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SPECHT v. NETSCAPE COMMUNICATIONS CORP.

17
Cite as 306 F.3d 17 (2nd Cir. 2002)

Appendix—Continued denied motion. Defendants appealed, and


VII. For any child placed and cared for appeals were consolidated. The Court of
in any home for children or health Appeals, Sotomayor, Circuit Judge, held
care facility, the sending district that: (1) users did not assent to terms of
shall make payments to the re- software license, including arbitration
ceiving districtTTTT clause; (2) claims relating to plug-in pro-
gram were not subject to arbitration
agreement contained in license terms gov-

, erning use of separate browser software;


and (3) legal doctrine requiring nonsigna-
tories to arbitration agreement to arbitrate
when they have received direct benefit un-
der contract containing arbitration agree-
Christopher SPECHT, John Gibson, Mi- ment did not apply to require website own-
chael Fagan, Sean Kelly, Mark Gru- er to arbitrate.
ber, and Sherry Weindorf, individually Affirmed.
and on behalf of all others similarly
situated, Plaintiffs–Appellees,
1. Arbitration O23.25
v.
District court’s denial of motion to
NETSCAPE COMMUNICATIONS COR- compel arbitration is reviewed de novo.
PORATION and America Online, Inc.,
Defendants–Appellants. 2. Arbitration O23.25
Determination of whether parties
Docket Nos. 01–7870, 01–7872, 01–7860.
have contractually bound themselves to ar-
United States Court of Appeals, bitrate a dispute, a determination involving
Second Circuit. interpretation of state law, is legal conclu-
sion subject to de novo review; however,
Argued: March 14, 2002.
findings upon which that conclusion is
Decided: Oct. 01, 2002. based are factual and thus may not be
overturned unless clearly erroneous.
Internet users and website operator 3. Arbitration O23.25
brought putative class actions against com- District court’s determination of scope
puter software producer, alleging that of arbitration agreement is reviewed de
‘‘plug-in’’ software program, created to fa- novo.
cilitate Internet use and made available on
producer’s website for free downloading, 4. Arbitration O23.25
invaded plaintiffs’ privacy by clandestinely Whether party may be compelled to
transmitting personal information to the arbitrate as result of direct benefits that
software provider when plaintiffs em- he or she allegedly received under contract
ployed the plug-in program to browse the entered into by others is issue of arbitra-
Internet. Defendants moved to compel ar- bility that is reviewed de novo.
bitration and to stay court proceedings.
The United States District Court for the 5. Arbitration O23.13
Southern District of New York, 150 Court may not compel arbitration un-
F.Supp.2d 585, Alvin K. Hellerstein, J., til it has resolved question of very exis-
18 306 FEDERAL REPORTER, 3d SERIES

tence of contract embodying the arbitra- 13. Contracts O15


tion clause. Under California law, mutual manifes-
6. Arbitration O1.1 tation of assent, whether by written or
spoken word or by conduct, is touchstone
Arbitration is matter of contract and
of contract.
party cannot be required to submit to arbi-
tration any dispute which he has not 14. Sales O1(1)
agreed so to submit.
Sale of tangible goods over the Inter-
7. Arbitration O23.14 net is governed by Article 2 of Uniform
Unless parties clearly provide other- Commercial Code (UCC). U.C.C. § 2–101
wise, question whether agreement creates et seq.
duty for parties to arbitrate particular
15. Contracts O22(1)
grievance is issue for judicial determina-
tion. Under California law, offeree, regard-
less of apparent manifestation of his con-
8. Arbitration O2.2 sent, is not bound by inconspicuous con-
Federal Courts O403 tractual provisions of which he is unaware,
In deciding whether parties agreed to contained in document whose contractual
arbitrate certain matter, court should gen- nature is not obvious.
erally apply state-law principles to issue of
16. Arbitration O6.2
contract formation.
Under California law, principle of
9. Federal Courts O612.1 knowing consent applies with particular
Appellant could not argue for first force to provisions for arbitration.
time on appeal that district court erred in
deciding question of contract formation as 17. Arbitration O6.2
a matter of law. Under California law, if party wishes
to bind in writing another to agreement to
10. Federal Courts O611
arbitrate future disputes, such purpose
Appellate court will not consider issue
should be accomplished in way that each
raised for first time on appeal.
party to arrangement will fully and clearly
11. Federal Courts O698.1 comprehend that agreement to arbitrate
District court had ample record to exists and binds parties thereto.
decide question of reasonable notice and
18. Contracts O22(1)
objective manifestation of assent as a mat-
ter of law, including affidavits and exten- California contract law measures as-
sive deposition testimony by each named sent by objective standard that takes into
plaintiff, numerous declarations by counsel account both what offeree said, wrote, or
and witnesses, dozens of exhibits, oral ar- did and transactional context in which of-
gument supplemented by computer dem- feree verbalized or acted.
onstration and additional briefs following
19. Arbitration O6.2
oral argument.
Under California law, Internet users
12. Contracts O15 did not agree to be bound by software’s
Under California law, in order to be a license terms, which included arbitration
contract, transaction requires manifesta- clause, by acting upon invitation to down-
tion of agreement between the parties. load software free from producer’s web-
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 19
Cite as 306 F.3d 17 (2nd Cir. 2002)

page, even though notice of existence of 26. Arbitration O23.10


license terms was on next scrollable Where scope of arbitration agreement
screen; reasonably prudent Internet user is broad, there arises presumption of arbi-
would not have known or learned of exis- trability.
tence of license terms before responding to
27. Arbitration O7
invitation to download free software.
West’s Ann.Cal.Civ.Code § 1589. In determining whether particular
claim falls within scope of arbitration
20. Notice O6 agreement, Court focuses on factual alle-
gations in complaint rather than legal
‘‘Inquiry notice’’ is actual notice of
causes of action asserted; if those allega-
circumstances sufficient to put prudent
tions ‘‘touch matters’’ covered by agree-
man upon inquiry.
ment, claims must be arbitrated.
See publication Words and Phras-
es for other judicial constructions 28. Arbitration O7.5
and definitions. Internet users’ assent to license terms
governing use of Internet browser soft-
21. Contracts O93(2)
ware, which included arbitration clause,
Under California law, party cannot did not require them to arbitrate their
avoid terms of contract on ground that he claims regarding separate plug-in program
or she failed to read it before signing. offered by software producer to enhance
functioning of the browser program; un-
22. Contracts O22(1)
derlying dispute involved matters collater-
Under California law, when writing al to license agreement, allegations did not
does not appear to be a contract and terms touch matters covered by agreement,
are not called to attention of recipient, no agreement governed disputes concerning
contract is formed with respect to the un- browser programs only, not disputes con-
disclosed term. cerning plug-in programs, and license
terms included merger clause.
23. Arbitration O23.25
29. Evidence O397(2)
Scope of arbitration agreement is le-
Merger or integration clauses are rec-
gal issue subject to de novo review.
ognized by California courts as means of
24. Arbitration O7.1 excluding prior or contemporaneous parol
evidence from scope of contract.
Any doubts concerning scope of arbi-
trable issues should be resolved in favor of 30. Arbitration O7.3
arbitration. Under California law, theory that
owner of website visited by users of plug-
25. Arbitration O7.1 in software which enhanced functioning of
Although Federal Arbitration Act separate browser program benefited when-
(FAA) does not require parties to arbitrate ever visitors downloaded certain files made
when they have not agreed to do so, arbi- available on the website was too specula-
tration is indicated unless it can be said tive and tenuous to require owner, a non-
with positive assurance that arbitration signatory to software license containing
clause is not susceptible to interpretation arbitration agreement, to arbitrate his
that covers asserted dispute. 9 U.S.C.A. claim that producer of the software elec-
§ 1 et seq. tronically spied on his website when such
20 306 FEDERAL REPORTER, 3d SERIES

users downloaded software files from his could not have learned of the existence of
site that he provided for setting up an those terms unless, prior to executing the
account with a separate service. download, they had scrolled down the web-
page to a screen located below the down-
load button. We agree with the district
court that a reasonably prudent Internet
Roger W. Yoerges, Wilmer Cutler & user in circumstances such as these would
Pickering, Washington, DC (Patrick J. Ca- not have known or learned of the existence
rome, Joseph R. Profaizer, Darrin A. Hos- of the license terms before responding to
tetler, Wilmer Cutler & Pickering, Wash- defendants’ invitation to download the free
ington, DC, on the brief; David C. software, and that defendants therefore
Goldberg, America Online, Inc., Dulles, did not provide reasonable notice of the
VA, of counsel), for Defendants–Appel- license terms. In consequence, plaintiffs’
lants. bare act of downloading the software did
not unambiguously manifest assent to the
Joshua N. Rubin, Abbey Gardy, LLP,
arbitration provision contained in the li-
New York, N.Y. (Jill S. Abrams, Courtney
E. Lynch, Richard B. Margolies, Abbey cense terms.
Gardy, LLP, New York, NY, on the brief; We also agree with the district court
James V. Bashian, Law Offices of James that plaintiffs’ claims relating to the soft-
V. Bashian, New York, NY; George G. ware at issue—a ‘‘plug-in’’ program enti-
Mahfood, Leesfield, Leighton, Rubio & tled SmartDownload (‘‘SmartDownload’’ or
Mahfood, Miami, FL, of counsel), for ‘‘the plug-in program’’), offered by Net-
Plaintiffs–Appellees. scape to enhance the functioning of the
separate browser program called Net-
Before McLAUGHLIN, LEVAL, and
SOTOMAYOR, Circuit Judges. scape Communicator (‘‘Communicator’’ or
‘‘the browser program’’)—are not subject
SOTOMAYOR, Circuit Judge. to an arbitration agreement contained in
This is an appeal from a judgment of the the license terms governing the use of
Southern District of New York denying a Communicator. Finally, we conclude that
motion by defendants-appellants Netscape the district court properly rejected defen-
Communications Corporation and its cor- dants’ argument that plaintiff website
porate parent, America Online, Inc. (collec- owner Christopher Specht, though not a
tively, ‘‘defendants’’ or ‘‘Netscape’’), to party to any Netscape license agreement,
compel arbitration and to stay court pro- is nevertheless required to arbitrate his
ceedings. In order to resolve the central claims concerning SmartDownload because
question of arbitrability presented here, he allegedly benefited directly under
we must address issues of contract forma- SmartDownload’s license agreement. De-
tion in cyberspace. Principally, we are fendants’ theory that Specht benefited
asked to determine whether plaintiffs-ap- whenever visitors employing SmartDown-
pellees (‘‘plaintiffs’’), by acting upon defen- load downloaded certain files made avail-
dants’ invitation to download free software able on his website is simply too tenuous
made available on defendants’ webpage, and speculative to justify application of
agreed to be bound by the software’s li- the legal doctrine that requires a nonparty
cense terms (which included the arbitra- to an arbitration agreement to arbitrate if
tion clause at issue), even though plaintiffs he or she has received a direct benefit
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 21
Cite as 306 F.3d 17 (2nd Cir. 2002)

