Specht v. Netscape Communications Corp.
Contents
1. Most of the cases cited by defendants in support of their inquiry notice argument are drawn from the world of paper contracting See e g Taussig v Bode amp Haslett 134 Cal 260 66 P 259 1901 where party had opportunity to read leakage disclaimer printed on warehouse receipt he had duty to do so In re First Capital Life Ins Co 34 Cal App 4th 1283 1288 40 Cal Rptr 2d 816 820 1995 purchase of insurance policy after opportunity to read and understand policy terms creates binding agreement King v Larsen Realty Inc 121 Cal App 3d 349 356 175 Cal Rptr 226 231 1981 where realtors board manual specifying that party was required to arbitrate was readily available party was on notice that he was agreeing to mandatory arbitration Cal State Auto Ass n Inter Ins Bureau v Barrett Garages Inc 257 Cal App 2d 71 76 64 Cal Rptr 699 703 1967 recipient of airport parking claim check was bound by terms printed on claim check because a ordinarily prudent person would have been alerted to the terms Larrus v First Nat l Bank 122 Cal App 2d 884 888 266 P 2d 143 147 1954 clearly printed statement on bank card stating that depositor agreed to bank s regulations provided sufficient notice to create agreement where party had opportunity to view statement and to ask for full text of regulations but did not do so see also Hux v Butler 339 F 2d 696 700 6th Cir 1964 constructive notice found where slightest2. agreement and no questions in respect of the parties rights and obligations under it Collins amp Aikman 58 F 3d at 23 It follows that the claims of the five user plaintiffs are beyond the scope of the arbitration clause contained in the Communicator license agreement Because those claims are not arbitrable under that agreement or under the SmartDownload license agreement to which plaintiffs never assented we affirm the district court s holding that the five user plaintiffs may not be compelled to arbitrate their claims x k k KK CONCLUSION For the foregoing reasons we affirm the district court s denial of defendants motion to compel arbitration and to stay court proceedings 17 Because we conclude that the Netscape webpage did not provide reasonable notice of the existence of SmartDownload s license terms it is irrelevant to our decision whether plaintiff Fagan obtained SmartDownload from that webpage as defendants contend or from a shareware website that provided less or no notice of that program s license terms as Fagan maintains In either case Fagan could not be bound by the SmartDownload license agreement Further because we find that the California common law disposes of the issue of notice and assent we do not address plaintiffs arguments based on California s Commercial Code 2207 the UCC Article 2 provision governing the battle of the forms Moreover having determined that the parties did not enter into the Smart
3. another webpage that contained the full text of a license agreement that was identical in every respect to the Communicator license agreement except that it stated that its terms apply to Netscape Communicator Netscape Navigator and Netscape SmartDownload The license agreement granted the user a nonexclusive license to use and reproduce the software subject to certain terms BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING NETSCAPE COMMUNICATOR NETSCAPE NAVIGATOR OR NETSCAPE SMARTDOWNLOAD SOFTWARE THE PRODUCT THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT LICENSEE IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT IF LICENSEE DOES NOT AGREE TO ALL OF THE 10 In the screen shot of the SmartDownload webpage attached to Weindorf s affidavit the reference to license terms is partially visible though almost illegible at the bottom of the screen In the screen shots attached to the affidavits of Gibson Gruber and Kelly the reference to license terms is not visible 4 TERMS OF THIS AGREEMENT THE BUTTON INDICATING NON ACCEPTANCE MUST BE SELECTED AND LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE Among the license terms was a provision requiring virtually all disputes relating to the agreement to be submitted to arbitration Unless otherwise agreed in writing all disputes relating to this Agreement excepting any dispute relating to intellectual property rights shall be subject to final and binding a
4. defendants motion to compel arbitration the parties placed before the district court an ample record consisting of affidavits and extensive deposition testimony by each named plaintiff numerous declarations by counsel and witnesses for the parties dozens of exhibits including computer screen shots and other visual evidence concerning the user plaintiffs experience of the Netscape webpage oral argument supplemented by a computer demonstration and additional briefs following oral argument This well developed record contrasts sharply with the meager records that on occasion have caused this Court to remand for trial on the issue of contract formation pursuant to 9 U S C 4 See e g Interbras Cayman Co v Orient Victory Shipping Co S A 663 F 2d 4 5 2d Cir 1981 record consisted of affidavits and other papers Interocean Shipping 462 F 2d at 676 record consisted of pleadings affidavits and documentary attachments We are satisfied that the unusually full record before the district court in this case constituted a hearing where evidence is received Interocean Shipping 462 F 2d at 677 Moreover upon the record assembled a fact finder could not reasonably find that defendants prevailed in showing that any of the user plaintiffs had entered into an agreement on defendants license terms 11 Later when Judge Hellerstein suggested that it was an issue of fact to be tried whether plaintiff Fagan downloaded SmartDownload from Ne
5. inquiry would have disclosed relevant facts to offeree Walker v Carnival Cruise Lines 63 F Supp 2d 1083 1089 N D Cal 1999 under California and federal law conspicuous notice directing the attention of parties to existence of contract terms renders terms binding quotation marks omitted Shacket v Roger Smith Aircraft Sales Inc 651 F Supp 675 691 N D III 1986 constructive notice found where minimal investigation would have revealed facts to offeree As the foregoing cases suggest receipt of a physical document containing contract terms or notice thereof is frequently deemed in the world of paper transactions a sufficient circumstance to place the offeree on inquiry notice of those terms Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact has constructive notice of the fact itself in all cases in which by prosecuting such inquiry he might have learned such fact Cal Civ Code 19 These principles apply equally to the emergent world of online product delivery pop up screens hyperlinked pages clickwrap licensing scrollable documents and urgent admonitions to Download Now What plaintiffs saw when they were being invited by defendants to download this fast free plug in called SmartDownload was a screen containing praise for the product and at the very bottom of the screen a Download button Defendants argue that under the principles set fort
