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Well, this is quite timely. Remember this past Monday (it seems so recent) where I discussed Clickwrap Agreements?
Well, several video game websites (and I am using Kotaku’s post because I read theirs first) are reporting that Microsoft has updated their Xbox LIVE Terms of Use to include a Binding Arbitration clause. Binding Arbitration clauses are used to have the parties waive their rights to litigate matters under the contract in a court of law. Thus, a lot of companies prefer to arbitrate with their consumers (as it is less costly, and tendency is for arbitration to favor companies for any number of reasons) rather than litigate.

In terms of how this relates to Electronic Agreements is that when you update your video game console’s software it will tell you that the Terms of Service have been updated and to continue to use the service you have to “Agree”. Once you Agree, you are locked in to those terms, and thus for gamers, you see how a Clickwrap Agreement works today!

That being said, and I am glad Kotaku brings it up toward the end of their post (in italics), as it highlights a point I have made in past posts. Contract drafters can put any number of provisions in an agreement, but if any of those are illegal, go against public policy, or are unconscionable a court of law will not enforce it. Thus in states where you cannot waive your right to go to court a binding arbitration clause will not be enforced.

Rock on gamers know your rights and read your agreements! For companies, know that if you put a binding arbitration clause in your agreement it tends to be seen as a consumer protection issue and in several states it is unlikely to be enforced if challenged.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post

So last time I talked about Electronic Agreements I mentioned “clickwrap agreements.”  As you go cybershopping for the right gifts, and you invariably sign-up for new services or download new apps to play with on your iPad during the holidays you will come across the clickwrap (aka “clickthrough” or “clickwrap license”).  In particular, because of the Electronic Signatures in Global and international Commerce Act, these types of agreements have found legitimacy and therefore, commonplace usage.

What is a Clickwrap?

Before, we get to the clickwrap, you have to understand the shrinkwrap. The shrinkwrap agreement was how boxed software was sold. It basically state on the plastic wrapper that by tearing it open, you as the user, would agree to the terms of the software enclosed. Many people found this unfair that how could you agree to something you did not even see. However, courts upheld these agreements as enforceable (and I will get more into why later).

Thus, as the industry has shifted from boxed CD-ROMs for sell and moved to downloadable apps and packages online the shrinkwrap became the clickwrap. Usually, it is in the form that requires the end-user to manifest your acceptance through clicking a button that says “Ok” or “I Agree” after scrolling through that wall of text that you did not read. If you clicked, “Cancel” or the like, you would be unable to access the product or service. This take-it-or-leave-it approach is usually an adhesion contract, where one party lacks bargaining power and thus are forced to accept terms heavily in favor of the drafter.

Are these Enforceable?

Yes. Despite the imbalance in the bargaining power among the parties, Courts have upheld them. However, like all contracts any provisions that unconscionable, against public policy or law, will not be enforced. With that being said here are some of the grounds or various provisions that agreements have been upheld on:

  1. by clicking the clickwrap button after notice means consent has been given
  2. a clickwrap is simply “Money now, terms later”
  3. forum-selection clause
  4. arbitration clause*.

*Mandatory Arbitration is that Legal?

It depends. In a case between a user and the virtual world, Second Life, owner, the judge actually struck down a mandatory arbitration clause. The plaintiff argued that it had been “both procedurally and substantively unconscionable and is itself evidence of defendants’ scheme to deprive Plaintiff (and others) of both their money and their day in court.” The judge agreed and then struck down the arbitration clause. In general, the court went through a thorough analysis, but the main thing to takeaway was the arbitration would have made it more costly, rather than less costly for the plaintiff and for them to initiate the arbitration the plaintiff would require to advance fees and due to confidentiality no plaintiff would be able to learn from past disputes, thus the company would hold all the cards.

Why is it Referred to as a “License” sometimes?

As a I discuss in my IP Law talk for Small Businesses I discuss that software is actually copyrightable. Software is “written” and reduced to a “tangible medium” which makes it like literary works and sound recordings. Typically, with copyright, in your “bundle of rights” that come packaged with it you reserve the right to control the copying.  Thus notice that a famous series of books, the original copyright owner can license parts of the book out to studios for certain characters, duration of time, etc . . . because they own the “right to copy.”  Thus, there is no difference between software and their end-users, that the end-user is merely receiving a license to use the copyright owner’s software and is not given the ability to make copies as terms of the End-User License Agreement (EULA).

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Happy Cyber Monday everyone! I am sure you all are hard at work after Thanksgiving, trying to secure the best deals you can. So I will keep this brief and let you get back to your online shopping, but I will make it relevant to what you are doing. Today’s Boilerplate Blurb is all about Electronic Agreements.

Are Electronic Agreements just as Valid as Paper Ones?

Yes, thanks to the Electronic Signatures in Global and International Commerce Act (the E-sign Act) and Uniform Electronic Transactions Act (UETA) you can electronically “sign” for electronic documents. Thus when you send a draft of a contract offer and ask the opposing side to “sign” it and e-mail it back the electronic contract and the electronic signature are as legal and enforceable as traditional pen and paper contracts.

What about “Click to Agree”?

Yes, an e-contract can also be formed when you “Click to Agree” (I will talk about “clickwrap” agreements on another Boilerplate Blurb). So when you are on a website or installing new software on your computer your action suffices to form a contract. Therefore, when you log on and download new software or online game, and you scroll really fast, ignoring the terms and conditions or end-user license agreement (EULA), just so you can get to downloading new media or playing your game sooner, you are giving your agreement to the company’s e-contract.

But There was No Way for Me to Sign it, is that a Valid Signature?

Yes, in fact you can indicate your acceptance via “e-signature” through a variety of methods that will legally bind you to the contract. If you shop online, as much as you are doing so today, then you have seen them. The “I Accept” button, using the “scrambling” technology where you have to type in the funky looking text that spells out random things, or typing your name in the signature box, or even pasting your scanned signature in are all valid methods.

Must I use the Company’s Electronic Agreement?

I know someone there is curious, even though it strikes me as odd that you are reading a blog and your question is how to opt out of electronic agreement even though you are probably using the Internet to read it. Anyway, short answer, no, you don’t have to, as you are and businesses are given the right to choose to continue to use paper. However, when a company gets a consumer’s consent for electronic use, they must give prior notice telling you whether paper contracts will be available and if you change your mind later, and what that paper agreement what are the costs.  The notice also needs to tell you if your agreement is for the one-time transaction OR applies to a larger group of transactions. Therefore, you might have to agree more than once if you continue to interact with them or you agree once, but have signed off on a whole bunch of future transactions.

Are there Times that I Cannot Use an Electronic Agreement?

Yes, certain types of documents MUST be in paper format. They include some of the following:

  1. family-related documents (such as wills, adoption and divorce papers);
  2. safety, health, or specialized industry situations (such as insurance, product recalls, or hazardous material transportation); and
  3. legal and real estate matters (such as court orders, notice, foreclosure, and eviction).

Good luck with your cyber shopping, and if you get dizzy from the sales take a break and read what you are agreeing to when you click and buy! If you enjoyed this post or any of my others please “Subscribe” to this blawg.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.