The shrink-wrap license is, in plain english, a kind of binding legal contract that you enter into without signing anything, and often without even knowing you entered it.

You are bound, so goes the theory, the moment you open the shrink-wrap. So far, the fact that the terms of the license itself may be inside said shrink-wrap, or the idea that you could be bound by any such elaborate agreement without any actual affirmative communication or assent, let alone the moral or legal standing of any agreement entered into without proper and good-faith understanding by both parties, doesn't seem to bother anyone too much yet. But that's because there have been few, if any, real victories of the shrink-wrap license in court.

Frequently used in the software industry, it is generally the fine print in your software box that you toss into the garbage without ever even glancing at. Software vendors are apt to use their "SWL" or "EULA" (as it is sometimes affectionately referred to) to claim that you have "agreed" to things like the following:

  • That you do not really own the thing which you have just bought
  • That you may not sell or transfer any part of the thing that you just did not buy
  • That the thing you just did not buy, and do not actually own, does not need to actually do whatever it was theoretically intended to do
  • That you may not sue the maker of said thing, even if it not only fails to work, but causes you any amount of damage, large or small
...and so forth. Many of the provisions of the shrink-wrap license, similar to the provisions of the boilerplate lease, have been repeatedly struck down in court, and are there at the moment only out of a kind of malevolent superstition, or perhaps in the hope that laws will someday be passed to legitimize this garbage. Don't laugh, it's not as unlikely as it sounds.

Following Mr. Option's write-up I thought it would be beneficial to discuss specific cases that have come before the courts.

The courts have yet to have a clear policy on shrink-wrap licenses but have generally looked at each case on an individual basis.

The fundamental question of if a contract can be entered into whether the software company can impose its terms when it is not a party to the contract between the software vendor and the purchaser (the law of privity).

In ProCD Inv v Zeidenberg1 the court found the shrink-wrap license was valid because the software could not be used until the user had viewed and accepted the license terms which showed every time the software was launched. While the packaging did not contain the license text it stated that special terms must be agreed to before the software could be used.

The court found that a contract had been formed between the purchaser and the software vendor.

It stated

'Shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable).'

In a second case, Hill v Gateway 2000 Inc2, Hill ordered a PC over the phone and it arrived in a box containing license terms. The terms stated that unless the PC was returned within 30 days the terms were accepted (no notification was required by the customer to show that the terms were accepted.) The court found that by not returning the computer a contract was formed (acceptance by conduct).

The case however was influenced by the fact that Hill was seeking to take advantage of the warranty clause in the same contract he was challenging.

Gateway was involved in another case, this time vs. Klockek3. This time the court found Klockek to be the offeror and Gateway the vendor and therefore the contract was complete when Klockek received the PC. As the contract was formed before the license agreement was read the purchaser was not bound the license.

Neither of these cases considered privity.

In the Scottish case Beta Computers Europe ltd v Adobe Systems Europe Ltd4, Adobe ordered software (Informix) from Beta Computers over the phone. The terms and conditions were not discussed on the phone. When the software arrived it contained a partially visible EULA stating that opening the package indicated acceptance of the license terms.

Adobe attempted to return the software for a full refund. The court found in Adobe's favor on the basis that there was no completed contract until the license terms were known accepted by both parties and the purchaser should be able to accept the license terms before becoming bound to the contract.


Cases Mentioned
1 86F 1447 (7th Circuit 1996)
2105F 1147 (7th Circuit 1997)
3104F F Supp 2d 1332
4 FSR 367
References Simpson Greierson's x-tech group :A Guide to E-Commerce Law (Brookers:Wellington)

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