6. license terms was not mentioned while the software was running or at any later point in plaintiffs experience of the product Even for a user who unlike plaintiffs did happen to scroll down past the download button SmartDownload s license terms would not have been immediately displayed in the manner of Communicator s clickwrapped terms Instead if such a user had seen the notice of SnartDownload s terms and then clicked on the underlined invitation to review and agree to the terms a hypertext link would have taken the user to a separate webpage entitled License amp Support Agreements The first paragraph on this page read in pertinent part The use of each Netscape software product is governed by a license agreement You must read and agree to the license agreement terms BEFORE acquiring a product Please click on the appropriate link below to review the current license agreement for the product of interest to you before acquisition For products available for download you must read and agree to the license agreement terms BEFORE you install the software If you do not agree to the license terms do not download install or use the software Below this paragraph appeared a list of license agreements the first of which was License Agreement for Netscape Navigator and Netscape Communicator Product Family Netscape Navigator Netscape Communicator and Netscape SmartDownload If the user clicked on that link he or she would be taken to yet
7. provider called WhyWeb Specht alleges that every time a user who had previously installed SmartDownload visited his website and downloaded WhyWeb related files defendants intercepted this information Defendants allege that Specht would receive a representative s commission from WhyWeb every time a user who obtained a WhyWeb file from his website subsequently subscribed to the WhyWeb service Thus argue defendants because the Netscape license agreement conferred on each user the right to download and use both Communicator and SmartDownload software Specht received a benefit under that license agreement in that SmartDownload assisted in obtaining the WhyWeb file and increased the likelihood of success in the download process This benefit defendants claim was direct enough to require Specht to arbitrate his claims pursuant to Netscape s license terms Specht however maintains that he never received any commissions based on the WhyWeb files available on his website ll Proceedings Below In the district court defendants moved to compel arbitration and to stay court proceedings 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 Finding that Netscape s webpage unlike typical examples of clickwrap neither adequately alerted users to the ex
8. to pay 1 by displaying prominently and in close proximity to a description of the computer information or to instructions or steps for acquiring it the standard terms or a reference to an electronic location from which they can be readily obtained or 2 by disclosing the availability of the standard terms in a prominent place on the site from which the computer information is offered and promptly furnishing a copy of the standard terms on request before the transfer of the computer information Id 211 1 A B The commentary to 211 adds The intent of the close proximity standard is that the terms or the reference to them would be called to the attention of an ordinary reasonable person Id 211 cmt 3 The commentary also approves of prominent hypertext links that draw attention to the existence of a standard agreement and allow users to view the terms of the license Id We hasten to point out that UCITA which has been enacted into law only in Maryland and Virginia does not govern the parties transactions in the present case but we nevertheless find that UCITA s provisions offer insight into the evolving online circumstances that defendants argue placed plaintiffs on inquiry notice of the existence of the SmartDownload license terms UCITA has been controversial as a result of the perceived breadth of some of its provisions Compare Margaret Jane Radin Humans Computers and Binding Commitment 75 Ind L J 1125 1141 2000 argu
9. Civ Code 1589 A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it so far as the facts are known or ought to be known to the person accepting It is true that a party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing Marin Storage amp Trucking 89 Cal App 4th at 1049 107 Cal Rptr 2d at 651 But courts are quick to add An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient In such a case no contract is formed with respect to the undisclosed term Id cf Cory v Golden State Bank 95 Cal App 3d 360 364 157 Cal Rptr 538 541 1979 T he provision in question is effectively hidden from the view of money order purchasers until 13 Inquiry notice is actual notice of circumstances sufficient to put a prudent man upon inquiry Cal State Auto Ass n Inter Ins Bureau v Barrett Garages Inc 257 Cal App 2d 71 64 Cal Rptr 699 703 Cal Ct App 1967 internal quotation marks omitted after the transactions are completed Under these circumstances it must be concluded that the Bank s money order purchasers are not chargeable with either actual or constructive notice of the service charge provision and therefore cannot be deemed to have consented to the provision as part of their transaction with the Bank
10. Download license agreement we do not reach plaintiffs alternative arguments concerning unconscionability 14
