Can You Agree To An EULA You Never Saw?

from the probably-not dept

Slashdot points us to an interesting article about a guy involved in a legal fight with computer maker Gateway over whether or not he agreed to an arbitration clause in an end user license agreement (EULA) for his new computer. In this case, the guy claims his computer never worked properly, so he couldn't even see the on-screen license agreement that apparently included an arbitration clause, saying that he would agree to arbitrate any dispute, rather than take it to court. He then sued Gateway over problems with the machine. The case here doesn't have anything to do with whether or not that lawsuit has merit, but whether or not it could even go to court at all. Gateway contends that the guy shouldn't be able to take them to court because of the arbitration clause. But, of course, the guy claims he couldn't read the license agreement, so he certainly never agreed to it. The court found that the guy made a compelling enough case that he had not seen the license agreement, and therefore can not be forced to go to arbitration (even as some experts suggest that he actually would be better off going to arbitration, rather than through the courts). However, it also raises the question (not answered here) over what does constitute an official agreement. I've been told by lawyers that such arbitration clauses aren't even enforceable in California, but either way, with plenty of evidence that most people never read the EULAs they agree to, could they argue that the clauses don't apply as well?

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  1. identicon
    Marc, 9 Jun 2007 @ 9:29pm

    Brief of Decision

    Brief of the decision:

    Hill v. Gateway 2000, Inc.
    105 F.3d 1147 (7th Cir. 1997)

    Facts:

    The Hills ordered a computer from Gateway over the phone. During the call, they gave Gateway their credit card information, and that card was charged with the agreed price. When the computer arrived in boxes, one of the boxes contained terms not previously discussed between the parties. The terms stated that they were part of the contract between the parties unless the Hills shipped the computer back to Gateway within the 30-day period following delivery.

    One of these new terms required any dispute to be arbitrated in Chicago. After the 30-day period had expired, the Hills invoked Gateway's warranty regarding defects, and were not satisfied with Gateway's response. They then initiated a class-action lawsuit in federal court seeking damages for violation of the federal civil RICO statute. Gateway responded with a request that the court not hear the matter, and instead refer it to arbitration.

    Disposition Below:

    The trial court ruled for the Hills. It found that the record was insufficient to support a finding that the parties had agreed to arbitration, or that the Hills were given adequate notice of the arbitration clause.

    Questions Presented:

    1. Was the arbitration term part of the contract between the Hills and Gateway, and thus binding on the Hills?

    2. Under what theory of contract formation did the term become binding on the Hills?

    Short Answers:

    1. Yes

    2. Unclear. The possible readings include:

    a. The contract was formed as to all terms during the initial telephone call, and one of the terms was an option on the Hills part to rescind the transaction upon return of the computer during the first 30 days following delivery;

    b. The contract was formed as to certain essential matters such as price and type of computer during the initial telephone call, and then the term sheet included with the delivery imposed additional terms on the Hills (that of requiring them to return the computer if they did not agree to the terms);

    c. The contract was formed as to all terms at the conclusion of the 30 day period; until then, there were no binding promises between the parties;

    d. There were two contracts: one as to the purchase and sale of the basic computer, and another as to the agreement to arbitrate. The contract for sale was concluded upon termination of the initial telephone call; the agreement to arbitrate was concluded by the failure of the Hills to return the computer within the 30 day period.

    Holding:

    Buyers who pay in advance for goods knowing that the seller intends to include other terms in the deal are bound by those other terms if the seller offers to take back the goods and refund the price paid within a specified period of time after the buyer had the opportunity to examine the additional terms. The buyer's actual consent to the additional terms is irrelevant.

    Discussion:

    The Hills argue that their assent to an arbitration term, or their actual notice of such a term, was necessary for those terms to be binding upon them. In this case, they assert that they never knew about the term, and that any notice and disclosure of such terms was inadequate to form a conclusion that such terms bound them.

    Judge Easterbrook, speaking for the Seventh Circuit, rejects the Hills' arguments. He first states that it is accepted law that people can pay in advance for a product or service without knowing all the terms of the transaction, yet nevertheless be bound by those unrevealed terms. He also states that a person's subjective ignorance of acknowledged terms is not a bar to enforcement; by retaining the benefits of the transaction, the consumer assumes the risk of the provisions that are unread.

    Specifically, Judge Easterbrook states that this case is governed by ProCD v. Zeidenberg. He states that ProCD holds "that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product." In this case, says Judge Easterbrook, "Gateway shipped computers with the same sort of accept or return offer ProCD made to users of its software."

    Judge Easterbrook then rejects the Hills' efforts to distinguish ProCD. First, the Hills point out that ProCD deals with software, not tangible goods. Judge Easterbrook declines to limit ProCD to software. He states that both ProCD and Gateway involve the law of contracts, and there is nothing special about software that would justify a separate rule. Moreover, this case does involve software (as there was software bundled with the computer), and thus the distinction does not even exist.

    Second, the Hills wish to limit ProCD to executory contracts; that is, contracts in which the obligations of both sides are ongoing, and not yet completed. Judge Easterbrook also rejects this distinction, and also points out that even if he did accept this distinction, it is not present on these facts. There are many obligations on each side of this contract that remain to be performed and are ongoing (for example, the agreement to arbitrate disputes on the Hills' side, and the lifetime warranties on Gateways').

    Finally, the Hills state that there were no notices of additional terms on the outside of the shipping boxes, as was the case in the shrinkwrap license at issue in ProCD. Again, Judge Easterbrook states that this is a distinction without a difference; Gateway placed the approve-or-return terms so that competent adults would know of their presence.

    Towards the end of the opinion (on page 29), Judge Easterbrook adverts in dicta to a "better argument" that could have been made had the Hills tried to return the goods but were dissuaded from doing so by the cost of shipping. Without saying whether this might be an exception to his holding, Judge Easterbrook then states that even had it been the case (had the shipping costs dissuaded the Hills from returning the computer because they disapproved of the terms), the fact that the Hills had knowledge that there were additional terms, but did not seek to discover them in advance, would have barred them from contesting the arbitration clause.

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