Click-Wrap Agreements in Indian Contract Law

Author: Kunal Singh

The Indian Contract Act, 1872 is one of the oldest legislations prevalent in our country. But that has not affected its relevance in business transactions today. However the scenarios of contract have undergone a sea of change ever since the inception of this law. The basic essentials of contracts still remain the same as specified under the provisions of the Indian Contract Act. With the passage of time, this act has been interpreted in different ways. Earlier, parties to the contract had to be physically present at the time of entering into the contract. But it was the invention of the telephone that made the physical presence of parties unnecessary and redundant. Subsequently, wired communication was replaced by wireless communication with the coming of Mobile phones and the Internet. But it is the Internet that has had the most profound impact. Internet transactions have become commonplace in day-to -day contracts. Contracts relating to Software transactions are a relatively new phenomenon. But even they have undergone change in the past few years. Close to two decades back, software transactions were dealt by the Shrink-wrap agreements i.e. the customer is assumed to accept the terms and conditions of the contract as soon as he opens the packaging if the software. But now, the click-wrap agreements i.e. the terms and conditions are overtly displayed before the installation of a software and it gives a choice to the customer of acceptance of the terms and conditions of the software, is more popular and preferred over the Shrink-wrap agreements due to the growing popularity of the Internet..

Click Wrap Agreements are a natural development in today’s e-commerce world from “Shrink Wrap Agreements”. Shrink Wrap Agreements derived their name from the “Shrink –Wrap” packaging, that generally contains CD ROM software. This type of contract is in the nature of prior license agreement enforced upon buyer when he buys the software in the form of a CD (compact disc). As soon as the buyer tears the cover or the wrap, it is deemed that the buyer has agreed to the terms and conditions to use the software and therefore, a contract is said to have been formed. In a Click Wrap Agreement, the party after going through the terms and conditions provided in the website or programme has to typically indicate his assent by clicking “I Agree/I Accept” icon or decline the same by clicking the icon “I disagree”. These types of contracts are extensively used on Internet for granting permission to access the site or downloading the software or selling some product.

Software Developers generally rely on the use of contracts in the form of clickwrap license agreements as a means to protect software from unauthorized use, modification and copying. By granting a license to the purchaser to use the software rather than selling the program outright, the Software Developer is able to retain and have control over his product. Most of click wrap license agreements are non-exclusive licenses which mean that the licensor reserves the right to license the same software to other licensees.

Click wrap agreements usually include provisions such as a ‘Notice of Agreement Clause’ stating that the using of the software/ product constitutes agreement to the license’s terms, a ‘Title Retention Clause’ which, in effect, states the user does not own the copy of the program he/she has contracted for, but takes possession subject to a perpetual license, an ‘Exclusive Use Clause’, a clause preventing the user from creating unauthorized copies of the software/ product for use or otherwise, an ‘Anti-refuse Clause’ prohibiting the user from lending, renting, or transferring the software to others, in case of softwares, a clause prohibiting usage in more than one computer specified for that parties, an ‘Anti-reverse Engineering Clause’, prohibiting the user from reassembling the product from the already available version, a provision protecting the copyright over the software/ product design, a usual limitation or disclaimer of warranties and liabilities, a clause limiting the liability of the vendor, a purchaser’s right to decline the terms of the agreement by returning the software program or the product, as the case may be, and miscellaneous provisions such as a governing law clause, jurisdiction clause, force majeure clause etc.

Thus, click wrap agreements are adhesion contracts which do not involve the concept of mutual assents and bargains as provided in the contract theory. Actually they are “take it or leave it” agreements in which the user is not made aware of the terms until late in the transaction (just before the use of the product) which is different from traditional written contract.[1]

The potential problem with click wrap agreements arises from the basic principles of contract law. These state that for a contract to exist there must be an offer of a contract, an acceptance of its terms and the parties to the contract must intend to be legally bound by the contract’s terms. Although ordinarily both the offer and acceptance take place during a period of discussion and/or negotiation and only after this process concludes do parties become bound by a contract on the basis that all terms are agreed. However, in the case of Click Wrap Agreements, the purchaser purchases the product and is then asked to agree to terms and conditions at a later stage, when there is no opportunity to negotiate such terms. And so the enforceability of click wrap agreements has been questioned and examined in many countries and jurisdictions.

