You May Read This Column Subject to the Following Terms...

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by Robert de los Reyes, Esq.

Welcome to the inaugural edition of the Monday Morning column. It is my intention to use this column to offer more depth in our news coverage as well as to discuss matters that may not rate as "news," but are nevertheless worth talking about. Sometimes, I suspect, this column may even be about nothing at all – they can't all be gems. Let me confess at the outset that I have no pretension that the Monday Morning column will appear every Monday morning. I do promise, however, that when this column appears, it will appear on a Monday morning (else why design such a smashing logo?).

In any event, today's column is a little heavier and a little longer than most will be, but the topic touches every gamer. Today I offer a (relatively) quick and dirty rundown of the U.S. law concerning those much-maligned End User License Agreements (EULAs). Don't worry, this isn't a law review article, and I'll keep the legalese to a bare minimum. Buckle up.

I Agreed to What?!

No subject seems to cause more confusion or more resentment across forum boards than EULAs. You think you're buying software, then it turns out you don't "own" it, you're just allowed to use it – you have a "license." And, to make matters worse, you're only allowed to use it after consenting to terms that frequently appear to require the handing over of your firstborn male child. There are really two issues here. The first is whether these EULAs can be binding at all, and the second is whether specific terms can actually be enforced by the company. This column will focus on the first question, since the second is expansive enough to fill a textbook – but I won't duck the second part entirely.

Time and again, forum board dwellers seem to believe that software license agreements cannot be binding. They seem troubled by the fact that you have to buy the game before even seeing the agreement. The licenses usually appear inside the game packaging and state that by installing the software you agree to the terms of the license (a "shrink-wrap license"). Alternatively or in addition, the license pops up during installation and requires you to click "Yes" to accept the agreement before the installation will proceed (a "click-wrap license"). There is a third type of license called a "browse-wrap license" you might find on internet sites. Such licenses are posted at a site and purport to regulate how you use the site, even though you need not directly indicate your assent in order to access the site. Such licenses usually assert that by looking at the site, you agree to the terms.

Can any of these types of licenses be binding? The short and oversimplified answer is: shrink-wrap, probably yes; click-wrap, probably yes; and browse-wrap, probably no. I'll clear up those probablys later. For now, I'll give you three months worth of a law school course in contracts in one block quotation:

Promises become binding when there is a meeting of the minds and consideration [Ed. something of value] is exchanged. So it was at King's Bench in common law England; so it was under the common law in the American colonies; so it was through more than two centuries of jurisprudence in this country; and so it is today. Assent may be registered by a signature, a handshake, or a click of a computer mouse transmitted across the invisible ether of the Internet. Formality is not a requisite; any sign, symbol or action, or even willful inaction, as long as it is unequivocally referable to the promise, may create a contract.
The quotation, for those interested, is from Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001) [Note: To find this case, do a search in the Southern District of New York for Judge Hellerstein in the year 2001.]. All this means is that there is no magic in making a contract. There is no one ritual or formulaic way to make a valid contract. Both parties need to realize they are making an agreement, they each need to get something of value from the agreement, and they need to do something to indicate acknowledgement of these facts (even if that something is to do nothing when you'd expect someone to do something – still with me?).

What's That Got to Do with My Copy of Freedom Force?

Most likely, your copy of Freedom Force will come packaged with a shrink-wrap license, a click-wrap license or both. (I'll use Freedom Force precisely because it has not been released, so I have no idea what its licensing will look like.) You'll go to your local retailer and seek to purchase a copy. Clearly, you want to make a contract – you intend to give your money in exchange for their copy of Freedom Force. It is likely the publisher and developer will be happy to make that deal (via the retailer)... with a few conditions. They will put those conditions in the licensing agreement. So the deal becomes: you give them your money and agree to these terms, and we'll let you use the software. Maybe you think they're getting a better deal than you, but the law won't make that judgment for you. As long as you're getting something of value, the law thinks you can (by and large) make your own decisions about what's a good contract and what's a bad one.

"Aha," you say, "but I don't get see the terms of the deal until after I buy the game." True enough, but the law is not ignorant of the real world. The alternative to putting the license inside the box is to put it on the outside of the box. Not only would that make for tiny writing and ugly packaging, but it would probably crowd out things game purchasers really want to know, like game features, system requirements and so forth. Given this practical problem, one U.S. court of appeals held, "Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable . . . may be a means of doing business valuable to buyers and sellers alike." ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). According to Specht, a click-wrap license may not even need notice on the outside of the box. Hear me now, believe me later and remember for the rest of your life: in general, shrink-wrap and click-wrap licensing are valid and binding methods of forming a contract.

One could, of course, argue that there is another way to deal with this problem. Ban these licenses altogether, and you remove all doubt about who agreed to what. First, it will never happen. Second, despite what you may think, you don't want it to happen. The reason companies developed the practice of "licensing" instead of plain old "selling" their software was to protect their copyrights. Absent these agreements, there would have been nothing to stop someone from buying up a few copies, then lending or leasing them to users – with devastating financial costs to the producers. Given the labor-intensive process of game creation, it is difficult to envision a business model that could survive such costs. So the question is: would you rather have games with licenses or low-budget games with no licenses? I suspect that most of us have never had anything more than a theoretical objection to these licenses and would prefer to let companies spend real money to make games knowing that they have a chance to recoup the investment.

