86 F.3d 1447 (1996)

No. 96-1139.

Argued May 23, 1996.
Decided June 20, 1996.

[1448] Michael J. Lawton, Kenneth B. Axe, Lathrop & Clark, Madison, WI, Thomas N. O'Connor (argued), John T. Gutkoski, Lauren C. Panora, Hale & Dorr, Boston, MA, for ProCD, Inc.

Keith Napolitano, Madison, WI, David A. Austin (argued), Madison, WI, for Matthew Zeidenberg and Silken Mountain Web Services, Inc.

June M. Besek, Morton D. Goldberg, Jesse M. Feder, Schwab, Goldberg, Price & Dannay, New York City, for Information Industry Ass'n, amicus curiae, American Medical Ass'n, amicus curiae and Association of American Publishers, amicus curiae.

Christopher A. Meyer, Michael R. Klipper, Meyer & Klipper, Washington, DC, for Business Software Alliance, amicus curiae.

Barry D. Weiss, Stuart Smith, Ronald Julian Palenski, Gordon & Glickson, Chicago, IL, Kenneth A. Wasch, Mark Nebergall, Software Publishers Ass'n, Inc., Washington, DC, for Software Publishers Ass'n, amicus curiae.

Mark Alan Lemley, University of Texas School of Law, Austin, TX, Peter M.C. Choy, American Committee for Interoperable Systems, Mountain View, CA, for American Committee for Interoperable Systems, amicus curiae.

Before COFFEY, FLAUM, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

Must buyers of computer software obey the terms of shrinkwrap licenses? The [1449] district court held not, for two reasons: first, they are not contracts because the licenses are inside the box rather than printed on the outside; second, federal law forbids enforcement even if the licenses are contracts. 908 F.Supp. 640 (W.D.Wis.1996). The parties and numerous amici curiae have briefed many other issues, but these are the only two that matter — and we disagree with the district judge's conclusion on each. Shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable). Because no one argues that the terms of the license at issue here are troublesome, we remand with instructions to enter judgment for the plaintiff.

I

ProCD, the plaintiff, has compiled information from more than 3,000 telephone directories into a computer database. We may assume that this database cannot be copyrighted, although it is more complex, contains more information (nine-digit zip codes and census industrial codes), is organized differently, and therefore is more original than the single alphabetical directory at issue in Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991). See Paul J. Heald, The Vices of Originality, 1991 Sup.Ct. Rev. 143, 160-68. ProCD sells a version of the database, called SelectPhone (trademark), on CD-ROM discs. (CD-ROM means "compact disc — read only memory." The "shrinkwrap license" gets its name from the fact that retail software packages are covered in plastic or cellophane "shrinkwrap," and some vendors, though not ProCD, have written licenses that become effective as soon as the customer tears the wrapping from the package. Vendors prefer "end user license," but we use the more common term.) A proprietary method of compressing the data serves as effective encryption too. Customers decrypt and use the data with the aid of an application program that ProCD has written. This program, which is copyrighted, searches the database in response to users' criteria (such as "find all people named Tatum in Tennessee, plus all firms with `Door Systems' in the corporate name"). The resulting lists (or, as ProCD prefers, "listings") can be read and manipulated by other software, such as word processing programs.

The database in SelectPhone (trademark) cost more than $10 million to compile and is expensive to keep current. It is much more valuable to some users than to others. The combination of names, addresses, and SIC codes enables manufacturers to compile lists of potential customers. Manufacturers and retailers pay high prices to specialized information intermediaries for such mailing lists; ProCD offers a potentially cheaper alternative. People with nothing to sell could use the database as a substitute for calling long distance information, or as a way to look up old friends who have moved to unknown towns, or just as an electronic substitute for the local phone book. ProCD decided to engage in price discrimination, selling its database to the general public for personal use at a low price (approximately $150 for the set of five discs) while selling information to the trade for a higher price. It has adopted some intermediate strategies too: access to the SelectPhone (trademark) database is available via the America Online service for the price America Online charges to its clients (approximately $3 per hour), but this service has been tailored to be useful only to the general public.

If ProCD had to recover all of its costs and make a profit by charging a single price — that is, if it could not charge more to commercial users than to the general public —it would have to raise the price substantially over $150. The ensuing reduction in sales would harm consumers who value the information at, say, $200. They get consumer surplus of $50 under the current arrangement but would cease to buy if the price rose substantially. If because of high elasticity of demand in the consumer segment of the market the only way to make a profit turned out to be a price attractive to commercial users alone, then all consumers would lose out — and so would the commercial clients, who would have to pay more for the listings because ProCD could not obtain any contribution toward costs from the consumer market.

[1450] To make price discrimination work, however, the seller must be able to control arbitrage. An air carrier sells tickets for less to vacationers than to business travelers, using advance purchase and Saturday-night-stay requirements to distinguish the categories. A producer of movies segments the market by time, releasing first to theaters, then to pay-per-view services, next to the videotape and laserdisc market, and finally to cable and commercial tv. Vendors of computer software have a harder task. Anyone can walk into a retail store and buy a box. Customers do not wear tags saying "commercial user" or "consumer user." Anyway, even a commercial-user-detector at the door would not work, because a consumer could buy the software and resell to a commercial user. That arbitrage would break down the price discrimination and drive up the minimum price at which ProCD would sell to anyone.

Instead of tinkering with the product and letting users sort themselves — for example, furnishing current data at a high price that would be attractive only to commercial customers, and two-year-old data at a low price — ProCD turned to the institution of contract. Every box containing its consumer product declares that the software comes with restrictions stated in an enclosed license. This license, which is encoded on the CD-ROM disks as well as printed in the manual, and which appears on a user's screen every time the software runs, limits use of the application program and listings to non-commercial purposes.

Matthew Zeidenberg bought a consumer package of SelectPhone (trademark) in 1994 from a retail outlet in Madison, Wisconsin, but decided to ignore the license. He formed Silken Mountain Web Services, Inc., to resell the information in the SelectPhone (trademark) database. The corporation makes the database available on the Internet to anyone willing to pay its price — which, needless to say, is less than ProCD charges its commercial customers. Zeidenberg has purchased two additional SelectPhone (trademark) packages, each with an updated version of the database, and made the latest information available over the World Wide Web, for a price, through his corporation. ProCD filed this suit seeking an injunction against further dissemination that exceeds the rights specified in the licenses (identical in each of the three packages Zeidenberg purchased). The district court held the licenses ineffectual because their terms do not appear on the outside of the packages. The court added that the second and third licenses stand no different from the first, even though they are identical, because they might have been different, and a purchaser does not agree to — and cannot be bound by — terms that were secret at the time of purchase. 908 F.Supp. at 654.

II

Following the district court, we treat the licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code. Whether there are legal differences between "contracts" and "licenses" (which may matter under the copyright doctrine of first sale) is a subject for another day. See Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F.Supp. 208 (E.D.N.Y.1994). Zeidenberg does not argue that Silken Mountain Web Services is free of any restrictions that apply to Zeidenberg himself, because any effort to treat the two parties as distinct would put Silken Mountain behind the eight ball on ProCD's argument that copying the application program onto its hard disk violates the copyright laws. Zeidenberg does argue, and the district court held, that placing the package of software on the shelf is an "offer," which the customer "accepts" by paying the asking price and leaving the store with the goods. Peeters v. State, 154 Wis. 111, 142 N.W. 181 (1913). In Wisconsin, as elsewhere, a contract includes only the terms on which the parties have agreed. One cannot agree to hidden terms, the judge concluded. So far, so good — but one of the terms to which Zeidenberg agreed by purchasing the software is that the transaction was subject to a license. Zeidenberg's position therefore must be that the printed terms on the outside of a box are the parties' contract — except for printed terms that refer to or incorporate other terms. But why would Wisconsin fetter the parties' choice in this [1451] way? Vendors can put the entire terms of a contract on the outside of a box only by using microscopic type, removing other information that buyers might find more useful (such as what the software does, and on which computers it works), or both. The "Read Me" file included with most software, describing system requirements and potential incompatibilities, may be equivalent to ten pages of type; warranties and license restrictions take still more space. Notice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the license expressly extends), may be a means of doing business valuable to buyers and sellers alike. See E. Allan Farnsworth, 1 Farnsworth on Contracts § 4.26 (1990); Restatement (2d) of Contracts § 211 comment a (1981) ("Standardization of agreements serves many of the same functions as standardization of goods and services; both are essential to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than the details of individual transactions."). Doubtless a state could forbid the use of standard contracts in the software business, but we do not think that Wisconsin has done so.

Transactions in which the exchange of money precedes the communication of detailed terms are common. Consider the purchase of insurance. The buyer goes to an agent, who explains the essentials (amount of coverage, number of years) and remits the premium to the home office, which sends back a policy. On the district judge's understanding, the terms of the policy are irrelevant because the insured paid before receiving them. Yet the device of payment, often with a "binder" (so that the insurance takes effect immediately even though the home office reserves the right to withdraw coverage later), in advance of the policy, serves buyers' interests by accelerating effectiveness and reducing transactions costs. Or consider the purchase of an airline ticket. The traveler calls the carrier or an agent, is quoted a price, reserves a seat, pays, and gets a ticket, in that order. The ticket contains elaborate terms, which the traveler can reject by canceling the reservation. To use the ticket is to accept the terms, even terms that in retrospect are disadvantageous. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991); see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, ___ U.S. ___, 115 S.Ct. 2322, 132 L.Ed.2d 462 (1995) (bills of lading). Just so with a ticket to a concert. The back of the ticket states that the patron promises not to record the concert; to attend is to agree. A theater that detects a violation will confiscate the tape and escort the violator to the exit. One could arrange things so that every concertgoer signs this promise before forking over the money, but that cumbersome way of doing things not only would lengthen queues and raise prices but also would scotch the sale of tickets by phone or electronic data service.

Consumer goods work the same way. Someone who wants to buy a radio set visits a store, pays, and walks out with a box. Inside the box is a leaflet containing some terms, the most important of which usually is the warranty, read for the first time in the comfort of home. By Zeidenberg's lights, the warranty in the box is irrelevant; every consumer gets the standard warranty implied by the UCC in the event the contract is silent; yet so far as we are aware no state disregards warranties furnished with consumer products. Drugs come with a list of ingredients on the outside and an elaborate package insert on the inside. The package insert describes drug interactions, contraindications, and other vital information — but, if Zeidenberg is right, the purchaser need not read the package insert, because it is not part of the contract.

Next consider the software industry itself. Only a minority of sales take place over the counter, where there are boxes to peruse. A customer may place an order by phone in response to a line item in a catalog or a review in a magazine. Much software is ordered over the Internet by purchasers who have never seen a box. Increasingly software arrives by wire. There is no box; there is only a stream of electrons, a collection of information that includes data, an application program, instructions, many limitations ("MegaPixel 3.14159 cannot be used with BytePusher 2.718"), and the terms of [1452] sale. The user purchases a serial number, which activates the software's features. On Zeidenberg's arguments, these unboxed sales are unfettered by terms — so the seller has made a broad warranty and must pay consequential damages for any shortfalls in performance, two "promises" that if taken seriously would drive prices through the ceiling or return transactions to the horse-and-buggy age.

According to the district court, the UCC does not countenance the sequence of money now, terms later. (Wisconsin's version of the UCC does not differ from the Official Version in any material respect, so we use the regular numbering system. Wis. Stat. § 402.201 corresponds to UCC § 2-201, and other citations are easy to derive.) One of the court's reasons — that by proposing as part of the draft Article 2B a new UCC § 2-2203 that would explicitly validate standardform user licenses, the American Law Institute and the National Conference of Commissioners on Uniform Laws have conceded the invalidity of shrinkwrap licenses under current law, see 908 F.Supp. at 655-56 — depends on a faulty inference. To propose a change in a law's text is not necessarily to propose a change in the law's effect. New words may be designed to fortify the current rule with a more precise text that curtails uncertainty. To judge by the flux of law review articles discussing shrinkwrap licenses, uncertainty is much in need of reduction—although businesses seem to feel less uncertainty than do scholars, for only three cases (other than ours) touch on the subject, and none directly addresses it. See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 268-70 (5th Cir.1988); Arizona Retail Systems, Inc. v. Software Link, Inc., 831 F.Supp. 759 (D.Ariz.1993). As their titles suggest, these are not consumer transactions. Step-Saver is a battle-of-the-forms case, in which the parties exchange incompatible forms and a court must decide which prevails. See Northrop Corp. v. Litronic Industries, 29 F.3d 1173 (7th Cir.1994) (Illinois law); Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of § 2-207, 68 Va. L.Rev. 1217, 1227-31 (1982). Our case has only one form; UCC § 2-207 is irrelevant. Vault holds that Louisiana's special shrinkwrap-license statute is preempted by federal law, a question to which we return. And Arizona Retail Systems did not reach the question, because the court found that the buyer knew the terms of the license before purchasing the software.

What then does the current version of the UCC have to say? We think that the place to start is § 2-204(1): "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. And that is what happened. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure. This Zeidenberg did. He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance. So although the district judge was right to say that a contract can be, and often is, formed simply by paying the price and walking out of the store, the UCC permits contracts to be formed in other ways. ProCD proposed such a different way, and without protest Zeidenberg agreed. Ours is not a case in which a consumer opens a package to find an insert saying "you owe us an extra $10,000" and the seller files suit to collect. Any buyer finding such a demand can prevent formation of the contract by returning the package, as can any consumer who concludes that the terms of the license make the software worth less than the purchase price. Nothing in the UCC requires a seller to maximize the buyer's net gains.

