As a consumer, it’s important to read a license before signing it whenever possible. As a business offering a license, it’s even more important to understand what is being offered. A license is there to help business set terms of the relationship with the users of a product. Here’s a quick overview of a few of the most common ways that licenses are entered into in the digital world.

What’s a license?

First off – a license is official permission from the owner of something to use that same something in certain ways. When we think of licenses, most people think of licensing agreements that are signed between the two parties. For example, when you load Steam and their terms are updated, you are reviewing the license they’ve granted to you as a consumer and agreeing to a contract for how you use their service.

Shrink-wrap licenses

Shrink-wrap licenses refer to a license associated with a physical product that is effective the moment you take the shrink-wrap off of it. Shrink-wrap is the process of shrinking clear cellophane around a package’s physical box. It used to be far more common for software to be shrink-wrapped but as digital distribution grows, shrink-wrap licenses are on the decline.

In order to be most effective, shrink-wrap licenses need a notice on the outside of the box visible through the shrink-wrap notifying the consumer that the software is copyrighted and the end-user is subject to the terms of agreement within the box. Then within the shrink-wrapped box, the full terms of the license are printed.

In 1996 with the case of Pro CD v. Zeidenberg, the Seventh Circuit held that “shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general.”

Click-wrap licenses

Click-wrap licenses came into being after shrink-wrap licenses grew in popularity. This is a license agreement that a user digitally agrees to, typically by clicking an “I agree” button. The act of clicking with a computer mouse serves as an understanding of the agreement. The example of agreeing to the Steam terms of service by clicking the “I agree” box is an example of a click-wrap license.

In 1998, one of the earliest cases to validate click-wrap licenses was Groff v. America Online when the Rhode Island Superior Court supported AOL’s claim that by clicking the “I agree” button, the end-user was responsible for the clauses in the terms of service. The court stated,

Our Court … stated the general rule that a party who signs an instrument manifests his assent to it and cannot later complain that he did not read the instrument or that he did not understand its contents. Here, plaintiff effectively “signed” the agreement by clicking “I agree” not once but twice. Under these circumstances, he should not be heard to complain that he did not see, read, etc. and is bound to the terms of his agreement.

Then in 2002, the Second Circuit Court of Appeals, which includes New York, clarified the definition of a click-wrap license in Specht v. Netscape Communications Corp:

A click-wrap license presents the user with a message on his or her computer screen, requiring that the user manifest his or her assent to the terms of the license agreement by clicking on an icon. n12 The product cannot be obtained or used unless and until the icon is clicked. For example, when a user attempts to obtain Netscape’s Communicator or Navigator, a web page appears containing the full text of the Communicator / Navigator license agreement. Plainly visible on the screen is the query, “Do you accept all the terms of the preceding license agreement? If so, click on the Yes button. If you select No, Setup will close.” Below this text are three button or icons: one labeled “Back” and used to return to an earlier step of the download preparation; one labeled “No,” which if clicked, terminates the download; and one labeled “Yes,” which if clicked, allows the download to proceed. Unless the user clicks “Yes,” indicating his or her assent to the license agreement, the user cannot obtain the software.

Browser-wrap licenses

Browser-wrap licenses are when a consumer agrees to a license without actively affirming their agreement. For example, when a user is viewing a blog, by viewing the site you are inherently agreeing to the terms of viewing the site even if you haven’t necessarily viewed the terms and conditions or privacy policy listed on the site.

There has not been a case to date broadly upholding the validity of browser-wrap agreements yet, although there have been instances of browser-wrap licenses being approved on a case-by-case basis. And, some provisions of browse-wrap licenses are scrutinized more heavily than others (like those requiring users to give up a right to a jury trial, for example).

To learn more about creating an enforceable shrink-wrap, click-wrap or browser-wrap licensing agreements in the United States, contact us.

Megan

Megan is a video game industry veteran and guest blogs at Odinlaw.com