Clickwrap and Shrink Wrap Contracts

So a click proves assent. It does not make every term enforceable.

Shrink wrap

The name comes from the transparent film around a software box. The terms were printed on or inside the packaging, and a notice said that by breaking the seal the buyer accepted them.

The structural problem. The buyer paid at the counter. On ordinary principles the contract of sale was concluded there, and the terms inside the box arrived after it. A term communicated after the contract is made is not part of it, which is the notice rule from [Standard Form Agreements].

The two answers that have been given. Courts elsewhere have taken two routes, and both are worth stating because MU's topic invites comparison:

1. The terms are part of a separate licence between the user and the software producer, distinct from the sale between the buyer and the retailer. Opening or installing is acceptance of that separate proposal, by performance under section 8 of the Contract Act.
2. The sale itself is conditional, the retailer selling on the terms that the producer stipulates, so the buyer's payment is an acceptance of a proposal that already includes them.

The Indian position. No decision squarely on shrink wrap has been read for this book, so it is not asserted here. What can be said with confidence is the framework a court would use: notice before or at the time of contracting, construction against the drafter, unconscionability under section 23, and, for a consumer, the Consumer Protection Act 2019. The stronger the notice on the outside of the package, the better the producer's position, which is why such notices are printed there.

Shrink wrap is not obsolete. The same analysis applies to any product sold with terms in the box, and to installation screens that present terms after purchase, which is the modern equivalent.

Browsewrap

The terms sit behind a link, often at the foot of a page, and the site asserts that continued use constitutes acceptance.

The difficulty is fundamental. There is no act by the user referable to the terms at all. Continued browsing is not an acceptance under sections 3 and 7, because it is not conduct by which the user intends to communicate assent to those terms, and it may well have been done without any awareness that they exist.

Worse, this comes close to the proposition that silence is acceptance, which the Contract Act does not permit: an offeror cannot stipulate that inaction will bind. See [Acceptance Must Be Absolute and Unqualified].

When browsewrap can work. The realistic case is where the user had actual or constructive knowledge of the terms, for example because a prominent notice appeared at the point of the transaction, or because of a course of dealing between the parties. Then the conduct is being read in the light of what the user knew, which is acceptance by conduct under sections 8 and 9 rather than acceptance by silence.

A practical rule for an answer: browsewrap is enforceable, if at all, only where the notice was so prominent that a reasonable user must have known the terms applied.

What section 10A adds, and what it does not

Section 10A provides that a contract is not to be deemed unenforceable solely on the ground that electronic means were used. So a party who says "there is no contract because everything happened on a website" fails.

But note the limits, which the word "solely" makes precise:

• Section 10A does not decide whether the user assented to the terms. That is the Contract Act's question, and it is the whole difficulty with browsewrap.
• Section 10A does not make an unconscionable term enforceable. Section 23 is untouched.
• Section 10A does not reach the excluded documents. A contract for the sale of immovable property cannot be concluded by clickwrap.

So section 10A removes the objection to the medium and leaves every objection to the substance. That is the sentence to write.

A worked example

Tara installs an application. Before it will run, a window displays fifteen screens of terms with a checkbox reading "I have read and accept the Terms of Use", and a button "Continue" that is disabled until the box is ticked. Buried in the terms is a clause requiring all disputes to be arbitrated in a foreign city, and another excluding all liability for data loss.

• Is there a contract? Yes. The display is a proposal, the tick and click are the acceptance, sections 2(b), 3 and 7, and section 10A prevents the objection that it was formed electronically. This is clickwrap and assent is well evidenced.
• Is the foreign arbitration clause enforceable? Assent is established, so the argument must be about substance. In a consumer contract this is a strong candidate for an unfair contract term under the Consumer Protection Act 2019, and for unconscionability under section 23 given the inequality of bargaining power and the practical impossibility of the remedy.
• Is the exclusion of liability for data loss enforceable? Same analysis. It will also be construed strictly against the drafter.

Change the facts. There is no window and no checkbox. The words "By using this application you agree to our Terms" appear in small grey text at the bottom of a settings page. This is browsewrap. There is a serious argument that the terms were never incorporated at all, because Tara did nothing referable to them and the notice was not prominent.

Change them again. Tara buys a boxed device; the terms are on a card inside. She had paid before she could see them. This is shrink wrap, and the notice argument is the strongest one: unless the outside of the box gave adequate warning, the terms came too late.

What it does NOT mean

"Clicking 'I agree' makes every term binding." It establishes assent. Unconscionability under section 23, strict construction, and the Consumer Protection Act 2019 all continue to apply.

"Browsewrap is always void." It is very weak, but it can bind a user who had actual or constructive knowledge of the terms, in which case the conduct is acceptance by conduct rather than by silence.

"Section 10A validates online terms." It removes one objection, that the medium was electronic. It says nothing about whether the user agreed to the terms or whether they are fair.

"These are a special kind of contract with their own law." They are standard form agreements delivered by a new medium. The applicable law is the Contract Act plus the four protections, with section 10A closing off the argument about the medium.

Quick revision

• Clickwrap: terms displayed, positive click to agree. Strongest assent. Still subject to notice, construction, section 23 and consumer law.
• Shrink wrap: terms in or on the packaging, opening or installing said to be acceptance. Main problem: the terms arrive after the contract of sale. Answered either by a separate licence accepted by performance under section 8, or by treating the sale as conditional. No Indian decision read for this book.
• Browsewrap: terms behind a link, continued use said to be acceptance. Weakest, because nothing the user does is referable to the terms, and silence is not acceptance. Works only with prominent notice or actual knowledge.
• Section 10A stops the objection that the contract was made electronically, and nothing more; the word solely is the key.
• Rank by the positive act: click, then open or install, then mere use.

Test yourself

1. Distinguish clickwrap from browsewrap. In clickwrap the user must take a positive act, clicking or ticking, after the terms are made available, which is a clear signifying of assent. In browsewrap the terms sit behind a link and continued use is asserted to be acceptance, so there is no act referable to the terms.

2. What is the main legal difficulty with shrink wrap terms? That the contract of sale is usually concluded at the counter, so terms found inside the package are communicated after the contract is made, and a term notified after contracting is not part of it.

3. Why is browsewrap so weak under the Indian Contract Act? Because acceptance must be signified by an act or omission intended to communicate it, and an offeror cannot stipulate that silence or inaction will amount to acceptance.

4. What does section 10A contribute to this topic? It prevents a contract being treated as unenforceable solely because electronic means were used. It does not establish assent to the terms and does not make an unfair term enforceable.

5. A clickwrap term excludes all liability for negligence. Enforceable? Assent is well evidenced, so the challenge is to the substance. The term will be construed strictly against the drafter, is open to challenge as unconscionable and opposed to public policy under section 23 given unequal bargaining power, and, if the user is a consumer, may be an unfair contract term under the Consumer Protection Act 2019.