White SW Computer Law
|
| Intellectual Property, Information Technology &
Telecommunications Lawyers |
| Postal Address: PO Box 452 Collins Street West, Melbourne Victoria 8007 AUSTRALIA |
| GPO Box 2506, SYDNEY New South Wales 2001 AUSTRALIA |
| Telephone: +61 3 9629 3709 Facsimile: +61 3 9629 3217 |
| Email : wcl@computerlaw.com.au Internet : http://www.computerlaw.com.au |
Similar issues arise in relation to click wrap contracts, usually used in Internet transactions. Click wrap contracts are commonly created by e-mail when a customer who must indicate his agreement to the terms of the contract clicks on a button stating "I agree" or similar.
Traditionally, two or more parties enter into a contract before the customer takes possession of the purchased goods. The terms of the contract are negotiated and sometimes recorded in a written agreement. In comparison, the licence terms and conditions for a click wrap agreement are often not provided until the time of installation of the software that has been previously purchased. It is debatable whether the contract arose when the software was purchased or later when the customer agrees to the terms of the click wrap agreement, which may not be displayed until the software is installed. The notion of agreeing to contractual terms by clicking your mouse rather than by written signature also challenges the traditional concepts of contractual agreement.
The Australian Courts have not yet ruled as to the enforceability of click wrap contracts. A guide to the possible outcome of an Australian matter is provided by the American case: Hotmail Corporation (“Hotmail”) v Van$ Money Pie Inc (“VMP”). In April 1998 a Californian Court found that customers were bound by terms and conditions detailed at Hotmail’s web site as a result of having clicked on a button marked "I agree". The Court issued a preliminary injunction to prevent VMP from using Hotmail’s services as a result of VMP’s breach of Hotmails terms and conditions, which it had an opportunity to review.
VMP sent spam advertising allegedly pornographic material and configured the return address for their e-mails to falsely indicate that they were sent from a Hotmail e-mail address. Hotmail provides free e-mail services subject to the term that, amongst others, that Hotmail e-mail accounts will not be used to send spam. As a result of receiving complaints from recipients of the spam, Hotmail sued VMP to stop them from sending spam that stated it came from a Hotmail account, and from using Hotmail accounts as mail boxes to receive to replies to the spam.
Another US case which discusses the validity of contracts formed online is CompuServe Inc v Patterson . The USconstitution requires that there is more than a minimal connection between the defendant and the place where a law suit is filed. In this matter, Patterson, a software developer who lived in Texas, entered into a Shareware Registration Agreement with CompuServe, who are based in Ohio by typing “Agree” at various places in the on-line agreement. The Court found that non residents can be sued in a State if they transact business there. It was held that although Patterson had never been to Ohio, that there were substantial ties between Patterson and Ohio due to computer transactions such as Patterson's subscription to CompuServe and its shareware registration agreement. The Court decided that the contracts should be governed by Ohio law.
To assist the supplier in defending any possible claim that its click wrap licence is invalid:
In the US, revisions to the Uniform Commercial Code are being drafted, which will enable easier enforcement of shrink wrap and click wrap licences. Of particular relevance to software transactions is the proposed new Article 2B. It is anticipated that, if adopted, this article will serve as guidance for courts interpreting various types of electronic software licences. The most current draft of UCC 2B can be viewed at http://www.law.upenn.edu/library/ulc.
The issue of shink wrap licences will be
covered later today. However, you should also consider the decisions
of ProCD v Matthew Zeidenberg & Silken Mountain Web Services Inc
and Beta Computers (Europe) Ltd v Adobe Systems (Europe Pty Ltd)
together with the new provisions of the Trade Practices Act which are very
applicable.
Recoverable damages may include a claim for money to put the customer in the same situation as if the contract had been performed including loss of bargain (expectation loss) and damage suffered and expenditure incurred in reliance of the contract (reliance loss). If the term is a warranty only then a claim only arises for damages or for rectification of the problem.
In Australia, the TPA and the various parallel state statutes give rise to implied terms that goods will correspond with their description where they are sold by description and be of a merchantable quality and fit for a particular purpose where one is specified. Further, legislation such as the Goods Act also give rise to further rights in relation to the sale of certain goods.
In connection with contracts of hire or supply of services in certain circumstances there is an implied warranty that there must be care and skill expended in providing the services and where services are requested for a particular purpose or result then there is an implied warranty that the services will be reasonably fit for that purpose.