Section 2-606, which defines "acceptance of goods", reinforces this understanding. A buyer accepts goods under § 2-606(1)(b) when, after an opportunity to inspect, he fails to make an effective rejection under § 2-602(1). ProCD extended an opportunity to reject if a buyer should find the license terms [1453] unsatisfactory; Zeidenberg inspected the package, tried out the software, learned of the license, and did not reject the goods. We refer to § 2-606 only to show that the opportunity to return goods can be important; acceptance of an offer differs from acceptance of goods after delivery, see Gillen v. Atalanta Systems, Inc., 997 F.2d 280, 284 n. 1 (7th Cir.1993); but the UCC consistently permits the parties to structure their relations so that the buyer has a chance to make a final decision after a detailed review.

Some portions of the UCC impose additional requirements on the way parties agree on terms. A disclaimer of the implied warranty of merchantability must be "conspicuous." UCC § 2-316(2), incorporating UCC § 1-201(10). Promises to make firm offers, or to negate oral modifications, must be "separately signed." UCC §§ 2-205, 2-209(2). These special provisos reinforce the impression that, so far as the UCC is concerned, other terms may be as inconspicuous as the forum-selection clause on the back of the cruise ship ticket in Carnival Lines. Zeidenberg has not located any Wisconsin case — for that matter, any case in any state — holding that under the UCC the ordinary terms found in shrinkwrap licenses require any special prominence, or otherwise are to be undercut rather than enforced. In the end, the terms of the license are conceptually identical to the contents of the package. Just as no court would dream of saying that SelectPhone (trademark) must contain 3,100 phone books rather than 3,000, or must have data no more than 30 days old, or must sell for $100 rather than $150 — although any of these changes would be welcomed by the customer, if all other things were held constant — so, we believe, Wisconsin would not let the buyer pick and choose among terms. Terms of use are no less a part of "the product" than are the size of the database and the speed with which the software compiles listings. Competition among vendors, not judicial revision of a package's contents, is how consumers are protected in a market economy. Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756 (7th Cir.1996). ProCD has rivals, which may elect to compete by offering superior software, monthly updates, improved terms of use, lower price, or a better compromise among these elements. As we stressed above, adjusting terms in buyers' favor might help Matthew Zeidenberg today (he already has the software) but would lead to a response, such as a higher price, that might make consumers as a whole worse off.

III

The district court held that, even if Wisconsin treats shrinkwrap licenses as contracts, § 301(a) of the Copyright Act, 17 U.S.C. § 301(a), prevents their enforcement. 908 F.Supp. at 656-59. The relevant part of § 301(a) preempts any "legal or equitable rights [under state law] that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103". ProCD's software and data are "fixed in a tangible medium of expression", and the district judge held that they are "within the subject matter of copyright". The latter conclusion is plainly right for the copyrighted application program, and the judge thought that the data likewise are "within the subject matter of copyright" even if, after Feist, they are not sufficiently original to be copyrighted. 908 F.Supp. at 656-57. Baltimore Orioles, Inc. v. Major League Baseball Players Ass'n, 805 F.2d 663, 676 (7th Cir.1986), supports that conclusion, with which commentators agree. E.g., Paul Goldstein, III Copyright § 15.2.3 (2d ed.1996); Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 101[B] (1995); William F. Patry, II Copyright Law and Practice 1108-09 (1994). One function of § 301(a) is to prevent states from giving special protection to works of authorship that Congress has decided should be in the public domain, which it can accomplish only if "subject matter of copyright" includes all works of a type covered by sections 102 and 103, even if federal law does not afford protection to them. Cf. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989) (same principle under patent laws).

[1454] But are rights created by contract "equivalent to any of the exclusive rights within the general scope of copyright"? Three courts of appeals have answered "no." National Car Rental System, Inc. v. Computer Associates International, Inc., 991 F.2d 426, 433 (8th Cir.1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990); Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). The district court disagreed with these decisions, 908 F.Supp. at 658, but we think them sound. Rights "equivalent to any of the exclusive rights within the general scope of copyright" are rights established by law — rights that restrict the options of persons who are strangers to the author. Copyright law forbids duplication, public performance, and so on, unless the person wishing to copy or perform the work gets permission; silence means a ban on copying. A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create "exclusive rights." Someone who found a copy of SelectPhone (trademark) on the street would not be affected by the shrinkwrap license — though the federal copyright laws of their own force would limit the finder's ability to copy or transmit the application program.

Think for a moment about trade secrets. One common trade secret is a customer list. After Feist, a simple alphabetical list of a firm's customers, with address and telephone numbers, could not be protected by copyright. Yet Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974), holds that contracts about trade secrets may be enforced — precisely because they do not affect strangers' ability to discover and use the information independently. If the amendment of § 301(a) in 1976 overruled Kewanee and abolished consensual protection of those trade secrets that cannot be copyrighted, no one has noticed — though abolition is a logical consequence of the district court's approach. Think, too, about everyday transactions in intellectual property. A customer visits a video store and rents a copy of Night of the Lepus. The customer's contract with the store limits use of the tape to home viewing and requires its return in two days. May the customer keep the tape, on the ground that § 301(a) makes the promise unenforceable?

A law student uses the LEXIS database, containing public-domain documents, under a contract limiting the results to educational endeavors; may the student resell his access to this database to a law firm from which LEXIS seeks to collect a much higher hourly rate? Suppose ProCD hires a firm to scour the nation for telephone directories, promising to pay $100 for each that ProCD does not already have. The firm locates 100 new directories, which it sends to ProCD with an invoice for $10,000. ProCD incorporates the directories into its database; does it have to pay the bill? Surely yes; Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979), holds that promises to pay for intellectual property may be enforced even though federal law (in Aronson, the patent law) offers no protection against third-party uses of that property. See also Kennedy v. Wright, 851 F.2d 963 (7th Cir. 1988). But these illustrations are what our case is about. ProCD offers software and data for two prices: one for personal use, a higher price for commercial use. Zeidenberg wants to use the data without paying the seller's price; if the law student and Quick Point Pencil Co. could not do that, neither can Zeidenberg.

Although Congress possesses power to preempt even the enforcement of contracts about intellectual property — or railroads, on which see Norfolk & Western Ry. v. Train Dispatchers, 499 U.S. 117, 111 S.Ct. 1156, 113 L.Ed.2d 95 (1991) — courts usually read preemption clauses to leave private contracts unaffected. American Airlines, Inc. v. Wolens, ___ U.S. ___, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), provides a nice illustration. A federal statute preempts any state "law, rule, regulation, standard, or other provision ... relating to rates, routes, or services of any air carrier." 49 U.S.C.App. § 1305(a)(1). Does such a law preempt the law of contracts — so that, for example, an air carrier need not honor a quoted price (or a contract to reduce the price by the value of frequent flyer miles)? The Court allowed that it is possible to read the statute that [1455] broadly but thought such an interpretation would make little sense. Terms and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets. ___ U.S. at ___-___, 115 S.Ct. at 824-25. Although some principles that carry the name of contract law are designed to defeat rather than implement consensual transactions, id. at ___ n. 8, 115 S.Ct. at 826 n. 8, the rules that respect private choice are not preempted by a clause such as § 1305(a)(1). Section 301(a) plays a role similar to § 1301(a)(1): it prevents states from substituting their own regulatory systems for those of the national government. Just as § 301(a) does not itself interfere with private transactions in intellectual property, so it does not prevent states from respecting those transactions. Like the Supreme Court in Wolens, we think it prudent to refrain from adopting a rule that anything with the label "contract" is necessarily outside the preemption clause: the variations and possibilities are too numerous to foresee. National Car Rental likewise recognizes the possibility that some applications of the law of contract could interfere with the attainment of national objectives and therefore come within the domain of § 301(a). But general enforcement of shrinkwrap licenses of the kind before us does not create such interference.

Aronson emphasized that enforcement of the contract between Aronson and Quick Point Pencil Company would not withdraw any information from the public domain. That is equally true of the contract between ProCD and Zeidenberg. Everyone remains free to copy and disseminate all 3,000 telephone books that have been incorporated into ProCD's database. Anyone can add SIC codes and zip codes. ProCD's rivals have done so. Enforcement of the shrinkwrap license may even make information more readily available, by reducing the price ProCD charges to consumer buyers. To the extent licenses facilitate distribution of object code while concealing the source code (the point of a clause forbidding disassembly), they serve the same procompetitive functions as does the law of trade secrets. Rockwell Graphic Systems, Inc. v. DEV Industries, Inc., 925 F.2d 174, 180 (7th Cir.1991). Licenses may have other benefits for consumers: many licenses permit users to make extra copies, to use the software on multiple computers, even to incorporate the software into the user's products. But whether a particular license is generous or restrictive, a simple two-party contract is not "equivalent to any of the exclusive rights within the general scope of copyright" and therefore may be enforced.

REVERSED AND REMANDED.

104 F.Supp.2d 1332 (2000)

No. CIV. A. 99-2499-KHV.

June 15, 2000.

[1333] [1334] William S. Klocek, Parkville, MO, pro se.

R. Lawrence Ward, Richard M. Paul, III, Jamee Maurer Klein, Shughart, Thomson & Kilroy, P.C., Kansas City, MO, for Gateway, Inc.

Samuel P. Logan, James K. Logan, Logan Law Firm LLC, Olathe, KS, for Hewlett-Packard, Inc.

MEMORANDUM AND ORDER

VRATIL, District Judge.

William S. Klocek brings suit against Gateway, Inc. and Hewlett-Packard, Inc. on claims arising from purchases of a Gateway computer and a Hewlett-Packard scanner. This matter comes before the Court on the Motion to Dismiss (Doc. # 6) which Gateway filed November 22, 1999 and Defendant Hewlett-Packard, Inc.'s Motion To Dismiss, Or In The Alternative For Stay Of Proceedings (Doc. # 16) filed December 22, 1999, the Motion (Doc. # 2) to certify a class which plaintiff filed October 29, 1999, the Motion For Sanctions, Expenses and Punitives [sic] (Doc. # 11) which plaintiff filed December 3, 1999, the Motion for a Writ of Certiorari (Doc. # 12) which plaintiff filed December 6, 1999, and the Motion for Verification (Doc. # 24) which plaintiff filed January 25, 2000. For reasons stated below, the Court overrules Gateway's motion to dismiss, sustains Hewlett-Packard's motion to dismiss, and overrules the motions filed by plaintiff.

A. Gateway's Motion to Dismiss

Plaintiff brings individual and class action claims against Gateway, alleging that it induced him and other consumers to purchase computers and special support packages by making false promises of technical support. Complaint, ¶¶ 3 and 4. Individually, plaintiff also claims breach of contract and breach of warranty, in that Gateway breached certain warranties that its computer would be compatible with standard peripherals and standard internet services. Complaint, ¶¶ 2, 5, and 6.

Gateway asserts that plaintiff must arbitrate his claims under Gateway's Standard Terms and Conditions Agreement ("Standard Terms"). Whenever it sells a computer, Gateway includes a copy of the Standard Terms in the box which contains the computer battery power cables and instruction manuals. At the top of the first page, the Standard Terms include the following notice:

NOTE TO THE CUSTOMER:

[1335] This document contains Gateway 2000's Standard Terms and Conditions. By keeping your Gateway 2000 computer system beyond five (5) days after the date of delivery, you accept these Terms and Conditions.

The notice is in emphasized type and is located inside a printed box which sets it apart from other provisions of the document. The Standard Terms are four pages long and contain 16 numbered paragraphs. Paragraph 10 provides the following arbitration clause:

DISPUTE RESOLUTION. Any dispute or controversy arising out of or relating to this Agreement or its interpretation shall be settled exclusively and finally by arbitration. The arbitration shall be conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The arbitration shall be conducted in Chicago, Illinois, U.S.A. before a sole arbitrator. Any award rendered in any such arbitration proceeding shall be final and binding on each of the parties, and judgment may be entered thereon in a court of competent jurisdiction.^[1]

Gateway urges the Court to dismiss plaintiff's claims under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. The FAA ensures that written arbitration agreements in maritime transactions and transactions involving interstate commerce are "valid, irrevocable, and enforceable." 9 U.S.C. § 2.^[2] Federal policy favors arbitration agreements and requires that we "rigorously enforce" them. Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158, (1985)); Moses, 460 U.S. at 24, 103 S.Ct. 927. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses, 460 U.S. at 24-25, 103 S.Ct. 927.

FAA Section 3 states:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3. Although the FAA does not expressly provide for dismissal, the Tenth Circuit has affirmed dismissal where the applicant did not request a stay. See Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 797 (10th Cir.1995). Here, neither Gateway nor plaintiff requests a stay. Accordingly, the Court concludes that dismissal is appropriate if plaintiff's claims are arbitrable.^[3]Accord Fedmet Corp. v. [1336] M/V BUYALYK, 194 F.3d 674, 678 (5th Cir.1999) (dismissal appropriate if all issues raised before court are arbitrable); Sparling v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir.1988); (district court had discretion to dismiss arbitrable claims); see also Black & Veatch Int'l Co. v. Wartsila NSD North Am., Inc., 1998 WL 953966, Case No. 97-2556-GTV (D.Kan. Dec. 17, 1998) (dismissing case and compelling arbitration).

Gateway bears an initial summary-judgment-like burden of establishing that it is entitled to arbitration. See, e.g., Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9 (3d Cir.1980) (standard on motion to compel arbitration is same as summary judgment standard); Doctor's Assoc., Inc. v. Distajo, 944 F.Supp. 1010, 1014 (D.Conn.1996), aff'd, 107 F.3d 126 (2d Cir.1997) (same); Dougherty v. Mieczkowski, 661 F.Supp. 267, 270 n. 1 (D.Del.1987). Thus, Gateway must present evidence sufficient to demonstrate the existence of an enforceable agreement to arbitrate. See, e.g., Oppenheimer & Co. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995). If Gateway makes such a showing, the burden shifts to plaintiff to submit evidence demonstrating a genuine issue for trial. Id.; see also Naddy v. Piper Jaffray, Inc., 88 Wash.App. 1033, 1997 WL 749261, *2, Case Nos. 15431-9-III, 15681-8-III (Wash.App. Dec.4, 1997). In this case, Gateway fails to present evidence establishing the most basic facts regarding the transaction. The gaping holes in the evidentiary record preclude the Court from determining what state law controls the formation of the contract in this case and, consequently, prevent the Court from agreeing that Gateway's motion is well taken.

