Ch. 10: Commerce Online, Legal or Otherwise

A. Conventional Commerce, Upgraded

Notes

1. Notwithstanding the devaluation of some formerly prominent dot-com stocks, Internet commerce continues to grow. See, U.S. Dept. of Commerce, Quarterly Retail E-Commerce Sales: 3rd Quarter 2005, November 22, 2005.

2. Although, strictly speaking, the contract in question in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), was not formed over the Internet, the case has proven widely influential--and very controversial. In large part, commentary on ProCD varies with the commentator's acceptance or rejection of Judge Easterbrook's claim, "Terms of use are no less a part of 'the product' than are the size of the database and the speed with which the software compiles listings. Competition among vendors, not judicial revision of a package's contents, is how consumers are protected in a market economy." Id. at 1453. For a judicial opinion disagreeing with ProCD, see, Klocek v. Gateway, Inc., 104 F. Supp.3d 1332 (D. Kan., June 16, 2000) [PDF format], wherein the court applied the formation rules set forth in UCC § 2-207 to deny enforcement of an arbitration provision enclosed in the box of a purchased computer. Crucially, the court found that, "Gateway provides no evidence that at the time of the sales transaction, it informed plaintiff that the transaction was conditioned on plaintiff's acceptance of [Gateway's] Standard Terms. Id. at 1341.

3. For an opinion distinguishing enforceable shrinkwrap and clickwrap licenses from an unenforceable "browsewrap" license, see Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y 2001) (denying motion to compel arbitration and stay proceedings per alleged license agreement) [PDF format], affirmed, 306 F.3d 17 (2nd Cir. 2002) [an alternate source]. In Specht, Netscape sought to enforce a license on software it had made available for downloading. The court refused to enforce the license, however, on grounds that Netscape had done no more than place notice of the license on the same webpage where it had made the download available. Because shrinkwrap and clickwrap agreements "require users to perform an affirmative action unambiguously expressing assent before they may use the software, that affirmative action is equivalent to an express declaration stating, 'I assent to the terms and conditions of the license agreement' or something similar." Id. at 595. In contrast, the court explained, Netscape's supposed browsewrap license "allows a user to download and use the software without taking any action that plainly manifests assent to the terms of the associated license or indicates an understanding that a contract is being formed." Id.

4. The plaintiff in Groff v. America Online, Inc., 1998 R.I. Super. LEXIS 46 (Super. Ct. R.I., Providence May 27, 1998) (C.A. No. PC 97-0331), objected to the the enforceability and terms of AOL's clickwrap license. In granting defendant's motion to dismiss, the court said:
   

   While defendant prepared this contract, plaintiff was under no obligation to agree to the terms. Plaintiff had the option to refuse the service and the contract offered by plaintiff. Although plaintiff in his affidavit, states "I never saw, read, negotiated for or knowingly agreed to be bound by the choice of law . . ." he does not point to any conduct of defendant or other reason why he could not. Indeed as pointed out in defendant's affidavit and argued in his memorandum, one could not enroll unless they clicked the "I agree" button which was immediately next to the "read now" button or, finally, the "I agree" button next to the "I disagree" button at the conclusion of the agreement.

   Id. at *12-*13. The court cited "the general rule that a party who signs an instrument manifests his assent to it and cannot later complain that he did not read the instrument or that he did not understand its contents. Here, plaintiff effectively 'signed' the agreement by clicking 'I agree' not once but twice. Under these circumstances, he should not be heard to complain that he did not see, read, etc. and is bound to the terms of his agreement." Id. at *13.

5. Although offering scant analysis, the court in Hotmail Corp. v. Van$ Money Pie, 1998 U.S. Dist. LEXIS 10729; 47 U.S.P.Q.2D (BNA) 1020 (N.D. Cal. 1998) (No. C98-20064 JW) (not reported), granted a preliminary injunction on defendants' use of plaintiff's free email service to send spam on grounds, in relevant part, that defendants' thereby violated plaintiff's (apparent) clickwrap license.