under a contract containing the arbitration SmartDownload created and stored on


agreement. their computer hard drives another string
We therefore affirm the district court’s of characters, known as a ‘‘Key,’’ which
denial of defendants’ motion to compel ar- similarly functioned as an identification tag
bitration and to stay court proceedings. in future communications with Netscape.
According to the complaints in this case,
BACKGROUND each time a computer user employed Com-
I. Facts municator to download a file from the In-
ternet, SmartDownload ‘‘assume[d] from
In three related putative class actions,1
Communicator the task of downloading’’
plaintiffs alleged that, unknown to them,
the file and transmitted to Netscape the
their use of SmartDownload transmitted to
address of the file being downloaded to-
defendants private information about
gether with the cookie created by Commu-
plaintiffs’ downloading of files from the
nicator and the Key created by Smart-
Internet, thereby effecting an electronic
Download. These processes, plaintiffs
surveillance of their online activities in vio-
claim, constituted unlawful ‘‘eaves-
lation of two federal statutes, the Electron-
dropping’’ on users of Netscape’s software
ic Communications Privacy Act, 18 U.S.C.
products as well as on Internet websites
§§ 2510 et seq., and the Computer Fraud
from which users employing SmartDown-
and Abuse Act, 18 U.S.C. § 1030.
load downloaded files.
Specifically, plaintiffs alleged that when
they first used Netscape’s Communica- In the time period relevant to this litiga-
tor—a software program that permits In- tion, Netscape offered on its website vari-
ternet browsing—the program created and ous software programs, including Commu-
stored on each of their computer hard nicator and SmartDownload, which visitors
drives a small text file known as a ‘‘cookie’’ to the site were invited to obtain free of
that functioned ‘‘as a kind of electronic charge. It is undisputed that five of the
identification tag for future communica- six named plaintiffs—Michael Fagan, John
tions’’ between their computers and Net- Gibson, Mark Gruber, Sean Kelly, and
scape. Plaintiffs further alleged that when Sherry Weindorf—downloaded Communi-
they installed SmartDownload—a separate cator from the Netscape website. These
software ‘‘plug-in’’ 2 that served to enhance plaintiffs acknowledge that when they pro-
Communicator’s browsing capabilities— ceeded to initiate installation 3 of Commu-

1. Although the district court did not consoli- edly made it easier for users of browser pro-
date these three cases, it noted that its opin- grams like Communicator to download files
ion denying the motion to compel arbitration from the Internet without losing their prog-
and to stay court proceedings ‘‘appl[ied] ress when they paused to engage in some
equally to all three cases.’’ Specht v. Netscape other task, or if their Internet connection was
Communications Corp., 150 F.Supp.2d 585, severed. See Specht, 150 F.Supp.2d at 587.
587 n. 1 (S.D.N.Y.2001). On August 10,
2001, this Court consolidated the appeals.
3. There is a difference between downloading
2. Netscape’s website defines ‘‘plug-ins’’ as and installing a software program. When a
‘‘software programs that extend the capabili- user downloads a program from the Internet
ties of the Netscape Browser in a specific to his or her computer, the program file is
way—giving you, for example, the ability to stored on the user’s hard drive but typically is
play audio samples or view video movies from not operable until the user installs or executes
within your browser.’’ (http://wp.net- it, usually by double-clicking on the file and
scape.com/plugins/) SmartDownload purport- causing the program to run.
22 306 FEDERAL REPORTER, 3d SERIES

nicator, they were automatically shown a lating to intellectual property rights)’’ are
scrollable text of that program’s license subject to ‘‘binding arbitration in Santa
agreement and were not permitted to com- Clara County, California.’’
plete the installation until they had clicked Although Communicator could be ob-
on a ‘‘Yes’’ button to indicate that they tained independently of SmartDownload,
accepted all the license terms.4 If a user all the named user plaintiffs, except Fa-
attempted to install Communicator without gan, downloaded and installed Communi-
clicking ‘‘Yes,’’ the installation would be cator in connection with downloading
aborted. All five named user plaintiffs 5 SmartDownload.7 Each of these plaintiffs
expressly agreed to Communicator’s li- allegedly arrived at a Netscape webpage 8
cense terms by clicking ‘‘Yes.’’ The Com- captioned ‘‘SmartDownload Communica-
municator license agreement that these tor’’ that urged them to ‘‘Download With
plaintiffs saw made no mention of Smart- Confidence Using SmartDownload!’’ At
Download or other plug-in programs, and or near the bottom of the screen facing
stated that ‘‘[t]hese terms apply to Net- plaintiffs was the prompt ‘‘Start Down-
scape Communicator and Netscape Navi- load’’ and a tinted button labeled ‘‘Down-
gator’’ 6 and that ‘‘all disputes relating to load.’’ By clicking on the button, plaintiffs
this Agreement (excepting any dispute re- initiated the download of SmartDownload.

4. This kind of online software license agree- 6. While Navigator was Netscape’s ‘‘stand-
ment has come to be known as ‘‘clickwrap’’ alone’’ Internet browser program during the
(by analogy to ‘‘shrinkwrap,’’ used in the li- period in question, Communicator was a
censing of tangible forms of software sold in ‘‘software suite’’ that comprised Navigator
packages) because it ‘‘presents the user with a and other software products. All five named
message on his or her computer screen, re- user plaintiffs stated in affidavits that they
quiring that the user manifest his or her as- had obtained upgraded versions of Communi-
sent to the terms of the license agreement by cator. Fagan, who, as noted below, allegedly
clicking on an icon. The product cannot be did not obtain the browser program in con-
obtained or used unless and until the icon is nection with downloading SmartDownload,
clicked.’’ Specht, 150 F.Supp.2d at 593–94 expressed some uncertainty during his deposi-
(footnote omitted). Just as breaking the tion as to whether he had acquired Communi-
shrinkwrap seal and using the enclosed com- cator or Navigator. The identity of Fagan’s
puter program after encountering notice of browser program is immaterial to this appeal,
the existence of governing license terms has however, as Communicator and Navigator
been deemed by some courts to constitute shared the same license agreement.
assent to those terms in the context of tangi-
ble software, see, e.g., ProCD, Inc. v. Zeiden- 7. Unlike the four other user plaintiffs, Fagan
berg, 86 F.3d 1447, 1451 (7th Cir.1996), so chose the option of obtaining Netscape’s
clicking on a webpage’s clickwrap button af- browser program without first downloading
ter receiving notice of the existence of license SmartDownload. As discussed below, Fagan
terms has been held by some courts to mani- allegedly obtained SmartDownload from a
fest an Internet user’s assent to terms govern- separate ‘‘shareware’’ website unrelated to
ing the use of downloadable intangible soft- Netscape.
ware, see, e.g., Hotmail Corp. v. Van$ Money
Pie Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal. 8. For purposes of this opinion, the term
1998). ‘‘webpage’’ or ‘‘page’’ is used to designate a
document that resides, usually with other
5. The term ‘‘user plaintiffs’’ here and else- webpages, on a single Internet website and
where in this opinion denotes those plaintiffs that contains information that is viewed on a
who are suing for harm they allegedly in- computer monitor by scrolling through the
curred as computer users, in contrast to document. To view a webpage in its entirety,
plaintiff Specht, who alleges that he was a user typically must scroll through multiple
harmed in his capacity as a website owner. screens.
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 23
Cite as 306 F.3d 17 (2nd Cir. 2002)

Once that process was complete, Smart- ‘‘Download’’ button. They also testified
Download, as its first plug-in task, permit- during depositions that they saw no refer-
ted plaintiffs to proceed with downloading ence to license terms when they clicked to
and installing Communicator, an operation download SmartDownload, although under
that was accompanied by the clickwrap questioning by defendants’ counsel, some
display of Communicator’s license terms plaintiffs added that they could not ‘‘re-
described above. member’’ or be ‘‘sure’’ whether the screen
The signal difference between download- shots of the SmartDownload page attached
ing Communicator and downloading to their affidavits reflected precisely what
SmartDownload was that no clickwrap pre- they had seen on their computer screens
sentation accompanied the latter operation. when they downloaded SmartDownload.10
Instead, once plaintiffs Gibson, Gruber, In sum, plaintiffs Gibson, Gruber, Kelly,
Kelly, and Weindorf had clicked on the and Weindorf allege that the process of
‘‘Download’’ button located at or near the obtaining SmartDownload contrasted
bottom of their screen, and the download- sharply with that of obtaining Communica-
ing of SmartDownload was complete, these tor. Having selected SmartDownload,
plaintiffs encountered no further informa- they were required neither to express un-
tion about the plug-in program or the exis- ambiguous assent to that program’s license
tence of license terms governing its use.9 agreement nor even to view the license
The sole reference to SmartDownload’s li- terms or become aware of their existence
cense terms on the ‘‘SmartDownload Com- before proceeding with the invited down-
municator’’ webpage was located in text load of the free plug-in program. More-
that would have become visible to plaintiffs over, once these plaintiffs had initiated the
only if they had scrolled down to the next download, the existence of SmartDown-
screen. load’s license terms was not mentioned
Had plaintiffs scrolled down instead of while the software was running or at any
acting on defendants’ invitation to click on later point in plaintiffs’ experience of the
the ‘‘Download’’ button, they would have product.
encountered the following invitation: Even for a user who, unlike plaintiffs,
‘‘Please review and agree to the terms of did happen to scroll down past the down-
the Netscape SmartDownload software li- load button, SmartDownload’s license
cense agreement before downloading and terms would not have been immediately
using the software.’’ Plaintiffs Gibson, displayed in the manner of Communica-
Gruber, Kelly, and Weindorf averred in tor’s clickwrapped terms. Instead, if such
their affidavits that they never saw this a user had seen the notice of SmartDown-
reference to the SmartDownload license load’s terms and then clicked on the un-
agreement when they clicked on the derlined invitation to review and agree to

