Shrink-wrap licence

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A shrink-wrap licence (also called a box-wrap licence) is a form of end-user licence agreement, usually shortened to EULA, or a set of terms and conditions enclosed inside physical product packaging. The consumer is treated as bound by those terms on opening the package rather than at the point of purchase, and the only remedy offered to a consumer who disagrees is to return the product within a specified period.

The defining characteristic of a shrink-wrap licence is that its terms cannot be read before the act that constitutes acceptance of them. This separates it from a click-wrap licence, which displays terms on screen and requires an affirmative action before the product can be used. With a shrink-wrap licence, the consumer's first opportunity to read the terms arrives only after the conduct that supposedly accepts them has already taken place. A contract whose terms cannot be read until after consent has been given is not an agreement in any meaningful sense. It is a condition of sale imposed by one party and discovered by the other after the fact.

History

Shrink-wrap licences emerged with the commercial software industry of the 1980s and 1990s, when software was distributed on physical media sealed in cellophane or blister packaging. The name derives from the plastic shrink-wrap surrounding retail boxes, typically accompanied by an exterior notice stating that breaking the seal constituted acceptance of the terms inside.

The practice received its most significant judicial treatment in the United States in ProCD v. Zeidenberg (1996), in which the Seventh Circuit Court of Appeals upheld the enforceability of a shrink-wrap licence enclosed with CD-ROM software. The court reasoned that the contract was formed when the buyer opened the box and used the product, rather than at the point of sale. The decision has influenced later case law, though courts have not applied its reasoning uniformly across product categories.

Forms of shrink-wrap acceptance

Box-seal notice

Retail packaging bears text on its exterior informing the buyer that breaking the seal accepts terms enclosed within. Such notices commonly specify a return period, for example 30 days, during which the consumer may decline the terms by returning the product. Because the terms are inside the box, they cannot be examined before the box is opened. The consumer must therefore either accept the terms sight unseen or abandon a purchase already made and transported home.

Removal of packaging before delivery

Consumer advocate Louis Rossmann has highlighted the case of a refrigerator manufacturer which argued that a hidden arbitration clause was accepted by the customer even though the clause was printed on packaging the customer never saw, having been removed by delivery personnel before the appliance was handed over. In such cases the consumer does not merely lack an opportunity to read the terms before accepting them, but never encounters the terms at all.

Why it is a problem

Lack of informed consent

The consumer cannot evaluate the terms before the act of acceptance. The remedy offered, namely returning the product within a fixed window, imposes costs in time, shipping and restocking fees that make declining impractical for most buyers. What is formally presented as a choice therefore operates as acceptance by default.

Waiver of rights without review

Terms enclosed in packaging are drafted unilaterally by the seller. They routinely include waivers of the right to participate in class actions, requirements to arbitrate disputes individually, exclusions of liability for consequential loss such as data loss, and provisions permitting the seller to modify the terms after purchase. The consumer discovers these only after becoming bound by them.

Conflict with disclosure principles

Consumer protection frameworks generally rest on the principle that terms and conditions should be available to the buyer before a transaction is completed. A license that is, by design, physically unreachable until after the transaction inverts that principle. The United Nations Guidelines for Consumer Protection, first adopted in 1985 and revised in 2015, recommend that businesses provide complete, accurate and not misleading information regarding terms and conditions so that consumers can take informed decisions.

Examples

• ProCD v. Zeidenberg (1996): CD-ROM software supplied with licence terms inside the box. The Seventh Circuit held the terms enforceable on opening.

• SK Hynix SSDs: Retail packaging bearing a notice that breaking the seal accepts arbitration, limited warranty and return policy terms enclosed in the box.

• Refrigerator delivery: a manufacturer argued that an arbitration clause on discarded packaging had been accepted by a customer who never saw it.

See also

• End-user licence agreement, the broader category of agreements to which shrink-wrap licences belong.
• Forced arbitration, a clause commonly found within shrink-wrap licences.
• Click-to-cancel