Is a shrinkwrap license enforceable in Washington? (Washington 67796-4)

Have you ever purchased software only to find out later that the fine print limited your ability to claim damages if something went wrong? You're not alone—many people face the same issue, but fortunately, there's a court decision that sheds light on this complex problem. If you're grappling with this kind of situation, the case of M.A. Mortenson Company, Inc. v. Timberline Software Corporation provides valuable insights, so keep reading to uncover potential solutions.

Case No. 67796-4 Situation

Case Overview

Specific Situation

In the state of Washington, a legal dispute arose between a construction company and a software corporation. The construction company, having acquired software from the corporation through an authorized dealer, faced a significant financial discrepancy after using the software to prepare a construction bid. The bid turned out to be $1.95 million less than anticipated, which the construction company attributed to a malfunction in the software. The construction company then sought legal action against the software corporation, claiming the software was defective and alleging breach of warranties.

Plaintiff’s Argument

The plaintiff in this case is the construction company. They argue that the software they purchased was defective, leading to a substantial underestimation in a construction bid. The company maintains that the shrinkwrap license, which included a limitation on consequential damages, should not be enforceable because they never explicitly agreed to those terms. They assert that the purchase order constituted the entire contract, and the additional license terms were not a part of that agreement.

Defendant’s Argument

The defendant is the software corporation. They argue that the shrinkwrap license, which accompanied the software, is a valid and enforceable part of the contract. The corporation contends that the license terms, including the limitation on consequential damages, were clearly communicated through various means such as on the packaging and in the manuals. They insist that the construction company’s use of the software constituted acceptance of these terms, which are standard in the software industry.

Judgment Result

The court ruled in favor of the software corporation. It was decided that the shrinkwrap license terms were enforceable. The judgment concluded that the terms were a part of the contract between the construction company and the software corporation. The court found that the limitation of remedies clause was not unconscionable and therefore valid. As a result, the construction company was bound by the terms of the license, limiting any potential recovery to the purchase price of the software.

Case No. 67796-4 Relevant Statutes

RCW 62A.2-204

RCW 62A.2-204 addresses contract formation for the sale of goods. This statute allows a contract to be formed in any manner that shows agreement, even if the exact moment of agreement is not clear. Essentially, this law recognizes that contracts can be formed through the actions of the parties involved, not just through written agreements. In the Mortenson case, this statute was pivotal because it supported the notion of “layered contracts,” where terms can be added over time, as evidenced by the use of shrinkwrap licenses.

RCW 62A.2-207

RCW 62A.2-207 deals with situations where an acceptance or written confirmation includes terms additional to or different from those in the original offer. This statute is often referred to in discussions about the “battle of the forms,” where businesses exchange documents with differing terms. Although Mortenson argued that Timberline’s license terms were additional terms that should be treated under this statute, the court found that the contract formation was governed by RCW 62A.2-204, not RCW 62A.2-207, because the issue was the contract’s formation rather than alteration of terms.

RCW 62A.2-302

Substantive Unconscionability

This section of the law allows courts to refuse to enforce contracts that are unconscionable at the time they were made. Substantive unconscionability refers to terms that are overly harsh or one-sided. In this case, the court examined whether the limitation of remedies clause in Timberline’s license agreement was excessively unfair. The conclusion was that such clauses are generally acceptable in commercial contracts unless proven otherwise.

Procedural Unconscionability

Procedural unconscionability looks at the process of making the contract, including any lack of meaningful choice or the presence of hidden terms. Mortenson argued that they were unaware of the license terms due to the way they were presented. However, the court found that the terms were sufficiently conspicuous, given their presence in multiple locations like the diskette pouches and manuals, and Mortenson, being a seasoned contractor, was expected to understand such terms.

RCW 62A.2-719

This statute allows for the limitation or modification of remedies available to parties in a contract. It generally permits the exclusion of consequential damages unless such exclusions are deemed unconscionable. In the Mortenson case, the court upheld the validity of the limitation on consequential damages in Timberline’s license agreement, finding it conscionable under the circumstances. The court’s decision emphasized that such clauses are a standard part of commercial transactions, especially in the software industry.

Case No. 67796-4 Legal Standards

Principled Interpretation

RCW 62A.2-204

This statute allows a contract to be formed in any manner that shows agreement between the parties, even if the exact moment of contract formation is unclear. In principle, this means that agreements can be recognized through conduct, such as using the software, which can indicate acceptance of the terms.

RCW 62A.2-207

Under standard interpretation, this statute deals with the inclusion of additional terms in a contract. If terms are added post-agreement, they must not materially alter the original contract unless expressly agreed upon by both parties. This provision is typically used when two parties have exchanged forms with differing terms.

RCW 62A.2-302

This statute addresses the concept of unconscionability, which can render a contract or clause invalid if it is found to be excessively unfair or oppressive at the time of formation. The focus is on whether the terms shock the conscience of the court.

RCW 62A.2-719

It provides that limitations on remedies, including consequential damages, are generally enforceable unless deemed unconscionable. This means such limitations are usually upheld in commercial contracts unless proven otherwise by the party contesting them.