11. Specht v Netscape Communications Corp 306 F 3d 17 2 Cir 2002 Before McLAUGHLIN LEVAL and SOTOMAYOR Circuit Judges This is an appeal from a judgment of the Southern District of New York denying a motion by defendants appellants Netscape Communications Corporation and its corporate parent America Online Inc collectively defendants or Netscape to compel arbitration and to stay court proceedings In order to resolve the central question of arbitrability presented here we must address issues of contract formation in cyberspace Principally we are asked to determine whether plaintiffs appellees plaintiffs by acting upon defendants invitation to download free software made available on defendants webpage agreed to be bound by the software s license terms which included the arbitration clause at issue even though plaintiffs could not have learned of the existence of those terms unless prior to executing the download they had scrolled down the webpage to a screen located below the download button We agree with the district court that a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants invitation to download the free software and that defendants therefore did not provide reasonable notice of the license terms In consequence plaintiffs bare act of downloading the software did not unambiguously manifest asse
12. The conduct of a party is not effective as a manifestation of his 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 Although an onlooker observing the disputed transactions in this case would have seen each of the user plaintiffs click on the SmartDownload Download button see Cedars Sinai Med Ctr v Mid West Nat l Life Ins Co 118 F Supp 2d 1002 1008 C D Cal 2000 In California a party s intent to contract is judged objectively by the party s outward manifestation of consent a consumer s clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms see Windsor Mills 25 Cal App 3d at 992 101 Cal Rptr at 351 W hen the offeree does not know that a proposal has been made to him this objective standard does not apply 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 Id see also Marin Storage amp Trucking Inc v Benco Contracting amp Eng g Inc 89 Cal App 4th 1042 1049 107 Cal Rptr 2d 645 651 2001 same Arbitration agreements are no exception to the requirement of manifestation of asse
13. are Transactions PLI Patents Copyrights Trademarks amp Literary Property Course Handbook Series Feb Mar 2001 demonstrating the trend in case law away from application of UCC provisions to software sales and licensing and toward application of intellectual property principles There is no doubt that a sale of tangible goods over the Internet is governed by Article 2 of the UCC See e g Butler v Beer Across Am 83 F Supp 2d 1261 1263 64 amp n 6 N D Ala 2000 applying Article 2 to an Internet sale of bottles of beer Some courts have also applied Article 2 occasionally with misgivings to sales of off the shelf software in tangible packaged formats See e g ProCD 86 F 3d at 1450 W e treat the database licenses as ordinary contracts accompanying the sale of products and therefore as governed by the common law of contracts and the Uniform Commercial Code Whether there are legal differences between contracts and licenses which may matter under the copyright doctrine of first sale is a subject for another day Lan Sys Inc v Nextpoint Networks Inc 183 F Supp 2d 328 332 D Mass 2002 stating in the context of a dispute between business parties that Article 2 technically does not and certainly will not in the future govern software licenses but for the time being the Court will assume that it does Downloadable software however is scarcely a tangible good and in part because software may be obtaine
14. cf Pollstar v Gigmania Ltd 170 F Supp 2d 974 981 82 E D Cal 2000 expressing concern that notice of license terms had appeared in small gray text on a gray background on a linked webpage but concluding that it was too early in the case to order dismissal 15 Defendants place great importance on Register com Inc v Verio Inc 126 F Supp 2d 238 S D N Y 2000 which held that a user of the Internet domain name database Register com had manifested its assent to be bound by the database s terms of use when it electronically submitted queries to the database Id at 248 But Verio is not helpful to defendants There the plaintiff s terms of use of its information were well known to the defendant which took the information daily with full awareness that it was using the information in a manner prohibited by the terms of the plaintiff s offer The case is not closely analogous to ours 16 Although the parties here do not refer to it California s consumer fraud statute Cal Bus amp Prof Code 17538 is one of the few state statutes to regulate online transactions in goods or services The statute provides that in disclosing information regarding return and refund policies and other vital consumer information online vendors must legibly display the information either i on the first screen displayed when the vendor s electronic site is accessed ii on the screen on which goods or services are first offered iii on the s
15. creen on which a buyer may place the order for goods or services iv on the screen on which the buyer may enter payment information such as a credit card account number or v for nonbrowser based technologies in a manner that gives the user a reasonable opportunity to review that information Id 17538 d 2 A The statute s clear purpose is to ensure that consumers engaging in online transactions have relevant information before they can be bound Although consumer fraud as such is not alleged in the present 12 After reviewing the California common law and other relevant legal authority we conclude that under the circumstances here plaintiffs downloading of SmartDownload did not constitute acceptance of defendants license terms Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility We hold that a reasonably prudent offeree in plaintiffs position would not have known or learned prior to acting on the invitation to download of the reference to SmartDownload s license terms hidden below the Download button on the next screen We affirm the action and 17538 protects only California residents we note that the statute is consistent with the principle of conspicuous notice of the existence of contract terms that is also found in California s common law of contracts In additi