9. Plaintiff Kelly, a relatively sophisticated In- 10. In the screen shot of the SmartDownload
ternet user, testified that when he clicked to webpage attached to Weindorf’s affidavit, the
download SmartDownload, he did not think reference to license terms is partially visible,
that he was downloading a software program though almost illegible, at the bottom of the
at all, but rather that SmartDownload ‘‘was screen. In the screen shots attached to the
merely a piece of download technology.’’ He affidavits of Gibson, Gruber, and Kelly, the
later became aware that SmartDownload was reference to license terms is not visible.
residing as software on his hard drive when
he attempted to download electronic files
from the Internet.
24 306 FEDERAL REPORTER, 3d SERIES

the terms, a hypertext link would have AND IS BECOMING A PARTY TO


taken the user to a separate webpage enti- THIS AGREEMENT. IF LICENSEE
tled ‘‘License & Support Agreements.’’ DOES NOT AGREE TO ALL OF THE
The first paragraph on this page read, in TERMS OF THIS AGREEMENT,
pertinent part: THE BUTTON INDICATING NON–
The use of each Netscape software prod- ACCEPTANCE MUST BE SELECT-
uct is governed by a license agreement. ED, AND LICENSEE MUST NOT IN-
You must read and agree to the license STALL OR USE THE SOFTWARE.
agreement terms BEFORE acquiring a Among the license terms was a provision
product. Please click on the appropriate requiring virtually all disputes relating to
link below to review the current license the agreement to be submitted to arbitra-
agreement for the product of interest to tion:
you before acquisition. For products Unless otherwise agreed in writing, all
available for download, you must read disputes relating to this Agreement (ex-
and agree to the license agreement cepting any dispute relating to intellec-
terms BEFORE you install the soft- tual property rights) shall be subject to
ware. If you do not agree to the license final and binding arbitration in Santa
terms, do not download, install or use Clara County, California, under the aus-
the software. pices of JAMS/EndDispute, with the los-
Below this paragraph appeared a list of ing party paying all costs of arbitration.
license agreements, the first of which was Unlike the four named user plaintiffs
‘‘License Agreement for Netscape Naviga- who downloaded SmartDownload from the
tor and Netscape Communicator Product Netscape website, the fifth named plaintiff,
Family (Netscape Navigator, Netscape Michael Fagan, claims to have downloaded
Communicator and Netscape SmartDown- the plug-in program from a ‘‘shareware’’
load).’’ If the user clicked on that link, he website operated by ZDNet, an entity un-
or she would be taken to yet another web- related to Netscape. Shareware sites are
page that contained the full text of a li- websites, maintained by companies or indi-
cense agreement that was identical in ev- viduals, that contain libraries of free, pub-
ery respect to the Communicator license licly available software. The pages that a
agreement except that it stated that its user would have seen while downloading
‘‘terms apply to Netscape Communicator, SmartDownload from ZDNet differed from
Netscape Navigator, and Netscape Smart- those that he or she would have encoun-
Download.’’ The license agreement grant- tered while downloading SmartDownload
ed the user a nonexclusive license to use from the Netscape website. Notably, in-
and reproduce the software, subject to cer- stead of any kind of notice of the Smart-
tain terms: Download license agreement, the ZDNet
BY CLICKING THE ACCEPTANCE pages offered only a hypertext link to
BUTTON OR INSTALLING OR US- ‘‘more information’’ about SmartDownload,
ING NETSCAPE COMMUNICATOR, which, if clicked on, took the user to a
NETSCAPE NAVIGATOR, OR NET- Netscape webpage that, in turn, contained
SCAPE SMARTDOWNLOAD SOFT- a link to the license agreement. Thus, a
WARE (THE ‘‘PRODUCT’’), THE IN- visitor to the ZDNet website could have
DIVIDUAL OR ENTITY LICENSING obtained SmartDownload, as Fagan avers
THE PRODUCT (‘‘LICENSEE’’) IS he did, without ever seeing a reference to
CONSENTING TO BE BOUND BY that program’s license terms, even if he or
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 25
Cite as 306 F.3d 17 (2nd Cir. 2002)

she had scrolled through all of ZDNet’s of clickwrap, neither adequately alerted
webpages. users to the existence of SmartDownload’s
The sixth named plaintiff, Christopher license terms nor required users unambig-
Specht, never obtained or used Smart- uously to manifest assent to those terms as
Download, but instead operated a website a condition of downloading the product, the
from which visitors could download certain court held that the user plaintiffs had not
electronic files that permitted them to cre- entered into the SmartDownload license
ate an account with an internet service agreement. Specht, 150 F.Supp.2d at 595–
provider called WhyWeb. Specht alleges 96.
that every time a user who had previously The district court also ruled that the
installed SmartDownload visited his web- separate license agreement governing use
site and downloaded WhyWeb-related of Communicator, even though the user
files, defendants intercepted this informa- plaintiffs had assented to its terms, in-
tion. Defendants allege that Specht would volved an independent transaction that
receive a representative’s commission from made no mention of SmartDownload and
WhyWeb every time a user who obtained a so did not bind plaintiffs to arbitrate their
WhyWeb file from his website subsequent- claims relating to SmartDownload. Id. at
ly subscribed to the WhyWeb service. 596. The court further concluded that Fa-
Thus, argue defendants, because the ‘‘Net- gan could not be bound by the Smart-
scape license agreement TTT conferred on Download license agreement, because the
each user the right to download and use shareware site from which he allegedly
both Communicator and SmartDownload obtained the plug-in program provided
software,’’ Specht received a benefit under even less notice of SmartDownload’s li-
that license agreement in that Smart- cense terms than did Netscape’s page. Id.
Download ‘‘assisted in obtaining the Why- at 596–97. Finally, the court ruled that
Web file and increased the likelihood of Specht was not bound by the SmartDown-
success in the download process.’’ This load arbitration agreement as a noncon-
benefit, defendants claim, was direct tracting beneficiary, because he (1) had no
enough to require Specht to arbitrate his preexisting relationship with any of the
claims pursuant to Netscape’s license parties, (2) was not an agent of any party,
terms. Specht, however, maintains that and (3) received no direct benefit from
he never received any commissions based users’ downloading of files from his site,
on the WhyWeb files available on his web- even if those users did employ Smart-
site. Download to enhance their downloading.
Id. at 597–98.
II. Proceedings Below Defendants took this timely appeal pur-
In the district court, defendants moved suant to 9 U.S.C. § 16, and the district
to compel arbitration and to stay court court stayed all proceedings in the under-
proceedings pursuant to the Federal Arbi- lying cases pending resolution of the ap-
tration Act (‘‘FAA’’), 9 U.S.C. § 4, arguing peal. This Court has jurisdiction pursuant
that the disputes reflected in the com- to § 16(a)(1)(B), as this is an appeal from
plaints, like any other dispute relating to an order denying defendants’ motion to
the SmartDownload license agreement, are compel arbitration under the FAA. Medi-
subject to the arbitration clause contained terranean Shipping Co. S.A. Geneva v.
in that agreement. Finding that Net- POL–Atlantic, 229 F.3d 397, 402 (2d Cir.
scape’s webpage, unlike typical examples 2000).
26 306 FEDERAL REPORTER, 3d SERIES

DISCUSSION result of direct benefits that he or she


allegedly received under a contract en-
I. Standard of Review and Applicable
Law tered into by others is an issue of arbitra-
bility that is reviewed de novo. Cf.
[1, 2] A district court’s denial of a mo-
Smith/Enron Cogeneration Ltd. P’ship,
tion to compel arbitration is reviewed de
Inc. v. Smith Cogeneration Int’l, Inc., 198
novo. Collins & Aikman Prods. Co. v.
F.3d 88, 95 (2d Cir.1999) (‘‘[W]hether an
Bldg. Sys., Inc., 58 F.3d 16, 19 (2d Cir.
entity is a party to the arbitration agree-
1995). The determination of whether par-
ment TTT is included within the broader
ties have contractually bound themselves
issue of whether the parties agreed to
to arbitrate a dispute—a determination in-
arbitrate.’’).
volving interpretation of state law—is a
legal conclusion also subject to de novo
[5–7] The FAA provides that a ‘‘writ-
review. Chelsea Square Textiles, Inc. v.
ten provision in any TTT contract evidenc-
Bombay Dyeing & Mfg. Co., Ltd., 189 F.3d
ing a transaction involving commerce to
289, 295 (2d Cir.1999); see also Shann v.
settle by arbitration a controversy thereaf-
Dunk, 84 F.3d 73, 77 (2d Cir.1996) (‘‘The
ter arising out of such contract or transac-
central issue—whether, based on the fac-
tion TTT shall be valid, irrevocable, and
tual findings, a binding contract existed—
enforceable, save upon such grounds as
is a question of law that we review de
exist at law or in equity for the revocation
novo.’’). The findings upon which that
of any contract.’’ 11 9 U.S.C. § 2. It is well
conclusion is based, however, are factual
settled that a court may not compel arbi-
and thus may not be overturned unless
tration until it has resolved ‘‘the question
clearly erroneous. Chelsea Square Tex-
of the very existence’’ of the contract em-
tiles, 189 F.3d at 295.
bodying the arbitration clause. Interocean
[3, 4] If a court finds that the parties Shipping Co. v. Nat’l Shipping & Trading
agreed to arbitrate, it should then consider Corp., 462 F.2d 673, 676 (2d Cir.1972).
whether the dispute falls within the scope ‘‘[A]rbitration is a matter of contract and a
of the arbitration agreement. Genesco, party cannot be required to submit to arbi-
Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d tration any dispute which he has not
840, 844 (2d Cir.1987). A district court’s agreed so to submit.’’ AT & T Techs., Inc.
determination of the scope of an arbitra- v. Communications Workers of Am., 475
tion agreement is reviewed de novo. Ol- U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d
droyd v. Elmira Sav. Bank, FSB, 134 F.3d 648 (1986) (quotation marks omitted). Un-
72, 76 (2d Cir.1998). In addition, whether less the parties clearly provide otherwise,
a party may be compelled to arbitrate as a ‘‘the question of arbitrability—whether