Before granting a stay or dismissing a case pending arbitration, the Court must determine that the parties have a written agreement to arbitrate. See 9 U.S.C. §§ 3 and 4; Avedon Engineering, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir.1997). When deciding whether the parties have agreed to arbitrate, the Court applies ordinary state law principles that govern the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The existence of an arbitration agreement "is simply a matter of contract between the parties; [arbitration] is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration." Avedon, 126 F.3d at 1283 (quoting Kaplan, 514 U.S. at 943-945, 115 S.Ct. 1920). If the parties dispute making an arbitration agreement, a jury trial on the existence of an agreement is warranted if the record reveals genuine issues of material fact regarding the parties' agreement. See Avedon, 126 F.3d at 1283.

Before evaluating whether the parties agreed to arbitrate, the Court must determine what state law controls the formation of the contract in this case. See id. at 1284. In diversity actions, the Court applies the substantive law, including choice of law rules, that Kansas state courts would apply. See Moore v. Subaru of Am., 891 F.2d 1445, 1448 (10th Cir. 1989). Kansas courts apply the doctrine of lex loci contractus, which requires that the Court interpret the contract according to the law of the state in which the parties performed the last act necessary to form the contract. See Missouri Pac. R.R. Co. v. Kansas Gas and Elec. Co., 862 F.2d 796, 798 n. 1 (10th Cir.1988) (citing Simms v. Metropolitan Life Ins. Co., 9 Kan.App.2d 640, 642-43, 685 P.2d 321 (1984)).

The parties do not address the choice of law issue, and the record is unclear where they performed the last act necessary to [1337] complete the contract. Gateway presents affidavit testimony that it shipped a computer to plaintiff on or about August 31, 1997, Affidavit of David Blackwell, ¶ 5 (attached to Memorandum in Support of Motion to Dismiss (Doc. # 8)), but it provides no details regarding the transaction. Plaintiff's complaint alleges that plaintiff lives in Missouri and, if Gateway shipped his computer, it presumably shipped it to Missouri. See Complaint, p. 1 (Doc. # 1). In his response to Gateway's motion, however, plaintiff states that on August 27, 1997 he purchased the computer in person at the Gateway store in Overland Park, Kansas, and took it with him at that time. Response to Motion to Dismiss, ¶¶ 2(b) and 2(d) (Doc. # 9). Depending on which factual version is correct, it appears that the parties may have performed the last act necessary to form the contract in Kansas (with plaintiff purchasing the computer in Kansas), Missouri (with Gateway shipping the computer to plaintiff in Missouri), or some unidentified other states (with Gateway agreeing to ship plaintiff's catalog order and/or Gateway actually shipping the order).^[4]

The Court discerns no material difference between the applicable substantive law in Kansas and Missouri and — as to those two states — it perhaps would not need to resolve the choice of law issue at this time. See Avedon, 126 F.3d at 1284 (choice of law analysis unnecessary if relevant states have enacted identical controlling statutes); see also Missouri Pacific, 862 F.2d at 798 n. 1 (applying Kansas law where record did not indicate where final act occurred and parties did not raise issue); Phillips Petrol. Co. v. Shutts, 472 U.S. 797, 816, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) ("There can be no injury in applying Kansas law if it is not in conflict with that of any other jurisdiction connected to this suit").^[5]

The Uniform Commercial Code ("UCC") governs the parties' transaction under both Kansas and Missouri law. See K.S.A. § 84-2-102; V.A.M.S. § 400.2-102 (UCC applies to "transactions in goods."); Kansas Comment 1 (main thrust of Article 2 is limited to sales); K.S.A. § 84-2-105(1) V.A.M.S. § 400.2-105(1) ("`Goods' means all things ... which are movable at the time of identification to the contract for sale ...."). Regardless whether plaintiff purchased the computer in person or placed an order and received shipment of the computer, the parties agree that plaintiff paid for and received a computer from Gateway. This conduct clearly demonstrates a contract for the sale of a computer. See, e.g., Step-Saver Data Sys., Inc. v. Wyse Techn., 939 F.2d 91, 98 (3d Cir.1991). Thus the issue is whether the contract of sale includes the Standard Terms as part of the agreement.

State courts in Kansas and Missouri apparently have not decided whether terms received with a product become part of the parties' agreement. Authority from other courts is split. Compare Step-Saver, 939 F.2d 91 (printed terms on computer software package not part of agreement); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D.Ariz.1993) (license agreement shipped with computer software not part of agreement); and U.S. Surgical Corp. v. Orris, Inc., 5 F.Supp.2d 1201 (D.Kan.1998) (single use restriction on product package not binding agreement); [1338] with Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert. denied, 522 U.S. 808, 118 S.Ct. 47, 139 L.Ed.2d 13 (1997) (arbitration provision shipped with computer binding on buyer); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996) (shrinkwrap license binding on buyer);^[6]and M.A. Mortenson Co., Inc. v. Timberline Software Corp., 140 Wash.2d 568, 998 P.2d 305 (2000) (following Hill and ProCD on license agreement supplied with software).^[7] It appears that at least in part, the cases turn on whether the court finds that the parties formed their contract before or after the vendor communicated its terms to the purchaser. Compare Step-Saver, 939 F.2d at 98 (parties' conduct in shipping, receiving and paying for product demonstrates existence of contract; box top license constitutes proposal for additional terms under § 2-207 which requires express agreement by purchaser); Arizona Retail, 831 F.Supp. at 765 (vendor entered into contract by agreeing to ship goods, or at latest by shipping goods to buyer; license agreement constitutes proposal to modify agreement under § 2-209 which requires express assent by buyer); and Orris, 5 F.Supp.2d at 1206 (sales contract concluded when vendor received consumer orders; single-use language on product's label was proposed modification under § 2-209 which requires express assent by purchaser); with ProCD, 86 F.3d at 1452 (under § 2-204 vendor, as master of offer, may propose limitations on kind of conduct that constitutes acceptance; § 2-207 does not apply in case with only one form); Hill, 105 F.3d at 1148-49 (same); and Mortenson, 998 P.2d at 311-314 (where vendor and purchaser utilized license agreement in prior course of dealing, shrinkwrap license agreement constituted issue of contract formation under § 2-204, not contract alteration under § 2-207).

Gateway urges the Court to follow the Seventh Circuit decision in Hill. That case involved the shipment of a Gateway computer with terms similar to the Standard Terms in this case, except that Gateway gave the customer 30 days — instead of 5 days — to return the computer. In enforcing the arbitration clause, the Seventh Circuit relied on its decision in ProCD, where it enforced a software license which was contained inside a product box. See Hill, 105 F.3d at 1148-50. In ProCD, the Seventh Circuit noted that the exchange of money frequently precedes the communication of detailed terms in a commercial transaction. See ProCD, 86 F.3d at 1451. Citing UCC § 2-204, the court reasoned that by including the license with the software, the vendor proposed a contract that the buyer could accept by using the software after having an opportunity to read the license.^[8]ProCD, 86 F.3d at 1452. Specifically, the court stated:

A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct [1339] that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.

ProCD, 86 F.3d at 1452. The Hill court followed the ProCD analysis, noting that "[p]ractical considerations support allowing vendors to enclose the full legal terms with their products." Hill, 105 F.3d at 1149.^[9]

The Court is not persuaded that Kansas or Missouri courts would follow the Seventh Circuit reasoning in Hill and ProCD. In each case the Seventh Circuit concluded without support that UCC § 2-207 was irrelevant because the cases involved only one written form. See ProCD, 86 F.3d at 1452 (citing no authority); Hill, 105 F.3d at 1150 (citing ProCD). This conclusion is not supported by the statute or by Kansas or Missouri law. Disputes under § 2-207 often arise in the context of a "battle of forms," see, e.g., Diatom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir.1984), but nothing in its language precludes application in a case which involves only one form. The statute provides:

Additional terms in acceptance or confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract [if the contract is not between merchants]....

K.S.A. § 84-2-207; V.A.M.S. § 400.2-207. By its terms, § 2-207 applies to an acceptance or written confirmation. It states nothing which requires another form before the provision becomes effective. In fact, the official comment to the section specifically provides that §§ 2-207(1) and (2) apply "where an agreement has been reached orally ... and is followed by one or both of the parties sending formal memoranda embodying the terms so far agreed and adding terms not discussed." Official Comment 1 of UCC § 2-207. Kansas and Missouri courts have followed this analysis. See Southwest Engineering Co. v. Martin Tractor Co., 205 Kan. 684, 695, 473 P.2d 18, 26 (1970) (stating in dicta that § 2-207 applies where open offer is accepted by expression of acceptance in writing or where oral agreement is later confirmed [1340] in writing);^[10]Central Bag Co. v. W. Scott and Co., 647 S.W.2d 828, 830 (Mo.App. 1983) (§§ 2-207(1) and (2) govern cases where one or both parties send written confirmation after oral contract). Thus, the Court concludes that Kansas and Missouri courts would apply § 2-207 to the facts in this case. Accord Avedon, 126 F.3d at 1283 (parties agree that § 2-207 controls whether arbitration clause in sales confirmation is part of contract).

In addition, the Seventh Circuit provided no explanation for its conclusion that "the vendor is the master of the offer." See ProCD, 86 F.3d at 1452 (citing nothing in support of proposition); Hill, 105 F.3d at 1149 (citing ProCD). In typical consumer transactions, the purchaser is the offeror, and the vendor is the offeree. See Brown Mach., Div. of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416, 419 (Mo. App.1989) (as general rule orders are considered offers to purchase); Rich Prods. Corp. v. Kemutec Inc., 66 F.Supp.2d 937, 956 (E.D.Wis.1999) (generally price quotation is invitation to make offer and purchase order is offer). While it is possible for the vendor to be the offeror, see Brown Machine, 770 S.W.2d at 419 (price quote can amount to offer if it reasonably appears from quote that assent to quote is all that is needed to ripen offer into contract), Gateway provides no factual evidence which would support such a finding in this case. The Court therefore assumes for purposes of the motion to dismiss that plaintiff offered to purchase the computer (either in person or through catalog order) and that Gateway accepted plaintiff's offer (either by completing the sales transaction in person or by agreeing to ship and/or shipping the computer to plaintiff).^[11]Accord Arizona Retail, 831 F.Supp. at 765 (vendor entered into contract by agreeing to ship goods, or at latest, by shipping goods).

Under § 2-207, the Standard Terms constitute either an expression of acceptance or written confirmation. As an expression of acceptance, the Standard Terms would constitute a counter-offer only if Gateway expressly made its acceptance conditional on plaintiff's assent to the additional or different terms. K.S.A. § 84-2-207(1); V.A.M.S. § 400.2-207(1). "[T]he conditional nature of the acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract." Brown Machine, 770 S.W.2d at 420.^[12] [1341] Gateway provides no evidence that at the time of the sales transaction, it informed plaintiff that the transaction was conditioned on plaintiff's acceptance of the Standard Terms. Moreover, the mere fact that Gateway shipped the goods with the terms attached did not communicate to plaintiff any unwillingness to proceed without plaintiff's agreement to the Standard Terms. See, e.g., Arizona Retail, 831 F.Supp. at 765 (conditional acceptance analysis rarely appropriate where contract formed by performance but goods arrive with conditions attached); Leighton Indus., Inc. v. Callier Steel Pipe & Tube, Inc., 1991 WL 18413, *6, Case No. 89-C-8235 (N.D.Ill. Feb. 6, 1991) (applying Missouri law) (preprinted forms insufficient to notify offeror of conditional nature of acceptance, particularly where form arrives after delivery of goods).

Because plaintiff is not a merchant, additional or different terms contained in the Standard Terms did not become part of the parties' agreement unless plaintiff expressly agreed to them. See K.S.A. § 84-2-207, Kansas Comment 2 (if either party is not a merchant, additional terms are proposals for addition to the contract that do not become part of the contract unless the original offeror expressly agrees).^[13] Gateway argues that plaintiff demonstrated acceptance of the arbitration provision by keeping the computer more than five days after the date of delivery. Although the Standard Terms purport to work that result, Gateway has not presented evidence that plaintiff expressly agreed to those Standard Terms. Gateway states only that it enclosed the Standard Terms inside the computer box for plaintiff to read afterwards. It provides no evidence that it informed plaintiff of the five-day review-and-return period as a condition of the sales transaction, or that the parties contemplated additional terms to the agreement.^[14]See Step-Saver, 939 F.2d at 99 (during negotiations leading to purchase, vendor never mentioned box-top license or obtained buyer's express assent thereto). The Court finds that the act of keeping the computer past five days was not sufficient to demonstrate that plaintiff expressly agreed to the Standard Terms. Accord Brown Machine, 770 S.W.2d at 421 (express assent cannot be presumed by silence or mere failure to object). Thus, because Gateway has not provided evidence sufficient to support a finding under Kansas or Missouri law that plaintiff agreed to the arbitration provision contained in Gateway's Standard Terms, the Court overrules Gateway's motion to dismiss.

[1342] The motion also must be overruled because Kansas and Missouri law may not apply. As noted above, the Court must interpret the contract according to the law of the state in which the parties performed the last act necessary to form the contract. Gateway's motion does not address the choice of law issue, and the record is woefully unclear where the parties performed the last act necessary to complete the contract. Gateway therefore has not established that its motion is meritorious. If Gateway contends that the issue of contract formation is governed by some law other than that of Kansas or Missouri, it shall file a supplemental motion which cites the factual and legal basis for its position. The Court will review that submission and decide whether to order a jury trial on the existence of an agreement to arbitrate. See Avedon, 126 F.3d at 1283.

