Step-Saver v. TSL: UCC §2-207 and Contract Formation

Contract Formation and the Acceptance Standard

The Uniform Commercial Code (UCC) approach to contract formation holds that an acceptance must be based on the actual terms of the proposed offer. This is primarily because an acceptance is a binding agreement that must be unconditional, absolute, and identical to the terms of the proposed offer. In light of this requirement, an expression of acceptance must be definite, seasonable, and given within a suitable timeframe. While not all responses to a proposed offer function as acceptances, an expression of acceptance must sufficiently respond to the offer and provide clear indications of the parties' intentions to enter into an agreement.

In Step-Saver's case, several expressions of acceptance occurred each time the company sent a purchase order to acquire twenty copies of the Multilink Advanced Program from The Software Link, Inc. (TSL). By sending the purchase order, Step-Saver was essentially expressing acceptance for the purchase of that specific batch of software.

Box-Top License as Additional Terms Under UCC §2-207

The court rejected TSL's argument that the box-top constituted a conditional acceptance. Under UCC §2-207(1), Step-Saver's purchase order was a written confirmation that functioned as an acceptance even if additional or different terms were present. Although there were such additional or different terms, TSL never clearly stated its unwillingness to proceed with the transactions unless those terms were incorporated into the contract, as required by UCC §2-207(1). Because TSL failed to make this statement, the box-top could not be regarded as a conditional acceptance (Phillips, 2009).

As a result, the court classified the box-top as additional terms to the contract under §2-207(2). The box-top license would therefore constitute proposals for addition to the agreement rather than its governing terms. Moreover, the box-top licensing terms could not be treated as conditional acceptance simply by virtue of a buyer opening the package containing the Multilink Advanced Program. TSL never expressly stated that it would refuse to carry out transactions with Step-Saver if Step-Saver did not consent to the new terms. Step-Saver's repeated opening of delivered packages did not, by itself, demonstrate acceptance of those terms.

Material Alterations: Warranty Disclaimer and Limitation of Remedies

The warranty disclaimer and limitation of remedies provisions were considered material alterations under UCC §2-207(2) because they were proposals for addition to the contract that required agreement between both parties. Like the box-top license, including these terms amounted to a written confirmation incorporating additional terms, which in turn constituted material alterations. UCC §2-207(2) requires that written confirmations of additional terms to an original agreement be mutually agreed upon in order to become binding.

When the initial contract was formed, Step-Saver and TSL had not incorporated a disclaimer. The introduction of the warranty disclaimer and limitation of remedies provisions therefore meant that new terms were being proposed after the fact. These new terms would materially alter the original agreement and would need to be consented to as required by UCC §2-207(2).

The court treated these provisions as material alterations because they were not part of the initial agreement and required mutual assent in order to become legally binding. The provisions were also unenforceable because the two parties never agreed to them — Step-Saver refused to sign the disclaimer and limitation of damages provisions despite TSL's numerous attempts to obtain express consent.

Battle of the Forms: Step-Saver and ProCD Compared

Since Step-Saver Data Systems, Inc. v. Wyse Technology, courts have decided several cases involving contract terms and obligations. One notable example is ProCD, Inc. v. Zeidenberg, decided by the U.S. Court of Appeals for the Seventh Circuit five years after Step-Saver (Phillips, 2009). The outcome in ProCD differed significantly and had important implications for contract formation. The decision triggered a "battle of the forms" analysis, as the court held that Step-Saver had involved two forms.

A battle of the forms occurs when two parties to a contract exchange multiple documents during negotiations toward a transaction. In such a situation, the documents provided by one party often contain different proposed terms from those provided by the other, and the central question is which document's terms will govern the contract. This dynamic was present in Step-Saver, where the two parties provided documents with differing terms and the court had to determine which terms would control.

UCC §2-207 appears to contemplate two forms — an offer and an expression of acceptance or counteroffer — and effectively overrules the mirror image rule and the last-shot rule. If parties exchange writings demonstrating their intent to enter into a contract, differences in standard terms will not prevent contract formation (Rogers, 2012). While the first writing constitutes a proposed offer, the second is treated as an expression of acceptance even if it incorporates different or additional terms.

Conclusion: Applying §2-207(2) to Consumer and Commercial Contracts

UCC §2-207(2) can account for the difference between contract formation in commercial and consumer transactions by reference to the expression of acceptance. Under this subsection, the intention to enter into a contract must be demonstrated through an offer and an expression of acceptance — a requirement that does not straightforwardly apply in a typical consumer transaction. Had Zeidenberg not been a merchant and had the court applied §2-207 of the UCC, the contract between ProCD and the buyer could have been found non-existent for lack of an expression of acceptance.

Taken together, Step-Saver and ProCD illustrate how the shrink-wrap and box-top license debate turns largely on the commercial or consumer character of the transaction and on whether the statutory framework for mutual assent has been satisfied.

References

Morrill, R. (2008, August 25). Contract formation and the shrink wrap license: A case comment on ProCD, Inc. v. Zeidenberg. Retrieved February 22, 2017, from http://www.tabberone.com/Trademarks/CopyrightLaw/EULA/articles/CaseCommentOnProCDvsZeidenberg.shtml

Phillips, D. E. (2009). The software license unveiled: How legislation by license controls software access. Oxford University Press.

Rogers, B. (2012, March 1). Battle of the forms explained (using a few short words). Retrieved February 22, 2017, from http://thecontractsguy.net/2012/03/01/battle-of-the-forms-explained-using-a-few-short-words/