(a) A party adopts the terms of a mass-market license for purposes of Section 2B-207(a) only if the party agrees to the license, by manifesting assent or otherwise, before or in connection with the initial performance or use of or access to the information or informational property rights. However, a term does not become part of the contract:

(1) if it is unconscionable; or

(2) subject to Section 2B-301 with regard to parol or extrinsic evidence, if it conflicts with negotiated terms to which the parties to the license expressly agreed.

(b) If a party does not have an the opportunity to review a mass-market license before becoming obligated to pay for the information and does not agree, by manifesting assent or otherwise, to the license after having that opportunity, the party is entitled to receive from the licensor, on returning all copies of the information dealt with by the license or destroying such copies pursuant to the licensor's instructions:, a: to:

(1) a refund;

(2) reimbursement of any reasonable expenses of obtaining the refund and incurred in complying with any instructions of the other party for return or destruction of the information or, in the absence of such instructions, reasonable expenses in connection with return of the information; and

(3) compensation for any foreseeable loss caused by the installation, including any reasonable expenses incurred in restoring the particular information processing system to its condition prior before to the required installation, if

Uniform Law Source: Restatement (Second) of Contracts § 211.

"Agreement": Section 1-201. "Contract": Section 2B-102. "Information": Section 2B-102. "Information processing system": Section 2B-102. "License": Section 2B-102. "Licensor": Section 2B-102. "Manifest assent: Section 2B-111. "Mass-market license": Section 2B-102. "Party": Section 1-201. "Refund": Section 2B-102. "Term": Section 1-201.

Committee and other Votes:

a. During Article 2 discussion at the 1996 annual meeting, a motion to delete exclusion of terms in consumer contracts was defeated based on Committee assurance that Article 2 would use an objective test.

b. Deleted reference to allowing terms consistent with "customary industry practice." Vote: 11-1

c. Deleted reference to allow terms giving no rights no less than under a first sale. (12-0)

d. Voted 12-0 to support an approach to refusal terms that focuses on the perspective of the party proposing the form.

e. Rejected a motion to substitute refusal term concept with an expanded refund right. Vote: 2- 6 (April, 1997)

f. Did not adopt a motion to add the expanded refund right and restrict the refusal term concept to consumers. Vote: 5 - 5 (April, 1997)

g. Rejected a motion to limit the section to consumer licenses. Vote: 2 - 8 (April, 1997).

h. Adopted a motion to delete refusal term concept and use refund right proposed by an ABA committee. Vote: 10 - 2 (Sept. 1997).

1. General Structure and Approach. This section deals with standard forms in a mass market (retail) context. It places significant procedural and substantive restrictions on the use of forms in the mass market. Those restrictions entail a general rule that applies to all mass market forms in a retail setting and additional, special protections in cases where the form involves an undertaking proposed by a remote third party that was not a party to the retail transaction, but requires terms.

This Section must be read in connection with Section 2B-207. Adoption of the terms of a mass market license occurs only when the limitations stated in 2B-207 and the restrictions stated here are met. As is true generally, while this section deals specifically with the adoption of the terms of a record, in many situations the same acts adopt the terms and constitute agreement to the contract itself.

The Section provides express protections against use of hidden terms in forms to alter the basics of the actual bargain of the parties to a license. These are outlined in subsection (a) and the concept of "manifest assent." The Section does not adopt Restatement (Second) of Contracts § 211 which allows a court to invalidate terms that are not unconscionable if the court later concludes that they are not within presumed expectations of a party. The section does respond to the policies that underlie that Restatement concept which are to prevent bizarre and oppressive terms (unconscionable terms) or terms that vitiate the basic deal of the parties. In the more than twenty years since it was proposed, the Restatement approach has been adopted in less than ten states for general transactions. It creates significant uncertainty based on criteria that are not well-defined.

2. Scope: Mass Market. This Section is not limited to consumer transactions or to transactions involving so-called "shrink wrap" licenses. Compare Section 2-206 (Proposed Revision Draft, July 1997). Subsection (a) deals with all transactions in the retail market.