11. The parties do not dispute, nor could they, natures in Global and National Commerce
that the software license agreement at issue Act (‘‘E–Sign Act’’), Pub.L. No. 106–229, 114
‘‘involv[ed] commerce’’ within the meaning of Stat. 464 (2000) (codified at 15 U.S.C.
9 U.S.C. § 2, see Allied–Bruce Terminix Cos., §§ 7001 et seq.), which provides that ‘‘a signa-
Inc. v. Dobson, 513 U.S. 265, 273–74, 115 ture, contract, or other record relating to
S.Ct. 834, 130 L.Ed.2d 753 (1995) (construing such transaction may not be denied legal ef-
the broad phrase ‘‘involving commerce’’ to be fect, validity, or enforceability solely because
the functional equivalent of ‘‘affecting com- it is in electronic form.’’ Id. § 7001(a)(1); see
merce’’), or that the agreement is a ‘‘written also Cal. Civ.Code § 1633.7(b) (‘‘A contract
provision’’ despite being provided to users in may not be denied legal effect or enforceabili-
a downloadable electronic form. The latter ty solely because an electronic record was
point has been settled by the Electronic Sig- used in its formation.’’).
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 27
Cite as 306 F.3d 17 (2nd Cir. 2002)

a[n] TTT agreement creates a duty for the terms on Netscape’s webpage, defendants
parties to arbitrate the particular griev- point to deposition testimony in which
ance—is undeniably an issue for judicial some plaintiffs, under repeated question-
determination.’’ Id. at 649, 106 S.Ct. 1415. ing by defendants’ counsel, responded that
they could not ‘‘remember’’ or be entirely
[8] The district court properly conclud-
‘‘sure’’ whether the link to SmartDown-
ed that in deciding whether parties agreed
load’s license terms was visible on their
to arbitrate a certain matter, a court
computer screens. Defendants argue that
should generally apply state-law principles
on some computers, depending on the con-
to the issue of contract formation. Mehler
figuration of the monitor and browser,
v. Terminix Int’l Co., 205 F.3d 44, 48 (2d
SmartDownload’s license link ‘‘appears on
Cir.2000); see also Perry v. Thomas, 482
the first screen, without any need for the
U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96
user to scroll at all.’’ Thus, according to
L.Ed.2d 426 (1987) (‘‘[S]tate law, whether
defendants, ‘‘a trial on the factual issues
of legislative or judicial origin, is applicable
that Defendants raised about each and ev-
[to the determination of whether the par-
ery Plaintiffs’ [sic ] downloading experi-
ties agreed to arbitrate] if that law arose
ence’’ is required on remand to remedy the
to govern issues concerning the validity,
district court’s ‘‘error’’ in denying defen-
revocability, and enforceability of contracts
dants’ motion as a matter of law.
generally.’’). Therefore, state law governs
the question of whether the parties in the [9, 10] Section 4 of the FAA provides,
present case entered into an agreement to in relevant part, that ‘‘[i]f the making of
arbitrate disputes relating to the Smart- the arbitration agreement TTT be in issue,
Download license agreement. The district the court shall proceed summarily to the
court further held that California law gov- trial thereof.’’ 9 U.S.C. § 4. We conclude
erns the question of contract formation for two reasons, however, that defendants
here; the parties do not appeal that deter- are not entitled to a remand for a full trial.
mination. First, during oral argument in the district
court on the arbitrability of the five user
II. Whether This Court Should Re- plaintiffs’ claims, defendants’ counsel re-
mand for a Trial on Contract For- peatedly insisted that the district court
mation could decide ‘‘as a matter of law based on
Defendants argue on appeal that the the uncontroverted facts in this case’’
district court erred in deciding the ques- whether ‘‘a reasonably prudent person
tion of contract formation as a matter of could or should have known of the [license]
law. A central issue in dispute, according terms by which acceptance would be signi-
to defendants, is whether the user plain- fied.’’ ‘‘I don’t want you to try the facts,’’
tiffs actually saw the notice of SmartDown- defendants’ counsel told the court. ‘‘I
load’s license terms when they downloaded think that the evidence in this case upon
the plug-in program. Although plaintiffs which this court can make a determination
in their affidavits and depositions general- [of whether a contract existed] as a matter
ly swore that they never saw the notice of of law is uncontroverted.’’ 12 Accordingly,

12. Later, when Judge Hellerstein suggested sel stated: ‘‘I am not sure there is an issue of
that it was ‘‘an issue of fact TTT to be tried’’ fact. It is sort of a summary judgment kind
whether plaintiff Fagan downloaded Smart- of standard.’’ Still later, counsel remarked:
Download from Netscape’s webpage or from ‘‘I think we established that there really is no
the ZDNet shareware site, defendants’ coun- genuine issue that Mr. Fagan got his smart
28 306 FEDERAL REPORTER, 3d SERIES

the district court decided the issue of rea- ord consisted of pleadings, affidavits, and
sonable notice and objective manifestation documentary attachments). We are satis-
of assent as a matter of law. ‘‘[I]t is a fied that the unusually full record before
well-established general rule that an appel- the district court in this case constituted
late court will not consider an issue raised ‘‘a hearing where evidence is received.’’
for the first time on appeal.’’ Greene v. Interocean Shipping, 462 F.2d at 677.
United States, 13 F.3d 577, 586 (2d Cir. Moreover, upon the record assembled, a
1994); see also Gurary v. Winehouse, 190 fact-finder could not reasonably find that
F.3d 37, 44 (2d Cir.1999) (‘‘Having failed to defendants prevailed in showing that any
make the present argument to the district of the user plaintiffs had entered into an
court, plaintiff will not be heard to advance agreement on defendants’ license terms.
it here.’’). Nor would it cause injustice in In sum, we conclude that the district
this case for us to decline to accept defen- court properly decided the question of rea-
dants’ invitation to consider an issue that sonable notice and objective manifestation
defendants did not advance below. of assent as a matter of law on the record
[11] Second, after conducting weeks of before it, and we decline defendants’ re-
discovery on defendants’ motion to compel quest to remand for a full trial on that
arbitration, the parties placed before the question.
district court an ample record consisting
of affidavits and extensive deposition testi- III. Whether the User Plaintiffs Had
mony by each named plaintiff; numerous Reasonable Notice of and Mani-
declarations by counsel and witnesses for fested Assent to the SmartDown-
the parties; dozens of exhibits, including load License Agreement
computer screen shots and other visual [12–15] Whether governed by the com-
evidence concerning the user plaintiffs’ ex- mon law or by Article 2 of the Uniform
perience of the Netscape webpage; oral Commercial Code (‘‘UCC’’), a transaction,
argument supplemented by a computer in order to be a contract, requires a man-
demonstration; and additional briefs fol- ifestation of agreement between the par-
lowing oral argument. This well-devel- ties. See Windsor Mills, Inc. v. Collins &
oped record contrasts sharply with the Aikman Corp., 25 Cal.App.3d 987, 991, 101
meager records that on occasion have Cal.Rptr. 347, 350 (1972) (‘‘[C]onsent to, or
caused this Court to remand for trial on acceptance of, the arbitration provision [is]
the issue of contract formation pursuant necessary to create an agreement to arbi-
to 9 U.S.C. § 4. See, e.g., Interbras Cay- trate.’’); see also Cal. Com.Code § 2204(1)
man Co. v. Orient Victory Shipping Co., (‘‘A contract for sale of goods may be
S.A., 663 F.2d 4, 5 (2d Cir.1981) (record made in any manner sufficient to show
consisted of affidavits and other papers); agreement, including conduct by both par-
Interocean Shipping, 462 F.2d at 676 (rec- ties which recognizes the existence of such

download [sic ] [by visiting the Netscape web- (2d Cir.1997) (‘‘As when opposing a motion
page from which he] fairly had notice that for summary judgment under Fed.R.Civ.P. 56,
there was a license agreement.’’ Defendants’ the party requesting a jury trial must submit
position that there was ‘‘no genuine issue’’ evidentiary facts showing that there is a dis-
regarding reasonable notice of the existence pute of fact to be tried.’’ (quotation marks
of the license terms is consistent with this omitted)); Doctor’s Assocs., Inc. v. Stuart, 85
Circuit’s standard for determining whether a F.3d 975, 983–84 (2d Cir.1996) (‘‘To warrant
trial is required on the issue of the making of a trial under 9 U.S.C. § 4, the issue raised
an arbitration agreement. See Doctor’s As- must be ‘genuine.’ ’’ (quotation marks omit-
socs., Inc. v. Distajo, 107 F.3d 126, 129–30 ted)).
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 29
Cite as 306 F.3d 17 (2nd Cir. 2002)

a contract.’’).13 Mutual manifestation of actions in this case would have seen each
assent, whether by written or spoken word of the user plaintiffs click on the Smart-
or by conduct, is the touchstone of con- Download ‘‘Download’’ button, see Cedars
tract. Binder v. Aetna Life Ins. Co., 75 Sinai Med. Ctr. v. Mid–West Nat’l Life
Cal.App.4th 832, 848, 89 Cal.Rptr.2d 540, Ins. Co., 118 F.Supp.2d 1002, 1008
551 (1999); cf. Restatement (Second) of (C.D.Cal.2000) (‘‘In California, a party’s
Contracts § 19(2) (1981) (‘‘The conduct of intent to contract is judged objectively, by
a party is not effective as a manifestation the party’s outward manifestation of con-
of his assent unless he intends to engage sent.’’), a consumer’s clicking on a down-
in the conduct and knows or has reason to load button does not communicate assent
know that the other party may infer from to contractual terms if the offer did not
his conduct that he assents.’’). Although make clear to the consumer that clicking
an onlooker observing the disputed trans- on the download button would signify as-