16. d copied or transferred effortlessly at the stroke of a computer key licensing of such Internet products has assumed a vast importance in recent years Recognizing that a body of law based on images of the sale of manufactured goods ill fits licenses and other transactions in computer information the National Conference of Commissioners on Uniform State Laws has promulgated the Uniform Computer Information Transactions Act UCITA a code resembling UCC Article 2 in many respects but drafted to reflect emergent practices in the sale and licensing of computer information UCITA prefatory note rev ed Aug 23 2001 available at www ucitaonline com ucita html UCITA originally intended as a new Article 2B to supplement Articles 2 and 2A of the UCC but later proposed as an independent code has been adopted by two states Maryland and Virginia See Md Code Ann Com Law 22 101 et seq Va Code Ann 59 1 501 1 et seq We need not decide today whether UCC Article 2 applies to Internet transactions in downloadable products The district court s analysis and the parties arguments on appeal show that for present purposes there is no essential difference between UCC Article 2 and the common law of contracts We therefore apply the common law with exceptions as noted the touchstone of contract Binder v Aetna Life Ins Co 75 Cal App 4th 832 848 89 Cal Rptr 2d 540 551 1999 cf Restatement Second of Contracts 19 2 1981
17. diction pursuant to 16 a 1 B as this is an appeal from an order denying defendants motion to compel arbitration under the FAA Mediterranean Shipping Co S A Geneva v POL Atlantic 229 F 3d 397 402 2d Cir 2000 DISCUSSION l Standard of Review and Applicable Law A district court s denial of a motion to compel arbitration is reviewed de novo If a court finds that the parties agreed to arbitrate it should then consider whether the dispute falls within the scope of the arbitration agreement Genesco Inc v T Kakiuchi amp Co Ltd 815 F 2d 840 844 2d Cir 1987 A district court s determination of the scope of an arbitration agreement is reviewed de novo Oldroyd v Elmira Sav Bank FSB 134 F 3d 72 76 2d Cir 1998 In addition whether a party may be compelled to arbitrate as a result of direct benefits that he or she allegedly received under a contract entered into by others is an issue of arbitrability that is reviewed de novo Cf Smith Enron Cogeneration Ltd P ship Inc v Smith Cogeneration Int l Inc 198 F 3d 88 95 2d Cir 1999 W hether an entity is a party to the arbitration agreement is included within the broader issue of whether the parties agreed to arbitrate S tate law governs the question of whether the parties in the present case entered into an agreement to arbitrate disputes relating to the SmartDownload license agreement The district court further held that California la
18. h in the cases cited above a fair and prudent person using ordinary care would have been on inquiry notice of SmartDownload s license terms Shacket 651 F Supp at 690 We are not persuaded that a reasonably prudent offeree in these circumstances would have known of the existence of license terms Plaintiffs were responding to an offer that did not carry an immediately visible notice of the existence of license terms or require unambiguous manifestation of assent to those terms Thus plaintiffs apparent manifestation of consent was to terms contained in a document whose contractual nature was not obvious Windsor Mills 25 Cal App 3d at 992 101 Cal Rptr at 351 Moreover the fact that given the position of the scroll bar on their computer screens plaintiffs may have been aware that an unexplored portion of the Netscape webpage remained below the download button does not mean that they reasonably should have concluded that this portion contained a notice of license terms In their deposition testimony plaintiffs variously stated that they used the scroll bar 10 o nly if there is something that feel need to see that is on that is off the page or that the elevated position of the scroll bar suggested the presence of mere formalities standard lower banner links or that the page is bigger than what can see Plaintiffs testified and defendants did not refute that plaintiffs were in fact unaware that defendants in
19. ing that UCITA s definition of manifestation of assent stretches the ordinary concept of consent with Joseph H Sommer Against Cyberlaw 15 Berkeley Tech L J 1145 1187 2000 There are no new legal developments in UCITA s assent provisions The revolution if any occurred with Karl Llewellyn s old Article 2 which abandoned most formalisms of contract formation and sought a contract wherever it could be found Nonetheless UCITA s notice and assent provisions seem to be consistent with well established principles governing contract formation and enforcement See Robert A Hillman amp Jeffrey J Rachlinski Standard Form Contracting in the Electronic Age 77 N Y U L Rev 429 491 2002 W e contend that UCITA maintains the contextual balanced approach to standard terms that can be found in the paper world 13 district court s conclusion that the user plaintiffs including Fagan are not bound by the arbitration clause contained in those terms IV Whether Plaintiffs Assent to Communicator s License Agreement Requires Them To Arbitrate Their Claims Regarding SmartDownload Plaintiffs do not dispute that they assented to the license terms governing Netscape s Communicator The parties disagree however over the scope of that license s arbitration clause After careful review of these allegations we conclude that plaintiffs claims present no question involving construction of the Communicator license
20. ir use of SmartDownload transmitted to defendants private information about plaintiffs downloading of files 1 Although the district court did not consolidate these three cases it noted that its opinion denying the motion to compel arbitration and to stay court proceedings appl ied equally to all three cases Specht v Netscape Communications Corp 150 F Supp 2d 585 587 n 1 S D N Y 2001 On August 10 2001 this Court consolidated the appeals from the Internet thereby effecting an electronic surveillance of their online activities in violation of two federal statutes the Electronic Communications Privacy Act 18 U S C 2510 et seq and the Computer Fraud and Abuse Act 18 U S C 1030 Specifically plaintiffs alleged that when they first used Netscape s Communicator a software program that permits Internet browsing 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 Netscape Plaintiffs further alleged that when they installed SmartDownload a separate software plug in that served to enhance Communicator s browsing capabilities SmartDownload 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 Netscape According to the co
