ProCD v. Zeidenberg

‘’’Citation:’’’ ‘’ProCD, Inc. v. Zeidenberg,’’ 86 F.3d 1447 (7th Cir.), ‘’rev'g’’ 908 F. Supp. 640 (W.D. Wis. 1996).

District Court Opinion
The district court had found the shrinkwrap license unenforceable, since the end user had no opportunity to review the terms of the license until after the purchase was consummated. The court held that all of the terms of the license had to be visible to the purchaser before the purchase was consummated if the terms of the license were to be part of the agreement between the parties.

Appellate Court Opinion
The Seventh Circuit reversed, holding that shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general. The court rejected the district court's fundamental premise (which followed ‘’Step-Saver Data Systems v. Wyse Technology,’’ 939 F.2d 91 (3d Cir. 1991) and ‘’Arizona Retail Sys. v. Software Link,’’ 831 F. Supp. 759 (D. Ariz. 1993)) that the terms of a contract must be available to the end user for review prior to the exchange of money in order to be deemed part of the agreement. The court pointed to several different types of transactions in which money is exchanged before the terms of the contract are disclosed to the purchaser -- insurance contracts, airline tickets, and a concert tickets. The court also cited other instances of consumer goods transactions (such as the purchase of a radio), in which a warranty is contained inside the packaging and the consumer does not see it until opening the box after the purchase. The court held that "so far as we are aware no state disregards warranties furnished with consumer products." 86 F.3d at 1451.

The court noted the impracticality of requiring that the terms of software licenses be disclosed to the end user prior to the purchase, noting that a majority of software sales occur through channels in which there are no packaging to review before the transaction -- such as telephone and catalog sales and orders over the Internet.

The court rejected the trial court's analysis of the UCC, which it characterized as "the UCC does not countenance the sequence of money now, terms later." ‘’Id.’’

The Seventh Circuit held that the provision of the U.C.C. applicable to shrinkwrap licenses was U.C.C. § 2-204(1), which provides that a contract for the sale of goods may be made in ‘’any’’ manner sufficient to show agreement, including conduct by the parties recognizing the existence of such a contract:

A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. And that is what happened. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure. This Zeidenberg did. He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance. So although the district judge was right to say that a contract can be, and often is, formed simply by paying the price and walking out of the store, the UCC permits contracts to be formed in other ways. ‘’Id.’’

The Seventh Circuit also relied upon U.C.C.§ 2-206, which states that a buyer accepts goods when, after an opportunity to inspect, he fails to make an effective rejection:

ProCD extended an opportunity to reject if a buyer should find the license terms unsatisfactory; Zeidenberg inspected the package, tried out the software, learned of the license, and did not reject the goods. We refer to § 2-206 only to show that the opportunity to return goods can be important; acceptance of an offer differs from acceptance of goods after delivery. . . but the UCC consistently permits the parties to structure their relations so that the buyer has a chance to make a final decision after a detailed review. ‘’Id.’’ at 1453.

The appellate court also found no copyright preemption, holding that rights "equivalent to any of the exclusive rights within the general scope of copyright" for preemption under § 301(a) are

rights established by law -- rights that restrict the options of persons who are strangers to the author. . . . A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create 'exclusive rights'." ‘’Id.’’ at 1454.

The court concluded that the "general enforcement of shrinkwrap licenses of the kind before us does not create such interference. . . . [W]hether a particular license is generous or restrictive, a simple two-party contract is not 'equivalent to any of the exclusive rights within the general scope of copyright' and therefore may be enforced." ‘’Id.’’ at 1455.