15 Dec 2008

Pitfalls in shrink-wrap software licensing

Submitted by Troy Rollo

Shrink-wrap and click-wrap software licences often contain what appears to be a binding contract, but if they are not drafted carefully they may be worthless.

To form a contract, the shrink-wrap or click-wrap software licence needs to be accepted by the user. There are two ways for somebody to accept a contract:

  1. By the offeree communicating back to the offeror that they accept; or
  2. By the offeree doing something specified in the contract, with the intention of accepting the contract.

For click-wrap software licences on web sites there may be communication back to the offeror, however in most other cases there is no ommunication back to the offeror. In those cases it is necessary to establish not only that the user did the act that accepted the contract, but that they had the intention of accepting the contract when they did so. You can be fairly sure that if there is a dispute later on, the person who installed the software will deny that they intended to accept the contract. This means that clicking a button that says "I agree" will almost never be enough.

One way of proving that the user had the intention of accepting the contract is to ensure that they have to rely on the license terms in order to use the software. One way of doing so is to ensure that they do not have permission to install and use the software without accepting the licence. In Australia, section 47B of the Copyright Act 1968 (Cth) gives an implied licence to the owner of a legal copy of the software to make copies in the normal course of using the software, so a user will normally have such permission. In the United States, a similar provision exists. Unless that right is removed, a user normally has no need to accept the shrink-wrap or click-wrap licence.

In Australia (but not in the United States), the copyright laws provide for the software publisher to give an express direction or licence that revokes this right. The Australian provision has never been tested in court, so it is not entirely clear what a licence must say to effectively revoke this right. It might be argued that a licence that spells out the terms under which the user is permitted to use the program revokes it, but it is better to write shrink-wrap or click-wrap licence that explicitly states that this right (together with any other implied rights) is revoked. The licence should then proceed to grant rights back. As the user must accept the licence to lawfully use the product, consent to the licence may established so that its terms take effect.

If you take a look at shrink wrap and click wrap licences you will find that very few of them explicitly exclude the right under section 47B. If they do not, and there is no communication of acceptance to the publisher, the licence may be worth less than the paper (or bits) it is written on.