21. istence 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 Specht 150 F Supp 2d at 595 96 The district court also ruled that the separate license agreement governing use of Communicator even though the user 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 Id at 596 The court further concluded that Fagan could not be bound by the SmartDownload license agreement because the shareware site from which he allegedly obtained the plug in program provided even less notice of SmnartDownload s license terms than did Netscape s page Id at 596 97 Finally the court ruled that Specht was not bound by the SmartDownload arbitration agreement as a noncontracting beneficiary because he 1 had no preexisting relationship with any of the parties 2 was not an agent of any party and 3 received no direct benefit from users downloading of files from his site even if those users did employ SmartDownload to enhance their downloading Id at 597 98 Defendants took this timely appeal pursuant to 9 U S C 16 and the district court stayed all proceedings in the underlying cases pending resolution of the appeal This Court has juris
22. license terms M A Mortenson Co v Timberline Software Corp 93 Wash App 819 970 P 2d 803 809 1999 buyer manifested assent to software license terms by installing and using software aff d 140 Wash 2d 568 998 P 2d 305 2000 see also Lan Sys 183 F Supp 2d at 338 business entity explicitly accepted the clickwrap license agreement contained in purchased software when it clicked on the box stating l agree 14 We do not address the district court s alternative holding that notice was further vitiated by the fact that the reference to SmartDownload s license terms even if scrolled to was couched in precatory terms a mild request rather than mandatory ones Specht 150 F Supp 2d at 596 11 These cases do not help defendants To the extent that they hold that the purchaser of a computer or tangible software is contractually bound after failing to object to printed license terms provided with the product Hill and Brower do not differ markedly from the cases involving traditional paper contracting discussed in the previous section Insofar as the purchaser in ProCD was confronted with conspicuous mandatory license terms every time he ran the software on his computer that case actually undermines defendants contention that downloading in the absence of conspicuous terms is an act that binds plaintiffs to those terms In Mortenson the full text of license terms was printed on each sealed diskette envelope inside the software b
23. licking on the button plaintiffs initiated the download of SmartDownload Once that process was complete SmartDownload as its first plug in task permitted plaintiffs to proceed with downloading and installing Communicator an operation that was accompanied by the clickwrap display of Communicator s license terms described above The signal difference between downloading Communicator and downloading SmartDownload was that no clickwrap presentation accompanied the latter operation Instead once plaintiffs Gibson Gruber Kelly and Weindorf had clicked on the Download button located at or near the bottom of their screen and the downloading of SmartDownload was complete these plaintiffs encountered no further information about the plug in program or the existence of license terms governing its use The sole reference to SmartDownload s license terms on the SmartDownload Communicator webpage was located in text that would have become visible to plaintiffs only if they had scrolled down to the next screen Had plaintiffs scrolled down instead of acting on defendants invitation to click on the Download button they would have encountered the following invitation Please review and agree to the terms of 5 The term user plaintiffs here and elsewhere in this opinion denotes those plaintiffs who are suing for harm they allegedly incurred as computer users in contrast to plaintiff Soecht who alleges that he was harmed in his capacity as a websi
24. lving shrinkwrap licensing and related commercial practices in support of their contention that plaintiffs became bound by the SmartDownload license terms by virtue of inquiry notice For example in Hill v Gateway 2000 Inc 105 F 3d 1147 7th Cir 1997 the Seventh Circuit held that where a purchaser had ordered a computer over the telephone received the order in a shipped box containing the computer along with printed contract terms and did not return the computer within the thirty days required by the terms the purchaser was bound by the contract Id at 1148 49 In ProCD Inc v Zeidenberg the same court held that where an individual purchased software in a box containing license terms which were displayed on the computer screen every time the user executed the software program the user had sufficient opportunity to review the terms and to return the software and so was contractually bound after retaining the product ProCD 86 F 3d at 1452 cf Moore v Microsoft Corp 293 A D 2d 587 587 741 N Y S 2d 91 92 2d Dep t 2002 software user was bound by license agreement where terms were prominently displayed on computer screen before software could be installed and where user was required to indicate assent by clicking I agree Brower v Gateway 2000 Inc 246 A D 2d 246 251 676 N Y S 2d 569 572 1st Dep t 1998 buyer assented to arbitration clause shipped inside box with computer and software by retaining items beyond date specified by
25. m at all but rather that SmartDownload was merely a piece of download technology He later became aware that SmartDownload was residing as software on his hard drive when he attempted to download electronic files from the Internet 3 the Netscape SmartDownload software license agreement before downloading and using the software Plaintiffs Gibson Gruber Kelly and Weindorf averred in their affidavits that they never saw this reference to the SmartDownload license agreement when they clicked on the Download button They also testified during depositions that they saw no reference to license terms when they clicked to download SmartDownload although under questioning by defendants counsel some plaintiffs added that they could not remember or be sure whether the screen shots of the SmartDownload page attached to their affidavits reflected precisely what they had seen on their computer screens when they downloaded SmartDownload In sum plaintiffs Gibson Gruber Kelly and Weindorf allege that the process of obtaining SmartDownload contrasted sharply with that of obtaining Communicator Having selected SmartDownload they were required neither to express unambiguous assent to that program s license agreement nor even to view the license terms or become aware of their existence before proceeding with the invited download of the free plug in program Moreover once these plaintiffs had initiated the download the existence of SmartDownload s
