Opinion ID: 779363
Heading Depth: 3
Heading Rank: 3

Heading: Online Transactions

Text: 43 Cases in which courts have found contracts arising from Internet use do not assist defendants, because in those circumstances there was much clearer notice than in the present case that a user's act would manifest assent to contract terms. 16 See, e.g., Hotmail Corp. v. Van$ Money Pie Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal. 1998) (granting preliminary injunction based in part on breach of Terms of Service agreement, to which defendants had assented); America Online, Inc. v. Booker, 781 So.2d 423, 425 (Fla.Dist.Ct. App.2001) (upholding forum selection clause in freely negotiated agreement contained in online terms of service); Caspi v. Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528, 530, 532-33 (N.J.Super.Ct.App.Div.1999) (upholding forum selection clause where subscribers to online software were required to review license terms in scrollable window and to click I Agree or I Don't Agree); Barnett v. Network Solutions, Inc., 38 S.W.3d 200, 203-04 (Tex.App.2001) (upholding forum selection clause in online contract for registering Internet domain names that required users to scroll through terms before accepting or rejecting them); cf. Pollstar v. Gigmania, Ltd., 170 F.Supp.2d 974, 981-82 (E.D.Cal.2000) (expressing concern that notice of license terms had appeared in small, gray text on a gray background on a linked webpage, but concluding that it was too early in the case to order dismissal). 17 44 After reviewing the California common law and other relevant legal authority, we conclude that under the circumstances here, plaintiffs' downloading of SmartDownload did not constitute acceptance of defendants' license terms. Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility. We hold that a reasonably prudent offeree in plaintiffs' position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload's license terms hidden below the Download button on the next screen. We affirm the district court's conclusion that the user plaintiffs, including Fagan, are not bound by the arbitration clause contained in those terms. 18 45 IV. Whether Plaintiffs' Assent to Communicator's License Agreement Requires Them To Arbitrate Their Claims Regarding SmartDownload 46 Plaintiffs do not dispute that they assented to the license terms governing Netscape's Communicator. The parties disagree, however, over the scope of that license's arbitration clause. Defendants contend that the scope is broad enough to encompass plaintiffs' claims regarding SmartDownload, even if plaintiffs did not separately assent to SmartDownload's license terms and even though Communicator's license terms did not expressly mention SmartDownload. Thus, defendants argue, plaintiffs must arbitrate. 47 The scope of an arbitration agreement is a legal issue that we review de novo. Oldroyd, 134 F.3d at 76. [A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Genesco, 815 F.2d at 847 (quotation marks omitted). Although the FAA does not require parties to arbitrate when they have not agreed to do so, Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), arbitration is indicated unless it can be said with positive assurance that an arbitration clause is not susceptible to an interpretation that covers the asserted dispute. Thomas James Assocs., Inc. v. Jameson, 102 F.3d 60, 65 (2d Cir.1996) (quotation marks omitted). 48 The Communicator license agreement, which required arbitration of all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights), 19 must be classified as broad. Coregis Ins. Co. v. Am. Health Found., 241 F.3d 123, 128-29 (2d Cir.2001). Where the scope of an arbitration agreement is broad, 49 there arises a presumption of arbitrability; if, however, the dispute is in respect of a matter that, on its face, is clearly collateral to the contract, then a court should test the presumption by reviewing the allegations underlying the dispute and by asking whether the claim alleged implicates issues of contract construction or the parties' rights and obligations under it.... [C]laims that present no question involving construction of the contract, and no questions in respect of the parties' rights and obligations under it, are beyond the scope of the arbitration agreement. 50 Collins & Aikman, 58 F.3d at 23. In determining whether a particular claim falls within the scope of the parties' arbitration agreement, this Court focus[es] on the factual allegations in the complaint rather than the legal causes of action asserted. Genesco, 815 F.2d at 846. If those allegations touch matters covered by the Netscape license agreement, plaintiffs' claims must be arbitrated. Id. 51 To begin with, we find that the underlying dispute in this case — whether defendants violated plaintiffs' rights under the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act — involves matters that are clearly collateral to the Communicator license agreement. While the SmartDownload license agreement expressly applied to Netscape Communicator, Netscape Navigator, and Netscape SmartDownload, the Communicator license agreement expressly applied only to Netscape Communicator and Netscape Navigator. Thus, on its face, the Communicator license agreement governed disputes concerning Netscape's browser programs only, not disputes concerning a plug-in program like SmartDownload. Moreover, Communicator's license terms included a merger or integration clause stating that [t]his Agreement constitutes the entire agreement between the parties concerning the subject matter hereof. SmartDownload's license terms contained the same clause. Such provisions are recognized by California courts as a means of excluding prior or contemporaneous parol evidence from the scope of a contract. See Franklin v. USX Corp., 87 Cal. App.4th 615, 105 Cal.Rptr.2d 11, 15 (2001). Although the presence of merger clauses is not dispositive here, we note that defendants' express desire to limit the reach of the respective license agreements, combined with the absence of reference to SmartDownload in the Communicator license agreement, suggests that a dispute regarding defendants' allegedly unlawful use of SmartDownload is clearly collateral to the Communicator license agreement. 