While India does not have a separate legislation governing e­-contracts (except for some limited provisions in the Information Technology Act, 2000), discussed herein, some other jurisdictions have some form of legislation with respect to the enforceability of such contracts. In the arena of click-wrap agreements, the most famous US case was that of Hotmail Corporation v. Van Money Pie[2] where the clicking of an ‘I agree’ button at the bottom of a terms and conditions page was considered sufficient. But some forms of click-wrap agreements have not been enforced.

In European Union (EU), until recently the enforceability of click wrap agreements has been very unclear, while in Australia click-wrap agreements are enforceable in principle.

LEGAL APPROACH TO CLICK WRAP LICENSE AGREEMENTS

In the United States, the Uniform Commercial Code (UCC) plays a pivotal role for the commercial transactions. Therefore, a relevant law, at this time, is only Article 2 of UCC governing the sales of goods transactions. However, some legal scholars disagree that Article 2 sales doctrine of the UCC should be applied to software licensing agreements because it is fundamentally inconsistent with the commercial reality of such transactions. I also agree with this point. You may now wonder why the UCC is not fit for such advance technology transactions. As I already mentioned that the drafters of Article 2 did not contemplate with an advent of modern-mass market software industry at that time, a contract for the sale of goods, then, is one in which a seller agrees to transfer goods that conform to the contract in exchange for a valuable consideration. The main point is Article 2 of the UCC applies to sales of tangible goods only. Therefore, the question coming up is whether “software” is under the meaning of goods. Under Article 2, “Goods” mean all things movable at the time of identification to the sale. Electricity is also treated as goods. In addition, the vast majority of courts, at the earliest time, treated software as goods within the scope of Article 2. Some courts struggle with the intangible qualities of software applying the UCC by analogy.

The other obscured issue making the parties feel frustrated is software-licensing agreements, both shrink wrap and click wrap licenses, are not sales of goods transactions where title passes from buyer to seller. For this point, generally, the courts distinguish between sales and services. Article 2 governs the former whereas the latter falls under the auspices of the common law. Courts look to the “predominant purpose” of the software agreement to determine which law should be applied. Nonetheless, Article 2 is inadequate for the new information technologies, as it does not address some fundamental issues of the shrink wrap or click wrap licensing[3]. We, of course, need the law that has a specific paradigm for dealing with issues such as contract formation and its enforceability, interpretation, warranties, and the transfer of rights in information technologies.

The Indian Contract Act, 1872, is silent on E-contracts like Click-wrap ad Shrink-wrap agreements. But one can easily interpret click-wrap agreements under Section 10 of the Indian Contract Act. Section 10 of the act reads as “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”. In click-wrap agreement, though the identity of both parties are unknown, there seems to be a free consent amongst them in entering into the contracts. The consideration could range from monetary terms to terms which restrict the use of the software to only one user. What is important to be noted is the degree of autonomy granted to the parties.

EVIDENTIARY VALUE UNDER INDIAN EVIDENCE ACT

The Indian law does not explicitly talks about click wrap agreement but few sections of Indian Evidence Act undertakes rather a broader aspect that is e-contracts under which click wrap agreement also come. Presumption as to Electronic Records are dealt by section 85A, 85B, 85C, 88A, 90A of the Indian Evidence Act, whereas admissibility of Electronic records are dealt by Section 65B of the same act.

1. Section 85A[4]: It deals with validity of E-contracts. According to this Section, a E-contract will conclude only after a digital signature is attached to it.[5] 2. Section 85B[6]: Where a proceeding involves a secure electronic record, the court has to presume that the record was not altered since the specific point of time to which the secure status related. The section permits evidence to the contrary. Evidence may be produced in rebuttal of the presumption.
There is a similar presumption as to a secure digital signature. Where any proceeding involves a secure digital signature, the court has to make the following two presumptions:
That the secure digital signature was affixed by the subscriber with the intention of signing or approving the agreement.
That the presumption will apply only to secure electronic record or secure digital signature and that there is to be no presumption under the section relating to authenticity and integrity of the digital signature. There can be evidence to the contrary.[7] 3. Section 85 C[8]: The court has to presume that the information listed in the digital signature certificate is correct if the certificate was accepted by the subscriber.[9]

4. Section 88A[10]: This section provides that the court may presume that the electronic message forwarded by the originator through an electronic mail server to the addressee corresponds with the message as fed into his computer for transmission and the court is not authorized to make any presumption as to the person by whom such matter was sent. [11]

The explanation deals with the meaning of the term addressee and originator i.e. the meanings assigned to them in section 2(1) (b) and section 3 of the IT Act 2000.

