(This article is written by Moumita Mondal, Kingston Law College, BBA LL.B., 3rd year during her internship at LeDroit India)
Scope of Article
- Introduction to electronic contracts and development of online agreements.
- Meaning, features and enforceability of a click-wrap agreement.
- Nature of shrink-wrap agreement and whether opening a package constitutes legal acceptance.
- Meaning of a browse-wrap agreement and significance of reasonable notice and awareness to users.
- Judicial approach to the question of online consent and reference to foreign and Indian legal precedents.
- Legal position of Indian Contract Act, 1872 and Information Technology Act, 2000.
- Comparative and critical analysis of consent, notice and contract enforceability in an online agreement.
ABSTRACT
The advent of digital commerce has changed the way in which agreements are made and accepted. While click-wrap, shrink-wrap and browse-wrap agreements are used in licensing software, e-commerce, online platforms and digital services, they give rise to different considerations relating to the question of notice, consent and contract enforceability. This article attempts to examine whether the mere act of clicking a box marked “I Agree”, opening a package or simply browsing a website could amount to legal assent to an agreement.
The article analyses prominent judicial developments in this area like ProCD, Inc. v. Zeidenberg, Specht v. Netscape Communications Corp., and Nguyen v. Barnes & Noble, Inc. and explores the Indian legal position under the Indian Contract Act, 1872 and Information Technology Act, 2000. The article suggests that the mere digital nature of a contract should not be the sole determining factor as to its enforceability. Courts should examine whether there was objective evidence of notice to the user, clarity of acceptance, user conduct, opportunities to reject terms and general provisions of contract formation.
Keywords:
Click-wrap Agreements; Shrink-wrap Agreements; Browse-wrap Agreements; Electronic Contracts; Digital Consent; Contractual Enforceability
SYNOPSIS
This article begins by introducing the concept of electronic contracts, and the role of online consent in digital transactions. It then proceeds to distinguish between the three most commonly used online agreements – click-wrap, shrink-wrap and browse-wrap based on the method of communicating terms and accepting them. The article then analyses prominent foreign judgments on the enforceability of online agreements, and applies the reasoning of such judgments to the Indian Statutory Law.
The article argues that while a click-wrap agreement provides strong evidence of the formation of a contract, browse-wrap agreements require special considerations of reasonable notice and user awareness, and shrink-wrap agreements fall somewhere in the middle based on the provision of notice, return of the product and conduct of the party accepting the terms. This article concludes by suggesting a framework based on which a court would determine whether an online action consists of legal consent to a contract.
1. INTRODUCTION
Digital transactions have made contracts faster, cheaper and more accessible. One can purchase goods and services or even use a digital platform without signing on a paper document. Instead, one can simply click on a button, a hyperlink, a software package or a website. Such methods are convenient from a commercial perspective but raise the question of when such conduct could be regarded as legal consent to a contract.
The question of consent is not merely whether the parties interacted through a digital medium. The law recognizes that an agreement can be formed in an electronic medium. The more difficult question is whether there was reasonable notice to the user and objective assent to the terms of the agreement. A click is different from opening a box and both are different from browsing a website where a hyperlink to the terms exists.
This difference in actions has given rise to what are called click-wrap, shrink-wrap and browse-wrap agreements. Each of these agreements has different legal considerations based on the interaction between the normal principles of contract formation and the medium of communication of terms. The article analyses these three types of online agreements, relevant judicial developments and the Indian legal position.
2. UNDERSTANDING ONLINE AGREEMENTS
2.1 Meaning of Electronic Contracts
An electronic contract or e-contract is an agreement formed through electronic modes of communication like websites, emails, apps, digital platforms or computer systems. The digital nature of the contract does not negate the requirements of a contract under the law. There must be a proposal and acceptance, consideration if any, competent parties, free consent, lawful object and the other requirements of a contract.
The Information Technology Act, 2000 is especially important in this regard. Section 10A of this Act specifically provides that a contract shall not be deemed to be unenforceable merely because the proposal, acceptance or revocation is expressed in electronic form. This provision promotes technology neutrality by recognizing that the use of an electronic mode of communication does not affect the enforceability of a contract.