In the retail mass market, and in many non-retail transactions, most modern transactions are standardized. An information provider defines the terms under which its information products are made available to the retail market place and end users in that marketplace elect to either acquire or not acquire the information on these terms. The transactions are anonymous in that the information provider does not restrict those to whom the information is given except based on the licensee's willingness to agree to terms and to pay the applicable license fee. This standardized contracting characterizes the vast majority of all mass market and non-mass-market transactions. It is a vital part of commerce and a broadly enforced method of contracting.

The section is not limited to "shrink wrap" licenses. In common parlance, these are contracts that are entered into after an initial transaction in a retail or other context. Often, especially in the retail mass market, licenses of this type involve creating a relationship between a remote information publisher and an end user who acquires a copy of information from a retailer.

The section also applies to all consumer transactions.

3. Records Presented Prior to Payment. Where the terms of a mass-market license are presented before a price is paid, the contract presents relatively few unique issues and involves questions that have been presented to courts for years. Courts generally enforce the terms of the record if the party manifests assents to that form. The fact that the terms are non-negotiable or may even rise to the level of a "contract of adhesion" does not invalidate the contract terms. It may suggest a need for close scrutiny of terms under general standards of unconscionability. Section 208(a)(1) forces this scrutiny as a uniform matter.

In this setting, as in many other contract formats, ideas of assent and agreement reflect the position of both parties (or all three parties in most retail licenses). In a typical non-negotiated transaction in the mass market, the information provider does not assent or agree to license under any terms other than those set out in its license, while the other party assents to the terms or is free to forego the transaction. So long as there is an opportunity to review the contract, a lack of fraud, and no unconscionable terms, contract law principles do not vitiate the deal proposed and adopted (subject, of course, to terms required by this Article). An information provider (or other vendor) may choose the terms under which it provides its product and the terms that define the product itself.

This section provides enhanced procedural protections for mass market licensees in the form of a requirement of an opportunity to review the terms of the form and a requirement that assent be in the form of an affirmative act indicating agreement to the license.

4. General Rules. Subsection (a) sets out general rules for when the terms of a mass market license become the terms of the contract. These apply to both records presented for review prior to committing to the transaction with the retailer, and records presented at or before the first use of the information.

a. Assent and Agreement. As explained in Section 2B-207, a party becomes bound to the terms of a record if it agrees to the record. Agreement can be shown in various ways. One of these under subsection (a) is by manifesting assent to the record. This term derives from the Restatement (Second) of Contracts. The idea of manifesting assent is that the party adopts the record by taking some action that objectively indicates agreement to the record. Unlike in the Restatement, the term in Article 2B-111 is defined to include significant procedural protections. These restrictions ensure that the record be available for review and that the assenting party make some affirmative indication of assent.

This rejects cases such as Hill v. Gateway 2000, Inc., 1997 WL 2809 (7^th Cir. 1997) to the extent that they hold that a mere failure to object adequately adopts the terms of the record. The issue in any disputed case is whether there is indicia of assent in the parties conduct with reference to the license or the information. In addition, as spelled out in Section 2B-111, a party cannot manifest assent unless it has had an opportunity to review the record. This requires an opportunity in the sense that the record be reasonably available. It does not require, however, that the party actually read the record.

b. Unconscionability. Even if a party adopts the terms of a record, subsection (a) makes clear that this does not adopt terms that are unconscionable. The general UCC policy disallowing enforcement of unconscionable terms controls. While this is true in any event, the specific reference here makes clear that the policy is important in mass market contracting.