52 This conclusion is reinforced by the other terms of the Communicator license agreement, which include a provision describing the non-exclusive nature of the grant and permission to reproduce the software for personal and internal business purposes; restrictions on modification, decompilation, redistribution or other sale or transfer, and removal or alteration of trademarks or other intellectual property; provisions for the licensor's right to terminate and its proprietary rights; a complete disclaimer of warranties (as is) and an entire-risk clause; a limitation of liability clause for consequential and other damages, together with a liquidated damages term; clauses regarding encryption and export; a disclaimer of warranties for high risk activities; and a miscellaneous paragraph that contains merger, choice-of-law, arbitration, and severability clauses, non-waiver and non-assignment provisions, a force majeure term, and a clause providing for reimbursement of the prevailing party in any dispute. Apart from the potential generic applicability of the warranty and liability disclaimers, a dispute concerning alleged electronic eavesdropping via transmissions from a separate plug-in program would not appear to fall within Communicator's license terms. We conclude, therefore, that this dispute concerns matters that, on their face, are clearly collateral to the Communicator license agreement. 53 Having determined this much, we next must test the presumption of arbitrability by asking whether plaintiffs' allegations implicate or touch on issues of contract construction or the parties' rights and obligations under the contract. Collins & Aikman, 58 F.3d at 23; Genesco, 815 F.2d at 846. That is, even though the parties' dispute concerns matters clearly collateral to the Communicator license terms, we must determine whether plaintiffs by their particular allegations have brought the dispute within the license terms. Defendants argue that plaintiffs' complaints literally bristled with allegations that Communicator and SmartDownload operated in conjunction with one another to eavesdrop on Plaintiffs' Internet communications. We disagree. Plaintiffs' allegations nowhere collapse or blur the distinction between Communicator and SmartDownload, but instead consistently separate the two software programs and assert that SmartDownload alone is responsible for unlawful eavesdropping. Plaintiffs begin by alleging that SmartDownload facilitates the transfer of large files over the Internet by permitting a transfer to be resumed if it is interrupted. Plaintiffs then explain that [o]nce SmartDownload is downloaded and running on a Web user's computer, it automatically connects to Netscape's file servers and downloads the installation program for Communicator. Plaintiffs add that defendants also encourage visitors to Netscape's website to download and install SmartDownload even if they are not installing or upgrading Communicator. 54 Plaintiffs go on to point out that installing Communicator automatically creates and stores on the Web user's computer a small text file known as a `cookie.' There follow two paragraphs essentially alleging that cookies were originally intended to perform such innocuous tasks as providing temporary identification for purposes such as electronic commerce, and that the Netscape cookie performs this original identifying, and entirely lawful, function. Separate paragraphs then describe the Key or UserID that SmartDownload allegedly independently places on user's computers, and point out that SmartDownload assumes from Communicator the task of downloading various files. Communicator itself could and would perform these downloading tasks if SmartDownload were not installed. Thereafter, the complaints continue, 55 each time a Web user downloads any file from any site on the Internet using SmartDownload, SmartDownload automatically transmits to defendants the name and Internet address of the file and the Web site from which it is being sent. Within the same transmission, SmartDownload also includes the contents of the Netscape cookie previously created by Communicator and the Key previously created by SmartDownload. 56 In the course of their description of the installation and downloading process, plaintiffs keep SmartDownload separate from Communicator and clearly indicate that it is SmartDownload that performed the allegedly unlawful eavesdropping and made use of the otherwise innocuous Communicator cookie as well as its own Key and UserID to transmit plaintiffs' information to Netscape. The complaints refer to SmartDownload's spying and explain that Defendants are using SmartDownload to eavesdrop. Plaintiffs' allegations consistently distinguish and isolate the functions of SmartDownload in such a way as to make it clear that it is through SmartDownload, not Communicator, that defendants committed the abuses that are the subject of the complaints. 57 After careful review of these allegations, we conclude that plaintiffs' claims present no question involving construction of the [Communicator license agreement], and no questions in respect of the parties' rights and obligations under it. Collins & Aikman, 58 F.3d at 23. It follows that the claims of the five user plaintiffs are beyond the scope of the arbitration clause contained in the Communicator license agreement. Because those claims are not arbitrable under that agreement or under the SmartDownload license agreement, to which plaintiffs never assented, we affirm the district court's holding that the five user plaintiffs may not be compelled to arbitrate their claims. 58