Summary of Specht v. Netscape
Citation: 306 F.3d 17 (2nd Cir. 2002)

Relevant Facts: Christopher Specht and other, similarly situated plaintiffs downloaded the “SmartDownload” plugin from a website available from defendant Netscape Communications Corporation. (Specht, while the lead plaintiff, did not actually download the application at issue. Rather, he operated a website where others using the download allegedly gathered information, unknowingly, because of the plugin.) Specht and the other plaintiffs allege that the software they downloaded allowed Netscape to spy on their online activities, in violation of federal law. Specht brought suit in federal district court on behalf of named plaintiffs and others similarly situated in a putative class action case. However, Netscape moved to stay the proceedings pending arbitration as a result of the license agreement for the plugin application at issue. Specht and the other plaintiffs argued that the license agreement was not readily available at the time of download, was not a “click-through” agreement, and was only available on another, linked web page from the location where the download at issue was available. The district court ruled that plaintiffs did not manifest their assent to the license agreement and therefore were not bound by the arbitration clause. Netscape appealed.

Issue: Are consumers bound by the terms of a license agreement governing use of downloaded software notwithstanding knowing assent or the reasonable likelihood that they knew of the terms of the license agreement?

Holding: No, the plaintiffs bare act of downloading did not unambiguously manifest their assent to the license terms, including the arbitration agreement at issue in the instant appeal.

Reasoning: Judge Sotomayor delivered the opinion of the Court. First, Judge Sotomayor explained that the Court below did not err in in deciding contract formation as a matter of law, pointing out that the record below was sufficient to make that determination and accordingly denied defendant’s motion to compel a trial on that issue. Next, the Court turned to applicability of the license agreement. Citing substantial precedent, the Court pointed out that under the UCC and at common law, contract formation requires manifestation of assent, measured by an objective assessment of actual actions. The Court concluded that a reasonable offeree would not have been aware of the license terms, contrasting this case with that of receipt of a paper contract and pointing to distinctions in online downloads where users are typically presented with license terms directly as part of the download process. The Court drew distinctions between the instant case and two other classes of cases. First, the Court pointed out that users here were not similarly situated with purchases of computers who are provided with the terms of the agreement upon purchase. Second, the Court again highlighted the differences between the nature of the download here and the majority of online transactions in which license terms are not only readily available but mandatory to click through prior to downloading the software subject the agreement. The Court then turned to enforceability of the arbitration agreement, concluding that it was inapplicable where plaintiffs did not actually manifest assent. As to Mr. Specht, the Court rejected the defendant’s argument that he was bound by the terms of the license agreement because he benefited from its use. The Court concluded that any benefit was abstract and intangible, and that Specht was not a direct beneficiary. As binding third parties generally turns on the intention of the contracting parties, the Court here determined that applying license terms to Specht would be inappropriate. The Court affirmed denial of the defendant’s motion to stay proceedings and compel arbitration.

Dissent: None.

Conclusion: Online users are not bound to the license agreements to which they have not unambiguously manifested assent. Plaintiffs were not provided with reasonable notice of the terms of the agreement, and were not required to receive the terms as part of downloaded the plugin at issue. Accordingly, they could not be bound by the terms of an agreement they did not have reasonable notice of nor provide reasonable assent to.