For Australian software distributors, one
of the clauses in your click wrap agreement should state that the Agreement
is governed by Australian law and that the customer consents to the Australian
legal jurisdiction. Without such clauses, by distributing over the
Internet, you must consider the laws in your customer’s country and whether
or not you breach those laws in your supply of goods and services.
If you do not obtain your customer’s consent to the Australian jurisdiction,
you could also find yourself to be a party in a foreign law suit should
there be any fault in the software.
If such an infringement occurs, the customer could possibly be found liable for copyright infringement, as they have directly caused the infringement to occur, even where the customer had no knowledge that the infringement was occurring. It would be necessary to analyse the terms of the click wrap licence to determine whether the customer had any recourse against the supplier.
If you are offering goods or services over the Internet, you should consider whether your rights in relation to the goods and services allow to you to offer same to the world. In many distribution agreements, the territory may be expressed to exclude distribution by electronic means. It is particularly important if your are appointing distributors for your own product and want to retain sole control over electronic distribution that the territory allotted to the distributor(s) expressly excludes distribution via the Internet.
A US matter of A & A Records Inc and Ors v Internet Site known as Fresh Kutz and Anor saw various record companies applying for relief from the Court including an order that the Internet Service Provider which hosts the web site prevent any access to the site to prevent further copyright infringement and to prevent destruction of evidence. Fresh Kutz provided illegal copies of musical recordings at no fee and enabled visitors to the site to download and create further illegal copies. Despite the fact that the owner of the web site was unknown at the time, the Court ordered, amongst other things, that the owner of the web site or its agents cease infringing the record companies' copyright, from destroying any records and computer files connected to the web site, and to block access to all infringing copies of musical recordings on the web site.
Web site owners should expect that Courts
around the globe will continue to order heavy penalties for activities
on web sites which involve infringement of copyright. The potential
orders against web site owners for the loss and damage caused by their
actions should be borne in mind when adding any material to your web site
which may potentially be infringing someone else's copyright.
The practice of software reverse engineering was examined in the US case Sega Enterprises Ltd v Accolade, Inc. Reverse engineering a software program usually involves the creation of a disassembled copy of the original object code and then the production of a non-infringing software program. This process gives rise to a potential copyright problem in that the disassembled code could be considered to be a derivative work of the original program. In normal circumstances, you need to seek the permission of the copyright holder before creating a derivative work.
The Court decided in the Sega matter that decompilation constituted a copyright infringement. This decision was not followed in the matter of Atari Games Corporation v Nintendo, Inc. In this matter the Court held that decompilation of a software program for the purpose of studying the ideas behind the software may be a permissible fair use. Following the decision in the Atari matter, the original decision in the Sega matter was reversed on appeal.
AUSTRALIA
In June 1997, the Federal Court of Australia handed down a decision in the matter of Powerflex Pty Ltd v Data Access Corporation which changes the direction of copyright protection in Australia. This matter had been appealed from an earlier decision that certain words such as “save”, “display” and “find” were computer programs, and therefore copyright works, belonging to Data Access. In this appeal, the Court held that these words do not in themselves or collectively constitute computer programs.
This decision brings Australian case law more into line with recent US rulings such as Lotus Development Corporation v Borland International Inc in which the US Supreme Court refused to grant copyright protection to Lotus 1-2-3's spreadsheet command menu. It was also found that the macros contained in the Powerflex program did not infringe the copyright in the Data Access program. However, a Huffman table in the Powerflex program was found to have infringed Data Access’ copyright. This case should not be construed as removing the possibility of a “look and feel” claim, however, it does make such a claim more difficult to maintain.
In Admar Computers Pty Ltd v Ezy Systems Pty Ltd & Ors the Federal Court was asked to examine evidence relating to a pseudocode analysis of software on the question of copyright infringement and breach of confidentiality in circumstances where an employee left his employer and published a similar and competing product to this former employer. Psuedocode anaysis is the examination of source code's logic flow. In this case, an employee left a firm and commenced to sell a rival software product. The former employer conducted a pseudocode analysis which produced evidence that the Ezy system was based upon the Admar system. However, the Court noted that copyright is intended to grant protection to the expression of an idea, not the idea itself. Since the source code of the Admar software program had not been reproduced by Ezy, there was found to be no infringement of copyright. However, the pseudocode analysis evidence was found to be relevant in the claim for breach of confidence in that it suggested use of Admar's source code by a former employee in developing the Ezy source code.
