Case Notes

ProCD, Inc. v. Zeidenberg and Article 2B: Finally, the Validation of Shrink-Wrap Licenses


Joseph C. Wang


VOL. XVI • Winter 1998 • NO. 2 (table of contents)

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16 John Marshall J. of Comp. & Info. Law 439


In ProCD, Inc. v. Zeidenberg, the Seventh Circuit validated a licensor's shrink-wrap license. This court was one of the first courts to validate such licenses. The case involved a graduate student, Zeidenberg, who purchased ProCD's telephone directory software program which contained the shrink-wrap license at issue. After Zeidenberg took the software home, he downloaded the information in the software into his computer and put the information onto a website, despite the language on the computer screen prohibiting such dissemination of the software's contents. Then, Zeidenberg allowed Internet users to use his website to access the directory originally located on the software for free.

ProCD sued Zeidenberg in the U.S. District Court for the Western District of Wisconsin. The district court held in favor of Zeidenberg because it concluded that federal Copyright laws preempted the license agreement. On appeal, the Seventh Circuit reversed the lower court and held the license agreement to be valid and enforceable, and not preempted by Copyright laws. The Seventh Circuit reasoned that a contract was formed in compliance with sections 2-204 (contract formation) and 2-606 (acceptance of contracts) of the Uniform Commercial Code. In other words, the contract was formed when: (1) Zeidenberg purchased the software; and (2) Zeidenberg failed to reject the contract after learning of the license restrictions displayed on the computer screen -- in essence "accepting" the contract restrictions. The court also compared the agreement in the case to other types of agreements that are enforceable, such as forum-selection clauses. Further, the Seventh Circuit held that the Copyright Act did not preempt the license agreement because copyright law restricts third parties, while contract law only restricts the parties to the agreement.

This case agrees with section 208 of the proposed Article 2B of the U.C.C. which deals with formation of "mass-market licenses". This section should be read with other sections of Article 2B that require license terms to be "conspicuous" (U.C.C. 2B-102(7)) while giving the licensee an "opportunity to review" (U.C.C. 2B-113) the terms and, thereafter, "manifesting assent" (U.C.C. 2B-112) to such terms. Only then would a licensee be bound by mass-market licenses. In ProCD, Zeidenberg formed such a mass-market license with ProCD because: (1) the license terms were "conspicuously" placed on the software package and displayed on the computer screen during usage of the program; (2) Zeidenberg had multiple "opportunities to review" the license agreement-- i.e., during the initial software purchase and while download ProCD's program onto his computer; and (3) Zeidenberg "manifested his assent" to the terms of the agreement by affirmatively downloading the software. Thus, it is plain to see that Zeidenberg satisfied the requirements to form a mass-market agreement with ProCD, and the Seventh Circuit properly held that he was bound by the terms of the agreement.

The ProCD case is seminal in that it anticipates problems arising from agreements formed on the Internet, which is the exact problem that section 2-208 of U.C.C. Article 2B was designed to solve. Hence, before the adoption of U.C.C. Article 2B by each state, the ProCD decision validating shrink-wrap licenses should be the standard by which other courts apply in determining whether similar licensing agreements are enforceable.

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