THE COMPUTER LAW AND SECURITY REPORT 6 CLSR

CASE LAW UPDATE

CONTRACTS: 'ONEROUS' TERMS - THE REQUIREMENT FOR NOTICE The terms and conditions under which software is licensed are not always to be found in the most obvious place. They can be contained within the packaging, whether see-through or otherwise, or can form part of the documentation that goes with the disk. Christopher Millard examined in some detail the enforceability of shrink-wrap licences in a recent issue of The Report (1987-88 4 CLSR 8). In a more general sense however, there is frequently a lack of understanding by people in commerce and industry as to how far they can be said to have agreed to terms which they have either not read, or which have not been brought to their attention. This question was recently considered by the Court of Appeal in the case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd (Unreported Court of Appeal, 12th November 1987). The case did not concern a software licence, but the reasoning of the court might well apply in a situation where the enforceability of all or some of the terms of a software licence was in question.

Facts of the Case Interfoto ran a library of photographic transparencies; Stiletto were involved in advertising. In response to a telephone enquiry by one of Stiletto's employees, Interfoto delivered to Stiletto a jiffy-bag containing 47 transparencies and a delivery note. Following receipt of the bag, the same employee telephoned Interfoto to say that he was interested in some of the transparencies and would call back. He did not call back, and after two further attempts by Interfoto to contact him, the transparencies were eventually returned four weeks later. Interfoto than sent Stiletto an invoice for £3783. 50 which was the holding charge for the transparencies. They were relying on condition 2 of the delivery note, which specified a fee of £5.00 per transparency for each day where the transparencies were retained for longer than 14 days. Condition 8 provided that the conditions applied unless the package was immediately returned.

Analysis & Judgement Central to the argument was the fact that the amount of the holding charge was very high. Several other libraries charged only in the region of £3.50 per week. Even a short period of delay could therefore lead to a heavy liability. It was held to be probable that the employee of Stiletto had not read the conditions. Nevertheless, a contract came into existence when the employee phoned Interfoto back shortly after receipt of the package. The question which arose was whether condition 2 was part of that contract. No mention of the terms had been made in any of the conversations between the parties. The court referred to the "ticket-cases" in the last century, which broadly stated that a customer would be bound by printed conditions, where the conditions as a whole had been sufficiently drawn to his or her attention. In more recent times however, courts have tended to consider the situation where one condition in a set of conditions is particularly onerous. As a result, it would appear that where a condition is particularly onerous or unusual, the party seeking to enforce it must show that that condition was fairly brought to the attention of the other party. The court in this case said that this principle should not be confined to

exemption clauses and should apply to condition 2 of the Interfoto conditions. People in general rarely read contractual terms, especially where the print is very small, as it is assumed that they are concerned with "the usual things", such as delivery, cancellation, title and such like. In spite of the fact that they do not read them, they will usually be bound by such terms. But where, as in the present case, a term is onerous or unusual, it must be brought to the attention of the other party. Since the charges were exceptionally high, the court reduced the amount payable to the average charge payable in the particular market.

Conclusion So would the same law apply if the jiffy-bag had contained floppy-discs and a software licence? Are any of the terms typically found on such licences onerous or unusual? Unusual, probably not, as there is quite a high degree of uniformity these days in licence terms and conditions. But a court could well find onerous a clause which limited any remedy of the licensee to the right to return the software within 30 days. The same could be said of any clause which deprives licencees of their statutory rights where such a clause is unreasonable. Some companies print their clauses on warranties and limitation of liability in bold print in an attempt to make them noticeable. This may not always be sufficient however, as the Unfair Contract Terms Act of 1977 cites the fact of bringing a clause to the attention of the other party as just one of the facts to be considered in determining whether a particular clause is reasonable. It should be noted however that there is still a good deal of debate as to whether this Act applies to software licences. With shrink-wrapped licences, and in particular where software is sold through distributors or dealers, it is commonly thought that such licences are unenforceable by virtue of the fact that the customer only gets the opportunity to read the terms after he has 'purchased' the software (i.e. concluded the contract) and starts to open it. If this is true, it is arguable that those terms could still apply to any subsequent purchases of the same software by the same customer on the basis that the requirement for notice would be satisfied. However, after this decision, it must now be doubted as to whether any 'unusual or onerous' terms would be upheld. In the present case, Stiletto had not previously dealt with Interfoto. Would it have made any difference if they had? Probably not, unless they had had occasion to make a payment under the 'holding-charge' clause. Doubtless, most people would feel that the outcome of this case was in the circumstances fair and just. But it would be unwise to assume, upon the strength of this case, that it is not necessary to pay attention to suppliers' terms and conditions, particularly where a reasonable attempt has been made to highlight any significant clauses.