13. The district court concluded that the Networks, Inc., 183 F.Supp.2d 328, 332
SmartDownload transactions here should be (D.Mass.2002) (stating, in the context of a
governed by ‘‘California law as it relates to dispute between business parties, that ‘‘Article
the sale of goods, including the Uniform Com- 2 technically does not, and certainly will not
mercial Code in effect in California.’’ Specht, in the future, govern software licenses, but for
150 F.Supp.2d at 591. It is not obvious, the time being, the Court will assume that it
however, that UCC Article 2 (‘‘sales of does’’).
goods’’) applies to the licensing of software Downloadable software, however, is scarce-
that is downloadable from the Internet. Cf. ly a ‘‘tangible’’ good, and, in part because
Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, software may be obtained, copied, or trans-
675 (3d Cir.1991) (‘‘The increasing frequency ferred effortlessly at the stroke of a computer
of computer products as subjects of commer- key, licensing of such Internet products has
cial litigation has led to controversy over assumed a vast importance in recent years.
whether software is a ‘good’ or intellectual Recognizing that ‘‘a body of law based on
property. The [UCC] does not specifically images of the sale of manufactured goods ill
mention software.’’); Lorin Brennan, Why Ar- fits licenses and other transactions in comput-
ticle 2 Cannot Apply to Software Transactions, er information,’’ the National Conference of
PLI Patents, Copyrights, Trademarks, & Liter- Commissioners on Uniform State Laws has
ary Property Course Handbook Series (Feb.- promulgated the Uniform Computer Informa-
Mar.2001) (demonstrating the trend in case tion Transactions Act (‘‘UCITA’’), a code re-
law away from application of UCC provisions sembling UCC Article 2 in many respects but
to software sales and licensing and toward drafted to reflect emergent practices in the
application of intellectual property princi- sale and licensing of computer information.
ples). There is no doubt that a sale of tangi- UCITA, prefatory note (rev. ed. Aug.23,
ble goods over the Internet is governed by 2001) (available at www.ucitaonline.com/uci-
Article 2 of the UCC. See, e.g., Butler v. Beer ta.html). UCITA—originally intended as a
Across Am., 83 F.Supp.2d 1261, 1263–64 & n. new Article 2B to supplement Articles 2 and
6 (N.D.Ala.2000) (applying Article 2 to an 2A of the UCC but later proposed as an inde-
Internet sale of bottles of beer). Some courts pendent code—has been adopted by two
have also applied Article 2, occasionally with states, Maryland and Virginia. See Md.Code
misgivings, to sales of off-the-shelf software in Ann. Com. Law §§ 22–101 et seq.; Va.Code
tangible, packaged formats. See, e.g., ProCD, Ann. §§ 59.1–501.1 et seq.
86 F.3d at 1450 (‘‘[W]e treat the [database] We need not decide today whether UCC
licenses as ordinary contracts accompanying Article 2 applies to Internet transactions in
the sale of products, and therefore as gov- downloadable products. The district court’s
erned by the common law of contracts and analysis and the parties’ arguments on appeal
the Uniform Commercial Code. Whether show that, for present purposes, there is no
there are legal differences between ‘contracts’ essential difference between UCC Article 2
and ‘licenses’ (which may matter under the and the common law of contracts. We there-
copyright doctrine of first sale) is a subject for fore apply the common law, with exceptions
another day.’’); I.Lan Sys., Inc. v. Nextpoint as noted.
30 306 FEDERAL REPORTER, 3d SERIES

sent to those terms, see Windsor Mills, 25 able prudence and that, because notice of
Cal.App.3d at 992, 101 Cal.Rptr. at 351 the existence of SmartDownload license
(‘‘[W]hen the offeree does not know that a terms was on the next scrollable screen,
proposal has been made to him this objec- plaintiffs were on ‘‘inquiry notice’’ of those
tive standard does not apply.’’). Califor- terms.14 We disagree with the proposition
nia’s common law is clear that ‘‘an offeree, that a reasonably prudent offeree in plain-
regardless of apparent manifestation of his
tiffs’ position would necessarily have
consent, is not bound by inconspicuous
known or learned of the existence of the
contractual provisions of which he is un-
SmartDownload license agreement prior to
aware, contained in a document whose con-
acting, so that plaintiffs may be held to
tractual nature is not obvious.’’ Id.; see
also Marin Storage & Trucking, Inc. v. have assented to that agreement with con-
Benco Contracting & Eng’g, Inc., 89 Cal. structive notice of its terms. See Cal.
App.4th 1042, 1049, 107 Cal.Rptr.2d 645, Civ.Code § 1589 (‘‘A voluntary acceptance
651 (2001) (same). of the benefit of a transaction is equivalent
to a consent to all the obligations arising
[16–18] Arbitration agreements are no
from it, so far as the facts are known, or
exception to the requirement of manifesta-
tion of assent. ‘‘This principle of knowing ought to be known, to the person accept-
consent applies with particular force to ing.’’). It is true that ‘‘[a] party cannot
provisions for arbitration.’’ Windsor avoid the terms of a contract on the
Mills, 101 Cal.Rptr. at 351. Clarity and ground that he or she failed to read it
conspicuousness of arbitration terms are before signing.’’ Marin Storage & Truck-
important in securing informed assent. ing, 89 Cal.App.4th at 1049, 107 Cal.
‘‘If a party wishes to bind in writing anoth- Rptr.2d at 651. But courts are quick to
er to an agreement to arbitrate future add: ‘‘An exception to this general rule
disputes, such purpose should be accom- exists when the writing does not appear to
plished in a way that each party to the be a contract and the terms are not called
arrangement will fully and clearly compre- to the attention of the recipient. In such a
hend that the agreement to arbitrate ex- case, no contract is formed with respect to
ists and binds the parties thereto.’’ Com-
the undisclosed term.’’ Id.; cf. Cory v.
mercial Factors Corp. v. Kurtzman Bros.,
Golden State Bank, 95 Cal.App.3d 360,
131 Cal.App.2d 133, 134–35, 280 P.2d 146,
364, 157 Cal.Rptr. 538, 541 (1979) (‘‘[T]he
147–48 (1955) (internal quotation marks
provision in question is effectively hidden
omitted). Thus, California contract law
measures assent by an objective standard from the view of money order purchasers
that takes into account both what the of- until after the transactions are complet-
feree said, wrote, or did and the transac- edTTTT Under these circumstances, it must
tional context in which the offeree verbal- be concluded that the Bank’s money order
ized or acted. purchasers are not chargeable with either
actual or constructive notice of the service
A. The Reasonably Prudent Offeree charge provision, and therefore cannot be
of Downloadable Software deemed to have consented to the provision
[19–22] Defendants argue that plain- as part of their transaction with the
tiffs must be held to a standard of reason- Bank.’’).

14. ‘‘Inquiry notice’’ is ‘‘actual notice of cir- Ins. Bureau v. Barrett Garages, Inc., 257 Cal.
cumstances sufficient to put a prudent man App.2d 71, 64 Cal.Rptr. 699, 703 (Cal.Ct.App.
upon inquiry.’’ Cal. State Auto. Ass’n Inter– 1967) (internal quotation marks omitted).
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 31
Cite as 306 F.3d 17 (2nd Cir. 2002)

Most of the cases cited by defendants in ‘‘minimal investigation’’ would have re-
support of their inquiry-notice argument vealed facts to offeree).
are drawn from the world of paper con- As the foregoing cases suggest, receipt
tracting. See, e.g., Taussig v. Bode & of a physical document containing contract
Haslett, 134 Cal. 260, 66 P. 259 (1901) terms or notice thereof is frequently
(where party had opportunity to read leak- deemed, in the world of paper transac-
age disclaimer printed on warehouse re- tions, a sufficient circumstance to place the
ceipt, he had duty to do so); In re First offeree on inquiry notice of those terms.
Capital Life Ins. Co., 34 Cal.App.4th 1283, ‘‘Every person who has actual notice of
1288, 40 Cal.Rptr.2d 816, 820 (1995) (pur- circumstances sufficient to put a prudent
chase of insurance policy after opportunity man upon inquiry as to a particular fact,
to read and understand policy terms cre- has constructive notice of the fact itself in
ates binding agreement); King v. Larsen all cases in which, by prosecuting such
Realty, Inc., 121 Cal.App.3d 349, 356, 175 inquiry, he might have learned such fact.’’
Cal.Rptr. 226, 231 (1981) (where realtors’ Cal. Civ.Code § 19. These principles ap-
board manual specifying that party was ply equally to the emergent world of online
required to arbitrate was ‘‘readily avail- product delivery, pop-up screens, hyper-
able,’’ party was ‘‘on notice’’ that he was linked pages, clickwrap licensing, scrolla-
agreeing to mandatory arbitration); Cal. ble documents, and urgent admonitions to
State Auto. Ass’n Inter–Ins. Bureau v. ‘‘Download Now!’’. What plaintiffs saw
Barrett Garages, Inc., 257 Cal.App.2d 71, when they were being invited by defen-
76, 64 Cal.Rptr. 699, 703 (1967) (recipient dants to download this fast, free plug-in
of airport parking claim check was bound called SmartDownload was a screen con-
by terms printed on claim check, because a taining praise for the product and, at the
‘‘ordinarily prudent’’ person would have very bottom of the screen, a ‘‘Download’’
been alerted to the terms); Larrus v. button. Defendants argue that under the
First Nat’l Bank, 122 Cal.App.2d 884, 888, principles set forth in the cases cited
266 P.2d 143, 147 (1954) (‘‘clearly printed’’ above, a ‘‘fair and prudent person using
statement on bank card stating that depos- ordinary care’’ would have been on inquiry
itor agreed to bank’s regulations provided notice of SmartDownload’s license terms.
sufficient notice to create agreement, Shacket, 651 F.Supp. at 690.
where party had opportunity to view state- We are not persuaded that a reasonably
ment and to ask for full text of regulations, prudent offeree in these circumstances
but did not do so); see also Hux v. Butler, would have known of the existence of li-
339 F.2d 696, 700 (6th Cir.1964) (construc- cense terms. Plaintiffs were responding
tive notice found where ‘‘slightest inquiry’’ to an offer that did not carry an immedi-
would have disclosed relevant facts to of- ately visible notice of the existence of li-
feree); Walker v. Carnival Cruise Lines, cense terms or require unambiguous man-
63 F.Supp.2d 1083, 1089 (N.D.Cal.1999) ifestation of assent to those terms. Thus,
(under California and federal law, ‘‘con- plaintiffs’ ‘‘apparent manifestation of TTT
spicuous notice’’ directing the attention of consent’’ was to terms ‘‘contained in a doc-
parties to existence of contract terms ren- ument whose contractual nature [was] not
ders terms binding) (quotation marks obvious.’’ Windsor Mills, 25 Cal.App.3d
omitted); Shacket v. Roger Smith Aircraft at 992, 101 Cal.Rptr. at 351. Moreover,
Sales, Inc., 651 F.Supp. 675, 691 (N.D.Ill. the fact that, given the position of the
1986) (constructive notice found where scroll bar on their computer screens, plain-
32 306 FEDERAL REPORTER, 3d SERIES