B. Hewlett-Packard's Motion to Dismiss

Plaintiff brings individual and class action claims against Hewlett-Packard, claiming that it breached a duty to warn consumers that its products are incompatible with Gateway computers. Complaint, ¶ 7. Hewlett-Packard asserts that the Court lacks diversity jurisdiction under 28 U.S.C. § 1332(a) because plaintiff does not seek damages in excess of $75,000.

Federal courts are courts of limited jurisdiction and may exercise jurisdiction only when specifically authorized to do so. See Castaneda v. I.N.S., 23 F.3d 1576, 1580 (10th Cir.1994). A court lacking jurisdiction must dismiss the cause at any stage of the proceeding in which it becomes apparent that jurisdiction is lacking. Scheideman v. Shawnee County Bd. of County Comm'rs, 895 F.Supp. 279, 280 (D.Kan.1995) (citing Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974)); Fed.R.Civ.P. 12(h)(3). The party who seeks to invoke federal jurisdiction bears the burden of establishing that such jurisdiction is proper. Basso, 495 F.2d at 909 (10th Cir.1974). When federal jurisdiction is challenged, plaintiff bears the burden of showing why the case should not be dismissed.^[15]Jensen v. Johnson County Youth Baseball League, 838 F.Supp. 1437, 1439-40 (D.Kan.1993).

Challenges to jurisdiction under Fed.R.Civ.P. 12(b)(1) generally take two forms: facial attacks on the sufficiency of jurisdictional allegations or factual attacks on the accuracy of those allegations. Holt v. U.S., 46 F.3d 1000, 1002-3 (10th Cir. 1995). Defendant's motion falls within the former category, and neither party relies on evidence outside the complaint. "[W]here the motion to dismiss states that it affirmatively appears from the allegations of the complaint that the requisite jurisdictional amount is not involved, the question of jurisdiction may be determined on the allegations of the complaint, without the production of any evidence." Gibson v. Jeffers, 478 F.2d 216, 220-21 (10th Cir. 1973).

Ordinarily, the amount plaintiff claims in the pleadings controls if he apparently makes the claim in good faith. F & S Const. Co. v. Jensen, 337 F.2d 160, 162 (10th Cir.1964).

But if, from the face of the pleadings, it is apparent, to a legal certainty, that plaintiff cannot recover the amount claimed, or if from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.

Jensen, 337 F.2d at 162 (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 82 L.Ed. 845 (1938)).

[1343] Plaintiff's only response regarding the amount of damages is: "A careful reading of the complaint shows damages in excess of $24,000.00." Plaintiff's Response to Hewlett-Packard's Support of Gateway's Motion to Dismiss or Stay, ¶ 1 (Doc. # 23) filed January 25, 2000 (emphasis added).^[16] The Court agrees with plaintiff's statement. In the opening paragraph of the complaint, plaintiff alleges generally that defendants have caused him personal damages in excess of $350,000 and caused class damages exceeding $350,000. At the end of the complaint, plaintiff itemizes the damages as follows: $350,000 in actual damages (including lost time of over $300,000, see Complaint, ¶ 3) and $3,500,000 in punitive damages against Gateway; $24,000 plus unitemized punitive damages against Gateway; and $24,000 plus unitemized punitive damages against Hewlett Packard. Complaint, pp. 6-7.^[17]

Merely alleging damages in excess of $24,000 is not sufficient to meet plaintiff's burden of establishing that jurisdiction is proper. While plaintiff is not necessarily required to specify an exact amount of punitive damages, see, e.g., Bell v. Preferred Life Assur. Soc. of Montgomery, Ala., 320 U.S. 238, 241, 64 S.Ct. 5, 88 L.Ed. 15 (1943) (issue is whether it appears to a legal certainty that plaintiff could not recover sufficient actual and punitive damages to meet jurisdictional requirement), plaintiff must allege enough facts to convince the Court that recoverable damages will bear a reasonable relation to the minimum jurisdictional requirement. See Gibson, 478 F.2d at 221. In the complaint, plaintiff alleges only that Hewlett-Packard sold him a scanner without warning him that it was not compatible with Gateway computers, and that Hewlett-Packard had a duty to warn of any incompatibility problems. See Complaint, ¶ 7. He alleges no facts to support actual damages of $24,000, nor does he allege facts to show that he is entitled to punitive damages or the amount thereof. Plaintiff argues that the Court has jurisdiction over joinder claims against Hewlett-Packard under Rules 18, 19 and 20 of the Federal Rules of Civil Procedure. Rule 18 deals with joinder of claims and remedies against a single party, however, and joinder under Rules 19 and 20 requires independent subject matter jurisdiction over the claims against the joined defendant. See 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d §§ 1610, 1659. Thus, regardless of the joinder rules, plaintiff must claim damages exceeding $75,000 against Hewlett-Packard in order to satisfy the diversity jurisdictional requirement. Plaintiff fails to do so. Thus, the Court finds that Hewlett-Packard's motion to dismiss should be sustained.^[18]

C. Plaintiff's Motions

Plaintiff has filed four motions which are currently pending before the Court. First, he asks the Court to certify a class.^[19] A prerequisite for class action [1344] certification is a finding by the Court that the representative party can "fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). Due process requires that the Court "stringently" apply the competent representation requirement because class members are bound by the judgment (unless they opt out), even though they may not actually be aware of the proceedings. Albertson's, Inc. v. Amalgamated Sugar Co., 503 F.2d 459, 463-64 (10th Cir.1974). Because a layperson ordinarily does not possess the legal training and expertise necessary to protect the interests of a proposed class, courts are reluctant to certify a class represented by a pro se litigant. See 7A Charles A. Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure § 1769.1 n. 12; see also Oxendine v. Williams, 509 F.2d 1405, 1407 (4th Cir. 1975) (pro se prisoners are not adequate representatives for a class). Moreover, although plaintiff has the right to appear pro se on his own behalf, he may not represent another pro se plaintiff in federal court. 28 U.S.C. § 1654; see, e.g., U.S. v. Grismore, 546 F.2d 844 (10th Cir.1976); Herrera-Venegas v. Sanchez-Rivera, 681 F.2d 41, 42 (1st Cir.1982); U.S. v. Taylor, 569 F.2d 448 (7th Cir.1978). Accordingly, the Court concludes that plaintiff is not an adequate class representative and overrules his motion to certify a class.

Second, plaintiff requests a "writ of certiorari" to the District Court of Johnson County, Kansas, for a transcript and certified copy of all documents in a prior case. Courts generally have their own procedures for obtaining transcripts and certified copies of documents in a prior case. Plaintiff provides no information to lead the Court to conclude otherwise, nor does he cite any legal authority to support that this Court has the power to grant his unusual request.^[20] Accordingly, the Court overrules plaintiff's motion for a "writ of certiorari."

Finally, plaintiff seeks sanctions against Gateway counsel because of alleged deficiencies in their citation to legal authorities, and he urges the Court to require certain defense counsel to verify that they have notified courts that he has lodged an ethical complaint against them. The Court finds no merit to either request and therefore overrules both motions.

IT IS THEREFORE ORDERED that the Motion to Dismiss (Doc. # 6) which defendant Gateway filed November 22, 1999 be and hereby is OVERRULED. If Gateway contends that the issue of contract formation is governed by some law other than that of Kansas or Missouri, on or before June 30, 2000, it shall file a supplemental motion to dismiss and compel arbitration and cite the factual and legal basis for its position. Plaintiff no later than July 24, 2000 shall file any response. Gateway's reply, if any, shall be filed no later than August 7, 2000. The Court will review those submissions and decide whether to order a jury trial on the existence of an agreement to arbitrate. In presenting these materials, however, the parties are ordered to brief the matter in a summary judgment motion format and scrupulously follow Rule 56, Fed.R.Civ.P., and D. Kan. Rule 56.1.

IT IS FURTHER ORDERED that Defendant Hewlett-Packard, Inc.'s Motion To Dismiss, Or In The Alternative For Stay Of Proceedings (Doc. # 16) filed December 22, 1999 be and hereby is SUSTAINED in part, in that plaintiff's complaint against Hewlett-Packard is dismissed for lack of subject matter jurisdiction.

IT IS FURTHER ORDERED that the Motion (Doc. # 2) to certify a class which plaintiff filed October 29, 1999 be and [1345] hereby is OVERRULED; the Motion For Sanctions, Expenses and Punitives [sic] (Doc. # 11) which plaintiff filed December 3, 1999 be and hereby is OVERRULED; the Motion for a Writ of Certiorari (Doc. # 12) which plaintiff filed December 6, 1999 be and hereby is OVERRULED, and the Motion for Verification (Doc. # 24) which plaintiff filed January 25, 2000 be and hereby is OVERRULED.

[1] Gateway states that after it sold plaintiff's computer, it mailed all existing customers in the United States a copy of its quarterly magazine, which contained notice of a change in the arbitration policy set forth in the Standard Terms. The new arbitration policy afforded customers the option of arbitrating before the International Chamber of Commerce ("ICC"), the American Arbitration Association ("AAA"), or the National Arbitration Forum ("NAF") in Chicago, Illinois, or any other location agreed upon by the parties. Plaintiff denies receiving notice of the amended arbitration policy. Neither party explains why — if the arbitration agreement was an enforceable contract — Gateway was entitled to unilaterally amend it by sending a magazine to computer customers.

[2] The FAA does not create independent federal-question jurisdiction; rather, "there must be diversity of citizenship or some other independent basis for federal jurisdiction" before the Court may act. Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). In this case, plaintiff asserts diversity jurisdiction.

[3] It is not clear whether Gateway asks the Court to compel arbitration in addition to dismissal. Compare Motion to Dismiss (Doc. # 6), p. 2 (Gateway "requests this Court to dismiss the complaint ... so that [plaintiff] can pursue his arbitration remedy"); Memorandum in Support of Motion to Dismiss (Doc. # 8), p. 5 ("this action should be dismissed and plaintiff ordered to pursue his remedy through arbitration"); Reply Memorandum in Support of Motion to Dismiss (Doc. # 14), p. 3 ("this action should be dismissed so that plaintiff can pursue his arbitration remedy").

[4] While Gateway may have shipped the computer to plaintiff in Missouri, the record contains no evidence regarding how plaintiff communicated his order to Gateway, where Gateway received plaintiff's order or where the shipment originated.

[5] Paragraph 9 of the Standard Terms provides that "[t]his Agreement shall be governed by the laws of the State of South Dakota, without giving effect to the conflict of laws rules thereof." Both Kansas and Missouri recognize choice-of-law provisions, so long as the transaction at issue has a "reasonable relation" to the state whose law is selected. K.S.A. § 84-1-105(1); Mo.Rev.Stat. § 400.1-105(1). At this time, because it must first determine whether the parties ever agreed to the Standard Terms, the Court does not decide whether Kansas or Missouri (or some other unidentified state) would recognize the choice of law provision contained in the Standard Terms.

[6] The term "shrinkwrap license" gets its name from retail software packages that are covered in plastic or cellophane "shrinkwrap" and contain licenses that purport to become effective as soon as the customer tears the wrapping from the package. See ProCD, 86 F.3d at 1449.

[7] The Mortenson court also found support for its holding in the proposed Uniform Computer Information Transactions Act ("UCITA") (formerly known as proposed UCC Article 2B) (text located at www.law.upenn.edu/library/ulc/ucita/UCITA_99.htm), which the National Conference of Commissioners on Uniform State Laws approved and recommended for enactment by the states in July 1999. See Mortenson, 998 P.2d at 310 n. 6, 313 n. 10. The proposed UCITA, however, would not apply to the Court's analysis in this case. The UCITA applies to computer information transactions, which are defined as agreements "to create, modify, transfer, or license computer information or informational rights in computer information." UCITA, §§ 102(11) and 103. In transactions involving the sale of computers, such as our case, the UCITA applies only to the computer programs and copies, not to the sale of the computer itself. See UCITA § 103(c)(2).

[8] Section 2-204 provides: "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such contract." K.S.A. § 84-2-204; V.A.M.S. § 400.2-204.

[9] Legal commentators have criticized the reasoning of the Seventh Circuit in this regard. See, e.g., Jean R. Sternlight, Gateway Widens Doorway to Imposing Unfair Binding Arbitration on Consumers, Fla. Bar J., Nov. 1997, at 8, 10-12 (outcome in Gateway is questionable on federal statutory, common law and constitutional grounds and as a matter of contract law and is unwise as a matter of policy because it unreasonably shifts to consumers search cost of ascertaining existence of arbitration clause and return cost to avoid such clause); Thomas J. McCarthy et al., Survey: Uniform Commercial Code, 53 Bus. Law. 1461, 1465-66 (Seventh Circuit finding that UCC § 2-207 did not apply is inconsistent with official comment); Batya Goodman, Honey, I Shrink-Wrapped the Consumer: the Shrinkwrap Agreement as an Adhesion Contract, 21 Cardozo L.Rev. 319, 344-352 (Seventh Circuit failed to consider principles of adhesion contracts); Jeremy Senderowicz, Consumer Arbitration and Freedom of Contract: A Proposal to Facilitate Consumers' Informed Consent to Arbitration Clauses in Form Contracts, 32 Colum. J.L. & Soc. Probs. 275, 296-299 (judiciary (in multiple decisions, including Hill) has ignored issue of consumer consent to an arbitration clause). Nonetheless, several courts have followed the Seventh Circuit decisions in Hill and ProCD. See, e.g., M.A. Mortenson Co., Inc. v. Timberline Software Corp., 140 Wash.2d 568, 998 P.2d 305 (license agreement supplied with software); Rinaldi v. Iomega Corp., 1999 WL 1442014, Case No. 98C-09-064-RRC (Del.Super. Sept. 3, 1999) (warranty disclaimer included inside computer Zip drive packaging); Westendorf v. Gateway 2000, Inc., 2000 WL 307369, Case No. 16913 (Del. Ch. March 16, 2000) (arbitration provision shipped with computer); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569 (N.Y.App.Div.1998) (same); Levy v. Gateway 2000, Inc., 1997 WL 823611, 33 UCC Rep. Serv.2d 1060 (N.Y.Sup. Oct. 31, 1997) (same).

