Specht v. Netscape Commun. Corp., 100102 FED2, 01-7860(L)

Docket Nº:01-7860(L)
Party Name:Specht v. Netscape Commun. Corp.
Case Date:March 14, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

CHRISTOPHER SPECHT, JOHN GIBSON, MICHAEL FAGAN, SEAN KELLY, MARK GRUBER, and SHERRY WEINDORF, individually and on behalf of all others similarly situated, Plaintiffs-Appellees,



Docket Nos. 01-7860(L),




August Term, 2001

Argued: March 14, 2002


October 1, 2002

Before: McLAUGHLIN, LEVAL, and SOTOMAYOR, Circuit Judges.

Plaintiffs in this action brought suit, individually and on behalf of all others similarly situated, against a provider of computer software programs and its corporate parent, alleging that a "plug-in" software program, created by defendants to facilitate Internet use and made available on defendants' website for free downloading, invaded plaintiffs' privacy by clandestinely transmitting personal information to the software provider when plaintiffs employed the plug-in program to browse the Internet. Defendants moved to compel arbitration and to stay court proceedings, arguing that plaintiffs' claims were subject to an arbitration provision contained in license terms that plaintiffs allegedly had accepted when they downloaded the plug-in program. The United States District Court for the Southern District of New York (Alvin K. Hellerstein, J.) denied the motion. We affirm, holding that (1) plaintiffs neither received reasonable notice of the existence of the license terms nor manifested unambiguous assent to those terms before acting on the webpage's invitation to download the plug-in program; (2) plaintiffs' claims relating to the plug-in program are not subject to a separate arbitration agreement contained in license terms governing use of defendants' Internet browser software; and (3) the legal doctrine that requires nonsignatories to an arbitration agreement to arbitrate when they have received a direct benefit under a contract containing the arbitration agreement does not apply to a website owner who allegedly benefited when users employing the plug-in program downloaded files from the website.


ROGER W. YOERGES, Wilmer Cutler & Pickering, Washington, DC (Patrick J. Carome, Joseph R. Profaizer, Darrin A. Hostetler, Wilmer Cutler & Pickering, Washington, DC, on the brief; David C. Goldberg, America Online, Inc., Dulles, VA, of counsel), for Defendants-Appellants.

JOSHUA N. RUBIN, Abbey Gardy, LLP, New York, NY (Jill S. Abrams, Courtney E. Lynch, Richard B. Margolies, Abbey Gardy, LLP, New York, NY, on the brief; James V. Bashian, Law Offices of James V. Bashian, New York, NY; George G. Mahfood, Leesfield, Leighton, Rubio & Mahfood, Miami, FL, of counsel), for Plaintiffs-Appellees.

SOTOMAYOR, Circuit Judge:

This is an appeal from a judgment of the Southern District of New York denying a motion by defendants-appellants Netscape Communications Corporation and its corporate parent, America Online, Inc. (collectively, "defendants" or "Netscape"), to compel arbitration and to stay court proceedings. In order to resolve the central question of arbitrability presented here, we must address issues of contract formation in cyberspace. Principally, we are asked to determine whether plaintiffs-appellees ("plaintiffs"), by acting upon defendants' invitation to download free software made available on defendants' webpage, agreed to be bound by the software's license terms (which included the arbitration clause at issue), even though plaintiffs could not have learned of the existence of those terms unless, prior to executing the download, they had scrolled down the webpage to a screen located below the download button. We agree with the district court that a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants' invitation to download the free software, and that defendants therefore did not provide reasonable notice of the license terms. In consequence, plaintiffs' bare act of downloading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms.