The well-established doctrine that disallows unconscionable terms provides a basis to avoid bizarre and oppressive results in standard form contracting. How that theory evolves in modern markets for information and licenses of informational property rights remains to be determined and ultimately requires judicial decisions applicable to particular cases. This Section expressly carries forward existing UCC concepts to this modern market. Traditionally, unconscionability doctrine blends questions about the contracting process (procedural) with questions about the substantive character of the terms (substantive). It prevents abuse and unfair surprise in standard form contracts. In an non-bargained market where purchasers make choices mainly about price and about whether or not to enter into a transaction, this doctrine provides an important safeguard against over-reaching.

The doctrine might apply to invalidate terms that are bizarre and oppressive and that are hidden in boilerplate language. For example, a contract term buried in a mass market license that provides that default on the mass market contract involving a $50 software results in a cross default on all other negotiated, multi-million dollar licenses between two companies may be unconscionable in setting where there was no reason to suspect that the linkage of the small and the larger licenses. Similarly, a clause abrogating all responsibility for intentional wrongful acts buried in a license form violates public policy in most states and, in addition to being unenforceable on that basis, might also be unconscionable.

Unconscionability doctrine requires a contextual analysis to avoid abuse by the licensor or the licensee. It is not possible to fully describe the various situations in which it may apply. The doctrine is sufficiently flexible that, in information transactions, it can encompass a consideration of underlying public policies and protection of public interests in free flow of ideas. Article 2B takes a neutral position relating to the difficult federal policy issues that arise in reference to federal law preemption, intellectual property fair use and misuse and federal competition law. Within that approach, issues about the relationship between a contract clause and underlying principles of free speech, free idea flow, and the like in a mass market are appropriate elements in an unconscionability analysis. Thus, for example, a contract term purporting to prevent the buyer of a publicly distributed magazine from quoting the magazine's observations about consumer products might in context be unconscionable.

In practice, however, the primary standards under which clauses dealing with this subject matter are measured comes from the federal law concepts themselves. The fact that the contract itself is generally enforceable under Article 2B does not alter the application of these broader federal law concepts. See Section 2B-105.

c. Agreed Terms. Subsection (a) adopts a new premise that a mass market form in itself cannot alter the terms agreed to between the parties to the license. This deals with an issue discussed in the Restatement (Second) of Contracts § 211, but does so in terms that do not create an open-ended right of a litigant and a court to rewrite a contract adopted by the parties.

The basic concept holds that the form cannot alter agreed-to terms in the mass market. The concept treats such terms as current Article 2 treats express warranties. As with express warranties, it is subject to the application of parol evidence concepts. The basic theme is that a form in this marketplace cannot vitiate the terms of the agreement between the parties.

Illustration 1: The librarian of University Libraries orders a copy of Zen Software's multimedia product for University's public network and agrees on a price for network use. The software is delivered for the agreed fee, but a mass market license limits use to a single user . University assents to the license without reading the clause. The single user term of the license is not part of the contract under (a) if the parties agreed to a network license.

This concept corresponds to comments to Restatement (Second) § 211 which refer to invalidating "bizarre and oppressive" (unconscionable) terms and terms that vitiate the basic agreement of the parties.

The concept is especially important in mass market information transactions in that the importance of the contract is far greater than in sales of goods. The contract defines the product (e.g., what rights are conveyed and which are withheld). This concept is, of course, subject to the parole evidence rule.

4. Case Law. In single form cases, no appellate case law rejects the enforceability of mass market licenses and recent cases expressly support it. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7^th Cir. 1996); Arizona Retail Systems, Inc. v. Software Link Inc., 831 F. Supp. 759 (Ariz. 1993). Compare Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5^th 1988) (lower court held contract invalid as contract of adhesion; appellate court did not address contract issue). Cases are less clear in reference to cases of conflicting forms (battle of forms) where differing terms create questions about assent to either form. See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.1991); Arizona Retail Systems, Inc. v. Software Link Inc., 831 F. Supp. 759 (Ariz. 1993). The cases in this field do not contest the enforceability of standard forms. See Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of § 2-207, 68 Va. L.Rev. 1217, 1227-31 (1982).