5. Section 90A[12]: When an electronic record purports to be or is proved to be 5 years old and is produced from any custody which the court considers proper in the particular case, e court may presume that the digital signature which purports to be the digital signature of any person was so affixed by him or by any person authorized by him in that behalf. [13]

ISSUES RELATING TO ENFORCEMEMNT OF CLICK WRAP AGREEMENTS

In click wrap agreements, the meeting amongst the parties is virtual i.e. they do not meet physically. The contract could be for the sale of any kind of product, physical or otherwise.
Following are some of the issues that arise due to click wrap contracting:-

Identity of parties

In click wrap agreements, the parties are not able to meet and negotiate the terms of the contract. Due to this and the contract being in standard form, the identity of the parties is unknown unlike in traditional meetings where individual or the company, as the case may be, negotiate the terms face to face. Hence, such transactions do not give the same sense of security. Online, the business transaction is entered into with what is generally in the nature of a faceless icon. Moreover, a due diligence exercise undertaken to verify the identity of the opposite party and to ascertain whether the latter is competent and capable of performing the contract becomes cumbersome. Also relevant is the fact that in case due diligence is conducted, the whole point of entering into this type of agreement due to its time saving ability will be defeated.

The element of trust in online transactions (click wrap agreements) is a crucial one. Parties enter into the contract in good faith only. In normal goods for money transactions, the aggrieved knows the other party who is to be sued in case of default. However, in such transactions since the identity of the defaulter, if it is the person agreeing to the terms of the contract, is unknown, it is difficult to track and sue the person. Also, there exists the possibility of a fraudulent website exhibiting wares for sale, which accepts funds for delivery of goods but disappears later. The vendor’s identity is not known except through an impermanent and usually untraceable electronic link.

In the light of these problems, it becomes imperative for the parties to a contract to be capable of being identified and their identity be guaranteed by a reliable entity.

Jurisdiction

Due to the nature of the Internet it becomes hard to discern the point and place of offer, acceptance and performance of the contract. Since legal issues of jurisdiction are dependent on such factors, it is imperative to know about them. Moreover, the laws of contract governing the transaction may have certain variations in cases where an international element is present in the transaction, like the procedural formalities etc. may be different in separate jurisdictions. Therefore, the seat of the dispute is of great consequence to the outcome of the case.

Legal recognition of transaction

Further, even if the identity of the parties involved in the transactions is ascertainable, will the legal enforcement machinery of the State recognize such a transaction carried out on the internet? The evidentiary value of such transactions is not clear as of now. Thus, if an agreement is concluded in the form of a click wrap license, the admissibility of such document is disputable. Such an issue raises questions such as the reliability of such evidence vis-a-vis the amenability of such evidence to tampering.
Notice

Notice is one of the important points considered by courts in deciding the enforceability of such contracts in the USA. Courts have held that click wrap agreements are enforceable if there are terms and conditions presented to the user to provide the user with requisite notice. For example, the Second Circuit Court in Specht v. Netscape2, found that a click-wrap license was unenforceable because to view the terms of the license agreement, the user was required to scroll to the bottom of the webpage. The court reasoned, “plaintiffs may have been aware that an unexplored portion of the Netscape webpage remained below the download button does not mean that they reasonably should have concluded that this portion contained a notice of license terms.” The court concluded that where a user was “urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.”

JUDICIAL PRECEDENTS

India does not have any judicial history on the enforceability of click wrap agreements though the Information Technology Act, 2000 contains some provisions about electronic records, their attribution, acknowledgment and despatch. However, in the absence of any clear law on the subject, the only next best option is to look at some foreign decisions on the subject. There are a few cases relevant to the validity of click wrap license agreements decided by courts in USA.