2.2 Consent and Notice
Consent in an online agreement must be considered from an objective standpoint. It is difficult to prove what the undisclosed intentions of a party were, which is why courts look at the interface, language, placement of terms and conduct of the parties. The two most important questions are – whether there was reasonable notice to the user; and whether the party performed an objective acceptance action.
While notice and acceptance are connected, one can have notice without acceptance. Conversely, one can click without reading every word, but the very nature of a click establishes objective acceptance if the terms were clearly indicated and the acceptance mechanism was unambiguous. While the law does not require that a user has actually read the terms, it does require that there was a reasonable opportunity for notice and a valid method of acceptance.
3. CLICK-WRAP AGREEMENTS
3.1 Meaning and Features
A click-wrap agreement is an online agreement where the user is required to perform an affirmative action (usually clicking on a button marked ‘I Agree’, ‘Accept’ or the like) before proceeding. The terms may be available on the screen or through a clearly indicated hyperlink. Click-wrap agreements are commonly used in software licensing, online registration, subscription services, ticket booking and e-commerce.
The key feature of a click-wrap agreement is that the user takes an affirmative action to accept the terms. This is stronger than a situation where the user merely browses the website or opens the package.
3.2 Enforceability of Click-wrap Agreements
Click-wrap agreements are generally the strongest type of online agreements as the user accepts the terms in a clearly indicated manner. However, this does not mean that such agreements are automatically enforceable. The terms must be clearly available to the user, the language of the acceptance mechanism must clearly indicate that the user is accepting the terms, and the user may not be led to believe that clicking a button does not result in a contract.
In addition, a court may look at whether the clause is unduly oppressive, whether there was a reasonable opportunity for the user to reject the terms and whether there are any provisions of law that affect the enforceability of such an agreement. A button that says only “Continue” may not provide as much evidence of consent as a button that says “I Agree to the Terms of Use”. Similarly, if a hyperlink is placed in an unobtrusive corner of a window, it may give weaker evidence of user consent than a prominently displayed hyperlink.
The practical implication of this is that online businesses should invest in creating a clear acceptance mechanism, store records of the version of terms accepted, and avoid designs that could mislead the user or obscure important terms.
4. SHRINK-WRAP AGREEMENTS
4.1 Meaning and Nature
A shrink-wrap agreement typically arises in relation to the sale of software. The seller inserts the terms of the Licence agreement inside or on the box with the understanding that the buyer accepts the terms once they open the box or begin using the product. The name derives from the shrinking plastic wrap that usually covers the box.
A shrink-wrap agreement poses a problem of timing. The buyer may have paid for the product but may not have had the opportunity to read the terms. The seller may argue that the agreement is only formed when the buyer opens the box and accepts the terms of the Licence. The buyer may reply that they have already paid for the product and cannot be required to accept terms that were not brought to their knowledge before the sale.
4.2 ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)
This case dealt with a software product where the license terms were enclosed inside the box and were provided to the purchaser after the initial sale. The United States Court of Appeals for the Seventh Circuit upheld the enforceability of the agreement. It indicated that the transaction could be characterized as one where the buyer could examine the terms and return the product if they were not satisfied. The court relied on the commercial practicality of the arrangement and the ability of the parties to structure the transaction.
The judgment is one of the most quoted decisions in this area, but it should not be taken as a universal rule. The reasoning is dependent on the availability of terms, opportunity for the buyer to reject the product and the overall commercial practicality of the situation. If the terms were unavailable, unexpected or the product could not be returned, the agreement would not be enforceable.
4.3 Legal Concerns
The principal problem with shrink-wrap agreements is whether the buyer had a reasonable opportunity to know the terms before accepting them. A court may look at whether the box contained a clear indication of the terms, whether the buyer had a right to return the product, whether terms were provided to the buyer before use and whether they continued to use the product knowing the terms.
Shrink-wrap agreements are thus in an intermediate position; the disclosure and return provisions must be reasonable, but the mere act of opening the box should not automatically make the terms binding.
5. BROWSE-WRAP AGREEMENTS
5.1 Meaning and Features
A browse-wrap agreement is an online agreement where the terms are made available through a hyperlink (usually at the bottom of the web page) and the website asserts that the mere use of the website constitutes acceptance of the terms. Unlike a click-wrap agreement, the user is not required to take any affirmative action to accept the terms.
