Startup entrepreneurs love “disruption”—a buzzword that has come to mean sweeping out old models of delivery or consumption and replacing them with technological alternatives—but their lawyers often do not. The law can be slow to change, and its application to any new technology is never totally predictable. Just ask Aereo, the company that sought to disrupt television viewing with its miniature antenna technology until the U.S. Supreme Court shut it down last year. But even where the law itself may not “disrupt,” it does tend to adapt. Courts confronting novel issues of law often are inclined to look for analogies, molding older precedent to accommodate new situations.

This process has been particularly clear over the past several years, in the important area of contract formation. Every law student for well over a decade has read Judge Frank H. Easterbrook's seminal Seventh Circuit opinions Hill v. Gateway 20001 and ProCD v. Zeidenberg.2 These cases addressed issues of contract law that arose as consumers embraced new ways of buying and selling software and computers (and later a host of other goods) in the 1990s. They are often called the “shrinkwrap” cases because they tackle the issue of whether a consumer can be found to have agreed to contract terms after a purchase is made: The new terms are inside the “shrinkwrap” and the consumer accepts them by removing it and using the product. The shrinkwrap cases highlighted new ways of thinking about contractual relationships, emphasizing that they can be more fluid than courts had traditionally found. That flexibility has been crucial to the growth of online commerce and the rise of direct-to-consumer retail.

These cases are not taught because they are easy or because they represent the simple application of black-letter law. They are taught because they demonstrate how contract law can adapt to new commercial realities. And understanding this process is often helpful for lawyers who are faced with new issues and must advise their clients on likely outcomes, or argue for an application of existing law that would be beneficial to their clients' business model. On the Internet, for example, commercial transactions are fundamentally electronic: The vendor may provide only a service or may have no control over the physical packaging of any goods that are eventually supplied. Such a vendor has nothing to “shrinkwrap,” but still needs an efficient way to contract with its customers. As expected, the rise of these online service providers has created its own line of cases. They are the progeny of the shrinkwrap cases and address what are appropriately named “clickwrap” and “browsewrap” agreements. Although these agreements have been in use for decades, they continue to raise difficult issues in litigation, as demonstrated by a recent opinion issued by District Judge Sandra L. Townes of the Eastern District of New York.

Contracts on the Internet

There are two general types of agreements commonly entered into on the Internet: clickwrap and browsewrap agreements.3 In the typical “pure clickwrap” case, the user is confronted by the entire text of the agreement (typically called “terms of use,” an “end user license agreement,” or something similar) and cannot use the product or service until he or she affirmatively clicks on a button indicating acceptance of those terms.4 Anyone who has ever installed a piece of software knows that these agreements are rarely read; the vast majority of people hurriedly scroll through screen after screen of legal jargon before clicking “I Agree.” Nonetheless, these agreements are generally enforced in part because the user could (in theory) read through the agreement and, finding an unpalatable clause or two, click cancel to reject the product or service. Courts view the decision not to do so—or indeed the decision to ignore the text entirely—as tantamount to accepting the terms of the agreement.