Compuserve v. Patterson[14] is a case relating to a non mass-market click wrap license agreement. Compuserve, the plaintiff, was a computer information service headquartered in Columbus, Ohio. It contracted with individual subscribers, such as Patterson, the defendant, to provide access to computing and information services via the Internet. Patterson was a resident of Houston, Texas subscribed to Compuserve and he also placed items of ‘shareware’ on the Compuserve system for others to use and purchase. Patterson entered into a ‘Shareware Registration Agreement’ (SRA) with Compuserve. Under the SRA, an online agreement, Compuserve was entitled to a percentage of the fee when a user paid a shareware licensing fee. After that Compuserve would pass the remainder to the shareware’s creator. The SRA also referred two documents which are the CompuServe Service Agreement (Service Agreement) and the Rules of Operation. Both of them expressly provide the agreements would be governed and construed by Ohio law.

Later, Compuserve began to market a similar product by using software that infringed the Patterson’s trademark used in his shareware program. When Patterson complained, Compuserve sought from an Ohio court a declaratory judgment that it was not infringing on any of the Patterson’s trademark. The appellate court held Patterson’s contacts with Ohio were sufficient for the Ohio court to exercise personal jurisdiction over the non-residence.

The court also reasoned Patterson manifested assent to the SRA, which by its terms was to be governed by Ohio law, by typing ‘Agree’ at various points in the agreement. Therefore, a contract formed in the form of click wrap was held enforceable.

The first case to consider the enforceability of a mass-market click wrap agreements was Hotmail Corporation v. Van Money Pie[15]. Hotmail, the plaintiff, is a Silicon Valley company that provides free electronic mail (e-mail) on the World Wide Web.
Hotmail’s online services allow its over ten million registered subscribers to exchange e-mail messages over the Internet with any other e-mail users who has an Internet e-mail address throughout the world. To become a Hotmail subscriber, one must agree to abide by the Service Agreement (Terms of Service) which specifically prohibits subscribers from using Hotmail’s services to send unsolicited commercial bulk e-mail or “spam” or, to send obscene or pornographic messages. Hotmail can terminate the account of any Hotmail subscriber who violates the Terms of Service.

In the fall of 1997, Hotmail found out that Van Money Pie Inc., the defendant, created Hotmail’s accounts to facilitate sending “spam” e-mails to thousands of internet e-mail users including Hotmail’s domain name and its mark. The spam messages advertised pornography, bulk e-mailing software, and “get-rich-quick” schemes. The Hotmail’s account served as a drop box for collecting unopened responses to the spam messages and receiving bounced back e-mails sent to nonexistent or incorrect email addresses. Hotmail, after receiving complaints from Hotmail’s subscribers, sued the defendant claiming the defendant had breached the terms of service Agreement by arguing the defendant had agreed to abide by the terms of the Service Agreement before obtaining Hotmail account and using Hotmail’s email services. Moreover Hotmail also claimed the defendant’s actions damaged Hotmail’s reputation and goodwill. The US District Court granted Hotmail an injunction prohibiting the defendant from “Spamming” via Hotmail’s email services.

From this case, even though the court did not directly address the validity of this online agreement, the judgment implied the validity of click wrap license agreement which is a good sign for the electronic commerce community.

Another case relating to click wrap contracts is Caspi v. The Microsoft Network,LL.C. et al[16]. This case was a class action. Subscribers to on-line computer service, the plaintiff, brought action against the Microsoft Network (MSN), an Internet service provider (ISP) and the defendant, to recover for the way it rolled over service into more expensive plans. The issue of the case is whether a forum selection clause contained in an on-line subscriber agreement is enforceable. From the fact, before becoming an MSN member, a prospective subscriber is prompted by MSN software to view multiple computer screens of information, including a membership agreement which contains the above clause. MSN’s membership agreement appears on the computer screen in a scrollable window next to blocks providing the choices “I Agree” and “I Don’t Agree.” Prospective members assent to the terms of the agreement by clicking on “I Agree” using a computer mouse. Prospective members have the option to click “I Agree” or “I Don’t Agree” at any point while scrolling through the agreement. Registration may proceed only after the potential subscriber has had the opportunity to view and has assented to the membership agreement, including MSN’s forum selection clause. No charges are incurred until after the membership agreement review is completed and a subscriber has clicked on “I Agree.” The Superior Court, Appellate Division, by affirming the trial court’s decision, held the application of MSN’s forum selection clause at Washington did not contravene public policy and would not inconvenience a trial.