26. mplaints in this case each time a computer user employed Communicator to download a file from the Internet SnartDownload assume d from Communicator the task of downloading the file and transmitted to Netscape the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload These processes plaintiffs claim constituted unlawful eavesdropping on users of Netscape s software products as well as on Internet websites from which users employing SmartDownload downloaded files In the time period relevant to this litigation Netscape offered on its website various software programs including Communicator and SmartDownload which visitors to the site were invited to obtain free of charge It is undisputed that five of the six named plaintiffs Michael Fagan John Gibson Mark Gruber Sean Kelly and Sherry Weindorf downloaded Communicator from the Netscape website These 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 2 Netscape s website defines plug ins as software programs that extend the capabilities of the Netscape Bro
27. nt This principle of knowing consent applies with particular force to provisions for arbitration Windsor Mills 101 Cal Rptr at 351 Clarity and conspicuousness of arbitration terms are important in securing informed assent If a party wishes to bind in writing another to an agreement to arbitrate future disputes such purpose should be accomplished in a way that each party to the arrangement will fully and clearly comprehend that the agreement to arbitrate exists and binds the parties thereto Commercial Factors Corp v Kurtzman Bros 131 Cal App 2d 133 134 35 280 P 2d 146 147 48 1955 internal quotation marks omitted Thus California contract law measures assent by an objective standard that takes into account both what the offeree said wrote or did and the transactional context in which the offeree verbalized or acted A The Reasonably Prudent Offeree of Downloadable Software Defendants argue that plaintiffs must be held to a standard of reasonable prudence and that because notice of the existence of SmartDownload license terms was on the next scrollable screen plaintiffs were on inquiry notice of those terms We disagree with the proposition that a reasonably prudent offeree in plaintiffs position would necessarily have known or learned of the existence of the SmartDownload license agreement prior to acting so that plaintiffs may be held to have assented to that agreement with constructive notice of its terms See Cal
28. nt to the arbitration provision contained in the license terms We also agree with the district court that plaintiffs claims relating to the software at issue a plug in program entitled SmartDownload SmartDownload or the plug in program offered by Netscape to enhance the functioning of the separate browser program called Netscape Communicator Communicator or the browser program are not subject to an arbitration agreement contained in the license terms governing the use of Communicator Finally we conclude that the district court properly rejected defendants argument that plaintiff website owner Christopher Specht though not a party to any Netscape license agreement is nevertheless required to arbitrate his claims concerning SmartDownload because he allegedly benefited directly under SmartDownload s license agreement Defendants theory that Specht benefited whenever visitors employing SmartDownload downloaded certain files made available on his website is simply too tenuous and speculative to justify application of the legal doctrine that requires a nonparty to an arbitration agreement to arbitrate if he or she has received a direct benefit under a contract containing the arbitration agreement We therefore affirm the district court s denial of defendants motion to compel arbitration and to stay court proceedings BACKGROUND l Facts In three related putative class actions plaintiffs alleged that unknown to them the
29. on the model code UCITA discussed above generally recognizes the importance of conspicuous notice and unambiguous manifestation of assent in online sales and licensing of computer information For example 112 which addresses manifestation of assent provides that a user s opportunity to review online contract terms exists if a record or electronic writing of the contract terms is made available in a manner that ought to call it to the attention of a reasonable person and permit review UCITA 112 e 1 rev ed Aug 23 2001 available at www ucitaonline com ucita html Section 112 also provides in pertinent part that a person manifests assent to a record or term if the person acting with knowledge of or after having an opportunity to review the record or term or a copy of it intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term Id 112 a 2 In the case of a mass market license a party adopts the terms of the license only by manifesting assent before or during the party s initial performance or use of or access to the information Id 209 a UCITA 211 sets forth a number of guidelines for internet type transactions involving the supply of information or software For example a licensor should make standard terms available for review prior to delivery or obligation
30. ourt shall proceed summarily to the trial thereof 9 U S C 4 We conclude for two reasons however that defendants are not entitled to a remand for a full trial First during oral argument in the district court on the arbitrability of the five user plaintiffs claims defendants counsel repeatedly insisted that the district court could decide as a matter of law based on the uncontroverted facts in this case whether a reasonably prudent person could or should have known of the license terms by which acceptance would be signified I don t want you to try the facts defendants counsel told the court I think that the evidence in this case upon which this court can make a determination of whether a contract existed as a matter of law is uncontroverted Accordingly the district court decided the issue of reasonable notice and objective manifestation of assent as a matter of law I t is a well established general rule that an appellate court will not consider an issue raised for the first time on appeal Greene v United States 13 F 3d 577 586 2d Cir 1994 see also Gurary v Winehouse 190 F 3d 37 44 2d Cir 1999 Having failed to make the present argument to the district court plaintiff will not be heard to advance it here Nor would it cause injustice in this case for us to decline to accept defendants invitation to consider an issue that defendants did not advance below Second after conducting weeks of discovery on