[10] In Southwest Engineering, the court was concerned with the existence of an enforceable contract under the UCC statute of frauds and it determined that the parties' notes satisfied the writing requirement. It found that a subsequent letter which contained additional material terms did not become part of the agreement under § 2-207, however, because the parties did not expressly agree to the change in terms. See Southwest Engineering, 205 Kan. at 693-94, 473 P.2d at 25. The court further found that § 2-207 did not apply to its analysis because at the time of the letter, the parties had already memorialized the agreement in writing and there was no outstanding offer to accept or oral agreement to confirm. See Southwest Engineering, 205 Kan. at 695, 473 P.2d at 26.

[11] UCC § 2-206(b) provides that "an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment ..." The official comment states that "[e]ither shipment or a prompt promise to ship is made a proper means of acceptance of an offer looking to current shipment." UCC § 2-206, Official Comment 2.

[12] Courts are split on the standard for a conditional acceptance under § 2-207. See Daitom, 741 F.2d at 1576 (finding that Pennsylvania would most likely adopt "better" view that offeree must explicitly communicate unwillingness to proceed with transaction unless additional terms in response are accepted by offeror). On one extreme of the spectrum, courts hold that the offeree's response stating a materially different term solely to the disadvantage of the offeror constitutes a conditional acceptance. See Daitom, 741 F.2d at 1569 (citing Roto-Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir.1962)). At the other end of the spectrum, courts hold that the conditional nature of the acceptance should be so clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed without the additional or different terms. See Daitom, 741 F.2d at 1569 (citing Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir.1972)). The middle approach requires that the response predicate acceptance on clarification, addition or modification. See Daitom, 741 F.2d at 1569 (citing Construction Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir.1968)). The First Circuit has since overruled its decision in Roto-Lith, see Ionics, Inc. v. Elmwood Sensors, Inc., 110 F.3d 184, and the Court finds that neither Kansas nor Missouri would apply the standard set forth therein. See Boese-Hilburn Co. v. Dean Machinery Co., 616 S.W.2d 520, (Mo.App.1981) (rejecting Roto-Lith standard); Owens-Corning Fiberglas Corp. v. Sonic Dev. Corp., 546 F.Supp. 533, 538 (D.Kan.1982) (acceptance is not counter-offer under Kansas law unless it is made conditional on assent to additional or different terms (citing Roto-Lith as comparison)); Daitom, 741 F.2d at 1569 (finding that Dorton is "better" view). Because Gateway does not satisfy the standard for conditional acceptance under either of the remaining standards (Dorton or Construction Aggregates), the Court does not decide which of the remaining two standards would apply in Kansas and/or Missouri.

[13] The Court's decision would be the same if it considered the Standard Terms as a proposed modification under UCC § 2-209. See, e.g., Orris, 5 F.Supp.2d at 1206 (express assent analysis is same under §§ 2-207 and 2-209).

[14] The Court is mindful of the practical considerations which are involved in commercial transactions, but it is not unreasonable for a vendor to clearly communicate to a buyer — at the time of sale — either the complete terms of the sale or the fact that the vendor will propose additional terms as a condition of sale, if that be the case.

[15] While the Court holds pro se pleadings to less stringent standards than pleadings drafted by lawyers, pro se litigants must follow the same procedural rules as any other litigant. See Hughes v. Rowe, 449 U.S. 5, 9, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980); Green v. Dorrell, 969 F.2d 915, 917 (10th Cir.1992). The Court may not assume the role of advocate for a pro se litigant. Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.1991).

[16] Plaintiff does not address the amount of damages claimed in Plaintiff's Response to Defendant Hewlett-Packard's Motion to Dismiss or Stay (Doc. # 20) filed January 5, 2000 or Plaintiff's Adendum [sic] to his Memoranda in Support (Doc. # 21) filed January 6, 2000.

[17] Plaintiff further claims that the "class of consumers who've purchased Gateway Computers and Hewlett-Packard scanners are owed damages plus punitives [sic] as can be shown." Complaint, p. 7. Plaintiff may not aggregate the claims of the class members, however, to meet the amount in controversy requirement. See Zahn v. International Paper Co., 414 U.S. 291, 294-95, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973); Leonhardt v. Western Sugar Co., 160 F.3d 631, 637-38 (10th Cir. 1998) (each plaintiff in class action diversity action must meet jurisdictional amount in controversy; aggregation allowed only if plaintiffs unite to enforce a single title or right in which they have a common and undivided interest).

[18] Because the Court concludes that it lacks subject matter jurisdiction, it does not reach Hewlett-Packard's claim that plaintiff has failed to state a claim upon which relief may be granted.

[19] Neither defendant has filed a response to the motion to certify. On January 4, 2000, the Court entered an order staying Hewlett-Packard's time to file a response to 30 days after defendant receives a transcript of plaintiff's deposition. The record does not reveal the status of plaintiff's deposition or the transcript thereof.

[20] A "certiorari" is "[a]n extraordinary writ issued by an appellate court, at its discretion, directing a lower court to deliver the record in the case for review." Black's Law Dictionary (1996). This Court does not have appellate jurisdiction over the District Court of Johnson County, Kansas.

306 F.3d 17 (2002)

Docket Nos. 01-7870, 01-7872, 01-7860.

Argued: March 14, 2002.
Decided: October 1, 2002.

[18] [19] [20] Roger W. Yoerges, Wilmer Cutler & Pickering, Washington, DC (Patrick J. Carome, Joseph R. Profaizer, Darrin A. Hostetler, Wilmer Cutler & Pickering, Washington, DC, on the brief; David C. Goldberg, America Online, Inc., Dulles, VA, of counsel), for Defendants-Appellants.

Joshua N. Rubin, Abbey Gardy, LLP, New York, N.Y. (Jill S. Abrams, Courtney E. Lynch, Richard B. Margolies, Abbey Gardy, LLP, New York, NY, on the brief; James V. Bashian, Law Offices of James V. Bashian, New York, NY; George G. Mahfood, Leesfield, Leighton, Rubio & Mahfood, Miami, FL, of counsel), for Plaintiffs-Appellees.

Before McLAUGHLIN, LEVAL, and SOTOMAYOR, Circuit Judges.

SOTOMAYOR, Circuit Judge.

This is an appeal from a judgment of the Southern District of New York denying a motion by defendants-appellants Netscape Communications Corporation and its corporate parent, America Online, Inc. (collectively, "defendants" or "Netscape"), to compel arbitration and to stay court proceedings. In order to resolve the central question of arbitrability presented here, we must address issues of contract formation in cyberspace. Principally, we are asked to determine whether plaintiffs-appellees ("plaintiffs"), by acting upon defendants' invitation to download free software made available on defendants' webpage, agreed to be bound by the software's license terms (which included the arbitration clause at issue), even though plaintiffs could not have learned of the existence of those terms unless, prior to executing the download, they had scrolled down the webpage to a screen located below the download button. We agree with the district court that a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants' invitation to download the free software, and that defendants therefore did not provide reasonable notice of the license terms. In consequence, plaintiffs' bare act of downloading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms.

We also agree with the district court that plaintiffs' claims relating to the software at issue — a "plug-in" program entitled SmartDownload ("SmartDownload" or "the plug-in program"), offered by Netscape to enhance the functioning of the separate browser program called Netscape Communicator ("Communicator" or "the browser program") — are not subject to an arbitration agreement contained in the license terms governing the use of Communicator. Finally, we conclude that the district court properly rejected defendants' argument that plaintiff website owner Christopher Specht, though not a party to any Netscape license agreement, is nevertheless required to arbitrate his claims concerning SmartDownload because he allegedly benefited directly under SmartDownload's license agreement. Defendants' theory that Specht benefited whenever visitors employing SmartDownload downloaded certain files made available on his website is simply too tenuous and speculative to justify application of the legal doctrine that requires a nonparty to an arbitration agreement to arbitrate if he or she has received a direct benefit under a contract containing the arbitration agreement.

We therefore affirm the district court's denial of defendants' motion to compel arbitration and to stay court proceedings.

BACKGROUND

I. Facts

In three related putative class actions,^[1] plaintiffs alleged that, unknown to them, their use of SmartDownload transmitted to defendants private information about plaintiffs' downloading of files from the Internet, thereby effecting an electronic surveillance of their online activities in violation of two federal statutes, the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510 et seq., and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.

Specifically, plaintiffs alleged that when they first used Netscape's Communicator — a software program that permits Internet browsing — the program created and stored on each of their computer hard drives a small text file known as a "cookie" that functioned "as a kind of electronic identification tag for future communications" between their computers and Netscape. Plaintiffs further alleged that when they installed SmartDownload — a separate software "plug-in"^[2] that served to enhance Communicator's browsing capabilities — SmartDownload created and stored on their computer hard drives another string of characters, known as a "Key," which similarly functioned as an identification tag in future communications with Netscape. According to the complaints in this case, each time a computer user employed Communicator to download a file from the Internet, SmartDownload "assume[d] from Communicator the task of downloading" the file and transmitted to Netscape the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload. These processes, plaintiffs claim, constituted unlawful "eavesdropping" on users of Netscape's software products as well as on Internet websites from which users employing SmartDownload downloaded files.

In the time period relevant to this litigation, Netscape offered on its website various software programs, including Communicator and SmartDownload, which visitors to the site were invited to obtain free of charge. It is undisputed that five of the six named plaintiffs — Michael Fagan, John Gibson, Mark Gruber, Sean Kelly, and Sherry Weindorf — downloaded Communicator from the Netscape website. These plaintiffs acknowledge that when they proceeded to initiate installation^[3] of Communicator, they were automatically shown a scrollable text of that program's license agreement and were not permitted to complete the installation until they had clicked on a "Yes" button to indicate that they accepted all the license terms.^[4] If a user attempted to install Communicator without clicking "Yes," the installation would be aborted. All five named user plaintiffs^[5] expressly agreed to Communicator's license terms by clicking "Yes." The Communicator license agreement that these plaintiffs saw made no mention of SmartDownload or other plug-in programs, and stated that "[t]hese terms apply to Netscape Communicator and Netscape Navigator"^[6] and that "all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights)" are subject to "binding arbitration in Santa Clara County, California."

Although Communicator could be obtained independently of SmartDownload, all the named user plaintiffs, except Fagan, downloaded and installed Communicator in connection with downloading SmartDownload.^[7] Each of these plaintiffs allegedly arrived at a Netscape webpage^[8] captioned "SmartDownload Communicator" that urged them to "Download With Confidence Using SmartDownload!" At or near the bottom of the screen facing plaintiffs was the prompt "Start Download" and a tinted button labeled "Download." By clicking on the button, plaintiffs initiated the download of SmartDownload. Once that process was complete, SmartDownload, as its first plug-in task, permitted plaintiffs to proceed with downloading and installing Communicator, an operation that was accompanied by the clickwrap display of Communicator's license terms described above.

The signal difference between downloading Communicator and downloading SmartDownload was that no clickwrap presentation accompanied the latter operation. Instead, once plaintiffs Gibson, Gruber, Kelly, and Weindorf had clicked on the "Download" button located at or near the bottom of their screen, and the downloading of SmartDownload was complete, these plaintiffs encountered no further information about the plug-in program or the existence of license terms governing its use.^[9] The sole reference to SmartDownload's license terms on the "SmartDownload Communicator" webpage was located in text that would have become visible to plaintiffs only if they had scrolled down to the next screen.

Had plaintiffs scrolled down instead of acting on defendants' invitation to click on the "Download" button, they would have encountered the following invitation: "Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using the software." Plaintiffs Gibson, Gruber, Kelly, and Weindorf averred in their affidavits that they never saw this reference to the SmartDownload license agreement when they clicked on the "Download" button. They also testified during depositions that they saw no reference to license terms when they clicked to download SmartDownload, although under questioning by defendants' counsel, some plaintiffs added that they could not "remember" or be "sure" whether the screen shots of the SmartDownload page attached to their affidavits reflected precisely what they had seen on their computer screens when they downloaded SmartDownload.^[10]

In sum, plaintiffs Gibson, Gruber, Kelly, and Weindorf allege that the process of obtaining SmartDownload contrasted sharply with that of obtaining Communicator. Having selected SmartDownload, they were required neither to express unambiguous assent to that program's license agreement nor even to view the license terms or become aware of their existence before proceeding with the invited download of the free plug-in program. Moreover, once these plaintiffs had initiated the download, the existence of SmartDownload's license terms was not mentioned while the software was running or at any later point in plaintiffs' experience of the product.

Even for a user who, unlike plaintiffs, did happen to scroll down past the download button, SmartDownload's license terms would not have been immediately displayed in the manner of Communicator's clickwrapped terms. Instead, if such a user had seen the notice of SmartDownload's terms and then clicked on the underlined invitation to review and agree to the terms, a hypertext link would have taken the user to a separate webpage entitled "License & Support Agreements." The first paragraph on this page read, in pertinent part:

The use of each Netscape software product is governed by a license agreement. You must read and agree to the license agreement terms BEFORE acquiring a product. Please click on the appropriate link below to review the current license agreement for the product of interest to you before acquisition. For products available for download, you must read and agree to the license agreement terms BEFORE you install the software. If you do not agree to the license terms, do not download, install or use the software.

