SPECHT V. NETSCAPE COMMUNICATIONS CORP.
306 F.3d 17 (2nd Cir. 2002)
NATURE OF THE CASE: This was an appeal by Netscape (D) from a denial of a motion to compel arbitration pursuant to a license agreement on software it allowed to be downloaded from the web.
FACTS: Specht (Ps) brought suit, individually and on behalf of all others similarly situated, against Netscape (D) alleging that a 'plug-in' software program, created by defendants to facilitate Internet use and made available on Ds' website for free downloading, invaded P' privacy by clandestinely transmitting personal information to the software provider when Ps employed the plug-in program to browse the Internet. Ps alleged that when they first used D's Communicator software a program that permits Internet browsing-the program created and stored on each of their computer hard drives a small text file known as a 'cookie' that functioned 'as a kind of electronic identification tag for future communications' between their computers and D. Ps further alleged that when they installed SmartDownload-a separate software 'plug-in' that served to enhance Communicator's browsing capabilities-SmartDownload created and stored on their computer hard drives another string of characters, known as a 'Key,' which similarly functioned as an identification tag in future communications with D. Each time a computer user employed Communicator to download a file from the Internet, SmartDownload 'assume[d] from Communicator the task of downloading' the file and transmitted to D the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload. These processes, Ps claim, constituted unlawful 'eavesdropping' on users of D's software products as well as on Internet websites from which users employing SmartDownload downloaded files. Ps acknowledge that when they proceeded to initiate installation of Communicator, they were automatically shown a scrollable text of that program's license agreement and were not permitted to complete the installation until they had clicked on a 'Yes' button to indicate that they accepted all the license terms. If a user attempted to install Communicator without clicking 'Yes,' the installation would be aborted. Ps expressly agreed to Communicator's license terms by clicking 'Yes.' The Communicator license agreement that these Ps saw made no mention of SmartDownload or other plug-in programs, and stated that '[t]hese terms apply to Netscape Communicator and Netscape Navigator' and that 'all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights)' are subject to 'binding arbitration in Santa Clara County, California.' Ps could have downloaded Communicator by itself but when they arrived at a D webpage it captioned 'SmartDownload Communicator' that urged them to 'Download With Confidence Using SmartDownload!' At or near the bottom of the screen facing plaintiffs was the prompt 'Start Download' and a tinted button labeled 'Download.' By clicking on the button, Ps initiated the download of SmartDownload. Once that process was complete, SmartDownload, as its first plug-in task, permitted Ps to proceed with downloading and installing Communicator, an operation that was accompanied by the clickwrap display of Communicator's license terms described above. The single difference between downloading Communicator and downloading SmartDownload was that no clickwrap presentation accompanied the latter operation. Once Ps clicked on the 'Download' button located at or near the bottom of their screen, and the downloading of SmartDownload was complete, Ps encountered no further information about the plug-in program or the existence of license terms governing its use. The sole reference to SmartDownload's license terms on the 'SmartDownload Communicator' webpage was located in text that would have become visible to Ps only if they had scrolled down to the next screen. Ps allege that the process of obtaining SmartDownload contrasted sharply with that of obtaining Communicator. Having selected SmartDownload, they were required neither to express unambiguous assent to that program's license agreement nor even to view the license terms or become aware of their existence before proceeding with the invited download of the free plug-in program. Moreover, once these plaintiffs had initiated the download, the existence of SmartDownload's license terms was not mentioned while the software was running or at any later point in plaintiffs' experience of the product. Ds moved to compel arbitration under the license agreements. pursuant to the Federal Arbitration Act ('FAA'), 9 U.S.C. 4, arguing that the disputes reflected in the complaints, like any other dispute relating to the SmartDownload license agreement, are subject to the arbitration clause contained in that agreement. The trial court found that D's webpage, unlike typical examples of clickwrap, neither adequately alerted users to the existence of SmartDownload's license terms nor required users unambiguously to manifest assent to those terms as a condition of downloading the product, the court held that the user plaintiffs had not entered into the SmartDownload license agreement. The district court also ruled that the separate license agreement governing use of Communicator, even though the user Ps had assented to its terms, involved an independent transaction that made no mention of SmartDownload and so did not bind plaintiffs to arbitrate their claims relating to SmartDownload. Ds appealed.
ISSUE:
RULE OF LAW:
HOLDING AND
DECISION:
LEGAL ANALYSIS:
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