The Problem of Retailers

I temporarily glossed over an important point. According to the general view, part of the way you make a license valid is to give the purchaser a chance to reject it. That means, upon seeing the full license, you're supposed to have the right to return the product at the point of sale for a full refund if you don't agree with the terms. I'm willing to bet very few, if any, of you have tried to return a game to a retailer on the basis that you didn't agree with the license agreement. You may have tried to a return a product for other reasons, however, only to be told that unless the product is defective to the point of inoperability, they won't take returns of opened packages. One reason retailers maintain such policies is that otherwise, you could buy a copy of, say, Dark Age of Camelot, load up the client, subscribe, then return the box for a refund since you don't need the CD to play. Then, some unlucky customer buys the resealed box, tries to subscribe and gets told that his CD key is already in use. Obviously, this is unacceptable, but so is binding a consumer to contract he is forced to accept before he ever reads it.

I am unaware of any court decision that purports to resolve the conflict, and I'm not sure the best answer is a legal one anyway. Games could require the presence of a game disc to run, although this requires copy and "ghosting" protection. Plus, gamers don't like it. Sales of software clients could be via direct download from the producer (cutting out the retailer), but most of the U.S. doesn't have the broadband access necessary to make that practical. Retail stores could tailor their policies so that certain games susceptible to a refund cheat have a tougher return requirement than others, but this band-aid solution doesn't address the core problem. Likely cleverer minds than mine can think of other alternatives. If they don't, sooner or later, the law will step in and decide the issue for everyone – without everyone's input.

Odds and Ends

I also told you I'd clear up the probablys related to the validity of various licenses. The main reason for the probablys is that there just aren't a large number of cases discussing these issues. In common law countries like the U.S., you never really know what the law is until enough courts have told you about it. That said, such case law as there is seems quite persuasive and, better still, quite clear about the conclusions. The law generally holds that since shrink-wrap and click-wrap licenses force you to take some action in exchange for the ability to use the product, they form valid contracts. That pronouncement, however, is not without its detractors. A federal court in Kansas held a shrink-wrap license related to the sale of a computer was invalid. It seems to me though that the ruling doesn't really alter the basic principle – that there must be assent to the agreement. (For those keeping score, that case is Klocek v. Gateway, Inc., 104 F.Supp.2d 1332 (D.Kan. 2000).) One other recent and notable case, SoftMan Products Company v. Adobe Systems Inc., from a federal district court in California seems to rip apart the whole practice of "licensing" as opposed to "selling" software. I wouldn't advise opponents of licensing to take too much heart in this decision, however. After much thundering, the court essentially concludes that SoftMan, a retailer, wasn't bound by the EULA, because it never installed the software and so never assented to the EULA. In other words, the court held that a company that wasn't an end-user wasn't bound by an end-user licensing agreement.

There is even less case law on browse-wrap licensing, but courts don't seem to like it (as in the Specht case cited above). The rejection of browse-wrap licensing finds its base in the same principles that uphold shrink-wrap and browse-wrap licensing: contracts shouldn't arise by stealth. If you don't force purchasers or viewers to agree or reject a set of terms, courts may reasonably conclude that those terms really aren't all that important to the transaction. Still, given the scarcity of law on the subject, I don't think we have a final answer on the validity of browse-wrap licensing. By the way, this doesn't mean you're free to flout copyright laws or other laws that operate independently of contracts even if a browse-wrap license isn't binding.

Having figured out that most licenses can be construed as valid contracts, there still remains the question of whether specific terms in the agreement are enforceable. Again, since companies can try to pass off almost any term they like, this topic is too broad to discuss in detail. Suffice it to say the following: First, where there is a valid contract, courts will try to preserve the agreement. This means that, in general, one bad term won't wreck the entire contract. Also in general, courts won't rewrite a bad provision; they'll just throw it out if they think they can do so without fundamentally changing the agreement. Second, there's nothing special about a license agreement compared to other contracts you encounter every day, like your apartment lease or car loan agreement. Courts will reject terms that it finds unconscionable or otherwise unenforceable based on regular old principles of contract law. Also, consumers tend to get extra protection compared to deals between "sophisticated" parties such as corporations.

The bottom line is that absent a fundamental change in the way software is produced and sold (or radical legislation or court decisions), licensing agreements are here to stay. Not only are they here to stay, but they are generally more than a bluff – they tend to be valid even if specific parts aren't enforceable. Assuming you are permitted to return the product for a refund if you reject the agreement (perhaps a big assumption), you will be bound by otherwise valid terms. The fact that returning a product is annoying or time consuming is probably no defense. The enforcement of your rights isn't always without cost, and courts are unlikely to be sympathetic to the "I didn't want to drive back to the store" defense.

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This page contains a single entry by Editor published on March 25, 2002 5:09 AM.

Interview with Richard Garriott, Executive Producer, NCSoft Austin was the previous entry.

Medal of Honor: Allied Assault Review is the next entry.

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