Specht v. Netscape–What Happened After the 2nd Circuit Remand?

By Eric Goldman (with help from Matt Goeden)

The Specht v. Netscape 2nd Circuit opinion is a modern classic. The case articulates a clean (and, in my opinion, sensible) rule about online contract formation. I think it’s a great teaching case because of the clarity of its rule and because it illustrates the consequence of sloppy third party distribution practices. The case is also noteworthy as an early skirmish in the spyware battle. As a result of its significance, the case has become pretty popular in both Cyberlaw and Contracts courses.

I just taught the case in my Cyberlaw class, and it occurred to me that I could not recall hearing about any developments in the case since the 2002 2nd circuit ruling. A quick Google search was fruitless, so I asked Marquette 3L Matt Goeden (who runs his own blog, fscklaw.com) to research what happened.

Here is Matt’s report on his findings:

R.I.P. — Specht v. Netscape

While we weren’t paying attention, Specht v. Netscape, an oft-cited click-through contract formation case, was settled in early 2005. Apparently, there was even a website outlining the settlement; the website doesn’t exist anymore, but can found at archive.org. The official settlement notice could also be found on the website (but not any more; here is a copy).

[Eric's comment: some of the parties' posturing about the settlement is pretty amusing, such as the following:

"Netscape and AOL believe that the versions of SmartDownload at issue were entirely lawful, effective, and valuable software products that harmed no one and that made using the Internet and downloading files simpler, more convenient, and more reliable."

Tip to Netscape--a settlement notice over your software being spyware is generally not the best place to make a sales pitch for your software!]

As far as I can see, the plaintiffs received nothing but the satisfaction that Netscape will never allegedly “intercept” their (and others’) electronic communication again.

Moreover, the district court denied awarding attorney’s fees for the settlement because the ECPA “requires a violation to trigger relief” and the settlement expressly denies any violation. The attorneys were seeking a cool $1.5 million. See the ruling.

In 2003, New York fared slightly better when Attorney General Eliot Spitzer and Netscape settled for $100k and similar cease-and-desist promises.

So, for having allegedly been a spyware purveyor, the net consequences to Netscape were:

* $100,000 check to NY and no money to consumers

* paying their defense legal fees but none of the plaintiffs’ attorneys fees

* flushing of the collected data

* issusing a new version of the software (which is still online; I use the screen shot of this page in class to show how Netscape converted the page to a mandatory non-leaky clickthrough agreement)

* a few other minor promises, like agreeing to some third party audits

All told, a pretty good outcome for Netscape. We’ll have to see if all alleged spyware purveyors (like DirectRevenue) are so lucky!

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