Why Libertarians Should Oppose “Shrinkwrap” Contracts

Presumably, everyone reading this post has purchased software at some point in the past 15 years. If you have, you may have agreed to a contract unwittingly. Breaking the seal of the shrinkwrap around the box might bind you to the terms and conditions contained inside. This is but one of many new ways you can be determined to agree to contractual terms you may have never seen.

In the last decade, Gateway came under fire for its means of doing business with consumers. A customer would order her computer over the phone, but when it would come, it would contain a list of terms including things like a mandatory abritration clause – and always stating that the customer was deemed to have accepted the terms by not returning the computer (at her expense) by some period of time. A number of court cases raised the question whether this practice really created a binding contract. 

As libertarians, we are generally in favor of contracts. But a contract is a mutually consensual agreement. The critical question for shrinkwrap contracts and the like is whether both parties have really assented. In the Gateway cases, there are three main interpretations of what is going on:

1. The phone conversation ordering the computer (or, analogously, buying the software from the store) was just preliminary negotiations. When Gateway shipped the computer, it offered it to the customer with the terms that came with it. And since under traditional contract law “the offeror is the master of his offer,” Gateway could specify that keeping the computer without returning it would be deemed to be acceptance of the offer. So, the customer has accepted the terms and is bound by them. This was Gateway’s interpretation, and the one a New York appellate court adopted in Brower v. Gateway 2000.
2. The phone order was the customer’s offer to buy a computer from Gateway. Gateway’s shipping the computer accepted it, but its acceptance provided deviating terms. Under the Uniform Commercial Code (UCC), which governs the transaction, the deviating terms must be expressly assented to by the customer. Keeping the computer did not accept the deviating terms, so the contract has only the terms agreed to by both parties and the default terms provided by the UCC. This was the result a Kansas court came to in Klocek v. Gateway.
3. The phone conversation (or, analogously, the sale of the software) was actually a complete contract itself, which agreed on the item to be purchased and the price the customer would pay. The terms that came with the computer were Gateway’s proposal to modify the agreement. But since the customer didn’t agree to the terms explicitly, but rather just accepted the computer, the new terms were never accepted.

Libertarians might legitimately disagree about which of these interpretations is most plausible, but I think that #3 is the winner. We should be in favor of contract rules that allow people to form contracts in a number of ways, including telephone sales calls, but we should make sure that both parties really agree to the contract. This doesn’t mean that we have to look at whether the parties had “equal bargaining power” or thoroughly read the contracts before signing.

But what Gateway was doing in those cases, and what software companies do all the time, seem an awful lot like the homeless guy washing your car window and then demanding payment. This is not a contract. As the great libertarian philosopher Robert Nozick said, “You may not decide to give me something, for example a book, and then grab money from me to pay for it, even if I have nothing better to spend the money on” (Anarchy, State, and Utopia, p. 95.). Though the offeror must be allowed to require the offeree to do a lot to accept the contract (e.g. providing a car dealer with your credit history), the offeror cannot bind the offeree even though she hasn’t done anything. I should not be required to ship back a product, at my expense, to refuse assent.

But perhaps shrinkwrap contracts will become less of a problem as more sales – and even content acquisition – occurs online. Before I buy a song on iTunes, I have to agree to the terms Apple gives me. If I don’t like the terms, I can refuse to buy from iTunes and instead use Amazon Music Downloads or go buy a CD. And few people buy things over the phone any more. When you buy a physical product online, the seller can require you to agree to its terms before it accepts your order, charges you, and ships. These cases are explicit agreements, and libertarians should support protecting these. But, as Tim Lee has pointed out here, we should be careful before finding contracts where none really exist.

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