We also agree with the district court that plaintiffs' claims relating to the software at issue-a "plug-in" program entitled SmartDownload ("SmartDownload" or "the plug-in program"), offered by Netscape to enhance the functioning of the separate browser program called Netscape Communicator ("Communicator" or "the browser program")-are not subject to an arbitration agreement contained in the license terms governing the use of Communicator. Finally, we conclude that the district court properly rejected defendants' argument that plaintiff website owner Christopher Specht, though not a party to any Netscape license agreement, is nevertheless required to arbitrate his claims concerning SmartDownload because he allegedly benefited directly under SmartDownload's license agreement. Defendants' theory that Specht benefited whenever visitors employing SmartDownload downloaded certain files made available on his website is simply too tenuous and speculative to justify application of the legal doctrine that requires a nonparty to an arbitration agreement to arbitrate if he or she has received a direct benefit under a contract containing the arbitration agreement.

We therefore affirm the district court's denial of defendants' motion to compel arbitration and to stay court proceedings.


I. Facts

In three related putative class actions,1 plaintiffs alleged that, unknown to them, their use of SmartDownload transmitted to defendants private information about plaintiffs' downloading of files from the Internet, thereby effecting an electronic surveillance of their online activities 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.

Specifically, plaintiffs alleged that when they first used Netscape's Communicator-a software program that permits Internet browsing-the program created and stored on each of their computer hard drives a small text file known as a "cookie" that functioned "as a kind of electronic identification tag for future communications" between their computers and Netscape. Plaintiffs further alleged that when they installed SmartDownload-a separate software "plug-in"2 that served to enhance Communicator's browsing capabilities-SmartDownload created and stored on their computer hard drives another string of characters, known as a "Key," which similarly functioned as an identification tag in future communications with Netscape. According to the complaints in this case, each time a computer user employed Communicator to download a file from the Internet, SmartDownload "assume[d] from Communicator the task of downloading" the file and transmitted to Netscape the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload. These processes, plaintiffs claim, constituted unlawful "eavesdropping" on users of Netscape's software products as well as on Internet websites from which users employing SmartDownload downloaded files.

In the time period relevant to this litigation, Netscape offered on its website various software programs, including Communicator and SmartDownload, which visitors to the site were invited to obtain free of charge. It is undisputed that five of the six named plaintiffs -Michael Fagan, John Gibson, Mark Gruber, Sean Kelly, and Sherry Weindorf-downloaded Communicator from the Netscape website. These plaintiffs acknowledge that when they proceeded to initiate installation3 of Communicator, they were automatically shown a scrollable text of that program's license agreement and were not permitted to complete the installation until they had clicked on a "Yes" button to indicate that they accepted all the license terms.4 If a user attempted to install Communicator without clicking "Yes," the installation would be aborted. All five named user plaintiffs5 expressly agreed to Communicator's license terms by clicking "Yes." The Communicator license agreement that these plaintiffs saw made no mention of SmartDownload or other plug-in programs, and stated that "[t]hese terms apply to Netscape Communicator and Netscape Navigator"6 and that "all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights)" are subject to "binding arbitration in Santa Clara County, California."

Although Communicator could be obtained independently of SmartDownload, all the named user plaintiffs, except Fagan, downloaded and installed Communicator in connection with downloading SmartDownload.7 Each of these plaintiffs allegedly arrived at a Netscape webpage8 captioned "SmartDownload Communicator" that urged them to "Download With Confidence Using SmartDownload!" At or near the bottom of the screen facing plaintiffs was the prompt "Start Download" and a tinted button labeled "Download." By clicking on the button, plaintiffs initiated the download of SmartDownload. Once that process was complete, SmartDownload, as its first plug-in task, permitted plaintiffs to proceed with downloading and installing Communicator, an operation that was accompanied by the clickwrap display of Communicator's license terms described above.

The signal difference between downloading Communicator and downloading SmartDownload was that no clickwrap presentation accompanied the latter operation. Instead, once plaintiffs Gibson, Gruber, Kelly, and Weindorf had clicked on the "Download" button located at or near the bottom of their screen, and the downloading of SmartDownload was complete, these plaintiffs encountered no further information about the plug-in program or...

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