Another court was more explicit in its reasoning relating to the validity of click wrap agreements. In i.LAN Systems, Inc. v. Netscout Service Legal Corp.[17], a Federal District court upheld a click wrap contract. In this case, i.LAN provided a network monitoring service to customers and purchased software from Netscout. Netscout and i.LAN signed an agreement allowing i.LAN to resell Netscout’s software to customers. However, i.LAN wanted to rent the software to customers. This was a practice Netscout claimed was not allowed under the click wrap license contained in the software itself. In reaching its decision, the court focused on whether click wrap licenses as a rule were enforceable. The court held that they were and that by clicking on “I agree,” i.LAN had overtly consented to the terms. This explicit assent was the key to the court’s determination that the click wrap agreement was not invalidated by the earlier purchase order agreement between the parties.

CONCLUSION

This paper seeks to raise issues relating to click-wrap agreements in the larger context of the changing contours of contract law. Commerce demands that the law rise up to challenges posed by technological advancements. Having said that, the law must be careful in preventing technology from diminishing long-standing contractual principles. The solution to the problem of a trust deficit in the case of an online contract and an invisible vendor is neither easy nor concrete. The problems of online contracts are compounded by the fact that parties are often unsure about what exactly they are consenting to. It may be argued that under the Indian Contract Act, 1872, where two parties enter into a contractual agreement in which there is no consensus ad idem, the agreements should be held to be unenforceable.

To re-establish the conundrum highlighted in this paper, take the case of websites that provide free e-mail services. These websites tend to share personal information of their clients (users of free e-mail services) with other websites. While this may not appear to be a contract in the sense that one would normally understand it (insofar as there is no monetary consideration), it becomes clear on close inspection that the consideration is anonymity of the user.

Nevertheless, the development of contract law over the years and across jurisdictions has undeniably tilted the balance of power in favour of the vendor insomuch as it leaves the buyer with no option but to enter into such contract unconditionally. The reason why this sort of mechanism continues unhindered is because of the fact that buyers are largely satisfied with this kind of good-faith contractual relationships.

Hence, a separate law to govern e-contracts is urgently required in order to settle the law once and for all.


[1] Lemley, Menell, Merges, Samuelson, Software and Internet Law, p. 363 (ASPEN Publishers,3rd edn)
[2] 1998 WL 388389
[3] M.T Michele Rennie, Computer Contracts, p. 79, (Sweet & Maxwell)
[4] Section 85A. Presumption as to electronic agreements.- The Court shall presume that every electronic record purporting to be an agreement containing the digital signatuers of the parties was so concluded by affixing the digital signature of the parties.
[5] Dr. Avtar Singh, Principles of the Law of Evidence, p. 361, (Central Law Publications, Eighteenth Edn. ,2010)
[6] Section 85B. Presumption as to electronic records and digital signatures.- (1) In any proceedings involving a secure electronic record, the Court shall presume unless contrary is proved, that the secure electronic record has not been altered since the specific point of time to which the secure status relates.
(2) In any proceedings, involving secure digital signature, the Court shall presume unless the contrary is proved that—
(a) the secure digital signature is affixed by subscriber with the intention of signing or approving the electronic record;
(b) except in the case of a secure electronic record or a secure digital signature, nothing in this section shall cerate any presumption, relating to authenticity and integrity of the electronic record or any digital signature
[7] Supra n. 5, p.0 361
[8] Section 85C. Presumption as to Digital Signature Certificates.- The Court shall presume, unless contrary is proved, that the information listed in a Digital Signature Certificate is correct, except for information specified as subscriber information which has not been verified, if the certificate was accepted by the subscriber.
[9] Supra n. 5, p. 361
[10] Section 88A. Presumption as to electronic messages.- The Court may presume that an electronic message, forwarded by the originator through an electronic mail server to the addressee to whom the message purports to be addressed corresponds with the message as fed into his computer for transmission; but the Court shall not make any presumption as to the person by whom such message was sent.
[11] Supra n. 5, p. 363
[12] Section 90A. Presumption as to electronic records five years old.- Where any electronic record, purporting or proved to be five years old, is produced from any custody which the Court in the particular case considers proper, the Court may presume that the digital signature which purports to be the digital signature of any particular person was so affixed by him or any person authorised by him in this behalf.
[13] Supra n. 5, p. 371
[14] 89 F. 3d 1257 – 1996
[15] Supra n. 1
[16] 1999 WL 462175
[17] 183 F.Supp.2d 328

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