David Greaves, Editorial panelist

US CASE LAW DEVELOPMENTS

Lotus Development Corp v Mosaic Software Inc (D.MA87.0074-K)

There has been a new twist in the case in which Lotus allege that Mosaic's 'Twin' software infringes the 'look and feel' of

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MARCH - APRIL THE COMPUTER LAW AND SECURITY REPORT

Lotus 1-2-3. Mosaic are now claiming that the very existence of the case along with Lotus's size and discovery tactics are providing Lotus with a victory even before the merits of the case are discussed. Lotus is more than a hundred times larger than Mosaic, and the legal costs alone are already more than $100,000. Most of Mosaic's employees are being required to take part in the action, and potential customers are delaying order for 'Twin' pending the outcome of the litigation. It is therefore questionable whether Mosaic could withstand the financial cost of the action given the length of time necessary for pre-trial discovery. Mosaic are therefore seeking a court order whereby the copyright infringement issue would be settled first and any other issues subsequently. They also seek to limit discovery to five months and for the trial date to be two months later. In support of this motion, Mosaic point out that Lotus commenced this action 'under the bright lights of a well- publicisedpress conference', at which Lotus said it would seek a preliminary injunction and punitive damages of $10,000,000. Lotus has not sought an injunction and has dropped its claim for punitive damages. Thus, it is implied Lotus is achieving its aim through the adoption of tactics designed to prolong the case and thus cause harm to Mosaic's business.

Neeco Inc v The Computer Factory Inc et al (D. M A 8 7 - 1 9 2 1 - Z )

Neeco, a vendor of used computer hardware and software, required its employees to sign three types of confidentiality agreements. The employee in question worked at a fairly low level within Neeco and had limited contact with customers. The case arose after the employee left Neeco to work for a

competitor, and the judge was called upon to examine three types of provision. The first of these prohibited the employee from soliciting or diverting any of Neeco's employees to her new employer, The Computer Factory, for a period of two years following termination of employment. The judge found this clause excessive in that it applied to all Neeco customers across the country, and not just those with whom the employee had had any contact. The clause was therefore narrowed to apply only to such customers whom the employee knew to be customers as a result of her employment with Neeco. The second provision was a lifetime restriction on the disclosure of confidential data. This the judge found to be not unreasonable as it was intended to protect a company's proprietary information, which he called 'classic employer interests'. The third clause prohibited the employee from working for a group of named competitors within New England for one year. The judge found this restriction to be unreasonably broad given the employee's relatively low-level position and the fact that the Computer Factory was more than 150 miles from Neeco's Massachussets headquarters. The judge concluded that the provision was far broader than was necessary to protect Neeco's legitimate interest. Moreover, the risk to Neeco would be far less than the injury which the employee would be likely to suffer if forced to give up her new job.

David Greaves, Editorial Panelist The Report acknowledges the assistance of the US publication, The Computer Industry Litigation Reporter in tracing these case reports

CONFERENCE REVIEW

PROBLEMS RELATING TO LEGISLATION IN THE FIELD OF DATA PROTECTION

Three day conference in Athens on November 18-20, 1987, organised by the Council of Europe (COE). Speakers: Peter Hustinx

Yves Poullet K Mavrias Spiro Simitis

Day One The first report on the theme, 'Rule-making for data protection - present trends' was presented by Peter Hustinx, legal adviser in the Ministry of Justice, and Chairman of the Council of Europe Committee of Experts on Data Protection. Hustinx discussed the emergence of 'second generation' data protection legislation within Western Europe as having a number of characteristics: they cover a wider range of material, mainly relating to manual records; there is a trend towards simplification; a greater amount of differentiation for the sectors; a trend in favour of self-regulation, and the increased use of informal and civil sanctions as a means of enforcing data protection. The need for simplification has arisen in the face of the bureaucracy that data protection legislation has thrown up, and the corresponding costs and time involved, both for the business sector and the responsible authorities. The United Kingdom Registrar has recently brought out a shortened version of the registration form, specifically designed to aid small businesses in complying with the Act.

The trend toward differentiation, the sectoral approach, of data protection rules has been a result of the ageing and experience of existing legislation. Such a process of differentiation enables both an increased level of protection for data subjects; as well as tailoring the legislation to fit in more suitably with the conditions within particular industries, and thus prevent the creation of unnecessary and unsuitable bureaucratic requirements. Divisions into sectors has occurred along such lines as the sensitivity of the data, and the purpose of the data. The Council of Europe, itself, has set up a number of sectoral working parties to draw up regulations for different categories of data users. It has already produced recommendations in areas such as direct marketing and medical data banks. Related to the greater differentiation of data protection rules is the trend towards self-regulation. Sectors of data users are being expected to draw up enforceable codes of practice. However, this was a trend that, though welcomed by various delegates, was seen as posing a potential threat towards the weakening of data subjects rights. Data protection agencies were still perceived as necessary for effective control. Legislative registration of data processing was seen as being a useful method of stimulating data users to think why they hold information. Few cases of criminal sanctions were found to exist in the field of data protection, and it was thus felt more appropriate to rely on informal and civil sanctions against rogue data users. Informal sanctions consist of investigations, where the data user is informed of the problem and given the scope to resolve it. In these situations, data protection authorities do

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