SoftMan is a Los Angeles-based company that sells software primarily from its web site, buycheapsoftware.com. Adobe sued SoftMan, claiming that the retailer was infringing its copyright and breaching licensing obligations by unbundling Adobe “Collections” and selling the component parts.
Adobe’s “Collections" are sets of individual Adobe products, such as Adobe Photoshop, Pagemaker, Acrobat or Illustrator on separate disks, that are sold together in a larger Adobe retail box. These Collections are offered by Adobe at a discount from the individual retail products comprising the Collection.
Each piece of Adobe software is accompanied by an End User License Agreement (EULA), which sets out the terms of the license between Adobe and the end user for that software. The EULA is electronically recorded on the disk and customers are asked to agree to its terms when they attempt to install the software.
Such licences are variation on so-called “shrinkwrap” licences. The term refers to the fact that the license begins when the purchaser reads its terms and tears open the transparent plastic wrapping, or shrinkwrap, that often encloses a box containing disks. While the early practice was to make shrinkwrap licenses visible prior to purchase so they could be read before the purchaser tore open the software's wrapping, current practice is to place the licence on the disk itself. This requires the user to click acceptance before becoming bound by the licence. This variation is known as a “clickwrap” licence.
The validity of shrinkwrap and clickwrap licences has been the subject of many court cases, but the current position in the US is that such licences are deemed enforceable on end-users as a matter of contract - unless their terms are objectionable on grounds applicable to contracts in general.
However, the court ruled that SoftMan was not bound by the EULA because it had not consented to the terms of the licence – basically, SoftMan had not installed the disks to be given the opportunity of expressing consent to the terms.
The court went further and said that the EULA could not bind SoftMan’s customers because its provisions were unreasonable. According to the decision:
”The Court finds that the provisions contained in Adobe's EULA purport to diminish the rights of customers to use the software in ways ordinarily enjoyed by customers under copyright law. Therefore, these restrictions appear to be inconsistent with the balance of rights set forth in intellectual property law. Commentators have noted that the arguments for enforcing this balance are particularly persuasive in the context of shrinkwrap licenses because the balance of rights in intellectual property law is already tilted heavily in favour of the intellectual property owner.”
Before ruling in favour of SoftMan, the court concluded:
"This is an area fraught with conflicting policy considerations. Software publishers are desirous of augmenting the protections offered under copyright law. In this case, through the use of licensing, Adobe seeks a vast and seemingly unlimited power to control prices and all channels of distribution. On the other hand, in the absence of copyright law violations, the market can often best regulate prices and all subsequent transactions that occur after the first sale. Sound policy rationales support the analysis of those courts that have found shrinkwrap licenses to be unenforceable. A system of 'licensing' which grants software publishers this degree of unchecked power to control the market deserves to be the object of careful scrutiny."