5. Forms presented after payment. In modern commerce, licenses are often presented after a price is paid or committed to be paid to a retailer. These licenses often entail a three party transaction: the license is between the remote publisher (informational property rights holder) and the end user, while the retail purchase was between the end user and the retailer. While these relationships create many benefits for the end user and establish a direct contractual privity between the publisher (who controls the intellectual property rights) and the end user, they also present issues about treating the end user in a fair manner.

a. Distribution and Intellectual Property Rights. Distribution channels in licensed information are not identical to those in the sale of goods. The differences lie in the existence of intellectual property rights in the publisher and the choices by the rights owner (publisher) to provide grants of those rights beyond and different than the uses created if it simply sold products to a distributor for resale to an end user. In many (most) cases, the license ultimately gives benefits to the end user that are not conveyed in the contract with the retailer (who does not own the informational property rights). The fact that this is a three party structure is also dealt with in Section 2B-616.

In most transactions where a license is presented to the end user after it acquires a copy from a retailer, the license is between the copyright owner and the end user, rather than between the end user and the retailer. In this three-party setting (end user, retailer, copyright owner), the enforceability of the post-payment license is important to the end user. The form establishes for the first time a relationship between the copyright owner and the end user that may be central to the end user's right to use the information.

In establishing a distribution system for the mass market, an informational property rights owner may elect to establish a transaction in which it gives its distributors either (1) ownership of a copy and a right to sell copies of its work to others, or (2) a license (permission) to the distributor to license copies to others. Copyright and other intellectual property law supports either choice. It also provides that, if a license is created and the distributor exceeds the license, the eventual transferee (even if in good faith) is not protected under bona fide purchaser concepts. See Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (ED NY 1994); Major League Baseball Promotion v. Colour-Tex, 729 F. Supp. 1035 (D. N.J. 1990); Microsoft Corp. v. Grey Computer, 910 F. Supp. 1077 (D. Md. 1995); Marshall v. New Kids on the Block, 780 F. Supp. 1005 (S.D.N.Y. 1991).

The end user is often benefited by a license rather than a sale transaction. A sale creating ownership of a copy of a work (book, computer program or other work) does not give the owner a number of rights that it may desire. It does not give the right to make multiple copies, to make a public display of the work, to make derivative works from the copy, or to do other significant things. Licenses in the mass market and otherwise typically create rights that go beyond the rights that arise in the event of mere sales of copies.

A common licensing distribution situation in information is:

1) copyright owner permits distributor to distribute, but not sell, copies, and only subject to a license (copyright gives owner the exclusive right to "distribute" copies and, thus, this limit is consistent with copyright law);

2) distributor (retailer) transfers copies to end users, but this is not an authorized "first sale" since the rights holder did not authorize a sale;

3) end user has possession, but an uncertain status under copyright (or patent) law until is assents to a license with the rights owner; and

4) license with the publisher (rights holder) creates affirmative rights of use if assented to by the end user, but the rights do not exist if the license is rejected.

In this setting, both the remote publisher and the end user have an interest in the license being enforceable. If the license is not enforceable, the end user receives few if any rights to use the acquired information and has no rights against the remote publisher in warranty or otherwise in the absence of rules that vitiate all concepts of privity. The end user contracted solely with the retailer. On the other hand, the publisher that chooses this distribution method has an interest in the enforceability of the license because that license defines the product that it allowed into the market.

The "post-payment" license in these transactions is the first and often the only contract between the end user and the copyright owner. It is the only setting in which the end user can obtain rights that exceed rights to a first sale buyer of a copy and the first setting in which it obtains any rights under a distribution system that does not authorize mere sales of copies to end users.

b. Refund Rights. In post-retail purchase licenses, two issues are important. One involves dealing with prevention of bizarre and oppressive terms. That issue is identical to that presented in pre-retail purchase transactions. The second issue involves ensuring that the licensee (end user) has a real opportunity to review and accept or reject the license with the remote publisher.

