box top

Disney Case Teaches Importance of Clear Contract-Forming Language to Create Contractual Restrictions

Many companies that market products or content protected by intellectual property rights rely on “shrink-wrap” or “box top” licenses to impose licensing restrictions on their customers.  But that strategy only works if the customer is indeed bound by the terms – meaning that he or she will be deemed to have accepted the terms as a matter of contract formation.  A recent decision of a California federal court highlights the need to use language in such licenses that clearly inform the user that they are agreeing to contractual terms when using the product (by opening a box or entering a website). 

Disney Enterprises, Inc. v. Redbox Automated Retail LLC (C.D.Cal. 2018) denied Disney’s motion for a preliminary injunction based on contract and copyright claims.  A key part of the decision was the court’s finding that no contract had been created between the parties when the defendant opened a Disney “combo pack” that included codes used to download Disney movies.  The box top language was not sufficiently clear that the user opening the box was agreeing to contractual terms and restrictions.

Unlike prior cases involving “box top” licenses, Disney’s combo pack did not make clear that by opening the box, the user was entering into a contract by which it accepted restrictions on use and resale of the contents.  The combo pack merely stated that “[c]odes are not for sale and transfer” in medium print.  In very small print, they stated “Terms and Conditions apply.”  That was not enough to alert the user that he or she was agreeing to contractual terms.

The lesson: if you want contractual terms to be binding, you must make clear that the user is entering into a contract