tiffs may have been aware that an unex- paper world of arm’s-length bargaining.
plored portion of the Netscape webpage In the next two sections, we discuss case
remained below the download button does law and other legal authorities that have
not mean that they reasonably should have addressed the circumstances of computer
concluded that this portion contained a sales, software licensing, and online trans-
notice of license terms. In their deposi- acting. Those authorities tend strongly to
tion testimony, plaintiffs variously stated support our conclusion that plaintiffs did
that they used the scroll bar ‘‘[o]nly if not manifest assent to SmartDownload’s
there is something that I feel I need to see license terms.
that is on—that is off the page,’’ or that
B. Shrinkwrap Licensing and Relat-
the elevated position of the scroll bar sug-
ed Practices
gested the presence of ‘‘mere[ ] formali-
ties, standard lower banner links’’ or ‘‘that Defendants cite certain well-known
the page is bigger than what I can see.’’ cases involving shrinkwrap licensing and
Plaintiffs testified, and defendants did not related commercial practices in support of
refute, that plaintiffs were in fact unaware their contention that plaintiffs became
that defendants intended to attach license bound by the SmartDownload license
terms to the use of SmartDownload. terms by virtue of inquiry notice. For
example, in Hill v. Gateway 2000, Inc.,
We conclude that in circumstances such 105 F.3d 1147 (7th Cir.1997), the Seventh
as these, where consumers are urged to Circuit held that where a purchaser had
download free software at the immediate ordered a computer over the telephone,
click of a button, a reference to the exis- received the order in a shipped box con-
tence of license terms on a submerged taining the computer along with printed
screen is not sufficient to place consumers contract terms, and did not return the
on inquiry or constructive notice of those computer within the thirty days required
terms.15 The SmartDownload webpage by the terms, the purchaser was bound by
screen was ‘‘printed in such a manner that the contract. Id. at 1148–49. In ProCD,
it tended to conceal the fact that it was an Inc. v. Zeidenberg, the same court held
express acceptance of [Netscape’s] rules that where an individual purchased soft-
and regulations.’’ Larrus, 266 P.2d at 147. ware in a box containing license terms
Internet users may have, as defendants which were displayed on the computer
put it, ‘‘as much time as they need[ ]’’ to screen every time the user executed the
scroll through multiple screens on a web- software program, the user had sufficient
page, but there is no reason to assume opportunity to review the terms and to
that viewers will scroll down to subsequent return the software, and so was contractu-
screens simply because screens are there. ally bound after retaining the product.
When products are ‘‘free’’ and users are ProCD, 86 F.3d at 1452; cf. Moore v.
invited to download them in the absence of Microsoft Corp., 293 A.D.2d 587, 587, 741
reasonably conspicuous notice that they N.Y.S.2d 91, 92 (2d Dep’t 2002) (software
are about to bind themselves to contract user was bound by license agreement
terms, the transactional circumstances where terms were prominently displayed
cannot be fully analogized to those in the on computer screen before software could

15. We do not address the district court’s al- was couched in precatory terms (‘‘a mild re-
ternative holding that notice was further viti- quest’’) rather than mandatory ones. Specht,
ated by the fact that the reference to Smart- 150 F.Supp.2d at 596.
Download’s license terms, even if scrolled to,
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 33
Cite as 306 F.3d 17 (2nd Cir. 2002)

be installed and where user was required terms appeared on the computer screen
to indicate assent by clicking ‘‘I agree’’); every time the purchaser executed the
Brower v. Gateway 2000, Inc., 246 A.D.2d program. Mortenson, 970 P.2d at 806. In
246, 251, 676 N.Y.S.2d 569, 572 (1st Dep’t sum, the foregoing cases are clearly distin-
1998) (buyer assented to arbitration clause guishable from the facts of the present
shipped inside box with computer and action.
software by retaining items beyond date
specified by license terms); M.A. Morten- C. Online Transactions
son Co. v. Timberline Software Corp., 93 Cases in which courts have found con-
Wash.App. 819, 970 P.2d 803, 809 (1999) tracts arising from Internet use do not
(buyer manifested assent to software li- assist defendants, because in those circum-
cense terms by installing and using soft- stances there was much clearer notice than
ware), aff’d, 140 Wash.2d 568, 998 P.2d in the present case that a user’s act would
305 (2000); see also I.Lan Sys., 183 manifest assent to contract terms.16 See,
F.Supp.2d at 338 (business entity ‘‘explicit- e.g., Hotmail Corp. v. Van$ Money Pie
ly accepted the clickwrap license agree- Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal.
ment [contained in purchased software] 1998) (granting preliminary injunction
when it clicked on the box stating ‘I based in part on breach of ‘‘Terms of
agree’ ’’). Service’’ agreement, to which defendants
These cases do not help defendants. To had assented); America Online, Inc. v.
the extent that they hold that the purchas- Booker, 781 So.2d 423, 425 (Fla.Dist.Ct.
er of a computer or tangible software is App.2001) (upholding forum selection
contractually bound after failing to object clause in ‘‘freely negotiated agreement’’
to printed license terms provided with the contained in online terms of service); Cas-
product, Hill and Brower do not differ pi v. Microsoft Network, L.L.C., 323
markedly from the cases involving tradi- N.J.Super. 118, 732 A.2d 528, 530, 532–33
tional paper contracting discussed in the (N.J.Super.Ct.App.Div.1999) (upholding fo-
previous section. Insofar as the purchaser rum selection clause where subscribers to
in ProCD was confronted with conspicu- online software were required to review
ous, mandatory license terms every time license terms in scrollable window and to
he ran the software on his computer, that click ‘‘I Agree’’ or ‘‘I Don’t Agree’’); Bar-
case actually undermines defendants’ con- nett v. Network Solutions, Inc., 38 S.W.3d
tention that downloading in the absence of 200, 203–04 (Tex.App.2001) (upholding fo-
conspicuous terms is an act that binds rum selection clause in online contract for
plaintiffs to those terms. In Mortenson, registering Internet domain names that
the full text of license terms was printed required users to scroll through terms be-
on each sealed diskette envelope inside the fore accepting or rejecting them); cf.
software box, printed again on the inside Pollstar v. Gigmania, Ltd., 170 F.Supp.2d
cover of the user manual, and notice of the 974, 981–82 (E.D.Cal.2000) (expressing

16. Defendants place great importance on Reg- defendants. There, the plaintiff’s terms of use
ister.com, Inc. v. Verio, Inc., 126 F.Supp.2d of its information were well known to the
238 (S.D.N.Y.2000), which held that a user of defendant, which took the information daily
the Internet domain-name database, Regis- with full awareness that it was using the in-
ter.com, had ‘‘manifested its assent to be formation in a manner prohibited by the
bound’’ by the database’s terms of use when it terms of the plaintiff’s offer. The case is not
electronically submitted queries to the data- closely analogous to ours.
base. Id. at 248. But Verio is not helpful to
34 306 FEDERAL REPORTER, 3d SERIES

concern that notice of license terms had background on a linked webpage, but con-
appeared in small, gray text on a gray cluding that it was too early in the case to
order dismissal).17

17. Although the parties here do not refer to it, term.’’ Id. § 112(a)(2). In the case of a
California’s consumer fraud statute, Cal. Bus. ‘‘mass-market license,’’ a party adopts the
& Prof.Code § 17538, is one of the few state terms of the license only by manifesting as-
statutes to regulate online transactions in sent ‘‘before or during the party’s initial per-
goods or services. The statute provides that formance or use of or access to the informa-
in disclosing information regarding return tion.’’ Id. § 209(a).
and refund policies and other vital consumer UCITA § 211 sets forth a number of guide-
information, online vendors must legibly dis- lines for ‘‘internet-type’’ transactions involv-
play the information either: ing the supply of information or software.
(i) [on] the first screen displayed when the For example, a licensor should make standard
vendor’s electronic site is accessed, (ii) on terms ‘‘available for review’’ prior to delivery
the screen on which goods or services are or obligation to pay (1) by ‘‘displaying promi-
first offered, (iii) on the screen on which a nently and in close proximity to a description
buyer may place the order for goods or of the computer information, or to instruc-
services, (iv) on the screen on which the tions or steps for acquiring it, the standard
buyer may enter payment information, such terms or a reference to an electronic location
as a credit card account number, or (v) for from which they can be readily obtained,’’ or
nonbrowser-based technologies, in a man-
(2) by ‘‘disclosing the availability of the stan-
ner that gives the user a reasonable oppor-
dard terms in a prominent place on the site
tunity to review that information.
from which the computer information is of-
Id. § 17538(d)(2)(A). The statute’s clear pur-
fered and promptly furnishing a copy of the
pose is to ensure that consumers engaging in
standard terms on request before the transfer
online transactions have relevant information
of the computer information.’’ Id.
before they can be bound. Although consum-
§ 211(1)(A–B). The commentary to § 211
er fraud as such is not alleged in the present
adds: ‘‘The intent of the close proximity stan-
action, and § 17538 protects only California
residents, we note that the statute is consis- dard is that the terms or the reference to
tent with the principle of conspicuous notice them would be called to the attention of an
of the existence of contract terms that is also ordinary reasonable person.’’ Id. § 211 cmt.
found in California’s common law of con- 3. The commentary also approves of promi-
tracts. nent hypertext links that draw attention to the
In addition, the model code, UCITA, dis- existence of a standard agreement and allow
cussed above, generally recognizes the impor- users to view the terms of the license. Id.
tance of conspicuous notice and unambiguous We hasten to point out that UCITA, which
manifestation of assent in online sales and has been enacted into law only in Maryland
licensing of computer information. For ex- and Virginia, does not govern the parties’
ample, § 112, which addresses manifestation transactions in the present case, but we nev-
of assent, provides that a user’s opportunity to ertheless find that UCITA’s provisions offer
review online contract terms exists if a ‘‘rec- insight into the evolving online ‘‘circum-
ord’’ (or electronic writing) of the contract stances’’ that defendants argue placed plain-
terms is ‘‘made available in a manner that tiffs on inquiry notice of the existence of the
ought to call it to the attention of a reasonable SmartDownload license terms. UCITA has
person and permit review.’’ UCITA, been controversial as a result of the perceived
§ 112(e)(1) (rev. ed. Aug.23, 2001) (available breadth of some of its provisions. Compare
at www.ucitaonline.com/ucita.html). Section Margaret Jane Radin, Humans Computers,
112 also provides, in pertinent part, that ‘‘[a] and Binding Commitment, 75 Ind. L.J. 1125,
person manifests assent to a record or term if 1141 (2000) (arguing that ‘‘UCITA’s definition
the person, acting with knowledge of, or after of manifestation of assent stretches the ordi-
having an opportunity to review the record or nary concept of consent’’), with Joseph H.
term or a copy of it TTT intentionally engages Sommer, Against Cyberlaw, 15 Berkeley Tech.
in conduct or makes statements with reason L.J. 1145, 1187 (2000) (‘‘There are no new
to know that the other party or its electronic legal developments [in UCITA’s assent provi-
agent may infer from the conduct or state- sions]. The revolution—if any—occurred
ment that the person assents to the record or with [Karl] Llewellyn’s old Article 2, which
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 35
Cite as 306 F.3d 17 (2nd Cir. 2002)

