150 F.Supp.2d 585 (S.D.N.Y. 2001), 00 CIV. 4871, Specht v. Netscape Communications Corp.

Docket Nº:00 CIV. 4871(AKH), 00 CIV. 6219(AKH), 00 CIV. 6249(AKH).
Citation:150 F.Supp.2d 585
Party Name:Christopher SPECHT, John Gibson, Michael Fagan and Sean Kelly, individually and on behalf of all others similarly situated, Plaintiffs, v. NETSCAPE COMMUNICATIONS CORP. and AMERICA ONLINE, INC., Defendants. Sherry Weindorf, individually and on behalf of all others similarly situated, Plaintiff, v. Netscape Communications Corp. and America Online, I
Case Date:July 05, 2001
Court:United States District Courts, 2nd Circuit, Southern District of New York
 
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Page 585

150 F.Supp.2d 585 (S.D.N.Y. 2001)

Christopher SPECHT, John Gibson, Michael Fagan and Sean Kelly, individually and on behalf of all others similarly situated, Plaintiffs,

v.

NETSCAPE COMMUNICATIONS CORP. and AMERICA ONLINE, INC., Defendants.

Sherry Weindorf, individually and on behalf of all others similarly situated, Plaintiff,

v.

Netscape Communications Corp. and America Online, Inc., Defendants.

Mark Gruber, individually and on behalf of all others similarly situated, Plaintiff,

v.

Netscape Communications Corp. and America Online, Inc., Defendants.

Nos. 00 CIV. 4871(AKH), 00 CIV. 6219(AKH), 00 CIV. 6249(AKH).

United States District Court, S.D. New York.

July 5, 2001

Page 586

Joshua Neil Rubin, Jill S. Abrams, Courtney E. Lynch, Abbey, Gardy & Squitieri, L.L.P., New York City, for Christopher Specht, John Gibson and Michael Fagan.

James V. Bashian, Oren S. Giskan, Law Offices of James V. Bashian, P.C., New York City, for Sherry Weindorf.

George G. Mahfood, Leesfield, Leghton, Rubio & Mahfood, Miami, FL, for Mark Gruber.

Laurence D. Paskowitz, Abraham & Paskowitz, New York City, of counsel, for plaintiffs.

Roger W. Yoerges, Patrick J. Carome, Samir C. Jain, Joseph R. Profaizer, Matthew P. Previn, Darrin A. Hostetler, Wilmer, Cutler & Pickering, Washington, DC, for Netscape Communications Corp. and America Online, Inc.

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MEMORANDUM AND ORDER DENYING MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

HELLERSTEIN, District Judge.

Promises become binding when there is a meeting of the minds and consideration is exchanged. So it was at King's Bench in common law England; so it was under the common law in the American colonies; so it was through more than two centuries of jurisprudence in this country; and so it is today. Assent may be registered by a signature, a handshake, or a click of a computer mouse transmitted across the invisible ether of the Internet. Formality is not a requisite; any sign, symbol or action, or even willful inaction, as long as it is unequivocally referable to the promise, may create a contract.

The three related cases1 before me all involve this timeless issue of assent, but in the context of free software offered on the Internet. If an offeree downloads free software, and the offeror seeks a contractual understanding limiting its uses and applications, under what circumstances does the act of downloading create a contract? On the facts presented here, is there the requisite assent and consideration? My decision focuses on these issues.

In these putative class actions, Plaintiffs allege that usage of the software transmits to Defendants private information about the user's file transfer activity on the Internet, thereby effecting an electronic surveillance of the user's activity in violation of two federal statutes, the Electronic Communications Privacy Act, 18 U.S.C. § 2510 et seq., and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. Defendants move to compel arbitration and stay the proceedings, arguing that the disputes reflected in the Complaint, like all others relating to use of the software, are subject to a binding arbitration clause in the End User License Agreement ("License Agreement"), the contract allegedly made by the offeror of the software and the party effecting the download. Thus, I am asked to decide if an offer of a license agreement, made independently of freely offered software and not expressly accepted by a user of that software, nevertheless binds the user to an arbitration clause contained in the license.