31. ox printed again on the inside cover of the user manual and notice of the terms appeared on the computer screen every time the purchaser executed the program Mortenson 970 P 2d at 806 In sum the foregoing cases are clearly distinguishable from the facts of the present action C Online Transactions Cases in which courts have found contracts arising from Internet use do not assist defendants because in those circumstances there was much clearer notice than in the present case that a user s act would manifest assent to contract terms See e g Hotmail Corp v Van Money Pie Inc 47 U S P Q 2d 1020 1025 N D Cal 1998 granting preliminary injunction based in part on breach of Terms of Service agreement to which defendants had assented America Online Inc v Booker 781 So 2d 423 425 Fla Dist Ct App 2001 upholding forum selection clause in freely negotiated agreement contained in online terms of service Caspi v Microsoft Network L L C 323 N J Super 118 732 A 2d 528 530 532 33 N J Super Ct App Div 1999 upholding forum selection clause where subscribers to online software were required to review license terms in scrollable window and to click I Agree or I Don t Agree Barnett v Network Solutions Inc 38 S W 3d 200 203 04 Tex App 2001 upholding forum selection clause in online contract for registering Internet domain names that required users to scroll through terms before accepting or rejecting them
32. rbitration in Santa Clara County California under the auspices of JAMS EndDispute with the losing party paying all costs of arbitration Unlike the four named user plaintiffs who downloaded SmartDownload from the Netscape website the fifth named plaintiff Michael Fagan claims to have downloaded the plug in program from a shareware website operated by ZDNet an entity unrelated to Netscape Shareware sites are websites maintained by companies or individuals that contain libraries of free publicly available software The pages that a user would have seen while downloading SmartDownload from ZDNet differed from those that he or she would have encountered while downloading SmartDownload from the Netscape website Notably instead of any kind of notice of the SmartDownload license agreement the ZDNet pages offered only a hypertext link to more information about SmartDownload which if clicked on took the user to a Netscape webpage that in turn contained a link to the license agreement Thus a visitor to the ZDNet website could have obtained SmartDownload as Fagan avers he did without ever seeing a reference to that program s license terms even if he or she had scrolled through all of ZDNet s webpages The sixth named plaintiff Christopher Specht never obtained or used SmartDownload but instead operated a website from which visitors could download certain electronic files that permitted them to create an account with an internet service
33. sent to the SmartDownload License Agreement Whether governed by the common law or by Article 2 of the Uniform Commercial Code UCC a transaction in order to be a contract requires a manifestation of agreement between the parties See Windsor Mills Inc v Collins amp Aikman Corp 25 Cal App 3d 987 991 101 Cal Rptr 347 350 1972 C onsent to or acceptance of the arbitration provision is necessary to create an agreement to arbitrate see also Cal Com Code 2204 1 A contract for sale of goods may be made in any manner sufficient to show agreement including conduct by both parties which recognizes the existence of such a contract 42 Mutual manifestation of assent whether by written or spoken word or by conduct is 12 The district court concluded that the SmartDownload transactions here should be governed by California law as it relates to the sale of goods including the Uniform Commercial Code in effect in California Specht 150 F Supp 2d at 591 It is not obvious however that UCC Article 2 sales of goods applies to the licensing of software that is downloadable from the Internet Cf Advent Sys Ltd v Unisys Corp 925 F 2d 670 675 3d Cir 1991 The increasing frequency of computer products as subjects of commercial litigation has led to controversy over whether software is a good or intellectual property The UCC does not specifically mention software Lorin Brennan Why Article 2 Cannot Apply to Softw
34. te owner While Navigator was Netscape s stand alone Internet browser program during the period in question Communicator was a software suite that comprised Navigator and other software products All five named user plaintiffs stated in affidavits that they had obtained upgraded versions of Communicator Fagan who as noted below allegedly did not obtain the browser program in connection with downloading SmartDownload expressed some uncertainty during his deposition as to whether he had acquired Communicator or Navigator The identity of Fagan s browser program is immaterial to this appeal however as Communicator and Navigator shared the same license agreement 7 Unlike the four other user plaintiffs Fagan chose the option of obtaining Netscape s browser program without first downloading SmartDownload As discussed below Fagan allegedly obtained SmartDownload from a separate shareware website unrelated to Netscape 8 For purposes of this opinion the term webpage or page is used to designate a document that resides usually with other webpages on a single Internet website and that contains information that is viewed on a computer monitor by scrolling through the document To view a webpage in its entirety a user typically must scroll through multiple screens Plaintiff Kelly a relatively sophisticated Internet user testified that when he clicked to download SmartDownload he did not think that he was downloading a software progra
