Submission to the

COPYRIGHT LAW REVIEW COMMITTEE

To view Word Format of this document: WORD

To view Part 2 of this document: Restrictions

To view Part 3 of this document: eBay

To view Part 4 of this document: Bibliography

Review on

Copyright and Contract

August 2001

Dr Adam Gatt

RMIT Business, RMIT University

Mobile: 0419 395 407

E-mail: click@unite.com.au

URL: http://seven.bf.rmit.edu.au/clickwrap

This research project presents preliminary findings of a study conducted by
Dr Adam Gatt as part of his Master of E-Business program at RMIT University.

Overview

The Copyright Law Review Committee is currently investigating the prevalence, effects and desirability of contracts that purport to override copyright exceptions granted under the Copyright Act 1968 (Cth). In issue 6 of its Issues Statement (CLRC, 2001), this Committee seeks views as to whether there should be any limitations to the enforceability of wrap agreements. "For example, should wrap agreements be treated as a special category and subject to special rules as to validity and enforceability?"

Beginning with an examination of the background on the use of click-wrap agreements and why they are used, the writer has examined the practical issues that affect their enforceability. An integral part of this examination, includes basic research to determine consumer awareness, understanding and attitude to them. While this research is still in hand, this submission aims to provide preliminary findings that may be of interest to the Committee's current terms of reference. These findings will be presented here against a background discussion on the use of online agreements and the legal issues surrounding their enforceability. Part of this submission is, at this point in time, confidential and will be marked accordingly.

Introduction

There can be little doubt that the advancements in information and global communications technologies, particularly the Internet, are having a profound impact on many aspects of our lives. As e-commerce expands globally the Internet is fast becoming an important channel for the sale and dissemination of a wide range of goods and services and especially copyrighted material such as, computer software, data and text, as well as digital images, photographs, music and multimedia. This is now happening almost effortlessly on a 24x7x52 global basis and as the bandwidth of the digital network continues to increase, the volume and quality of information being disseminated on it will increase significantly.
The impact of these changes on the global marketplace cannot be overestimated. In its April 1998 report on the emerging digital economy, the United States Department of Commerce noted that in 1994, three million people, most of them in the United States, used the Internet and its application to e-commerce was non-existent (Daley, 1998). By 1999, an estimated 250 million users accessed the Internet and approximately one quarter of them made purchases on-line from e-commerce sites, worth approximately $110 billion (OECD, 2000). According to recent research, 6 percent of the world's 6 billion people are now on the Internet and about 400 million people use the Web daily (Reuters, 2001). In Australia, there are 3.9 million Internet subscribers (ABS Figures December, 2000). Some experts believe that one billion people may be connected to the Internet by 2005. The OECD estimates that e-commerce is growing at a rate of 200% per annum and is expected to be worth US$330 billion by 2001-2 and US$1 trillion by 2003-5.[1] In Australia, information from the National Office for the Information Economy estimated business-to-business (B2B) revenue in Australia for 2000 was US$5 billion ranking eight over twenty surveyed countries and ahead of Korea, Taiwan, Sweden, Singapore and New Zealand (NOIE, 2000).
From this, it is clear that the growth in Internet usage is nothing short of spectacular. Its use to conduct business has exploded over recent years and is expected to continue to grow at an almost exponential rate. This will continue to provide considerable benefits to businesses in terms of easier, cheaper, better and much more effective ways of doing business with consumers, as well as with suppliers, service providers and government agencies. When compared to traditional distribution methods, the Internet enables even the smallest of merchants to reach the same global market as giant conglomerates. For consumers, access to the global market provides considerable benefits in terms of improvements in transaction convenience, choice, range and price, and speed of product and service delivery. Consumers are also able to deal directly with suppliers instead of through intermediaries.
However, there are many factors that work against the realisation of these benefits and the realisation of the full potential that the digitally networked marketplace has to offer. For example, just as the sale and dissemination of copyrighted material in the new digital economy can take place almost effortlessly on a 24x7x52 global basis, so too can its unauthorized copying and large-scale distribution. There are also many discouraging legal issues and those surrounding conflict of laws are particularly discouraging. They are of particular relevance to, for example, software authors. These are in the main small businesses that would find it a great burden to be potentially liable in a multitude of jurisdictions all around the world. They would find it prohibitive to protect and defend their rights in some foreign jurisdiction and because of the lack of consistent and international standards of protection, there are issues regarding whether such rights are protected abroad.
Thus, while it provides ready access to a much larger market, because of the ease of copying and distributing digital information such as software programs and music, and because of the inadequate protection laws, many authors are discouraged and reluctant to embrace the Internet as a means of disseminating their copyrighted works while others attempt to enhance their intellectual property rights by various means (eg encryption). So that the full potential of the emerging digital economy can be realised, governments must therefore establish the right legal framework encompassing laws to govern cross-boarder e-commerce transactions. Copyright law can play an important role in this now fast changing business environment.

