ProCD Inc v Zeidenberg

Facts

• ProCD invested $10 million compiling a database of 95 million telephone listings from 3,000 directories
• It sold the database on CD-ROM: $150 for personal use, higher price for commercial use
• The shrink-wrap licence (printed inside the box and displayed on screen during installation) restricted use to non-commercial purposes
• Matthew Zeidenberg bought the personal-use version and made the database available through his commercial website
• ProCD sued for breach of the licence agreement
• The district court held the licence unenforceable (not agreed to at point of sale)

Issues

1. Whether a shrink-wrap licence (terms available only after purchase, inside the box) forms a binding contract
2. Whether terms presented after the point of sale can be part of the contract

Held

• Shrink-wrap licences are enforceable under UCC Article 2
• Not all terms of a transaction need to be communicated at the moment money changes hands (analogy: insurance policies, airline tickets, concert tickets)
• The buyer received adequate notice (terms printed in the box and on-screen) and had the opportunity to reject and return the product
• Continued use after notice constitutes acceptance
• The licence restriction on commercial use was binding; Zeidenberg was liable for breach

Ratio Decidendi

Contract formation can occur in stages. A buyer who receives terms after payment may accept by retaining and using the product, or reject by returning it. The key factors are: (1) notice of terms, (2) opportunity to review, (3) ability to reject (return). Market efficiency supports post-purchase terms because pre-purchase disclosure of all terms for mass-market software would be impractical.