Below this paragraph appeared a list of license agreements, the first of which was "License Agreement for Netscape Navigator and Netscape Communicator Product Family (Netscape Navigator, Netscape Communicator and Netscape SmartDownload)." If the user clicked on that link, he or she would be taken to yet another webpage that contained the full text of a license agreement that was identical in every respect to the Communicator license agreement except that it stated that its "terms apply to Netscape Communicator, Netscape Navigator, and Netscape SmartDownload." The license agreement granted the user a nonexclusive license to use and reproduce the software, subject to certain terms:

BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING NETSCAPE COMMUNICATOR, NETSCAPE NAVIGATOR, OR NETSCAPE SMARTDOWNLOAD SOFTWARE (THE "PRODUCT"), THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT ("LICENSEE") IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT. IF LICENSEE DOES NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, THE BUTTON INDICATING NON-ACCEPTANCE MUST BE SELECTED, AND LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE.

Among the license terms was a provision requiring virtually all disputes relating to the agreement to be submitted to arbitration:

Unless otherwise agreed in writing, all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights) shall be subject to final and binding arbitration in Santa Clara County, California, under the auspices of JAMS/EndDispute, with the losing party paying all costs of arbitration.

Unlike the four named user plaintiffs who downloaded SmartDownload from the Netscape website, the fifth named plaintiff, Michael Fagan, claims to have downloaded the plug-in program from a "shareware" website operated by ZDNet, an entity unrelated to Netscape. Shareware sites are websites, maintained by companies or individuals, that contain libraries of free, publicly available software. The pages that a user would have seen while downloading SmartDownload from ZDNet differed from those that he or she would have encountered while downloading SmartDownload from the Netscape website. Notably, instead of any kind of notice of the SmartDownload license agreement, the ZDNet pages offered only a hypertext link to "more information" about SmartDownload, which, if clicked on, took the user to a Netscape webpage that, in turn, contained a link to the license agreement. Thus, a visitor to the ZDNet website could have obtained SmartDownload, as Fagan avers he did, without ever seeing a reference to that program's license terms, even if he or she had scrolled through all of ZDNet's webpages.

The sixth named plaintiff, Christopher Specht, never obtained or used SmartDownload, but instead operated a website from which visitors could download certain electronic files that permitted them to create an account with an internet service provider called WhyWeb. Specht alleges that every time a user who had previously installed SmartDownload visited his website and downloaded WhyWeb-related files, defendants intercepted this information. Defendants allege that Specht would receive a representative's commission from WhyWeb every time a user who obtained a WhyWeb file from his website subsequently subscribed to the WhyWeb service. Thus, argue defendants, because the "Netscape license agreement... conferred on each user the right to download and use both Communicator and SmartDownload software," Specht received a benefit under that license agreement in that SmartDownload "assisted in obtaining the WhyWeb file and increased the likelihood of success in the download process." This benefit, defendants claim, was direct enough to require Specht to arbitrate his claims pursuant to Netscape's license terms. Specht, however, maintains that he never received any commissions based on the WhyWeb files available on his website.

II. Proceedings Below

In the district court, defendants moved to compel arbitration and to stay court proceedings pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, arguing that the disputes reflected in the complaints, like any other dispute relating to the SmartDownload license agreement, are subject to the arbitration clause contained in that agreement. Finding that Netscape's webpage, unlike typical examples of clickwrap, neither adequately alerted users to the existence of SmartDownload's license terms nor required users unambiguously to manifest assent to those terms as a condition of downloading the product, the court held that the user plaintiffs had not entered into the SmartDownload license agreement. Specht, 150 F.Supp.2d at 595-96.

The district court also ruled that the separate license agreement governing use of Communicator, even though the user plaintiffs had assented to its terms, involved an independent transaction that made no mention of SmartDownload and so did not bind plaintiffs to arbitrate their claims relating to SmartDownload. Id. at 596. The court further concluded that Fagan could not be bound by the SmartDownload license agreement, because the shareware site from which he allegedly obtained the plug-in program provided even less notice of SmartDownload's license terms than did Netscape's page. Id. at 596-97. Finally, the court ruled that Specht was not bound by the SmartDownload arbitration agreement as a noncontracting beneficiary, because he (1) had no preexisting relationship with any of the parties, (2) was not an agent of any party, and (3) received no direct benefit from users' downloading of files from his site, even if those users did employ SmartDownload to enhance their downloading. Id. at 597-98.

Defendants took this timely appeal pursuant to 9 U.S.C. § 16, and the district court stayed all proceedings in the underlying cases pending resolution of the appeal. This Court has jurisdiction pursuant to § 16(a)(1)(B), as this is an appeal from an order denying defendants' motion to compel arbitration under the FAA. Mediterranean Shipping Co. S.A. Geneva v. POL-Atlantic, 229 F.3d 397, 402 (2d Cir. 2000).

DISCUSSION

I. Standard of Review and Applicable Law

A district court's denial of a motion to compel arbitration is reviewed de novo. Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995). The determination of whether parties have contractually bound themselves to arbitrate a dispute — a determination involving interpretation of state law — is a legal conclusion also subject to de novo review. Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., Ltd., 189 F.3d 289, 295 (2d Cir.1999); see also Shann v. Dunk, 84 F.3d 73, 77 (2d Cir.1996) ("The central issue — whether, based on the factual findings, a binding contract existed — is a question of law that we review de novo."). The findings upon which that conclusion is based, however, are factual and thus may not be overturned unless clearly erroneous. Chelsea Square Textiles, 189 F.3d at 295.

If a court finds that the parties agreed to arbitrate, it should then consider whether the dispute falls within the scope of the arbitration agreement. Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2d Cir.1987). A district court's determination of the scope of an arbitration agreement is reviewed de novo. Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir.1998). In addition, whether a party may be compelled to arbitrate as a result of direct benefits that he or she allegedly received under a contract entered into by others is an issue of arbitrability that is reviewed de novo. Cf. Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 95 (2d Cir.1999) ("[W]hether an entity is a party to the arbitration agreement ... is included within the broader issue of whether the parties agreed to arbitrate.").

The FAA provides that a "written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."^[11] 9 U.S.C. § 2. It is well settled that a court may not compel arbitration until it has resolved "the question of the very existence" of the contract embodying the arbitration clause. Interocean Shipping Co. v. Nat'l Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir.1972). "[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quotation marks omitted). Unless the parties clearly provide otherwise, "the question of arbitrability — whether a[n] ... agreement creates a duty for the parties to arbitrate the particular grievance — is undeniably an issue for judicial determination." Id. at 649, 106 S.Ct. 1415.

The district court properly concluded that in deciding whether parties agreed to arbitrate a certain matter, a court should generally apply state-law principles to the issue of contract formation. Mehler v. Terminix Int'l Co., 205 F.3d 44, 48 (2d Cir.2000); see also Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) ("[S]tate law, whether of legislative or judicial origin, is applicable [to the determination of whether the parties agreed to arbitrate] if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally."). Therefore, state law governs the question of whether the parties in the present case entered into an agreement to arbitrate disputes relating to the SmartDownload license agreement. The district court further held that California law governs the question of contract formation here; the parties do not appeal that determination.

II. Whether This Court Should Remand for a Trial on Contract Formation

Defendants argue on appeal that the district court erred in deciding the question of contract formation as a matter of law. A central issue in dispute, according to defendants, is whether the user plaintiffs actually saw the notice of SmartDownload's license terms when they downloaded the plug-in program. Although plaintiffs in their affidavits and depositions generally swore that they never saw the notice of terms on Netscape's webpage, defendants point to deposition testimony in which some plaintiffs, under repeated questioning by defendants' counsel, responded that they could not "remember" or be entirely "sure" whether the link to SmartDownload's license terms was visible on their computer screens. Defendants argue that on some computers, depending on the configuration of the monitor and browser, SmartDownload's license link "appears on the first screen, without any need for the user to scroll at all." Thus, according to defendants, "a trial on the factual issues that Defendants raised about each and every Plaintiffs' [sic] downloading experience" is required on remand to remedy the district court's "error" in denying defendants' motion as a matter of law.

Section 4 of the FAA provides, in relevant part, that "[i]f the making of the arbitration agreement ... be in issue, the court shall proceed summarily to the trial thereof." 9 U.S.C. § 4. We conclude for two reasons, however, that defendants are not entitled to a remand for a full trial. First, during oral argument in the district court on the arbitrability of the five user plaintiffs' claims, defendants' counsel repeatedly insisted that the district court could decide "as a matter of law based on the uncontroverted facts in this case" whether "a reasonably prudent person could or should have known of the [license] terms by which acceptance would be signified." "I don't want you to try the facts," defendants' counsel told the court. "I think that the evidence in this case upon which this court can make a determination [of whether a contract existed] as a matter of law is uncontroverted."^[12] Accordingly, the district court decided the issue of reasonable notice and objective manifestation of assent as a matter of law. "[I]t is a well-established general rule that an appellate court will not consider an issue raised for the first time on appeal." Greene v. United States, 13 F.3d 577, 586 (2d Cir. 1994); see also Gurary v. Winehouse, 190 F.3d 37, 44 (2d Cir.1999) ("Having failed to make the present argument to the district court, plaintiff will not be heard to advance it here."). Nor would it cause injustice in this case for us to decline to accept defendants' invitation to consider an issue that defendants did not advance below.

Second, after conducting weeks of discovery on defendants' motion to compel arbitration, the parties placed before the district court an ample record consisting of affidavits and extensive deposition testimony by each named plaintiff; numerous declarations by counsel and witnesses for the parties; dozens of exhibits, including computer screen shots and other visual evidence concerning the user plaintiffs' experience of the Netscape webpage; oral argument supplemented by a computer demonstration; and additional briefs following oral argument. This well-developed record contrasts sharply with the meager records that on occasion have caused this Court to remand for trial on the issue of contract formation pursuant to 9 U.S.C. § 4. See, e.g., Interbras Cayman Co. v. Orient Victory Shipping Co., S.A., 663 F.2d 4, 5 (2d Cir.1981) (record consisted of affidavits and other papers); Interocean Shipping, 462 F.2d at 676 (record consisted of pleadings, affidavits, and documentary attachments). We are satisfied that the unusually full record before the district court in this case constituted "a hearing where evidence is received." Interocean Shipping, 462 F.2d at 677. Moreover, upon the record assembled, a fact-finder could not reasonably find that defendants prevailed in showing that any of the user plaintiffs had entered into an agreement on defendants' license terms.

In sum, we conclude that the district court properly decided the question of reasonable notice and objective manifestation of assent as a matter of law on the record before it, and we decline defendants' request to remand for a full trial on that question.

III. Whether the User Plaintiffs Had Reasonable Notice of and Manifested Assent to the SmartDownload License Agreement

Whether governed by the common law or by Article 2 of the Uniform Commercial Code ("UCC"), a transaction, in order to be a contract, requires a manifestation of agreement between the parties. See Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal.App.3d 987, 991, 101 Cal.Rptr. 347, 350 (1972) ("[C]onsent to, or acceptance of, the arbitration provision [is] necessary to create an agreement to arbitrate."); see also Cal. Com.Code § 2204(1) ("A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.").^[13] Mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract. Binder v. Aetna Life Ins. Co., 75 Cal.App.4th 832, 848, 89 Cal.Rptr.2d 540, 551 (1999); cf. Restatement (Second) of Contracts § 19(2) (1981) ("The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents."). Although an onlooker observing the disputed transactions in this case would have seen each of the user plaintiffs click on the SmartDownload "Download" button, see Cedars Sinai Med. Ctr. v. Mid-West Nat'l Life Ins. Co., 118 F.Supp.2d 1002, 1008 (C.D.Cal.2000) ("In California, a party's intent to contract is judged objectively, by the party's outward manifestation of consent."), a consumer's clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent [30] to those terms, see Windsor Mills, 25 Cal.App.3d at 992, 101 Cal.Rptr. at 351 ("[W]hen the offeree does not know that a proposal has been made to him this objective standard does not apply."). California's common law is clear that "an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious." Id.; see also Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 89 Cal. App.4th 1042, 1049, 107 Cal.Rptr.2d 645, 651 (2001) (same).

Arbitration agreements are no exception to the requirement of manifestation of assent. "This principle of knowing consent applies with particular force to provisions for arbitration." Windsor Mills, 101 Cal.Rptr. at 351. Clarity and conspicuousness of arbitration terms are important in securing informed assent. "If a party wishes to bind in writing another to an agreement to arbitrate future disputes, such purpose should be accomplished in a way that each party to the arrangement will fully and clearly comprehend that the agreement to arbitrate exists and binds the parties thereto." Commercial Factors Corp. v. Kurtzman Bros., 131 Cal.App.2d 133, 134-35, 280 P.2d 146, 147-48 (1955) (internal quotation marks omitted). Thus, California contract law measures assent by an objective standard that takes into account both what the offeree said, wrote, or did and the transactional context in which the offeree verbalized or acted.

A. The Reasonably Prudent Offeree of Downloadable Software

Defendants argue that plaintiffs must be held to a standard of reasonable prudence and that, because notice of the existence of SmartDownload license terms was on the next scrollable screen, plaintiffs were on "inquiry notice" of those terms.^[14] We disagree with the proposition that a reasonably prudent offeree in plaintiffs' position would necessarily have known or learned of the existence of the SmartDownload license agreement prior to acting, so that plaintiffs may be held to have assented to that agreement with constructive notice of its terms. See Cal. Civ.Code § 1589 ("A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting."). It is true that "[a] party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing." Marin Storage & Trucking, 89 Cal.App.4th at 1049, 107 Cal. Rptr.2d at 651. But courts are quick to add: "An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term." Id.; cf. Cory v. Golden State Bank, 95 Cal.App.3d 360, 364, 157 Cal.Rptr. 538, 541 (1979) ("[T]he provision in question is effectively hidden from the view of money order purchasers until after the transactions are completed. ... Under these circumstances, it must be concluded that the Bank's money order purchasers are not chargeable with either actual or constructive notice of the service charge provision, and therefore cannot be deemed to have consented to the provision as part of their transaction with the Bank.").

