This is a follow up post on our series of merger and acquisition issues. If you are selling your company you’ll be faced with the prospect of indemnifying the purchaser for any damages they suffer in connection with the sale. Now such indemnification may arise for a number of reasons, such as an unknown debt or lien that was on an asset you sold, a claim that an employee or third party made against the company or an asset which you did not inform the purchaser of, or a number of other issues. These are usually breaches of the representations and warranties that sellers have to make to the buyers in the asset purchase agreement. For example, the seller will represent (i.e. state as true at the time of signing or closing or both) that there are no debts owed by the company or liens on the company assets. If the deal closes and a lender or lien of the company did exist, its a breach of that representation, and the seller is liable to the buyer for any resulting damages.
Tag: Business lawyer (Page 1 of 2)
Most companies licensing the use of their trademarks would not think that a simple license agreement, which provides nothing more than use of the trademark in exchange for a fee, would for legal purposes be treated as a franchise agreement. But if the trademark licensor is in New York then what it thought was a simple trademark license agreement relationship is likely really a franchise arrangement.
- Starke v. Gilt Groupe, Inc., 2014 U.S. Dist. LEXIS 58006 (S.D.N.Y. 2014) (arbitration provision in clickwrap license, which had a link to the text of the license, was upheld, and found not to be unconscionable).
- Motise v. America Online Inc., 346 F. Supp 2d 563 (S.D.N.Y. 2004) (user that signed on with another user’s id and password still bound, as sub-licensee, of the terms including forum selection clause).
- Hoffman v. Supplements Togo Management, LLC 18 A3d 210 (N. J. App. Div. 2011) (found forum selection clause unenforceable due “the manifestly unfair manner in which defendant’s website was structured” and court seemed to imply that it believed the website owner was intentionally hiding the terms).
- Caspi v. Microsoft Network, LLC, 323 NJ Super 118 (N.J. App. Div. 1999) (upheld forum selection clause where users had to click on scrollable window and click “I agree” or “I don’t agree.”)
- Mortgage Plus, Inc. v. DocMagic, Inc., 2004 WL 2331918, 2004 U.S. Dist. LEXIS 20145 (D. Kan. 2004) (clickwrap agreement upheld)
- Taxes of P.R., Inc. v. TaxWorks, Inc., 2014 U.S. Dist. LEXIS 37765 (D.P.R. 2014) (upheld forum selection clause in clearly stated clickwrap agreement, following ProCD precedent).
Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007).
In this case, a user shipped a ring worth $100,000 via UPS’s online shipping website. He submitted the ring in a package for shipping with the shipping label. UPS then lost or misplaced the package.
The Court held that using a clickwrap agreement for online transactions was “common in Internet commerce” where “one signifies agreement by clicking on a box on the screen.” The court reasoned that merely because the user chose not to read the terms, that does not let him avoid any of the provisions he does not like.
In Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005), the Court of Appeals for the Eighth Circuit upheld a clickwrap agreement that prohibited reverse engineering. In that case, the clickwrap agreement that had to be accepted prior to playing the online game prohibited reverse engineering.
The clickwrap agreement was included in the End User License Agreement that each user had to affirmatively agree to (by clicking on “I Agree” button) when installing the game, and you could not play the game without agreeing. Users also had to enter a CD Key which was included on the copy of the CD the game came on. The CD Key was connected to the CPU’s IP address to prohibit pirating and copying of the CDs.
Certain users, unhappy with the games’ performance and the system used to play the online game, reverse engineered the game and created their own site to play it against others on the game maker’s site. Blizzard, the game maker sued.
The Court of Appeals for the Eighth Circuit upheld the clickwrap agreement provision that prohibited reverse engineering, stating that the users had expressly relinquished their right to reverse engineer by agreeing to the terms of the license agreement.
There were various other copyright claims, and the court also held that the users violated the Digital Millennium Copyright Act, which seemingly made ruling against the users easier.
Compuserve v. Patterson, 89 F.3d 1257 (6th Cir. 1996).
Patterson, a resident of Texas (a lawyer and software programmer), sold his own software to third parties over Compuserve’s system, pursuant to the terms of a clickwrap agreement (where he had to type “I Agree” into various sections of the agreement).
Compuserve began to sell its own software that was similar to Patterson’s and Patterson demanded Compuserve pay him $100,000 as a settlement. Compuserve then filed a declaratory judgment action in Federal court in Ohio.
Patterson moved to dismiss the action due to alleged lack of personal jurisdiction, claiming he never visited, did business in, or consented to suit in Ohio.
The Sixth Circuit found that making Patterson subject to suit in Ohio due to his acceptance of the clickwrap agreement, a Shareware Registration Agreement, did not violate the due process clause of the United States Constitution.
The Court reasoned that Patterson personally availed himself to do business with Compuserve, and made money doing so, and could therefore have reasonably expected he’d have to defend himself in Ohio due to the terms of the agreement.
This is the seminal case in the shrinkwrap realm, which paved the way for the rise of the browsewrap and shrinkwrap cases. Upholding the software license as normally provided to purchasers, to get around the First Sale Doctrine under U.S. Copyright Law. Cite, facts and holding are below.
There’s still some hostility from the court system, and the public at times, on the enforceability of browsewrap and clickwrap agreements. Having an enforceable license for your website, software or mobile application is of the utmost importance.
The ABA Committee on Cyberspace Law provided general rules to ensure your online agreement is enforceable:
- The user must have adequate notice that the proposed terms exist;
- The user must have a meaningful opportunity to review the terms;
- The user must have adequate notice that taking a specified, optional action manifests assent to the terms; and
- The user must, in fact, take that action.
I fully agree with the above. Notice, notice, notice is so important. But not just any notice. You need to ensure that the notice is reasonable, that is that a reasonable person using your software/website/application would understand that by taking a certain action (clicking or continuing use of the site) it renders the agreement binding on them. My reading of the case law on shrinkwrap, browsewrap and clickwrap agreements made me come up with my own list in addition to the ABA Committee’s pointers:
- Create an easy to read, reasonable license that follows industry norms;
- Give the user reasonable notice that the license exists;
- Make sure the notice is CLEAR AND CONSPICUOUS
- Colors, size, font, placement, timing, etc. all relevant. Don’t “bury” it. Get it in front of the user’s faces.
- Let the user read the full license if he or she so chooses (scrollable pop-up being preferred), prior to acceptance (click or use);
- Opt for clickwrap over browsewrap if possible.
I’ve been involved in drafting numerous versions of online agreements, including privacy policies, service agreements, pricing policies, various other policies and last but not least both browsewrap and clickwrap agreements. I’ve done a quick post on case law with respect to browsewrap and clickwrap agreements in the past, and was recently asked to speak for a webinar entitled Drafting Clickwrap and Browsewrap Agreements: Advanced Strategies for Enforceable Online Contracts held by Strafford. If you’d like to listen to the webinar email me or contact them.
I feel that more and more contracting is going to be done over the Internet in the future and I am going to start a series of blog posts on drafting these types of browsewrap and clickwrap agreements as well as case law in the area, which serves to let corporate lawyers know how they have to draft the agreement, and have the users accept it.