company, America Online, Inc., to enforce the arbitration clause of the applicable Netscape online license that accompanied the use of certain software called SmartDownload. Ruling under California law that the online license is unenforceable, the court distinguished the license from "click-wrap" licenses that require the user to click "yes" as an indication of assent to the license's terms. The court rejected Netscape's argument that users indicated their assent to the license terms by downloading the software.

"This decision followed a highly fact-specific inquiry and seems consistent with blackletter contract law," notes Gregory Sapire, an...