Specht v. Netscape

Citation: Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001), aff’d, 306 F.3d 17 (2d Cir. 2002).

Factual Background
Defendant, Netscape, a provider of computer software programs that enable and facilitate the use of the Internet, offers its "SmartDownload" software for free of charge on its web site to all those who visit the site and click on a designated box to download the software. Netscape did not require users to indicate assent to the license agreement as a precondition of downloading the software. Plaintiffs, computer users and website providers, allege that defendants, software vendor and its parent corporation, violated the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act. Plaintiffs argue that the usage of the software transmits to defendants private information about the user's file transfer activity on the Internet, thereby effecting an electronic surveillance of the user's activity in violation of the two federal statutes. The defendants moved to compel arbitration and stay the proceedings, arguing that the disputes reflected in the complaint, like all others relating to use of the software, are subject to a binding arbitration clause in the End User License Agreement (License Agreement). The License Agreement is the contract allegedly made by the offeror of the software and the party effectuating the download. Thus, the issue of the case is whether the offer of a license agreement binds the user to an arbitration clause contained in the license.

District Court
The court determined that California law applies as it relates to the sale of goods, including the Uniform Commercial Code in effect in California. The court held that unless the plaintiffs agreed to the license agreement, they cannot be bound by the arbitration clause contained therein. The defendants argued that the mere act of downloading the software indicated assent. However, the court held that the mere act of downloading did not manifest the plaintiffs' assent to be bound by the license agreement. The primary purpose of downloading was to obtain a product, not to assent to an agreement.

The court found that Netscape's failure to require users of SmartDownload to indicate assent to its license as a precondition to downloading and using its software is fatal to its argument that a contract has been formed. Therefore, the court rejected defendants' argument that the arbitration clause in the license agreement mandated arbitration of the dispute and denied the motion to compel arbitration.