Subsection (b) deals with this second issue. It creates a robust refund and reimbursement right whose intent is to place the retail end user in a situation whereby it can exercise a meaningful choice on a post-retail purchase license. To be meaningful, the end user must be given a cost free right to say no to the proposed license. This does not mean that the end user can reject the license and use the information. What is created is a right to be in a situation equivalent to what would exist if the license were presented for adoption before the retail acquisition of the copy. If there is no assent to the contract, the end user can return itself to the place that it was in before acquiring the copy and reviewing the license.

Illustration 2: Two end users desire information under a mass market license. End user #1 goes to a web site and, after reviewing the license terms, provides his credit card number and downloads the information. Subsection (b) does not apply because opportunity to review the license contract existed before payment. End user #2 places a telephone order and provides his credit card, but the license is not available for review until the information arrives in the mail. Subsection (b) applies.

Illustration 3: In the above example, End user #2 opens the package and finds a license on an envelope that contains a copy of the information. The envelope clearly states that opening the envelope constitutes consent to the license. The user reads the license and rejects it, deciding not to open the envelope. Subsections (b)(i) and (ii) entitle him to return the information with return costs covered by the licensor. Subsection (b)(iii) does not apply; it was not necessary to install the license in order to read it.

Illustration 4: In the same circumstances, end user tests the information to see if he likes it. Subsection (b) does not apply; the end user assented to the license. Any right to test is governed by the inspection rules of Article 2B which assume the existence of a contract and focus on determining and providing a remedy for breach if the product is defective.

6. Intellectual Property Issues. Important federal policy issues can arise about distribution of information in a mass market and the relationship between contractual restrictions on the one hand and federal policy on the other. Article 2B adopts a neutral position on these issues. Nothing in this section should be understood to alter decisions about under what circumstances contractual provisions might be precluded as a result of federal law mandatory policies. In general, these federal policies, which include ideas of free speech and concepts of copyright (or patent) misuse, apply to particular clauses in contractual relationships. The fact that the contract is enforceable does not alter decisions that as a matter of federal policy are invalid.

Modern copyright cases hold that, in certain circumstances, making intermediate copies of copyrighted technology for the purpose of "reverse engineering" and understanding that technology constitutes fair use. See Sega Enterprises Ltd. v. Accolade, Inc., 977 F2d 1510 (9th Cir. 1992); Atari Games Corp. v. Nintendo of Am., Inc., 975 F2d 832 (Fed. Cir. 1992). In some contexts contractual bars on reverse engineering are clearly enforceable in that they create confidential or other requisite relationships. In others, they may not be enforceable as a matter of federal policy. In the mass market, the issue is in dispute. It involves a decision about federal policy, rather than contract law. That federal policy if applicable, is not affected by this Article.

Similarly, federal case law (and statutory provisions) establish a federal interest in the broad distribution and use of ideas and concepts that have been distributed to the public. See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989). On the other hand, it is clear that federal policy on dissemination of information co-exists with the ability of parties to make confidential disclosures and deal with information to be kept secret. See Computer Assoc. Int'l, Inc. v. Altai, Inc., 982 F2d 693 (2d Cir. 1992). Some case law supports the view that, in some situations of mass distribution of the information in an unrestricted form, the provision is unenforceable. See Consumers Union v. General Signal Corp., 724 F.2d 1044 (1983).

Exactly where and how these themes interface and what limits they may place on particular contractual relationships is clearly a question of federal policy, rather than state contract law. With the transition from print to digital media as a main method of conveying information, major policy disputes have erupted concerning the redistribution of rights in light of the fact that the media of distribution allows many different and potentially valuable (for users or authors) uses of information products. The difficulty of balancing policies in this context is demonstrated by the fact that disputes about underlying social policy have erupted and been left unresolved in numerous contexts in the U.S. and internationally. State law that conflicts with the resolution of those questions in federal law may be preempted if that is the policy choice made in federal law. Indeed, currently pending in Congress are proposals dealing with these questions specifically as a matter of federal policy.