Shrink wrap agreements
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This article is written by Srashti Singh Yadav, a student pursuing BALLB Hons at Dr. RMLNLU Lucknow.


In today’s technologically advanced world it is unlikely for an individual to come across a point while dealing with computers where he or she did not have to give his or her assent to some terms. Like in case of surfing the internet, it is generally done by clicking some icon like “I Agree” and similarly while installing a software we tear the CD package and use it, that to count as giving assent to the terms and conditions given inside the package. However minute it may seem to a lay man, these actions are of paramount importance because it leads to a valid enforceable contract and those terms that we are not well acquainted with while making a contract can strictly be forced against us.

What is click wrap agreement?

A common type of online agreement that has emerged with the rise of internet contracting is the Click wrap agreement. In this type of agreement a message is sent to the user on his or her screen that requires the assent of the user to the terms of the agreement by clicking the icon. The terms of the agreement are immediately visible on the screen of the computer labeled “I Agree” or something similar.

Landmark judgement

The first case which held the validity of Click wrap contract was Hotmail Corporation vs. Van $ Money Pie Inc. In this case Hotmail brought suit in federal court against customers who were sending spam messages and forging emails to make it appear that the spam messages originated from Hotmail accounts. Hotmail alleged that each and every customer is causing the violation of the term of service agreement that each person must assent to when opening an email account. The court held that the Hotmail was likely to succeed on breach of contract claims. It is a landmark case because it held that terms of service contract in click wrap format could be enforceable in court. Another court in LAN Systems Inc vs. Netscout Service Legal Corporation.

In this case, LAN provided a network monitoring services to customers and purchased software from Netscout. Netscout and LAN signed an agreement allowing LAN resell Netscout’s software to customers however LAN wanted to rent the software to customers. This practice Netscout claimed was not allowed under the Click wrap license contained in the software itself. The court held that they were enforceable by clicking on the “I Agree” icon and LAN has consented to the terms. The court held that the Click wrap acceptances of offers or agreement between the parties were not invalidated by the earlier purchase order between the parties. 

The Indian Contract Act, 1857 has not been amended yet to specifically include the scope of an Electronic Agreements or Click wrap agreements.

Case Laws
         Click Above

Trimex International FZE vs. Vedanta Aluminium Limited, India 2010

In this supreme court held that the terms of contract has been discussed over the email, such emails constituted to be a valid contract and hence enforceable. Here the supreme court recognized the validity of electronic contracts even if they were not electronically signed and registered.

LIC India vs. Consumer Education and Research Centre

In this case Supreme Court commented on the scope of its intrusion in a contract where the parties to the contract had unequal bargaining power. The court held that when a contract is of such a nature where parties to the contract have equal bargaining power then in the light of Article 14 of the Constitution of India (guaranteeing equal protection of law to its citizens) the supreme shall delete an unfair or unreasonable contract.

It can thus be observed that Indian courts have accepted the validity of electronic contracts however its not a open acceptance. However have not yet discussed the possibility of where the jurisdiction would lie in the cases where the one party domiciled in India and the other party domiciled in another country.

Statutory Recognition 

Section 209 of the UCITA (Uniform Computer Information Transaction Act) states that the terms and conditions of the agreement if assented by the party’s initial performance then they can be adopted.

Article 2[B] of the UCC (Uniform commercial code) which is now replaced by NCCUSL (National conference of commissioners on uniform state laws) with the UCITA which was passed by the majority of the states of America on the 29th of July 1999.

Section 112 of the UCITA led down that a person can give assent to a record or a term by his or her conduct if he intentionally engages in such conduct with reasons to know that such behavior will be considered by the other party as his or her assent. But all this will hold good if the terms and conditions are within the knowledge of the party assenting and he or she has a chance to review the same thus if a person assents in the click wrap agreement by clicking “I Agree” he or she assent to the same under section 209 and 112.

Information Technology Act, 2000

Section 11, the legislators accept an offer by way of data messages either by party himself or by any electronic system programmed for a specific purpose (which include offer in click wrap agreement) but it is silent as regard mode of assent or acceptance of the same.

The click wrap agreements are valid and enforceable contracts as far as offer and acceptance is concerned.

What are shrink wrap agreements? 

The Shrink-wrap refers to the clear plastic wrapping that seals the software box and through which the buyer can read the license agreement. Users will be bound and will be considered to have agreed with the terms and conditions of the agreement if once they tear or open the package or they use the software. So here we can say validity of Shrink wrap agreements is in doubt. There is nothing wrong in these contracts but free bargaining is not applicable in these contracts. Shrink wrap agreements can be include the following terms:

  • License 
  • Fees and payments
  • Warranties
  • Limitations of liability

Rights to use be until the consumer has paid and accepted the package and has opened the product by taking off the package Which then constitute that taking off will amount to accepting the terms of the agreements.