After reviewing the California common encompass plaintiffs’ claims regarding


law and other relevant legal authority, we SmartDownload, even if plaintiffs did not
conclude that under the circumstances separately assent to SmartDownload’s li-
here, plaintiffs’ downloading of Smart- cense terms and even though Communica-
Download did not constitute acceptance of tor’s license terms did not expressly men-
defendants’ license terms. Reasonably tion SmartDownload. Thus, defendants
conspicuous notice of the existence of con- argue, plaintiffs must arbitrate.
tract terms and unambiguous manifesta-
tion of assent to those terms by consumers [23–25] The scope of an arbitration
are essential if electronic bargaining is to agreement is a legal issue that we review
have integrity and credibility. We hold de novo. Oldroyd, 134 F.3d at 76. ‘‘[A]ny
that a reasonably prudent offeree in plain- doubts concerning the scope of arbitrable
tiffs’ position would not have known or issues should be resolved in favor of arbi-
learned, prior to acting on the invitation to tration.’’ Genesco, 815 F.2d at 847 (quota-
download, of the reference to SmartDown- tion marks omitted). Although ‘‘the FAA
load’s license terms hidden below the does not require parties to arbitrate when
‘‘Download’’ button on the next screen. they have not agreed to do so,’’ Volt Info.
We affirm the district court’s conclusion Sciences, Inc. v. Bd. of Trs. of Leland
that the user plaintiffs, including Fagan, Stanford Junior Univ., 489 U.S. 468, 478,
are not bound by the arbitration clause 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989),
contained in those terms.18 arbitration is indicated unless it can be
said ‘‘with positive assurance’’ that an arbi-
IV. Whether Plaintiffs’ Assent to Com- tration clause is not susceptible to an in-
municator’s License Agreement terpretation that covers the asserted dis-
Requires Them To Arbitrate Their pute. Thomas James Assocs., Inc. v.
Claims Regarding SmartDownload Jameson, 102 F.3d 60, 65 (2d Cir.1996)
Plaintiffs do not dispute that they as- (quotation marks omitted).
sented to the license terms governing
Netscape’s Communicator. The parties [26, 27] The Communicator license
disagree, however, over the scope of that agreement, which required arbitration of
license’s arbitration clause. Defendants ‘‘all disputes relating to this Agreement
contend that the scope is broad enough to (excepting any dispute relating to intellec-

abandoned most formalisms of contract for- plaintiff Fagan obtained SmartDownload


mation, and sought a contract wherever it from that webpage, as defendants contend, or
could be found.’’). Nonetheless, UCITA’s no- from a shareware website that provided less
tice and assent provisions seem to be consis- or no notice of that program’s license terms,
tent with well-established principles govern- as Fagan maintains. In either case, Fagan
ing contract formation and enforcement. See could not be bound by the SmartDownload
Robert A. Hillman & Jeffrey J. Rachlinski, license agreement. Further, because we find
Standard–Form Contracting in the Electronic that the California common law disposes of
Age, 77 N.Y.U. L.Rev. 429, 491 (2002) (‘‘[W]e the issue of notice and assent, we do not
contend that UCITA maintains the contextual, address plaintiffs’ arguments based on Cali-
balanced approach to standard terms that can fornia’s Commercial Code § 2207, the UCC
be found in the paper world.’’). Article 2 provision governing the ‘‘battle of
the forms.’’ Moreover, having determined
18. Because we conclude that the Netscape that the parties did not enter into the Smart-
webpage did not provide reasonable notice of Download license agreement, we do not reach
the existence of SmartDownload’s license plaintiffs’ alternative arguments concerning
terms, it is irrelevant to our decision whether unconscionability.
36 306 FEDERAL REPORTER, 3d SERIES

tual property rights),’’ 19 must be classified [28, 29] To begin with, we find that
as ‘‘broad.’’ Coregis Ins. Co. v. Am. the underlying dispute in this case—
Health Found., 241 F.3d 123, 128–29 (2d whether defendants violated plaintiffs’
Cir.2001). Where the scope of an arbitra- rights under the Electronic Communica-
tion agreement is broad, tions Privacy Act and the Computer
there arises a presumption of arbitrabili- Fraud and Abuse Act—involves matters
ty; if, however, the dispute is in respect that are clearly collateral to the Communi-
of a matter that, on its face, is clearly cator license agreement. While the
collateral to the contract, then a court SmartDownload license agreement ex-
should test the presumption by review- pressly applied ‘‘to Netscape Communica-
ing the allegations underlying the dis- tor, Netscape Navigator, and Netscape
pute and by asking whether the claim SmartDownload,’’ the Communicator li-
alleged implicates issues of contract con- cense agreement expressly applied only
struction or the parties’ rights and obli- ‘‘to Netscape Communicator and Netscape
gations under itTTTT [C]laims that pres- Navigator.’’ Thus, on its face, the Com-
ent no question involving construction of municator license agreement governed
the contract, and no questions in respect disputes concerning Netscape’s browser
of the parties’ rights and obligations un- programs only, not disputes concerning a
der it, are beyond the scope of the arbi- plug-in program like SmartDownload.
tration agreement. Moreover, Communicator’s license terms
Collins & Aikman, 58 F.3d at 23. In included a merger or integration clause
determining whether a particular claim stating that ‘‘[t]his Agreement constitutes
falls within the scope of the parties’ arbi- the entire agreement between the parties
tration agreement, this Court ‘‘focus[es] on concerning the subject matter hereof.’’
the factual allegations in the complaint SmartDownload’s license terms contained
rather than the legal causes of action as- the same clause. Such provisions are rec-
serted.’’ Genesco, 815 F.2d at 846. If ognized by California courts as a means of
those allegations ‘‘touch matters’’ covered excluding prior or contemporaneous parol
by the Netscape license agreement, plain- evidence from the scope of a contract.
tiffs’ claims must be arbitrated. Id. See Franklin v. USX Corp., 87 Cal.

19. A question not raised by the parties is Moreover, plaintiffs’ personal information,
whether this dispute involves ‘‘intellectual stored in cookies, is the sort of factual data
property rights.’’ Certainly, Netscape’s intel- that are expressly excluded from federal copy-
lectual property (‘‘IP’’) rights would not seem right protection. See Nihon Keizai Shimbun,
to be implicated, even though Netscape may Inc. v. Comline Bus. Data, Inc., 166 F.3d 65,
in some sense employ its IP—in the form of 70 (2d. Cir.1999) (‘‘That copyright does not
computer software—to plant cookies and, as extend to facts is a ‘most fundamental axiom
plaintiffs allege, harvest users’ personal infor- of copyright law.’ ’’) (quoting Feist Publ’ns,
mation. But do plaintiffs have IP rights in
Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 344,
their personal information? Certain cases
111 S.Ct. 1282, 113 L.Ed.2d 358 (1991)).
have recognized, mostly under a trespass-to-
Thus, copyrights are not implicated here.
chattels theory, that computer and database
Nor are trade secrets, good will, or other
owners enjoy possessory interests in their
valuable intangibles. In consequence, plain-
computer equipment, bandwidth, and server
capacity, but these interests are analyzed in tiffs’ claims would not appear to be shielded
terms of traditional personal property, not IP. from arbitration on the ground that this is a
See, e.g., Verio, 126 F.Supp.2d at 249–53; ‘‘dispute relating to intellectual property
eBay, Inc. v. Bidder’s Edge, Inc., 100 rights.’’ This is not an issue that we decide
F.Supp.2d 1058, 1069–72 (N.D.Cal.2000). today, however.
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 37
Cite as 306 F.3d 17 (2nd Cir. 2002)

App.4th 615, 105 Cal.Rptr.2d 11, 15 (2001). Having determined this much, we next
Although the presence of merger clauses must test the presumption of arbitrability
is not dispositive here, we note that defen- by asking whether plaintiffs’ allegations
dants’ express desire to limit the reach of implicate or touch on issues of contract
the respective license agreements, com- construction or the parties’ rights and obli-
bined with the absence of reference to gations under the contract. Collins &
SmartDownload in the Communicator li- Aikman, 58 F.3d at 23; Genesco, 815 F.2d
cense agreement, suggests that a dispute at 846. That is, even though the parties’
regarding defendants’ allegedly unlawful dispute concerns matters clearly collateral
use of SmartDownload is clearly collateral to the Communicator license terms, we
must determine whether plaintiffs by their
to the Communicator license agreement.
particular allegations have brought the dis-
This conclusion is reinforced by the oth- pute within the license terms. Defendants
er terms of the Communicator license argue that plaintiffs’ complaints ‘‘literally
agreement, which include a provision de- bristled with allegations that Communica-
scribing the non-exclusive nature of the tor and SmartDownload operated in con-
grant and permission to reproduce the junction with one another to eavesdrop on
software for personal and internal business Plaintiffs’ Internet communications.’’ We
purposes; restrictions on modification, de- disagree. Plaintiffs’ allegations nowhere
compilation, redistribution or other sale or collapse or blur the distinction between
transfer, and removal or alteration of Communicator and SmartDownload, but
trademarks or other intellectual property; instead consistently separate the two soft-
ware programs and assert that Smart-
provisions for the licensor’s right to termi-
Download alone is responsible for unlawful
nate and its proprietary rights; a complete
eavesdropping. Plaintiffs begin by alleg-
disclaimer of warranties (‘‘as is’’) and an
ing that ‘‘SmartDownload facilitates the
entire-risk clause; a limitation of liability
transfer of large files over the Internet by
clause for consequential and other dam-
permitting a transfer to be resumed if it is
ages, together with a liquidated damages interrupted.’’ Plaintiffs then explain that
term; clauses regarding encryption and ‘‘[o]nce SmartDownload is downloaded and
export; a disclaimer of warranties for high running on a Web user’s computer, it auto-
risk activities; and a miscellaneous para- matically connects to Netscape’s file ser-
graph that contains merger, choice-of-law, vers and downloads the installation pro-
arbitration, and severability clauses, non- gram for Communicator.’’ Plaintiffs add
waiver and non-assignment provisions, a that defendants also encourage visitors to
force majeure term, and a clause providing Netscape’s website ‘‘to download and in-
for reimbursement of the prevailing party stall SmartDownload even if they are not
in any dispute. Apart from the potential installing or upgrading Communicator.’’
generic applicability of the warranty and Plaintiffs go on to point out that install-
liability disclaimers, a dispute concerning ing Communicator ‘‘automatically creates
alleged electronic eavesdropping via trans- and stores on the Web user’s computer a
missions from a separate plug-in program small text file known as a ‘cookie.’ ’’ There
would not appear to fall within Communi- follow two paragraphs essentially alleging
cator’s license terms. We conclude, there- that cookies were originally intended to
fore, that this dispute concerns matters perform such innocuous tasks as providing
that, on their face, are clearly collateral to ‘‘temporary identification for purposes
the Communicator license agreement. such as electronic commerce,’’ and that the
38 306 FEDERAL REPORTER, 3d SERIES