6. For a case applying UCC art. 2 to analyze not just contract formation via a shrinkwrap license, but also the enforceability of one type of clause typically included in such licenses, see M.A. Mortenson Co., Inc. v. Timberline Software Corp., 140 Wn.2d 568, 998 P.2d 305 (Wash. Sup. Ct. 2000) (holding that shrinkwrap license constituted part of the parties' bargain and that clause limiting software producer's liability for consequential damages not unconscionable).
   
   

Useful Resources and Optional Reading

• Uniform Computer Information Transaction Act (UCITA) Online

• Uniform Electronic Transaction Act (UETA) Online

• Federal Trade Commission, Dot Com Disclosures: Information about Online Advertising (May 3, 2000) (offering guidelines on how to apply existing consumer protection laws to online advertising)

• Nicholas Negroponte, The Future of Retail, Wired, July 1998
  
  

Bell's Class 27: Please read the materials in Ch.10.A.

B. Unlawful(?) Commerce

Notes

1. The issues raised in Swedenburg v. Kelly illustrate a more general point: Sometimes when a new form of commerce enabled by the Internet violates existing regulations, we ought to fault the regulations. Consumers may benefit, for instance, when Internet businesses start to compete with local, bricks-and-mortar ones. Relatedly, see Santa Fe Natural Tobacco Co., Inc. v. Spitzer, 2001 WL 636441 (S.D.N.Y. June 8, 2001) (No. 00 CIV. 7274(LAP); 00 CIV. 7750(LAP)) (striking down on grounds it violated dormant commerce clause a N.Y. statute barring sales of tobacco products from out-of-state retailers directly to N.Y. residents). The interstate tobacco sales at issue in Santa Fe Natural Tobacco offered consumers a means of avoiding New York's cigarette tax, which at $1.11 per pack ranked as the highest in the nation. The court rejected New York's claim that the statute aimed not to protect in-state retailers but rather to prevent sales to minors. In relevant part, the court found that "[b]ecause of the widespread parental supervision of children's Internet activities and the availability of various technological tools to assist this supervision, the need to obtain unsupervised, Internet access is a significant transaction cost to minors attempting to purchase cigarettes over the Internet." Id. at *20. It concluded that the state had "failed to demonstrate that the statute will effect any material local benefit in reducing direct sales of cigarettes to minors." Id. Note, however, that Swedenburg and Santa Fe together do not illustrate that all regulations that discriminate against Internet commerce to the detriment of consumers fall afoul the Constitution; the latter case was overruled by Brown & Williamson Tobacco Corp. v. Pataki, 320 F.3d 200 (2nd Cir. 2003), which upheld against a commerce clause challenge a New York statute restricting the direct shipment of cigarettes to New York consumers.

2. The court in United States v. Cohen, 260 F.3d 68 (2nd Cir. 2001), affirmed a conviction based on the defendant's having violated U.S. federal law by transmitting from Antigua (the laws of which allow Internet gambling) to New York (the laws of which do not) bets and related information.

3. In re Mastercard Int'l Inc. Internet Gambling Litig., 313 F.3d 257, 263 (5th Cir. 2002), held that "the Wire Act does not prohibit non-sports internet gambling," an opinion apparently not shared by the court in People of New York v. World Interactive Gaming Corp.

4. For reports on yet other sorts of dicey online commerce, see Appendix D - Internet Sale of Prescription Drugs and Controlled Substances, from President's Working Group on Unlawful Conduct on the Internet, The Electronic Frontier: the Challenge of Unlawful Conduct Involving the Use of the Internet (March 9, 2000); Appendix E - Internet Sale of Firearms, id.
   
   
   

Useful Resources and Optional Reading

• Federal Trade Commission, Internet Auctions: A Guide for Buyers and Sellers (Sept. 2000)

• Complaint, Gentry v. eBay Inc., Case No. 746980 (Superior Court, County of San Diego) (alleging that eBay should be held liable for sales through its auction of counterfeit sports memorabilia)
  
  

Bell's Class: Please regard the materials in Ch.10.B as optional reading.