The concept that the Australian Copyright
Act does not afford protection to an idea, but instead to the form of expression
of the idea was recently examined by the Federal Court in the matter of
Coogi Australia Pty Ltd v Hysport International Pty Ltd
. Hysport used a computerised knitting machine to knit fabric, which Coogi claims
was an infringement of its copyright in both the fabric and the computer
program used to manufacture the fabric. Hysport had used a program
written in a different language to that used by Coogi. The computer program
used by Hysport was a variation of another program written by examining
the Coogi fabric and analysing the stitches required to create a similar
fabric. The Court held that Hysport had not infringed Coogi’s copyright
in the fabric or the copyright in the computer program used in manufacturing
the fabric. It was considered that the evidence relied upon by Coogi,
that the two computer programs were similar at the functional level of
expression, was not relevant to the question of copyright infringement.
The American Courts once again are the main source of opinions in regard to jurisdiction afforded to Internet based agreements. In December 1996, the Minnesota District Court ruled that the State of Minnesota had jurisdiction over Granite Gate Resorts Inc and its President, who are based in Nevada. Granite Gate provided a commercial sports betting service which is illegal in Minnesota but represented that such a betting service was legal. The agreement between Granite Gate and its customers provided that all claims against Granite Gate must be commenced in Belize, whereas claims against customers could be brought in the customer’s home state. The Court used a five-factor test (This test differs in Australia and other US States) to determine whether Minnesota Courts had jurisdiction and considered:
In the US case of Superguide Corporation v Daniel Kegan, Superguide was seeking to register the trade mark “Superguide”. Kegan, the holder of the trade mark “Macguide” objected to the registration of the mark in relation to computer goods or services. Superguide filed a declaratory relief action, which Kegan sought to dismiss due to lack of jurisdiction. The North Carolina Court was asked to consider whether it had jurisdiction over Kegan, a resident of Illinois. The Court found that due to Kegan’s Internet based business having customers in North Carolina, there was sufficient contact with Kegan arising in North Carolina for that state’s Courts to have jurisdiction over the dispute. There is continuing case law, particularly arising in the US, which illustrates the importance of having customers agree to submit to the legal jurisdiction in your location. It is a real possibility that an Australian supplier could be sued in the US in relation to goods or services delivered or ordered via the Internet.
One of the latest US decisions with respect to legal jurisdiction and the Internet, Cybersell Inc v Cybersell Inc and Ors suggests that if your Web Site acts only as a means of advertising or as a source of information, the US Courts will not be able to assert jurisdiction. If, however, you sell goods and/or services over the Internet, it is possible that a US resident or business could issue legal proceeding in the US against you or your business.
Another issue in relation to jurisdiction may arise if there has been a Court order which bans your business from selling its goods in another country, for example if your use of a certain product name infringes a registered trade mark in that country. Would you still be able to sell your product to individuals in that country via the Internet, using a click wrap agreement?
In 1981 in the US, Playboy Enterprises Inc obtained an injunction against Chuckleberry Publishing Inc and Tattilo Edtrice SpA to prevent them from selling their magazine Playmen in the US. The injunction prevented Tattilo from using the trade marks “Playboy” or “Playmen” or any other confusingly similar word in conjunction with the sale or distribution of English language publications and related products in the US. Fifteen years later In Playboy Enterprises Inc v Chuckleberry Publishing Inc & Ors , the Court found that by offering access to American customers via the Internet, Tattilo was in contempt of Court by breaching the injunction. Tattilo was ordered to:
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© White SW Computer Law 1998
Steve White is the Principal of the law firm White SW Computer Law. This firm was established by Steve White after his involvement in the IT industry for a number of years.
White SW Computer Law is a Melbourne based boutique law practice which provides legal services to the IT industry, IT customers and Intellectual Property owners. It provides commercial legal advice and litigation with an emphasis on Intellectual Property, Information Technology and Telecommunications issues.
Steve White holds dual degrees in law and computer science and has been a technical instructor for IBM, in Australia and South East Asia, in the use of local area network products and services, operating systems, database design and communications systems. Steve is a member of the Law Institute of Victoria, the Law Institute of Victoria Information technology sub-committee, Victorian Society for Computers and the Law, and the Australian Computer Society (Professional Member Grade).
This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquires and seek appropriate legal advice.