The principal difficulty with a browse-wrap agreement is that there is no objective manifestation of acceptance. A person may visit the website seeking information and not have any intention to enter into a contract. The website may argue that the visitor accepted the terms by browsing the website.
5.2 Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002).
This case related to a dispute between software downloaders and the software company over terms that contained an arbitration clause. The terms were not available to the downloaders in a clear and conspicuous manner before they downloaded the software. The United States Court of Appeals for the Second Circuit ruled that a hyperlink was not sufficient to establish that the users had received notice of the terms or had accepted them.
The decision highlights the fact that even if a hyperlink is present, it must be clearly visible and the location must indicate that terms of the agreement exist and that the user’s conduct will have contractual consequences.
5.3 Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014).
This case dealt with the question of browse-wrap agreements and arbitration clauses. The Ninth Circuit Court of Appeals distinguished between click-wrap (where users take an affirmative action to accept terms) and browse-wrap (where terms are merely posted through a hyperlink). It held that a conspicuous hyperlink alone was not sufficient to establish constructive notice of the terms when the user is not prompted to take any action.
The importance of the decision lies in its emphasis on the requirement that a website must provide reasonable notice and must obtain objective manifestation of consent from the user. A website can strengthen its position by using a clear notice, placing the terms of the agreement where a user would be expected to see them, and requiring an affirmative action from the user to indicate agreement. The mere use of a website is generally not sufficient to establish consent.
6. JUDICIAL DEVELOPMENT AND THE PRINCIPLE OF REASONABLE NOTICE
The three important cases illustrate that the labels such as click-wrap, shrink-wrap and browse-wrap are not decisive factors in determining enforceability, but the objective manifestation of acceptance and presence of reasonable notice are.
A user should receive reasonable notice that terms exist and that a certain action will have legal consequences. It may be particularly important in situations where the terms are unusually burdensome. Arbitration clauses, waiver of damages, automatic renewal of subscriptions and other such terms tend to be more controversial and it may be safer to assume that such terms are not available unless they are reasonably brought to the attention of the user.
The courts also make a distinction between actual notice and constructive notice. Actual notice means that the user actually knew the terms. Constructive notice is a legal fiction that arises where the terms were available in such a manner that a reasonable user should have known of them. In browse-wrap cases, users usually do not have either actual or constructive notice.
7. INDIAN LEGAL POSITION
This is the primary legislation governing the formation of contracts in India. Section 2(h) defines a contract as an agreement, which is enforceable by law. Section 10 sets out the essentials of agreements to be enforceable as contracts, viz., free consent of the parties, competent parties, lawful consideration and object and the like, subject to other applicable laws.
The Act does not specify any separate statutory categories called click-wrap, shrink-wrap and browse-wrap agreements. As such, online agreements must be analysed under general principles of contract law. The digital medium may establish objective offer and acceptance, but it does not absolve a party from the requirements of a contract, such as free consent, clarity, enforceability and the like.
7.2 Information Technology Act, 2000
provides statutory recognition to electronic transactions. Section 10A is of particular importance as it prevents a contract from being void merely because electronic means were used to express the proposal, acceptance or revocation. Electronic records and electronic signatures are also recognized within the ambit of the Act, subject to applicable requirements.
Section 10A does not automatically make any online terms enforceable. It provides that electronic media will not be a ground for denying the enforceability of a contract, but it does not establish a presumption of offer, acceptance, free consent, notice or anything else. Therefore, a click-wrap agreement must still satisfy the requirements of a contract, and a browse-wrap agreement must still satisfy the requirements of reasonable notice and objective manifestation of acceptance.
7.3 Indian Judicial Approach
Indian courts have acknowledged that contracts can be formed through electronic means provided that the essential terms and acceptance are sufficiently clear. In Trimex International FZE Ltd. V. Vedanta Aluminum Ltd., (2010) 3 SCC 1, the Supreme Court has acknowledged the fact that a contract can be concluded through electronic communications so long as the parties’ conduct and correspondence make clear that they have reached a consensus on the essential terms.
Indian courts and tribunals have also examined the question of software licensing and click-wrap or shrink-wrap type agreements in disputes over computer software. This suggests that Indian law is capable of recognizing electronic agreements, but it is always dependent on the facts and circumstances of the particular case.
