Citation. 105 F.3d 1147 (7th Cir. 1997)
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Brief Fact Summary.
Rich and Enza Hill, (Respondents), filed suit in federal court against Gateway 2000, Inc. (Petitioner) claiming the product they bought from Petitioner was so inadequate as to make Petitioner a racketeer. Petitioner asked the district court to enforce the arbitration clause. The court refused and Petitioner appealed.
Synopsis of Rule of Law.
Terms inside a box containing a computer and other components bind consumers who use the computer after an opportunity to read the terms and to reject them by returning the product.
Respondents purchased a computer over the phone. They noticed a statement of terms in the box containing the computer when it arrived. However, they deny reading the terms closely enough to discover the clause requiring arbitration. They kept the computer over thirty days before complaining about its components and performance. They filed suit in federal court arguing, among other things, that Petitioner is a racketeer. Petitioner requested that the district court enforce the arbitration agreement. The district court refused concluding that it lacked sufficient evidence to rule a valid arbitration agreement existed and that the plaintiffs had adequate notice of it. Petitioner appeals this ruling.
Whether the terms contained within a box containing a computer are effective as the parties’ contract or whether the contract is term-free because the order taker did not read any terms to the customer and elicit the customer’s assent.
Yes. The terms contained within a box containing a computer are effective as the parties’ contract.
This court adopted the ruling in ProCD, Inc. v. Zeidenber, 86F.3d 1447 (7th Cir. 1996), holding that terms inside a box of software binds consumers who use the software after an opportunity to read the terms and to reject them by returning the product.
First, Respondent contends that ProCD, Inc. should be limited to software. The court rejected this argument stating that ProCD, Inc. is about the law of contract not the law of software. Practical considerations support allowing vendors to enclose the full legal terms with their products. Also, the Gateway box was crammed with software applications so limiting ProCD, Inc. to software would not make it inapplicable in this case.
Second, Respondent argues that ProCD, Inc. should be limited to executory contracts, specifically licenses. This is wrong because the issue has to do with the formation of the contract, not its performance and further, both contracts were incompletely performed. ProCD, Inc. was no more executory than the one here because the arrival of the box containing the product did not conclude contract formation. ProCD, Inc. had not completed performance when the purchaser walked out of the store with the box, and Petitioner had not completed performance when the box arrived at Respondents’ home. Further both ProCD, Inc. and Petitioner had agreed in their terms to continue to help customers to use their products.
Third, Respondents argue that ProCD, Inc. is irrelevant because the purchaser in that case was a merchant and Respondents are not. The court rejected this argument as inaccurate. The court in ProCD, Inc. concluded that when there is only one form, UCC sec. 2207 governing additional and different terms is irrelevant. The question is how and when the contract was formed not whether terms were added to the contract subsequent to formation.
Fourth, Respondents further distinguish ProCD, Inc. by claiming the software box stated that terms were contained within but the box containing Petitioner’s product did not. The court stated that the difference is functional not legal. In the store, consumers can look at the box and if they are unwilling to deal with the prospect of additional terms can choose not to buy. Here, Petitioner’s box is not on display, it is simply for protection during shipping. Respondents had three options: Respondents could have asked to see the terms ahead of time; they could have consulted public sources that may contain the terms; or they could have inspected the documents after delivery of the product. They chose the last option and by keeping the computer beyond 30 days accepted the offer including the arbitration clause.