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ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)

Summary

In this case, rejecting the buyer's claim that he could not be bound by the terms of a shrinkwrap license that were not displayed on the outside of a software box the court determined that the terms of the shrinkwrap license which were not unconscionable, were enforceable because no contract was formed until the buyer "accepted" the terms of the license by electing to keep the software.

Analysis

In ProCD, the Seventh Circuit addressed the issue of whether a shrinkwrap license that was included with computer software was an enforceable contract. The lower court had held that because the shrinkwrap license was inside the box, rather than printed on the outside, it was not enforceable because the contract was formed when the buyer purchased the goods, and could therefore not contain "hidden terms" that were not even disclosed until the box was later opened. The appellate court rejected this analysis under traditional contract principles and Article 2 of the UCC, holding that "shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable.)" In so holding, the court concluded that no contract was formed by the parties until the buyer "accepted" the seller's terms by either returning the software after reading the license agreement or electing to keep the goods. In support of its conclusion that the contract was not formed until after the license terms were reviewed, the court observed that "[t]ransactions in which the exchange of money precedes the communication of detailed terms are common" not only within the software industry but in the purchase of a wide variety of services such as insurance, airline tickets and theater concert tickets. The court also focused on the practical difficulty of informing every customer of all of the terms contained in an information license before money changed hands and concluded that a purchaser could prevent formation of the contract simply by returning the goods.


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