Exceptional Interpretation

RCW 62A.2-204

In exceptional cases, this statute may be interpreted to support “layered contracting,” where contract terms evolve over time, as seen in shrinkwrap agreements. This approach recognizes contracts that are formed after the goods are delivered and inspected.

RCW 62A.2-207

Exceptionally, this statute might not apply if the contract is deemed to have been formed without the need for exchanging written confirmations that contain additional terms. This is particularly relevant when the terms are presented at the time of delivery.

RCW 62A.2-302

In rare instances, a term might be considered substantively unconscionable if it is found to be excessively one-sided or harsh. However, in commercial settings, proving unconscionability is often difficult without strong evidence of unfairness.

RCW 62A.2-719

While generally enforceable, this statute can be interpreted to invalidate limitations on remedies if they are found to be unconscionable, but this is typically a high bar to meet, especially in commercial transactions.

Applied Interpretation

In this case, the court applied a principled interpretation of RCW 62A.2-204, allowing the formation of a “layered contract” through Mortenson’s use of the software, which indicated acceptance of the shrinkwrap license terms. The court rejected exceptional interpretations of RCW 62A.2-207, finding that the license terms were part of the original contract, not additional post-agreement terms. RCW 62A.2-302 and RCW 62A.2-719 were also interpreted in their principled form, dismissing claims of unconscionability due to lack of substantive evidence that the terms were excessively unfair or harsh.

Key Shrinkwrap License Resolution Methods

Case No. 67796-4 Resolution Method

In the case of M.A. Mortenson Company, Inc. v. Timberline Software Corporation, the plaintiff, Mortenson, pursued litigation against Timberline alleging breach of warranties due to defective software. However, Mortenson lost the case, as the court upheld the enforceability of the shrinkwrap license agreement that limited Timberline’s liability. The court found the licensing terms, including the limitation of remedies, to be part of the contract and not unconscionable. This outcome suggests that Mortenson’s approach of resolving the issue through litigation was not successful given the legal landscape surrounding shrinkwrap licenses. In similar circumstances, it may be more prudent for parties to explore alternative dispute resolution methods, like negotiation or mediation, which could be more cost-effective and less time-consuming. Additionally, ensuring a thorough understanding and negotiation of contract terms before acceptance can prevent such disputes.

Similar Case Resolution Methods

Scenario: Different Software Malfunction

If the software malfunction was due to a different issue not covered by the license terms, it would be advisable for the plaintiff to first seek an amicable resolution with the developer. Engaging directly with the developer and discussing the malfunction could lead to a mutual agreement, potentially avoiding the need for litigation. Should litigation be necessary, consulting with a legal professional experienced in software contract law would be beneficial to assess the viability of the case.

Scenario: Direct Purchase from Developer

In cases where the software was purchased directly from the developer rather than through a dealer, the purchaser might have more leverage to negotiate terms or resolve issues directly. Open communication with the developer to address the malfunction can often lead to a satisfactory resolution without resorting to legal action. If litigation becomes necessary, hiring a lawyer specializing in contract disputes would be advisable to navigate the complexities of the case.

Scenario: No Prior Software Issues

If the software had no prior issues and the malfunction was unexpected, the purchaser should initially seek technical support from the developer to resolve the issue. Should technical support fail, the next step would be to negotiate a resolution or compensation with the developer. Litigation should be considered a last resort, and involving a legal expert might be necessary to evaluate the potential success of the case based on the contractual terms.

Scenario: License Agreement Signed

When the license agreement was explicitly signed by the purchaser, any disputes regarding the terms could be more challenging to litigate successfully. In this scenario, exploring mediation or arbitration as alternative dispute resolution methods might be more effective. If the purchaser still wishes to pursue litigation, consulting with a legal expert to interpret the signed agreement and assess the likelihood of success in court is essential.

FAQ

What Is Shrinkwrap

Shrinkwrap refers to a software license agreement packaged with the software. Opening the package typically indicates acceptance of the terms.

Are Such Licenses Valid

Yes, shrinkwrap licenses are generally considered valid and enforceable under U.S. law, provided they are not unconscionable.

What If I Never Read It

Not reading the license does not usually exempt you from its terms. Courts often uphold these agreements even if they’re unread.

Can I Return Software

Most shrinkwrap licenses allow you to return the software for a refund if you disagree with the terms, provided you do so promptly.

Is It Binding On Me

Yes, using the software typically binds you to the terms of the shrinkwrap license, even if you haven’t explicitly signed it.

How To Contest Terms

To contest terms, you might argue they were not reasonably communicated or are unconscionable under contract law.

Does It Affect All Users

Yes, shrinkwrap licenses generally apply to all users of the software, including businesses and individual consumers.

Are There Exceptions

Exceptions might exist if the terms are found to be unconscionable or if the software is defective and non-functional.

What Is Unconscionability

Unconscionability refers to terms that are excessively unfair or one-sided, which may render a contract or its clauses unenforceable.

Can Terms Be Modified

Terms can be modified if both parties agree. Otherwise, any unilateral modification by the software vendor is typically invalid.

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