I. Factual and Procedural Background

Defendant Netscape,2 a provider of computer software programs that enable and facilitate the use of the Internet, offers its "SmartDownload" software free of charge on its web site to all those who visit the site and indicate, by clicking their mouse in a designated box, that they wish to obtain it. SmartDownload is a program that makes it easier for its users to download files from the Internet without losing their interim progress when they pause to engage in some other task, or if their Internet connection is severed. Four of the six named Plaintiffs--John Gibson, Mark Gruber, Sean Kelly and Sherry Weindorf--selected and clicked in the box indicating a decision to obtain the software, and proceeded to download the software on to the hard drives of their computers. The fifth named Plaintiff, Michael Fagan, allegedly downloaded the software

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from a "shareware"3 web site operated by a third party. The sixth named Plaintiff, Christopher Specht, never obtained or used SmartDownload, but merely maintained a web site from which other individuals could download files.4

Visitors wishing to obtain SmartDownload from Netscape's web site arrive at a page pertaining to the download of the software. On this page, there appears a tinted box, or button, labeled "Download." By clicking on the box, a visitor initiates the download. The sole reference on this page to the License Agreement appears in text that is visible only if a visitor scrolls down through the page to the next screen. If a visitor does so, he or she sees the following invitation to review the License Agreement:

Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using the software.

Visitors are not required affirmatively to indicate their assent to the License Agreement, or even to view the license agreement, before proceeding with a download of the software. But if a visitor chooses to click on the underlined text in the invitation, a hypertext link takes the visitor to a web page entitled "License & Support Agreements." The first paragraph on this page reads in pertinent part:

The use of each Netscape software product is governed by a license agreement. You must read and agree to the license agreement terms BEFORE acquiring a product. Please click on the appropriate link below to review the current license agreement for the product of interest to you before acquisition. For products available for download, you must read and agree to the license agreement terms BEFORE you install the software. If you do not agree to the license terms, do not download, install or use the software.

Below the paragraph appears a list of license agreements, the first of which is " License Agreement for Netscape Navigator and Netscape Communicator Product Family (Netscape Navigator, Netscape Communicator and Netscape SmartDownload)." If the visitor then clicks on that text, he or she is brought to another web page, this one containing the full text of the License Agreement.

The License Agreement, which has been unchanged throughout the period that Netscape has made SmartDownload available to the public, grants the user a license to use and reproduce SmartDownload, and otherwise contains few restrictions on the use of the software. The first paragraph of the License Agreement describes, in upper case print, the purported manner in which a user accepts or rejects its terms.

BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING

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NETSCAPE COMMUNICATOR, NETSCAPE NAVIGATOR, OR NETSCAPE SMARTDOWNLOAD SOFTWARE (THE "PRODUCT"), THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT ("LICENSEE") IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT. IF LICENSEE DOES NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, THE BUTTON INDICATING NON-ACCEPTANCE MUST BE SELECTED, AND LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE.

The License Agreement also contains a term requiring that virtually all disputes be submitted to arbitration in Santa Clara County, California.

Unless otherwise agreed in writing, all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights) shall be subject to final and binding arbitration in Santa Clara County, California, under the auspices of JAMS/EndDispute, with the losing party paying all costs of arbitration.

All users of SmartDownload must use it in connection with Netscape's Internet browser, which may be obtained either as an independent product, Netscape Navigator, or as part of a suite of software, Netscape Communicator. Navigator and Communicator are governed by a single license agreement, which is identical to the License Agreement for SmartDownload. By its terms, the Navigator / Communicator license is limited to disputes "relating to this Agreement."

II. Applicable Law

The Federal Arbitration Act expresses a policy strongly favoring the enforcement of arbitration clauses in contracts.

A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. The interpretation of an arbitration agreement is governed by the federal substantive law of arbitration. See, e.g., In re Salomon Inc. Shareholders' Derivative Litigation, 68 F.3d 554, 559 (2d Cir. 1995) ("[W]e have long held that '[o]nce a dispute is covered by the [FAA], federal law applies to all questions of interpretation, construction, validity, revocability, and enforceability.' ") (citation omitted).5 On this basis, Defendants argue

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that this motion properly is analyzed using the federal common law regarding the arbitrability of disputes, and that such federal common law "simply 'comprises generally accepted principles of contract law.' " McPheeters v. McGinn, Smith & Co., 953 F.2d 771, 772 (2d Cir. 1992) (citations omitted).

However, Defendants' approach elides the distinction between two separate analytical steps. First, I must determine whether the parties entered into a binding contract. Only if I conclude that a...

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