8. COMPARATIVE AND CRITICAL ANALYSIS
8.1 Why Click-wrap is Stronger
A click-wrap agreement provides clear and objective manifestation of acceptance. The user is normally shown a statement that indicates that clicking on the button will have legal consequences and the system records the agreement. It is also easier for the user to take an active step to accept or reject terms. Therefore, a click-wrap agreement will generally be stronger in establishing the formation of a contract.
However, click-wrap agreements should not be used to conceal unfair terms. A person may be persuaded to accept unduly burdensome terms by clicking on a button because there may be an unrealistic expectation that they actually read the long terms, or a button may give misleading indications or be pre-ticked.
8.2 Why Browse-wrap is Weaker
A browse-wrap agreement suffers from the problem of lack of objective manifestation of acceptance. A person may browse a website not with the intention of entering into a contract, or without realizing that they are doing so. It is extremely difficult to distinguish between a person who intends to contract and a person who does not, especially when the person has merely visited the website.
A browse-wrap agreement may be stronger where the terms are clearly indicated and the user is required to perform an active act to accept the terms. However, a small hyperlink at the bottom of a window is usually not a strong indication of user consent.
8.3 Shrink-wrap and Commercial Practicality
Shrink-wrap agreements are based on commercial practicality. The seller does not have the capacity to negotiate separately with every buyer. It is necessary to distribute software with standard terms, but the buyer must have reasonable notice of the terms and be able to reject them or discontinue use of the product if they are not acceptable. If the buyer continues to use the product, that may be sufficient to indicate acceptance of terms.
8.4 Proposed Analytical Framework
When interpreting an online agreement, a court may find it helpful to examine whether the terms were reasonably available to the user before or at the time of supposed acceptance. The terms must also be clearly indicated and accessible to the user. The user should have taken an affirmative action or objective manifestation of assent to the terms. The user should have had an opportunity to reject the agreement or return the product. The terms should not be unusually burdensome or contrary to applicable law. The general requirements of contract formation and any applicable consumer protection laws should also be examined.
9. ILLUSTRATION: WHEN DOES ONLINE CONDUCT BECOME CONSENT?
Assume that the user downloads an application from a website. In Scenario A, the user is shown a clearly indicated “I Agree to the Licence Terms” button, the terms are reasonably easily accessible through a link and the downloading of the application is contingent upon the user clicking the button. This is a strong click-wrap agreement where the user is presented with terms and performs an objective manifestation of acceptance.
In Scenario B, there are terms inside a software box that provide that opening the box constitutes acceptance of the terms. The terms are enclosed inside the box and the buyer may return the box after reviewing the terms. It may be possible to enforce such a shrink-wrap agreement where the buyer opens the box and uses the software after having received the terms.
In Scenario C, a website includes a small hyperlink at the bottom of the window indicating that Terms of Use apply and that merely visiting the site constitutes acceptance of the terms. If the user receives no prominent notice and takes no affirmative action, the assertion that they have contracted with the website is extremely weak. The judge should decide whether a reasonable person would have believed that visiting the site created legal obligations.
10. CONCLUSION
Click-wrap, shrink-wrap and browse-wrap agreements are testament to the adaptability of contract law in the face of technological change. The key problem is not whether a contract is concluded by means of a screen, a package or a site, but rather whether the situation objectively satisfies the requirements of legally sufficient agreement.
With regard to content, click-wrap agreements generally provide the best evidence of acceptance, as their very design requires that the purchasing party affirmatively accept. Shrink-wrap agreements may be found to be enforceable if their terms have been disclosed and the buyer has an opportunity to return the item in case of dissent. Browse-wrap agreements require even more careful scrutiny, as the simple act of browsing may not be enough to give notice or consent.
As for Indian law, the Indian Contract Act, 1872 provides the general principles on contract formation, while Information Technology Act, 2000, Section 10A confirms that contracts formed electronically are not void or unenforceable merely for that reason. At the same time, neither law makes such terms automatically binding, and the factors of notice, clarity, consent, certainty, fairness and statutory compliance should still be taken into account.
It is therefore evident that the preferable approach is context and technology neutral. Courts must consider the design of a UI, accessibility of the terms, user’s actions, their opportunities to object or revoke, and the nature of the disputed obligation. Thus, a click, an opened package or a site visit may be deemed insufficient to satisfy requirements to contract formation, depending on the circumstances. The evidence of consent is never conclusive.