On-Line Agreements

What Are They?
It is against this background that on-line vendors have adopted the use of on-line agreements as a means of reinforcing their rights and to establish the transaction terms and conditions. Requiring each visitor to assent to the terms and conditions of the agreement in order to access the site, or download software, purchase a product or service, and so forth, enables the on-line vendor to alert site visitors that the material contained on the website, as well as any software downloaded from that site, is proprietary. These now very much ubiquitous agreements are an adaptation of the "shrink-wrap" agreements as have been used since the early 1980s in the sale of packaged software and have come to be known as "click-wrap" agreements; sometimes also referred to as "click-through", "click-and-accept" and "web-wrap" agreements.
While in the shrink-wrap context, acceptance of the agreement terms and conditions occurs when the consumer removes the shrink-wrapped plastic wrapper, the term "click-wrap" is derived from the fact that in the on-line environment, acceptance occurs when the consumer types "I Agree" or much more commonly, simply mouse-clicks an "I Accept" or similar ("the Accept") button or icon. In this way, prior to the supply of its goods or services, the online vendor displays its terms and conditions pursuant to its offer and in order to proceed with the transaction and on to the next screen the consumer or subscriber must assent to be bound by those terms and conditions by express conduct of clicking the Accept button. The software's download or installation program will not proceed until the user clicks the Accept button. From a vendor's point of view therefore, a major advantage of click-wrap agreements is that the visitor is denied access to the material contained on the website and to any downloadable software, or product or service until he or she assents to the click-wrap terms and conditions.
In this way, click-wrap agreements are formed very differently from contracts that are created off-line, and are also different to their shrink-wrap ancestors. Once the purchaser selects the Accept button and thereby assents to be bound, the contract is formed on the posted terms and the transaction is consummated. In this way, in the click-wrap agreement context, the act of clicking the Accept button is analogous to breaking the shrink-wrapping in the shrink-wrap agreement context. No paper record is generally created nor is the electronic or paper signature of the Internet user typically required. As in the shrink-wrap agreement, the click-wrap agreement purports to be a contract whereby the user agrees not to engage in certain activities that might otherwise be allowed under law.
Shrink-wrap agreements were introduced in the early 1980s specifically for the mass-market sale of packaged software. Prior to this, software vendors used the traditional method of contract formation to enter into licensing arrangements with each and every end user on an individual basis. Contracts were written documents with their terms and conditions being negotiated before execution by both parties. With the mass-market acceptance of the PC, companies such as Apple and IBM found that it was virtually impossible, inefficient and very costly to enter into licensing arrangements with each and every end user on an individual basis. It is specifically for these reasons that the "shrink-wrap" licence concept originated; a mass-market software licence agreement (a standard form agreement) shipped with the product and not requiring both parties to sign. Shrink-wrap agreements are clearly direct descendents of the more traditionally formed and executed software licence agreement.
Similarly, given the volume of transactions taking place on the Internet, it is clearly impractical to have separately negotiated agreements with each and every consumer on an individual basis. It would be significantly inefficient, if not impossible, for a webseller to negotiate terms and bargain with each site visitor; America Online, for example, has 25 million members (FTC, 2000 p.209). Additional to necessarily adding to the consumer's cost, entering into an agreement with each and every consumer would delay the vendor's ability in providing its goods or services and the consumer would be delayed from taking advantage of them. Thus, click-wrap agreements, as standard form agreements, reduce transaction costs and this allows authors to sell more product, to more consumers, at cheaper prices. In the context of copyrighted works such as software, as at the time of providing the original product, click-wrap agreements can also be used with future product enhancements, revisions and maintenance updates. With click-wrap agreements all this can be done without paper contracts or physical signatures and contract formation can take place without ever needing any physical contact with the consumer.
While shrink-wrap agreements are generally used for tangible products such as computer software, in the online context, click-wrap agreements are being used much more widely. The acceptance of the click-wrap terms and conditions is often a pre-requisite to accessing a website or a portion of the site as well as electronic content stored on on-line databases and information based websites. They are being used to stipulate the terms and conditions of usage and/or participation in a host of online banking, securities trading and gambling sites, online discussion forums, newsgroups, chat rooms and message boards, as well as online auction sites, Internet access, email, news and information services. As well as being used to inform users of the rules and regulations of usage, click-wrap agreements are also being used by on-line vendors to provide users with timely advice and warnings about the possible content on the site trying to be accessed such as in the case of un-moderated chat rooms, message boards and discussion forums as well as sites with adult content. Additionally, while many use the term "click-wrap" to designate those contracts formed entirely in an on-line environment, it can also be used to refer to those agreements incorporated into software installation systems and visible during the installation process on a local PC.
The comprehensiveness of an on-line agreement is often determined by balancing the potential legal exposure created by site activities and content, against the potentially intimidating impression that a long and complex agreement will make on the user. For example, relatively straightforward sites that provide information about a company, but have little user interactivity, may only require a short disclaimer about the information content. On the other hand, sites which host e-commerce, chat, email, or message boards or provide sensitive data, such as financial information and services, will more than likely use a more extensive online agreement. However, while one would expect this to be the case, many e-commerce sites do not require the online purchaser with the opportunity to preview the terms and conditions at the time of transacting. The Barnes & Noble on-line bookstore is one such example. Here a visitor can purchase books without actually ever seeing or reading the terms and conditions.[2], This may be a commercial decision to keep things simple and a desire to just operate like a physical bookstore would; with no flashing of terms and conditions in consumers? faces at the cash registers. Another example of this is when registering with the New York Times. Here a prospective subscriber can mouse click the Register button without actually having scrolled through or read the terms and conditions of use contained within the Subscriber Agreement which is separately accessed by way of a hyperlink.[3]