Most of the cases cited by defendants in support of their inquiry-notice argument are drawn from the world of paper contracting. See, e.g., Taussig v. Bode & Haslett, 134 Cal. 260, 66 P. 259 (1901) (where party had opportunity to read leakage disclaimer printed on warehouse receipt, he had duty to do so); In re First Capital Life Ins. Co., 34 Cal.App.4th 1283, 1288, 40 Cal.Rptr.2d 816, 820 (1995) (purchase of insurance policy after opportunity to read and understand policy terms creates binding agreement); King v. Larsen Realty, Inc., 121 Cal.App.3d 349, 356, 175 Cal.Rptr. 226, 231 (1981) (where realtors' board manual specifying that party was required to arbitrate was "readily available," party was "on notice" that he was agreeing to mandatory arbitration); Cal. State Auto. Ass'n Inter-Ins. Bureau v. Barrett Garages, Inc., 257 Cal.App.2d 71, 76, 64 Cal.Rptr. 699, 703 (1967) (recipient of airport parking claim check was bound by terms printed on claim check, because a "ordinarily prudent" person would have been alerted to the terms); Larrus v. First Nat'l Bank, 122 Cal.App.2d 884, 888, 266 P.2d 143, 147 (1954) ("clearly printed" statement on bank card stating that depositor agreed to bank's regulations provided sufficient notice to create agreement, where party had opportunity to view statement and to ask for full text of regulations, but did not do so); see also Hux v. Butler, 339 F.2d 696, 700 (6th Cir.1964) (constructive notice found where "slightest inquiry" would have disclosed relevant facts to offeree); Walker v. Carnival Cruise Lines, 63 F.Supp.2d 1083, 1089 (N.D.Cal.1999) (under California and federal law, "conspicuous notice" directing the attention of parties to existence of contract terms renders terms binding) (quotation marks omitted); Shacket v. Roger Smith Aircraft Sales, Inc., 651 F.Supp. 675, 691 (N.D.Ill. 1986) (constructive notice found where "minimal investigation" would have revealed facts to offeree).

As the foregoing cases suggest, receipt of a physical document containing contract terms or notice thereof is frequently deemed, in the world of paper transactions, a sufficient circumstance to place the offeree on inquiry notice of those terms. "Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact." Cal. Civ.Code § 19. These principles apply equally to the emergent world of online product delivery, pop-up screens, hyperlinked pages, clickwrap licensing, scrollable documents, and urgent admonitions to "Download Now!". What plaintiffs saw when they were being invited by defendants to download this fast, free plug-in called SmartDownload was a screen containing praise for the product and, at the very bottom of the screen, a "Download" button. Defendants argue that under the principles set forth in the cases cited above, a "fair and prudent person using ordinary care" would have been on inquiry notice of SmartDownload's license terms. Shacket, 651 F.Supp. at 690.

We are not persuaded that a reasonably prudent offeree in these circumstances would have known of the existence of license terms. Plaintiffs were responding to an offer that did not carry an immediately visible notice of the existence of license terms or require unambiguous manifestation of assent to those terms. Thus, plaintiffs' "apparent manifestation of ... consent" was to terms "contained in a document whose contractual nature [was] not obvious." Windsor Mills, 25 Cal.App.3d at 992, 101 Cal.Rptr. at 351. Moreover, the fact that, given the position of the scroll bar on their computer screens, plaintiffs may have been aware that an unexplored portion of the Netscape webpage remained below the download button does not mean that they reasonably should have concluded that this portion contained a notice of license terms. In their deposition testimony, plaintiffs variously stated that they used the scroll bar "[o]nly if there is something that I feel I need to see that is on — that is off the page," or that the elevated position of the scroll bar suggested the presence of "mere[ ] formalities, standard lower banner links" or "that the page is bigger than what I can see." Plaintiffs testified, and defendants did not refute, that plaintiffs were in fact unaware that defendants intended to attach license terms to the use of SmartDownload.

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.^[15] The SmartDownload webpage screen was "printed in such a manner that it tended to conceal the fact that it was an express acceptance of [Netscape's] rules and regulations." Larrus, 266 P.2d at 147. Internet users may have, as defendants put it, "as much time as they need[ ]" to scroll through multiple screens on a webpage, but there is no reason to assume that viewers will scroll down to subsequent screens simply because screens are there. When products are "free" and users are invited to download them in the absence of reasonably conspicuous notice that they are about to bind themselves to contract terms, the transactional circumstances cannot be fully analogized to those in the paper world of arm's-length bargaining. In the next two sections, we discuss case law and other legal authorities that have addressed the circumstances of computer sales, software licensing, and online transacting. Those authorities tend strongly to support our conclusion that plaintiffs did not manifest assent to SmartDownload's license terms.

B. Shrinkwrap Licensing and Related Practices

Defendants cite certain well-known cases involving shrinkwrap licensing and related commercial practices in support of their contention that plaintiffs became bound by the SmartDownload license terms by virtue of inquiry notice. For example, in Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.1997), the Seventh Circuit held that where a purchaser had ordered a computer over the telephone, received the order in a shipped box containing the computer along with printed contract terms, and did not return the computer within the thirty days required by the terms, the purchaser was bound by the contract. Id. at 1148-49. In ProCD, Inc. v. Zeidenberg, the same court held that where an individual purchased software in a box containing license terms which were displayed on the computer screen every time the user executed the software program, the user had sufficient opportunity to review the terms and to return the software, and so was contractually bound after retaining the product. ProCD, 86 F.3d at 1452; cf. Moore v. Microsoft Corp., 293 A.D.2d 587, 587, 741 N.Y.S.2d 91, 92 (2d Dep't 2002) (software user was bound by license agreement where terms were prominently displayed on computer screen before software could [33] be installed and where user was required to indicate assent by clicking "I agree"); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 251, 676 N.Y.S.2d 569, 572 (1st Dep't 1998) (buyer assented to arbitration clause shipped inside box with computer and software by retaining items beyond date specified by license terms); M.A. Mortenson Co. v. Timberline Software Corp., 93 Wash.App. 819, 970 P.2d 803, 809 (1999) (buyer manifested assent to software license terms by installing and using software), aff'd, 140 Wash.2d 568, 998 P.2d 305 (2000); see also I.Lan Sys., 183 F.Supp.2d at 338 (business entity "explicitly accepted the clickwrap license agreement [contained in purchased software] when it clicked on the box stating `I agree'").

These cases do not help defendants. To the extent that they hold that the purchaser of a computer or tangible software is contractually bound after failing to object to printed license terms provided with the product, Hill and Brower do not differ markedly from the cases involving traditional paper contracting discussed in the previous section. Insofar as the purchaser in ProCD was confronted with conspicuous, mandatory license terms every time he ran the software on his computer, that case actually undermines defendants' contention that downloading in the absence of conspicuous terms is an act that binds plaintiffs to those terms. In Mortenson, the full text of license terms was printed on each sealed diskette envelope inside the software box, printed again on the inside cover of the user manual, and notice of the terms appeared on the computer screen every time the purchaser executed the program. Mortenson, 970 P.2d at 806. In sum, the foregoing cases are clearly distinguishable from the facts of the present action.

C. Online Transactions

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 [34] 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]

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]

IV. Whether Plaintiffs' Assent to Communicator's License Agreement Requires Them To Arbitrate Their Claims Regarding SmartDownload

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.

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).

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,

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.

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.

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.

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.

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."

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,

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.

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.

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.

V. Whether Plaintiff Specht Can Be Required To Arbitrate as a Nonparty Beneficiary

Plaintiff Specht operated a website that he claims defendants electronically spied on every time users employing SmartDownload to enhance their browser software downloaded, from his site, software files that he provided for setting up an account with a separate service called WhyWeb. Defendants counter that Specht received a "direct benefit" under the "Netscape license agreement," which they say authorized consumers to use SmartDownload and Communicator to obtain Specht's files. Defendants contend that if a user who obtained a file from Specht's site subsequently subscribed to WhyWeb's service, Specht would receive a commission from WhyWeb. Thus, according to defendants, if users employing SmartDownload accessed his site and obtained WhyWeb files, Specht would receive a direct benefit "because the software assisted in obtaining a WhyWeb file and increased the likelihood of success in the download process." Specht, however, claims that he received no commissions from providing WhyWeb software.

We note at the outset that defendants do not argue, as indeed they could not, that Specht benefited from SmartDownload license agreements entered into by the named user plaintiffs or the putative class [39] that they represent. A contract theory of third-party benefits requires a predicate contract, and we have already determined that the user plaintiffs did not assent to the SmartDownload license agreement. We are thus asked, in effect, to imagine a class of users who, having obtained SmartDownload and/or Communicator after properly assenting to license terms, visited Specht's website by means of Communicator or a non-Netscape browser enhanced by SmartDownload and, while there, downloaded WhyWeb files which they proceeded to use to subscribe to WhyWeb, in turn triggering a commission fee from WhyWeb for Specht.

Even accepting arguendo this strained and roundabout hypothesis, we must reject defendants' legal conclusion. Typically, whether a contract benefits or accords rights to a third party (most often, the right to enforce the contract) depends significantly on the intention of the original contracting parties. See Sessions Payroll Mgmt., Inc. v. Noble Constr. Co, Inc., 84 Cal.App.4th 671, 680, 101 Cal.Rptr.2d 127, 133 (2000) (explaining that a third-party beneficiary may enforce a contract made expressly for its benefit and has the burden of proving that the contracting parties actually promised the performance). Clearly, Netscape and these unknown visitors to Specht's website did not expressly confer or intend to confer any contractual benefits on Specht or website operators generally (other than defendants). Defendants therefore take a different tack, arguing that they need only show that Specht received some direct benefit, knowingly or not, under a Netscape license agreement.

To support this claim, defendants cite American Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349 (2d Cir. 1999). But the benefit at issue in American Bureau of Shipping was much more direct than that described by defendants. There, a ship classification society, which had issued an interim certification of classification (ICC) for a racing yacht that later suffered hull damage allegedly resulting from defective design, sought to compel the yacht's builder, owners, and insurers to arbitrate pursuant to arbitration clauses contained in the ICC and other contracts. The owners never signed any arbitration agreement, but this Court noted that a nonsignatory could be "estopped from denying its obligation to arbitrate when it receives a `direct benefit' from a contract containing an arbitration clause." Id. at 353 (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 778-79 (2d Cir.1995)).^[20] The Court held that the yacht owners had received the following direct benefits under the relevant contracts: (1) significantly lower insurance rates on the yacht; (2) the ability to sail under the French flag; and possibly (3) the ability to register the yacht. Id.; cf. Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060 (2d Cir.1993) (holding that a nonsignatory to an arbitration agreement was bound to arbitrate because it knowingly received direct benefits, which included the right to use a trade name, under the relevant contract).

Even if defendants' theory of Specht's SmartDownload-enhanced potential for earning commissions were more convincing, such an abstract advantage is not remotely as tangible and definite as the benefits that have led this Court to compel nonsignatories to arbitrate. Nor does the intricate, Rube Goldberg-like chain of events postulated by defendants constitute a "direct" benefit in the sense contemplated by American Bureau of Shipping and Deloitte Noraudit. Because we conclude that Specht was not a direct beneficiary under SmartDownload's license agreement or any other Netscape agreement, we affirm the district court's refusal to compel arbitration of his claims.^[21]

CONCLUSION

For the foregoing reasons, we affirm the district court's denial of defendants' motion to compel arbitration and to stay court proceedings.

[1] Although the district court did not consolidate these three cases, it noted that its opinion denying the motion to compel arbitration and to stay court proceedings "appl[ied] equally to all three cases." Specht v. Netscape Communications Corp., 150 F.Supp.2d 585, 587 n. 1 (S.D.N.Y.2001). On August 10, 2001, this Court consolidated the appeals.

[2] Netscape's website defines "plug-ins" as "software programs that extend the capabilities of the Netscape Browser in a specific way — giving you, for example, the ability to play audio samples or view video movies from within your browser." (http://wp.netscape.com/plugins/) SmartDownload purportedly made it easier for users of browser programs like Communicator to download files from the Internet without losing their progress when they paused to engage in some other task, or if their Internet connection was severed. See Specht, 150 F.Supp.2d at 587.

[3] There is a difference between downloading and installing a software program. When a user downloads a program from the Internet to his or her computer, the program file is stored on the user's hard drive but typically is not operable until the user installs or executes it, usually by double-clicking on the file and causing the program to run.

[4] This kind of online software license agreement has come to be known as "clickwrap" (by analogy to "shrinkwrap," used in the licensing of tangible forms of software sold in packages) because it "presents the user with a message on his or her computer screen, requiring that the user manifest his or her assent to the terms of the license agreement by clicking on an icon. The product cannot be obtained or used unless and until the icon is clicked." Specht, 150 F.Supp.2d at 593-94 (footnote omitted). Just as breaking the shrinkwrap seal and using the enclosed computer program after encountering notice of the existence of governing license terms has been deemed by some courts to constitute assent to those terms in the context of tangible software, see, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir.1996), so clicking on a webpage's clickwrap button after receiving notice of the existence of license terms has been held by some courts to manifest an Internet user's assent to terms governing the use of downloadable intangible software, see, e.g., Hotmail Corp. v. Van$ Money Pie Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal. 1998).

[5] The term "user plaintiffs" here and elsewhere in this opinion denotes those plaintiffs who are suing for harm they allegedly incurred as computer users, in contrast to plaintiff Specht, who alleges that he was harmed in his capacity as a website owner.

