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Originally, a shrink wrap license referred to any type of license agreement that was visible through the shrink wrapping used to enclose the packaging. Those license terms that were printed on the outside of the box were often called a "box top license", since they were printed on the outside of the box containing the software. In other cases, a separate, printed license was sandwiched between the outside of the box and the shrink wrapping, so it was visible through the plastic wrapping for review before the consumer purchased the software.
Gradually, vendors began putting the printed license agreement inside the box, so it was not visible to the customer prior to purchase. Today, the term "shrinkwrap license" refers to a preprinted, standard form software license that is contained inside the software packaging and is not visible to the consumer until the packaging is opened.
Software vendors developed shrinkwrap licenses in the 1980s for several reasons:
- To avoid the first sale doctrine, which, as codified in the 1976 Copyright Act, generally limits a copyright owner's ability to restrict use of a copyrighted work once it is sold.
- To place the user on notice of the terms of the warranty, if any, made by the vendor with respect to the software, and to disclaim other warranties in accordance with the provisions of the Uniform Commercial Code.
- To impose upon the transaction other terms and conditions, such as limitations on the permissible use of the software, limitation on liability, choice of law, and other contractual provisions.
A licensor, unlike a seller, can impose contractual restrictions on an end user's use of a copyrighted work because a license is not deemed equivalent to a "sale" under the first sale doctrine. Software vendors therefore historically have sought to license, rather than sell computer programs. While it may be reasonable for licenses for large transactions to be extensively negotiated, it has not been practical to expect either customers or vendors to spend the time and money necessary to negotiate traditional license agreements for mass market, consumer software. Accordingly, the retail software industry adopted shrinkwrap licenses.
While shrinkwrap licenses have become more sophisticated over time, and have been modified in most cases so that a user's assent to the license is based on more than merely tearing open the shrinkwrap on a box of software, the enforceability of shrinkwrap licenses has remained in doubt. In Vault Corp. v. Quaid Software, Ltd., the court held that a state statute validating the terms of a shrinkwrap license was preempted by federal copyright law. Two subsequent cases (Arizona Retail Sys. v. Software Link, Inc. and Step-Saver Data Sys., Inc. v. Wyse Technology) held that shrinkwrap licenses were unenforceable, since the contract had been completed before the licensee was made aware of the initial terms. However, other cases have upheld the enforceability of shrinkwrap licenses.
- ↑ See, e.g., Step-Saver Data Sys., Inc. v. Wyse Technology, 939 F.2d 91, 94 (3d Cir. 1991) (full-text).
- ↑ 17 U.S.C. §109(a).
- ↑ Congress created an express exception to the first sale doctrine in the Computer Software Rental Amendments Act of 1980, which prohibits any person "for the purposes of direct or indirect commercial advantage [to] dispose of, or authorize the disposal of . . ." a computer program acquired on or after December 1, 1990 "by rental, lease or lending, or by any other act or practice in the nature of rental, lease or lending." 17 U.S.C. §109(b)(1)(A).
- ↑ See, e.g., Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208, 213 (E.D.N.Y. 1994) (full-text).
- ↑ 847 F.2d 255 (5th Cir. 1988) (full-text).
- ↑ 831 F. Supp. 759 (D. Ariz. 1993) (full-text).
- ↑ 939 F.2d 91, 100-04 (3d Cir. 1991) (full-text).
- ↑ See, e.g., Pro-CD, Inc. v. Zeidenberg, 86 F.3d 1147 (7th Cir. 1996) (full-text); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) (full-text); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569 (Aug. 13, 1998) (full-text). But see Klocek v. Gateway, Inc., 104 F.Supp.2d 1332 (D. Kan. 2000) (full-text) (the court rejected the Pro-CD line of cases.