Can San Diego Consumers be Bound by “Shrink-Wrap” Contracts?

As a consumer, you have probably purchased a product — often software or small electronic devices — where a contract or licensing agreement is located inside the box. These types of agreements go by the name “shrink-wrap” agreements. As a consumer, you are not given the opportunity to read the contract before you buy the product, so the legal question here in San Diego is: Was a contract formed? Are you bound by the agreement contained in the box?

Here in California, the answer depends on what you do after opening the box. Under California law, to form a contract, there must be an offer, acceptance, the exchange of some value, and a “meeting of the minds” concerning the obligations of the contracting parties. With respect to brochure or paperwork contained in a box, such is construed as an “offer” which can be “accepted” by using the product. This is consistent with California statutory law such as the California Commercial Code, § 2204(1) which states that “[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” So, using a product can be considered — usually is considered — to be an “outward manifestations of consent.”

So, in general, “yes” a consumer in San Diego is likely bound by a “shrink-wrap” contract.

That being said, a consumer might not be bound by every provision in the shrink-wrap contract. Legal issues will arise if the contract or license agreement in the box is very long and complicated. Under those circumstances, use of a product does not necessarily bind the consumer to inconspicuous contractual provisions or to terms contained on a document that does not appear to be a binding contract. This was the result in Norcia v. Samsung Telecommunications America, LLC, 845 F.3d 1279 (US 9th Cir. 2017). In that case, applying California law, the court voided the arbitration provision in a 101-page booklet that was contained in a box with a Samsung’s Galaxy S4 smartphone. The booklet contained in the box was called “Product Safety & Warranty Information” brochure. The court held that the brochure did not create a binding agreement to arbitrate even if the consumer used the phone. The arbitration provision was not free-standing or prominent, was buried in a very long document that was not labeled as a legal document, and there was nothing to trigger the idea in the consumer’s mind that using the phone would bind him or her to mandatory arbitration.

A contrasting result was reached in a different case involving later models of the Galaxy smartphone. See In re: Samsung Galaxy Smartphone Marketing and Sales Practices Litigation, Case No. 16-cv-06391-BLF (US Dist. N.D. California March 30, 2018). In that case, Samsung modified their booklet and successfully reached a different result. This case dealt with the S7 and S7 Edge models. Here, court held that, based on the way the agreements were written, the plaintiffs were bound by the mandatory arbitration provisions contained therein. With respect to the S7 and S7 Edge models, the outside of the boxes indicated that additional terms and conditions would apply. This was not the case with the S4 models. The booklet for the S7 and S7 Edge had a cover which stated: “Please read this manual before operating your device and keep it for future reference. This document contains important terms and conditions with respect to your device. By using this device, you accept those terms and conditions.” Further, the second page of the booklet was titled “Legal Information” and the text informed the consumer that important legal information was available on the phone or on samsung.com and instructed to “READ THIS INFORMATION BEFORE USING YOUR MOBILE DEVICE.” Again, this language was not contained in or on the booklet for the S4 model.

The court held the booklet for the S7 and S7 Edge to be sufficient to make the contract binding on the consumer including the mandatory arbitration provisions. Unlike the booklet for the S4, here the booklet clearly indicated legal terms, clearly triggered the idea that terms and conditions were binding, and clearly stated that use of the product would bind the consumer. Further, the arbitration provisions were clear and prominent once the consumer opened the booklet.

Contact San Diego Corporate Law Today

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for four years running by SuperLawyers.com. Every business needs a good business attorney like Mr. Leonard. He can be reached at (858) 483-9200 or via email.

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