[6] While Navigator was Netscape's "stand-alone" Internet browser program during the period in question, Communicator was a "software suite" that comprised Navigator and other software products. All five named user plaintiffs stated in affidavits that they had obtained upgraded versions of Communicator. Fagan, who, as noted below, allegedly did not obtain the browser program in connection with downloading SmartDownload, expressed some uncertainty during his deposition as to whether he had acquired Communicator or Navigator. The identity of Fagan's browser program is immaterial to this appeal, however, as Communicator and Navigator shared the same license agreement.

[7] Unlike the four other user plaintiffs, Fagan chose the option of obtaining Netscape's browser program without first downloading SmartDownload. As discussed below, Fagan allegedly obtained SmartDownload from a separate "shareware" website unrelated to Netscape.

[8] For purposes of this opinion, the term "webpage" or "page" is used to designate a document that resides, usually with other webpages, on a single Internet website and that contains information that is viewed on a computer monitor by scrolling through the document. To view a webpage in its entirety, a user typically must scroll through multiple screens.

[9] Plaintiff Kelly, a relatively sophisticated Internet user, testified that when he clicked to download SmartDownload, he did not think that he was downloading a software program at all, but rather that SmartDownload "was merely a piece of download technology." He later became aware that SmartDownload was residing as software on his hard drive when he attempted to download electronic files from the Internet.

[10] In the screen shot of the SmartDownload webpage attached to Weindorf's affidavit, the reference to license terms is partially visible, though almost illegible, at the bottom of the screen. In the screen shots attached to the affidavits of Gibson, Gruber, and Kelly, the reference to license terms is not visible.

[11] The parties do not dispute, nor could they, that the software license agreement at issue "involv[ed] commerce" within the meaning of 9 U.S.C. § 2, see Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 273-74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (construing the broad phrase "involving commerce" to be the functional equivalent of "affecting commerce"), or that the agreement is a "written provision" despite being provided to users in a downloadable electronic form. The latter point has been settled by the Electronic Signatures in Global and National Commerce Act ("E-Sign Act"), Pub.L. No. 106-229, 114 Stat. 464 (2000) (codified at 15 U.S.C. §§ 7001 et seq.), which provides that "a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form." Id. § 7001(a)(1); see also Cal. Civ.Code § 1633.7(b) ("A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.").

[12] Later, when Judge Hellerstein suggested that it was "an issue of fact ... to be tried" whether plaintiff Fagan downloaded SmartDownload from Netscape's webpage or from the ZDNet shareware site, defendants' counsel stated: "I am not sure there is an issue of fact. It is sort of a summary judgment kind of standard." Still later, counsel remarked: "I think we established that there really is no genuine issue that Mr. Fagan got his smart download [sic] [by visiting the Netscape webpage from which he] fairly had notice that there was a license agreement." Defendants' position that there was "no genuine issue" regarding reasonable notice of the existence of the license terms is consistent with this Circuit's standard for determining whether a trial is required on the issue of the making of an arbitration agreement. See Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 129-30 (2d Cir.1997) ("As when opposing a motion for summary judgment under Fed.R.Civ.P. 56, the party requesting a jury trial must submit evidentiary facts showing that there is a dispute of fact to be tried." (quotation marks omitted)); Doctor's Assocs., Inc. v. Stuart, 85 F.3d 975, 983-84 (2d Cir.1996) ("To warrant a trial under 9 U.S.C. § 4, the issue raised must be `genuine.'" (quotation marks omitted)).

[13] The district court concluded that the SmartDownload transactions here should be governed by "California law as it relates to the sale of goods, including the Uniform Commercial Code in effect in California." Specht, 150 F.Supp.2d at 591. It is not obvious, however, that UCC Article 2 ("sales of goods") applies to the licensing of software that is downloadable from the Internet. Cf. Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675 (3d Cir.1991) ("The increasing frequency of computer products as subjects of commercial litigation has led to controversy over whether software is a `good' or intellectual property. The [UCC] does not specifically mention software."); Lorin Brennan, Why Article 2 Cannot Apply to Software Transactions, PLI Patents, Copyrights, Trademarks, & Literary Property Course Handbook Series (Feb.Mar.2001) (demonstrating the trend in case law away from application of UCC provisions to software sales and licensing and toward application of intellectual property principles). There is no doubt that a sale of tangible goods over the Internet is governed by Article 2 of the UCC. See, e.g., Butler v. Beer Across Am., 83 F.Supp.2d 1261, 1263-64 & n. 6 (N.D.Ala.2000) (applying Article 2 to an Internet sale of bottles of beer). Some courts have also applied Article 2, occasionally with misgivings, to sales of off-the-shelf software in tangible, packaged formats. See, e.g., ProCD, 86 F.3d at 1450 ("[W]e treat the [database] licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code. Whether there are legal differences between `contracts' and `licenses' (which may matter under the copyright doctrine of first sale) is a subject for another day."); I.Lan Sys., Inc. v. Nextpoint Networks, Inc., 183 F.Supp.2d 328, 332 (D.Mass.2002) (stating, in the context of a dispute between business parties, that "Article 2 technically does not, and certainly will not in the future, govern software licenses, but for the time being, the Court will assume that it does").

Downloadable software, however, is scarcely a "tangible" good, and, in part because software may be obtained, copied, or transferred effortlessly at the stroke of a computer key, licensing of such Internet products has assumed a vast importance in recent years. Recognizing that "a body of law based on images of the sale of manufactured goods ill fits licenses and other transactions in computer information," the National Conference of Commissioners on Uniform State Laws has promulgated the Uniform Computer Information Transactions Act ("UCITA"), a code resembling UCC Article 2 in many respects but drafted to reflect emergent practices in the sale and licensing of computer information. UCITA, prefatory note (rev. ed. Aug.23, 2001) (available at www.ucitaonline.com/ucita.html). UCITA — originally intended as a new Article 2B to supplement Articles 2 and 2A of the UCC but later proposed as an independent code — has been adopted by two states, Maryland and Virginia. See Md.Code Ann. Com. Law §§ 22-101 et seq.; Va.Code Ann. §§ 59.1-501.1 et seq.

We need not decide today whether UCC Article 2 applies to Internet transactions in downloadable products. The district court's analysis and the parties' arguments on appeal show that, for present purposes, there is no essential difference between UCC Article 2 and the common law of contracts. We therefore apply the common law, with exceptions as noted.

[14] "Inquiry notice" is "actual notice of circumstances sufficient to put a prudent man upon inquiry." Cal. State Auto. Ass'n Inter-Ins. Bureau v. Barrett Garages, Inc., 257 Cal. App.2d 71, 64 Cal.Rptr. 699, 703 (Cal.Ct.App. 1967) (internal quotation marks omitted).

[15] We do not address the district court's alternative holding that notice was further vitiated by the fact that the reference to SmartDownload's license terms, even if scrolled to, was couched in precatory terms ("a mild request") rather than mandatory ones. Specht, 150 F.Supp.2d at 596.

[16] Defendants place great importance on Register.com, Inc. v. Verio, Inc., 126 F.Supp.2d 238 (S.D.N.Y.2000), which held that a user of the Internet domain-name database, Register.com, had "manifested its assent to be bound" by the database's terms of use when it electronically submitted queries to the database. Id. at 248. But Verio is not helpful to defendants. There, the plaintiff's terms of use of its information were well known to the defendant, which took the information daily with full awareness that it was using the information in a manner prohibited by the terms of the plaintiff's offer. The case is not closely analogous to ours.

[17] Although the parties here do not refer to it, California's consumer fraud statute, Cal. Bus. & Prof.Code § 17538, is one of the few state statutes to regulate online transactions in goods or services. The statute provides that in disclosing information regarding return and refund policies and other vital consumer information, online vendors must legibly display the information either:

(i) [on] the first screen displayed when the vendor's electronic site is accessed, (ii) on the screen on which goods or services are first offered, (iii) on the screen on which a buyer may place the order for goods or services, (iv) on the screen on which the buyer may enter payment information, such as a credit card account number, or (v) for nonbrowser-based technologies, in a manner that gives the user a reasonable opportunity to review that information.

Id. § 17538(d)(2)(A). The statute's clear purpose is to ensure that consumers engaging in online transactions have relevant information before they can be bound. Although consumer fraud as such is not alleged in the present action, and § 17538 protects only California residents, we note that the statute is consistent with the principle of conspicuous notice of the existence of contract terms that is also found in California's common law of contracts.

In addition, the model code, UCITA, discussed above, generally recognizes the importance of conspicuous notice and unambiguous manifestation of assent in online sales and licensing of computer information. For example, § 112, which addresses manifestation of assent, provides that a user's opportunity to review online contract terms exists if a "record" (or electronic writing) of the contract terms is "made available in a manner that ought to call it to the attention of a reasonable person and permit review." UCITA, § 112(e)(1) (rev. ed. Aug.23, 2001) (available at www.ucitaonline.com/ucita.html). Section 112 also provides, in pertinent part, that "[a] person manifests assent to a record or term if the person, acting with knowledge of, or after having an opportunity to review the record or term or a copy of it ... intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term." Id. § 112(a)(2). In the case of a "mass-market license," a party adopts the terms of the license only by manifesting assent "before or during the party's initial performance or use of or access to the information." Id. § 209(a).

UCITA § 211 sets forth a number of guidelines for "internet-type" transactions involving the supply of information or software. For example, a licensor should make standard terms "available for review" prior to delivery or obligation to pay (1) by "displaying prominently and in close proximity to a description of the computer information, or to instructions or steps for acquiring it, the standard terms or a reference to an electronic location from which they can be readily obtained," or (2) by "disclosing the availability of the standard terms in a prominent place on the site from which the computer information is offered and promptly furnishing a copy of the standard terms on request before the transfer of the computer information." Id. § 211(1)(A-B). The commentary to § 211 adds: "The intent of the close proximity standard is that the terms or the reference to them would be called to the attention of an ordinary reasonable person." Id. § 211 cmt. 3. The commentary also approves of prominent hypertext links that draw attention to the existence of a standard agreement and allow users to view the terms of the license. Id.

We hasten to point out that UCITA, which has been enacted into law only in Maryland and Virginia, does not govern the parties' transactions in the present case, but we nevertheless find that UCITA's provisions offer insight into the evolving online "circumstances" that defendants argue placed plaintiffs on inquiry notice of the existence of the SmartDownload license terms. UCITA has been controversial as a result of the perceived breadth of some of its provisions. Compare Margaret Jane Radin, Humans Computers, and Binding Commitment, 75 Ind. L.J. 1125, 1141 (2000) (arguing that "UCITA's definition of manifestation of assent stretches the ordinary concept of consent"), with Joseph H. Sommer, Against Cyberlaw, 15 Berkeley Tech. L.J. 1145, 1187 (2000) ("There are no new legal developments [in UCITA's assent provisions]. The revolution — if any — occurred with [Karl] Llewellyn's old Article 2, which abandoned most formalisms of contract formation, and sought a contract wherever it could be found."). Nonetheless, UCITA's notice and assent provisions seem to be consistent with well-established principles governing contract formation and enforcement. See Robert A. Hillman & Jeffrey J. Rachlinski, Standard-Form Contracting in the Electronic Age, 77 N.Y.U. L.Rev. 429, 491 (2002) ("[W]e contend that UCITA maintains the contextual, balanced approach to standard terms that can be found in the paper world.").

[18] Because we conclude that the Netscape webpage did not provide reasonable notice of the existence of SmartDownload's license terms, it is irrelevant to our decision whether plaintiff Fagan obtained SmartDownload from that webpage, as defendants contend, or from a shareware website that provided less or no notice of that program's license terms, as Fagan maintains. In either case, Fagan could not be bound by the SmartDownload license agreement. Further, because we find that the California common law disposes of the issue of notice and assent, we do not address plaintiffs' arguments based on California's Commercial Code § 2207, the UCC Article 2 provision governing the "battle of the forms." Moreover, having determined that the parties did not enter into the SmartDownload license agreement, we do not reach plaintiffs' alternative arguments concerning unconscionability.

[19] A question not raised by the parties is whether this dispute involves "intellectual property rights." Certainly, Netscape's intellectual property ("IP") rights would not seem to be implicated, even though Netscape may in some sense employ its IP — in the form of computer software — to plant cookies and, as plaintiffs allege, harvest users' personal information. But do plaintiffs have IP rights in their personal information? Certain cases have recognized, mostly under a trespass-to-chattels theory, that computer and database owners enjoy possessory interests in their computer equipment, bandwidth, and server capacity, but these interests are analyzed in terms of traditional personal property, not IP. See, e.g., Verio, 126 F.Supp.2d at 249-53; eBay, Inc. v. Bidder's Edge, Inc., 100 F.Supp.2d 1058, 1069-72 (N.D.Cal.2000). Moreover, plaintiffs' personal information, stored in cookies, is the sort of factual data that are expressly excluded from federal copyright protection. See Nihon Keizai Shimbun, Inc. v. Comline Bus. Data, Inc., 166 F.3d 65, 70 (2d. Cir.1999) ("That copyright does not extend to facts is a `most fundamental axiom of copyright law.'") (quoting Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 344, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991)). Thus, copyrights are not implicated here. Nor are trade secrets, good will, or other valuable intangibles. In consequence, plaintiffs' claims would not appear to be shielded from arbitration on the ground that this is a "dispute relating to intellectual property rights." This is not an issue that we decide today, however.

[20] Cf. County of Contra Costa v. Kaiser Found. Health Plan, Inc., 47 Cal.App.4th 237, 54 Cal. Rptr.2d 628, 631 (1996)(noting that California cases binding nonsignatories to arbitrate their claims fall into two categories: (1) where a benefit was conferred on the nonsignatory as a result of a contract; and (2) where a preexisting relationship existed between the nonsignatory and one of the parties to the arbitration agreement).

[21] Plaintiffs argue in the alternative that their claims are inarbitrable because the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act reflect a congressional intent to preclude arbitration of claims arising under those statutes. In view of our disposition of this case, we need not address that argument.