Are these agreements enforceable?

Currently the status is very unclear as courts have been divided in its opinion because consumer consents to the terms of the agreement but at the same time he pays for the product and opens the package but he does not have actual knowledge about the terms until he opens the package to read them.

Problems with the Shrink wrap agreement 

The main flaw with the shrink wrap agreements is that the terms of the agreement can not The validity of landmark of the shrink wrap agreement first came through the case ProCd Inc vs. Zeidenburg. In this case Appellant included a shrink license in its packaged software. Appellant purchased a software but chose to ignore the license restricting its use to non commercial purposes. Seeking to enforce the license, appellant filed for an injunction. The court denied the the injunction because the court said that terms of the agreement did not appear on the outside of the package. The said that license was to be treated as an ordinary contract along with the sale of the products. The terms give the purchaser opportunity to review the product and its term before being bound.

Case Laws

CompuServe Inc vs. Patterson

Issue: Whether an internet service provider’s home state can exercise jurisdiction over an out of state author of software who subscribes to the internet service provider and receives commission for software sold via the internet service provider.

The court held that state can exercise jurisdiction over an author of software who sells his software through internet service provider based in the forum state.

Tony Brower et al vs. Gateway 2000, inc et al

Facts: The appellant Brower and others purchased computers and software products from Gateway 2000 by mail or telephone order. The terms and conditions of the contract were included with the shipment. This note states in slightly larger print than the reminder of the document, in a box that spans the width of the page. And it was written if you keep computers more than 30 days then it signifies that you accept the offer. And if any dispute arises it will be resolved through arbitration.

Here the plaintiff alleges deceptive sales practices and arbitration clause is invalid under UCC 2-207, unconscionable under UCC2-302 and unenforceable contract.

Here the court held that contract was not formed only with the placement of of a telephone order but with the consumer decision to retain the good beyond thirty days specified in the terms and conditions of the contract. Though the parties were not in a equal bargaining power but consumer had ability to make purchase elsewhere and can express option to return the good. The fact that consumer does not read or understand certain portion is irrelevant.

Statutory recognition

Section 209 and section 112 of the UCITA that agreements can be assented by way of conduct of the purchaser, when one tears the wrap and uses the CD after reading terms and conditions means he or she has given her assent to the terms. Additional terms might appear on the computer screen while loading the CD after tearing the shrink wrap, which have initial terms of the license. The question is these terms are also enforceable too. It is clear from section 208(2) that if the parties have a reason to know the terms would be proposed later for assent and the later terms are agreed on, there is a contract including those terms; but if later terms are rejected, there is no contract under section 209(b).

Thus Shrink wrap agreement are valid and enforceable contract.

Section 206 of the UCITA reveals that legislatures have recognized the fact that a contract can be formed by the interaction of the two electronic agents.

Section 112 of the same it is laid down electronic agent can give its assent to a term if after reading the terms it engages in operations that indicates the acceptance of the term. For example one computer X sends an order to another computer Y of the supplier as agreed by the EDI agreement beforehand by the two parties. Computer Y according to sec 112 will accept the offer if it starts sending a receipt of the bill for such order to computer X.


So the next time whenever you come across these e-contracts before clicking “I Agree” icon uninteresting or hurriedly tear the wrap of software CD being least interested on the terms typed on it “Think Twice”. They all are valid contracts and you could be made liable for the terms and conditions laid down there. 

While considering the formation of the contract the court have taken mechanical approach for determining cases like if assent to the terms and conditions of the agreement has been given and this can be basically be tested by, whether or not party has clicked an icon “I Agree”. The courts have made it clear that this will be the conclusion they come to when deciding cases regardless of whether or not the user fails to read, carefully consider or otherwise recognize the binding effect of I Agree icon when downloading or while purchasing the software.

Contracts provide basic background for any commercial or trading activity. Unless an enforceable contract is concluded no commercial transaction can take place in the click world.The technical intricacies involved in electronic contracts call for a principle that govern online contracts. A valid contract also requires the parties bargain for consideration and their should be free consent of the parties but in online contract consent is not said to be free it is basically dominated by three factors:

  1. Fraud 
  2. Misrepresentation
  3. Mistake

So reliability and security is very important in order to make valid contracts. Mistrust makes life difficult trust makes it risky, specifically in the e-marketing world so valid online contracts must be made before clicking any icon. In cyberspace commercial entities should realize the significance of a valid contract and take serious concern of the ticklish issues involved therein, because online contracts hold the key to the bright future in the sphere of e-commerce.

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