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Click-Wrap, Shrink-Wrap, and Web-Wrap Agreements

Checklist

Where’s the Agreement?

□ Identify all relevant contract terms

□ Keep accurate copies of the agreements

□ Record the date of acceptance

Risks and Issues

□ Business assessment of risks posed

□ Understand as-is nature of software or service

  • - No warranties
  • - No indemnities
  • - Very limited liability, if any, for the vendor

□ Customer has unlimited liability for both direct and consequential damages

□ Identify contractual provisions that could place customer intellectual property at risk

  • - Feedback clauses
  • - Train personnel not to reveal or disclose proprietary information or intellectual property

□ Avoid placing sensitive information at risk

  • - No confidentiality protection
  • - No real liability for breaching confidentiality
  • - No remedy for misuse of confidential information

□ Beware of broad audit rights

  • - Abusive audits
  • - Contingent fee audits
  • - Access to company facilities and systems without adequate contractual protections
  • - Access by undefined third-party agents of vendor

□ Assess risks of use of resellers

  • - Additional contract to review
  • - Splitting of responsibility
  • - Potential finger pointing between vendor and reseller

Techniques

□ Blind acceptance

□ Knowing acceptance

  • - Identify all terms
  • - Conduct brief review and assessment
  • - Adequately document

□ Mitigation

  • - Process for review
  • - Development of form amendment

Overview

Click-wrap, shrink-wrap, and web-wrap agreements are the fine print you see, among other things, when you click through terms and conditions in accessing an online service (e.g., in connection with a cloud computing service) or as part of the installation process for a piece of software. They may also be encountered as part of the documentation provided with new software or a hardware component. They may even be found, with some searching, in a file entitled “license.txt” or similar name on the installation CD on which a new piece of software is delivered.

Companies seldom read these terms in any detail, generally view them as nonnego-tiable, and accept them as a necessary evil.

Hie fact is, these types of agreements can present significant legal and company issues. They can place a company’s sensitive data at risk, expose the company to liability, compromise the company’s ownership of its own intellectual property, and cause the company to pay additional, unforeseen fees.

When the first edition of this book was written, these types of shrink-wrap/ click-wrap agreements were generally found only in small engagements, involving off-the-shelf software. Since publication of the first edition, however, we have seen these types of agreements used in fairly substantial, more business-critical engagements. Yet, the vendor presents the agreement as “non-negotiable.” As described below, there are ways to mitigate this risk, but as the size and criticality of the engagement increase, the customer should explore alternate vendors with more appropriate contracting practices.

What Is a “Shrink-Wrap” License?

The term “shrink-wrap” derives from the method by which software was distributed as a package of installation disks and associated documentation sealed inside shrink-wrap cellophane. The accompanying end-user license agreement was often itself packaged in shrink-wrap cellophane and placed on the outside of the package or included as the topmost item in the package. Today, shrinkwrap agreements can take a variety of forms and are found in both software and hardware acquisitions. However, they all have a common structure: essentially nonnegotiable terms and conditions that accompany the product. The terms may appear as part of the documentation accompanying the product, as part of an online purchase process whereby the terms are displayed (and the purchaser, potentially, is required to affirmatively click an “accept” button as part of the process), or presented to the purchaser on first use of the application as part of the installation process.

If the terms are displayed electronically, either online or in connection with the installation process, they are often referred to as “click-wrap” terms. For purposes of this discussion, there is no difference between click-wrap and shrink-wrap terms.

Courts in the United States have almost uniformly found that these types of agreements are enforceable (see, e.g., Conference America Inc. v. Conexant Sys. Inc., M.D. Ala., No. 2:05-cv-01088, 9/10/07). In fact, courts have held them enforceable even if the customer failed to read them (e.g., Druyan v. Jagger, S.D.N.Y., No. 06-cv-13729, 8/29/07). Except in unusual situations involving a very narrow range of unique transactions, these types of agreements have almost uniformly been found to be enforceable in the United States.

 
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