i.Lan Systems, Inc. v. Netscout Service Level Corp., 183 F.Supp.2d 328 (D. Mass. 2002) (full-text).
Plaintiff and defendant are software companies. In 1998 they signed a detailed VAR (value-added reseller) agreement under which plaintiff agreed to resell defendant's software to customers. Plaintiff claimed this agreement permitted it to rent, rather than sell, the software to users, and it was entitled to perpetual upgrades, relying on a purchase order associated with the transaction. Defendant, then named NextPoint Networks, told i.Lan to look at the VAR agreement “and the clickwrap license agreement contained in the software itself…”
For several months, the relationship continued. But eventually i.Lan sued NextPoint for “among other things, breach of contract and violation of [the Massachusetts consumer protection act.]”
Trial Court Proceedings
Both parties moved for summary judgment, i.Lan asking for specific performance of perpetual upgrades and unlimited support. NextPoint argued that even if plaintiff's allegations were true, the clickwrap license limited its liability to the amount i.Lan had paid: $82,231.42. After hearing arguments, Judge Young ruled for the defendant.
Which contract governs?
|“||Three contracts might govern this dispute: the 1998 VAR agreement, the 1999 purchase order, and the clickwrap license agreement to which i.Lan necessarily agreed when it installed the software at issue.” The key question, said the court, “is how the 1998 and 1999 agreements affect the clickwrap license agreement.” Specific language in that license said:
This License Agreement does not affect any existing written agreement between Licensee and NEXTPOINT and may be superseded by a subsequent written agreement signed by both parties. . . . Terms and conditions as set forth in any purchase order which differ from, conflict with, or are not included in this License Agreement, shall not become part of this License Agreement unless specifically accepted by NEXTPOINT in writing.
According to Judge Young, “the natural reading [of this language] is that to the extent the 1998 VAR agreement and 1999 purchase order are silent, the clickwrap license agreement fills the void.”
Noting that Massachusetts courts "have assumed, without deciding, that UCC Article 2 governs software licenses," Judge Young examined the clickwrap license “through the eyes of the UCC” while noting the ongoing efforts to enact UCC Article 2B (licenses) and its successor, UCITA, have not led to their enactment in Massachusetts. “Article 2 technically does not, and certainly will not in the future, govern software licenses, but for the time being, the Court will assume that it does.” He then discusses the applicability of U.C.C. § 2-716(1) which provides for specific performance “when the goods are unique,” concluding that the software at issue was not unique because:
- Even though the software is copyrighted, there are competing programs;
- Even if the software has been tailored to i.Lan's needs, plaintiff could acquire comparable software and “reconfigure its systems to run that software”; and
- Plaintiff argues that it does not know how many licenses it will need to provide rental services; this is an argument that the contract is unique, not the “goods.”
Limitation of Liability
Since i.Lan cannot get specific performance, its only remedy is money damages. After ruling that the case is only a simple breach of contract, and the consumer protection law does not apply, he notes, “but the clickwrap license agreement contains a 30 day limited warranty but otherwise disclaims all warranties and limits NextPoint's liability to the fees it received for the license. The key question, then, is whether the clickwrap license agreement is enforceable.” (footnote omitted.)
After discussing the applicability of U.C.C. §§2-204 and 2-207, and comparing Step-Saver Data Systems, Inc. v. Wyse Technology, with ProCD, Inc. v. Zeidenberg,  both of which considered the effectiveness of shrinkwrap licenses, the court concluded the clickwrap license provisions were enforceable, saying, “If ProCD was correct to enforce a shrinkwrap license agreement [when the user did not return the software after an opportunity to read the license agreement ], then it must also be correct to enforce a clickwrap license agreement where the assent is explicit.”
Further, said Judge Young, even if he agreed with this plaintiff that §2-207 governed, “i.Lan implicitly accepted the clickwrap license agreement because its additional terms were not material” since the 1998 VAR agreement had “warranty disclaimers and limitations of liability nearly identical to those found in the clickwrap license agreement. Furthermore, the 1998 VAR agreement incorporates the clickwrap license agreement by reference and specifically states that NextPoint's liability to end users of this software will be limited by the clickwrap license agreement.”
The court concludes by noting that the purchase order “contains a price, a quantity, and five specific terms, but is silent with respect to warranties and potential liability.” And plaintiff's damages, if it prevails, on other issues is limited to the amount it paid NextPoint.