Copyright Law Protection!
In the case of copyrighted works such as software, given that such material is protected by copyright law, one might ask why would an author need a separate shrink-wrap or click-wrap agreement (which for convenience can be jointly referred to as ?wrap agreements?). While copyright law protects the author?s intellectual property rights, the publisher would be exposed in a number of other areas if it relied solely on copyright law. For example, copyright law does not enable software vendors to limit or disclaim implied warranties, remedies and liability nor does it impose other limitations on the transaction, such as limitations on the software, prohibitions on reverse engineering and governing law and forum for resolving disputes. Accordingly, wrap agreements are used to provide protection beyond that afforded by whatever intellectual property rights exist in the works. A wrap agreement can be used to:

prohibit decompilation and reverse engineering of the software (although under the European Union Software Directive (EU, 1991) one cannot block assignments of software or prohibit reverse engineering);
limit uses (eg not to conduct service bureau for benefit of third parties etc);
potentially limit remedies and damages, which might be awarded in a lawsuit against the publisher. A click-wrap agreement enables a vendor to attempt to absolve itself from or limit the potential liability associated with content on the site. This includes any losses associated with the use of such content, any errors or problems with respect to software downloaded, or products/services purchased from the site (see Mortenson Co. Inc. v. Timberline Software Corp.);
exclude consequential damages;
provide for notice of and a right to cure any breach;
specify choice of dispute resolution;
specify governing law and forum;
extract representations from the user (eg as to nationality or age);
provide for contingencies through a force majeure clause; and
create clear evidence of binding consents or waivers.

To view Part 2 of this document: Restrictions

To view Part 3 of this document: eBay

To view Part 4 of this document: Bibliography