Specht v. Netscape Communications Corp. is a 2002 decision of the United States Court of Appeals for the Second Circuit on contract formation for software offered by download. The court held that “a reasonably prudent Internet user” in the plaintiffs’ position would not have known of the licence terms for Netscape’s free SmartDownload plug-in before clicking to download it, that Netscape therefore did not give reasonable notice of the terms, and that the “bare act of downloading the software did not unambiguously manifest assent” to the arbitration clause in them.[1]
Background
The plaintiffs brought putative class actions alleging that SmartDownload, a plug-in for the Netscape Communicator browser, transmitted information about their file downloads to Netscape, in violation of the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act.[1]
The two products were licensed differently. Installing Communicator displayed a scrollable licence and required the user to click “Yes” before installation could complete. SmartDownload was downloaded from a page captioned “SmartDownload Communicator” by clicking a “Download” button at or near the bottom of the screen; the only reference to its licence was on the next screen below the button: “Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using the software.”[1] The full terms were two links further away and included a clause requiring arbitration in Santa Clara County, California.[1] One plaintiff said he obtained SmartDownload from a third-party shareware site that gave even less notice of the terms.[1]
The dispute
Netscape and its parent America Online moved to compel arbitration and stay the proceedings. They argued that the users were bound by the SmartDownload licence through inquiry notice, relying on shrinkwrap cases such as ProCD v. Zeidenberg, and that in any event the Communicator licence the users had accepted covered the claims. They also argued that the plaintiff Christopher Specht, a website owner who had not downloaded the software, had to arbitrate because he benefited from the licence.[1] The Southern District of New York denied the motion, applying California law, which the parties did not dispute on appeal.[1]
Decision or outcome
The panel (Judges McLaughlin, Leval and Sotomayor; opinion by Judge Sotomayor) affirmed. It held 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”, and stated: “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.”[1] It distinguished ProCD because the purchaser there “was confronted with conspicuous, mandatory license terms every time he ran the software”.[1]
The court also held that the claims about SmartDownload fell outside the arbitration clause in the Communicator licence, which the users had accepted by clickwrap, because they raised no question about that agreement. It rejected the argument that Specht received a direct benefit under the SmartDownload licence as “too tenuous and speculative”.[1]
Significance for software licensing and SAM practice
Specht is a leading case on “browsewrap” terms, where a licence is referred to on a web page but the user is not required to view or accept it, as opposed to “clickwrap”, where the user must click to accept. The opinion itself describes the Communicator installation as clickwrap and contrasts it with the SmartDownload page.[1] The decision concerned whether a free download bound consumers to an arbitration clause under California law; it did not decide whether the software was licensed or sold.[1]
Lessons learned
- Notice and assent must both be shown. The court required reasonably conspicuous notice of the terms and an unambiguous act of assent; a download click with the terms out of view was neither.[1]
- How a licence was accepted is evidence. The same users were bound by the Communicator licence they accepted by clicking “Yes” during installation, but not by the SmartDownload licence, so records of the acceptance method matter.[1]
- One product’s terms do not cover another. The Communicator licence’s arbitration clause did not reach claims about the separately obtained plug-in.[1]