Netscape cookie performs this original questions in respect of the parties’ rights
identifying, and entirely lawful, function. and obligations under it.’’ Collins & Aik-
Separate paragraphs then describe the man, 58 F.3d at 23. It follows that the
‘‘Key’’ or ‘‘UserID’’ that SmartDownload claims of the five user plaintiffs are beyond
allegedly independently places on user’s the scope of the arbitration clause con-
computers, and point out that ‘‘Smart- tained in the Communicator license agree-
Download assumes from Communicator ment. Because those claims are not arbi-
the task of downloading various files. trable under that agreement or under the
Communicator itself could and would per- SmartDownload license agreement, to
form these downloading tasks if Smart- which plaintiffs never assented, we affirm
the district court’s holding that the five
Download were not installed.’’ ‘‘Thereaf-
user plaintiffs may not be compelled to
ter,’’ the complaints continue,
arbitrate their claims.
each time a Web user downloads any file
from any site on the Internet using V. Whether Plaintiff Specht Can Be
SmartDownload, SmartDownload auto- Required To Arbitrate as a Nonpar-
matically transmits to defendants the ty Beneficiary
name and Internet address of the file [30] Plaintiff Specht operated a web-
and the Web site from which it is being site that he claims defendants electronical-
sent. Within the same transmission, ly spied on every time users employing
SmartDownload also includes the con- SmartDownload to enhance their browser
tents of the Netscape cookie previously software downloaded, from his site, soft-
created by Communicator and the ‘‘Key’’ ware files that he provided for setting up
previously created by SmartDownload. an account with a separate service called
In the course of their description of the WhyWeb. Defendants counter that
installation and downloading process, Specht received a ‘‘direct benefit’’ under
plaintiffs keep SmartDownload separate the ‘‘Netscape license agreement,’’ which
from Communicator and clearly indicate they say authorized consumers to use
that it is SmartDownload that performed SmartDownload and Communicator to ob-
tain Specht’s files. Defendants contend
the allegedly unlawful eavesdropping and
that if a user who obtained a file from
made use of the otherwise innocuous Com-
Specht’s site subsequently subscribed to
municator cookie as well as its own ‘‘Key’’
WhyWeb’s service, Specht would receive a
and ‘‘UserID’’ to transmit plaintiffs’ infor-
commission from WhyWeb. Thus, accord-
mation to Netscape. The complaints refer
ing to defendants, if users employing
to ‘‘SmartDownload’s spying’’ and explain
SmartDownload accessed his site and ob-
that ‘‘Defendants are using SmartDown- tained WhyWeb files, Specht would receive
load to eavesdrop.’’ Plaintiffs’ allegations a direct benefit ‘‘because the software as-
consistently distinguish and isolate the sisted in obtaining a WhyWeb file and
functions of SmartDownload in such a way increased the likelihood of success in the
as to make it clear that it is through download process.’’ Specht, however,
SmartDownload, not Communicator, that claims that he received no commissions
defendants committed the abuses that are from providing WhyWeb software.
the subject of the complaints. We note at the outset that defendants do
After careful review of these allegations, not argue, as indeed they could not, that
we conclude that plaintiffs’ claims ‘‘present Specht benefited from SmartDownload li-
no question involving construction of the cense agreements entered into by the
[Communicator license agreement], and no named user plaintiffs or the putative class
SPECHT v. NETSCAPE COMMUNICATIONS CORP. 39
Cite as 306 F.3d 17 (2nd Cir. 2002)

that they represent. A contract theory of Shipyard S.P.A., 170 F.3d 349 (2d Cir.
third-party benefits requires a predicate 1999). But the benefit at issue in Ameri-
contract, and we have already determined can Bureau of Shipping was much more
that the user plaintiffs did not assent to direct than that described by defendants.
the SmartDownload license agreement. There, a ship classification society, which
We are thus asked, in effect, to imagine a had issued an interim certification of clas-
class of users who, having obtained Smart- sification (ICC) for a racing yacht that
Download and/or Communicator after later suffered hull damage allegedly result-
properly assenting to license terms, visited ing from defective design, sought to com-
Specht’s website by means of Communica- pel the yacht’s builder, owners, and insur-
tor or a non-Netscape browser enhanced ers to arbitrate pursuant to arbitration
by SmartDownload and, while there, down- clauses contained in the ICC and other
loaded WhyWeb files which they proceed- contracts. The owners never signed any
ed to use to subscribe to WhyWeb, in turn arbitration agreement, but this Court not-
triggering a commission fee from WhyWeb ed that a nonsignatory could be ‘‘estopped
for Specht. from denying its obligation to arbitrate
Even accepting arguendo this strained when it receives a ‘direct benefit’ from a
and roundabout hypothesis, we must reject contract containing an arbitration clause.’’
defendants’ legal conclusion. Typically, Id. at 353 (citing Thomson–CSF, S.A. v.
whether a contract benefits or accords Am. Arbitration Ass’n, 64 F.3d 773, 778–
rights to a third party (most often, the 79 (2d Cir.1995)).20 The Court held that
right to enforce the contract) depends sig- the yacht owners had received the follow-
nificantly on the intention of the original ing direct benefits under the relevant con-
contracting parties. See Sessions Payroll tracts: (1) significantly lower insurance
Mgmt., Inc. v. Noble Constr. Co, Inc., 84 rates on the yacht; (2) the ability to sail
Cal.App.4th 671, 680, 101 Cal.Rptr.2d 127, under the French flag; and possibly (3)
133 (2000) (explaining that a third-party the ability to register the yacht. Id.; cf.
beneficiary may enforce a contract made Deloitte Noraudit A/S v. Deloitte Haskins
expressly for its benefit and has the bur- & Sells, U.S., 9 F.3d 1060 (2d Cir.1993)
den of proving that the contracting parties (holding that a nonsignatory to an arbitra-
actually promised the performance). tion agreement was bound to arbitrate be-
Clearly, Netscape and these unknown visi- cause it knowingly received direct benefits,
tors to Specht’s website did not expressly which included the right to use a trade
confer or intend to confer any contractual name, under the relevant contract).
benefits on Specht or website operators Even if defendants’ theory of Specht’s
generally (other than defendants). Defen- SmartDownload-enhanced potential for
dants therefore take a different tack, argu- earning commissions were more convinc-
ing that they need only show that Specht ing, such an abstract advantage is not
received some direct benefit, knowingly or remotely as tangible and definite as the
not, under a Netscape license agreement. benefits that have led this Court to compel
To support this claim, defendants cite nonsignatories to arbitrate. Nor does the
American Bureau of Shipping v. Tencara intricate, Rube Goldberg-like chain of

20. Cf. County of Contra Costa v. Kaiser Found. benefit was conferred on the nonsignatory as
Health Plan, Inc., 47 Cal.App.4th 237, 54 Cal. a result of a contract; and (2) where a preex-
Rptr.2d 628, 631 (1996)(noting that California isting relationship existed between the nonsig-
cases binding nonsignatories to arbitrate their natory and one of the parties to the arbitra-
claims fall into two categories: (1) where a tion agreement).
40 306 FEDERAL REPORTER, 3d SERIES

events postulated by defendants constitute crimes brought action challenging city’s


a ‘‘direct’’ benefit in the sense contemplat- post-seizure, pre-judgment retention of the
ed by American Bureau of Shipping and vehicles without a prompt opportunity to
Deloitte Noraudit. Because we conclude challenge probable validity of and justifica-
that Specht was not a direct beneficiary tion for that deprivation. The United
under SmartDownload’s license agreement States District Court for the Southern Dis-
or any other Netscape agreement, we af- trict of New York, Michael B. Mukasey,
firm the district court’s refusal to compel
Chief District Judge, 2000 WL 1702035,
arbitration of his claims.21
granted city’s motion to dismiss, and plain-
CONCLUSION tiffs appealed. The Court of Appeals, Soto-
mayor, Circuit Judge, held that due pro-
For the foregoing reasons, we affirm the
cess required that prompt post-seizure,
district court’s denial of defendants’ mo-
tion to compel arbitration and to stay court pre-judgment hearing to determine wheth-
proceedings. er city was likely to succeed on merits of
forfeiture action.

, Vacated and remanded.

1. Forfeitures O5
Valerie KRIMSTOCK, Charles Flatow,
Ismael Delapaz, Clarence Walters, Although there is overlap between
James Webb, Michael Zurlo, and San- probable cause for a seizure and probable
dra Jones, individually and on behalf validity of retention of property pending
of all other persons similarly situated, forfeiture proceeding, the two are not nec-
Plaintiffs–Appellants, essarily coextensive. U.S.C.A. Const.
v. Amend. 4.
Raymond W. KELLY, in his official ca-
2. Forfeitures O5
pacity as Commissioner of the New
York City Police Department, Proper- Seizure and forfeiture of property are
ty Clerk, New York City Police De- two distinct events under federal civil for-
partment, and the City of New York, feiture laws; while both events require the
Defendants–Appellees. government to have probable cause, the
Docket No. 00–9488. government is not required to demonstrate
probable cause until the forfeiture trial
United States Court of Appeals,
unless a claimant challenges the validity of
Second Circuit.
the seizure before trial.
Argued: June 20, 2001.
Decided: Sept. 18, 2002. 3. Forfeitures O5
If the government, once challenged,
Individuals whose vehicles where cannot establish probable cause for the
seized by city as instrumentalities of initial seizure or offer post-seizure evi-

21. Plaintiffs argue in the alternative that their sional intent to preclude arbitration of claims
claims are inarbitrable because the Electronic arising under those statutes. In view of our
Communications Privacy Act and the Com- disposition of this case, we need not address
puter Fraud and Abuse Act reflect a congres- that argument.