Contract Law

ProCD, Inc. v. Zeidenberg

86 F 3d 1447 (7th Cir. 1996)

Facts

ProCD compiled a large electronic telephone directory and sold it as software called SelectPhone.
The consumer version was sold at a lower price than the commercial version.
The software package contained a notice stating that its use was subject to a licence.
The detailed licence terms were placed inside the box and appeared on the computer screen during installation.
The licence restricted the software to non-commercial use.
Zeidenberg bought the consumer version from a retail store.
He installed and used the software.
During installation, the licence terms appeared, and the software required the user to indicate acceptance before continuing.
Zeidenberg copied the information and made it available through a commercial internet service.
ProCD sued for breach of the licence.
Zeidenberg argued that the licence was not part of the contract because it was not visible before he bought the box.

Whether licence terms contained inside a software package and displayed during installation became part of the contract.
Whether the purchaser accepted those terms by retaining and using the software.

A contract may be formed through a sequence of transactions rather than at one single moment.
A seller may invite the buyer to accept detailed terms after purchase where:
the buyer is informed that additional terms exist;
the buyer has an opportunity to review them;
the buyer can reject them by returning the product; and
the buyer accepts by retaining or using the product.
Acceptance may occur through conduct.
Standard terms are not invalid merely because they are supplied after payment, particularly where commercial practicality makes pre-purchase disclosure difficult.

The Court rejected the argument that the entire contract was necessarily completed at the cash register.
The outer packaging informed purchasers that the software was subject to a licence.
The detailed terms were available inside because it was impractical to print every term on the exterior of the box.
Zeidenberg was given an opportunity to read the licence during installation.
The software also informed him that he could reject the terms and return the product.
Instead of returning it, Zeidenberg installed and used the software.
His conduct therefore amounted to acceptance.
The Court compared the transaction to other common commercial arrangements where detailed terms are supplied after an initial payment, such as:
insurance policies;
airline tickets;
warranties; and
products with instructions and conditions inside the packaging.
The important factor was not whether every term was visible before payment.
The important factors were notice, an opportunity to review, and a meaningful right to reject.
Zeidenberg could not accept the benefits of the software while ignoring the conditions attached to its use.
The non-commercial restriction was also central to ProCD’s pricing structure.
Consumer users received a lower price because commercial users were charged more.
Allowing a consumer purchaser to commercially exploit the data would defeat that contractual arrangement.

The Court held that the shrink-wrap licence was enforceable.
Zeidenberg accepted the licence by using the software after having an opportunity to review and reject its terms.
His commercial use breached the agreement.
Use this case for: post-purchase standard terms can be incorporated where the buyer receives notice, can reject them, and accepts through continued use.