35. tended to attach license terms to the use of SmartDownload We conclude that in circumstances such as these where consumers are urged to download free software at the immediate click of a button a reference to the existence of license terms ona submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms The SmartDownload webpage screen was printed in such a manner that it tended to conceal the fact that it was an express acceptance of Netscape s rules and regulations Larrus 266 P 2d at 147 Internet users may have as defendants put it as much time as they need to scroll through multiple screens on a webpage but there is no reason to assume that viewers will scroll down to subsequent screens simply because screens are there When products are free and users are invited to download them in the absence of reasonably conspicuous notice that they are about to bind themselves to contract terms the transactional circumstances cannot be fully analogized to those in the paper world of arm s length bargaining In the next two sections we discuss case law and other legal authorities that have addressed the circumstances of computer sales software licensing and online transacting Those authorities tend strongly to support our conclusion that plaintiffs did not manifest assent to SmartDownload s license terms B Shrinkwrap Licensing and Related Practices Defendants cite certain well known cases invo
36. tscape s webpage or from the ZDNet shareware site defendants counsel stated am not sure there is an issue of fact It is sort of a summary judgment kind of standard Still later counsel remarked I think we established that there really is no genuine issue that Mr Fagan got his smart download sic by visiting the Netscape webpage from which he fairly had notice that there was a license agreement Defendants position that there was no genuine issue regarding reasonable notice of the existence of the license terms is consistent with this Circuit s standard for determining whether a trial is required on the issue of the making of an arbitration agreement See Doctor s Assocs Inc v Distajo 107 F 3d 126 129 30 2d Cir 1997 As when opposing a motion for summary judgment under Fed R Civ P 56 the party requesting a jury trial must submit evidentiary facts showing that there is a dispute of fact to be tried quotation marks omitted Doctor s Assocs Inc v Stuart 85 F 3d 975 983 84 2d Cir 1996 To warrant a trial under 9 U S C 4 the issue raised must be genuine quotation marks omitted In sum we conclude that the district court properly decided the question of reasonable notice and objective manifestation of assent as a matter of law on the record before it and we decline defendants request to remand for a full trial on that question Il Whether the User Plaintiffs Had Reasonable Notice of and Manifested As
37. tute assent to those terms in the context of tangible software see e g ProCD Inc v Zeidenberg 86 F 3d 1447 1451 7th Cir 1996 so clicking on a webpage s clickwrap button after receiving notice of the existence of license terms has been held by some courts to manifest an Internet user s assent to terms governing the use of downloadable intangible software see e g Hotmail Corp v VanS Money Pie Inc 47 U S P Q 2d 1020 1025 N D Cal 1998 be aborted All five named user 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 t hese 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 Although Communicator could be obtained independently of SmartDownload all the named user plaintiffs except Fagan downloaded and installed Communicator in connection with downloading SmartDownload Each of these plaintiffs allegedly arrived at a Netscape webpage captioned SmartDownload Communicator that urged them to Download With Confidence Using SmartDownload At or near the bottom of the screen facing plaintiffs was the prompt Start Download and a tinted button labeled Download By c
38. w governs the question of contract formation here the parties do not appeal that determination Il Whether This Court Should Remand for a Trial on Contract Formation Defendants argue on appeal that the district court erred in deciding the question of contract formation as a matter of law A central issue in dispute according to defendants is whether the user plaintiffs actually saw the notice of SmartDownload s license terms when they downloaded the plug in program Although plaintiffs in their affidavits and depositions generally swore that they never saw the notice of terms on Netscape s webpage defendants point to deposition testimony in which some plaintiffs under repeated questioning by defendants counsel responded that they could not remember or be entirely sure whether the link to SmartDownload s license terms was visible on their computer screens 6 Defendants argue that on some computers depending on the configuration of the monitor and browser SmartDownload s license link appears on the first screen without any need for the user to scroll at all Thus according to defendants a trial on the factual issues that Defendants raised about each and every Plaintiffs sic downloading experience is required on remand to remedy the district court s error in denying defendants motion as a matter of law Section 4 of the FAA provides in relevant part that i f the making of the arbitration agreement be in issue the c
39. wser in a specific way giving you for example the ability to play audio samples or view video movies from within your browser http wp netscape com plugins SmartDownload purportedly made it easier for users of browser programs like Communicator to download files from the Internet without losing their progress when they paused to engage in some other task or if their Internet connection was severed See Specht 150 F Supp 2d at 587 3 There is a difference between downloading and installing a software program When a user downloads a program from the Internet to his or her computer the program file is stored on the user s hard drive but typically is not operable until the user installs or executes it usually by double clicking on the file and causing the program to run 4 This kind of online software license agreement has come to be known as clickwrap by analogy to shrinkwrap used in the licensing of tangible forms of software sold in packages because it presents the user with a message on his or her computer screen requiring that the user manifest his or her assent to the terms of the license agreement by clicking on an icon The product cannot be obtained or used unless and until the icon is clicked Specht 150 F Supp 2d at 593 94 footnote omitted Just as breaking the shrinkwrap seal and using the enclosed computer program after encountering notice of the existence of governing license terms has been deemed by some courts to consti
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