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Netscape loses privacy dispute

An appeals court rules that Netscape customers suing the company for privacy invasion are not bound by an end-user license agreement forcing them into arbitration.

Netscape Communications customers suing the company for privacy invasion are not bound by an end-user license agreement forcing them into arbitration, a federal appeals court panel ruled Tuesday.

At least three groups of Netscape users have sued the company in recent years, alleging that the AOL Time Warner unit's SmartDownload software invaded people's privacy and violated laws prohibiting electronic surveillance by sending their personal information back to the company. AOL shuttered the tracking feature soon after it was sued.

But AOL also argued that plaintiffs could not pursue their complaints in the courts because they were obligated to comply with an electronic agreement to resolve disputes via arbitration instead.

However, a panel of the U.S. Court of Appeals for the Second Circuit ruled against AOL on the end-user license issue, saying people who obtained SmartDownload had not received reasonable notice of the terms of the agreement, which in most cases were presented to them on the Web page below the download button. The ruling should clear the way for the privacy suits to go forward. In affirming a lower court decision, the judges also said that the agreement, which was designed to cover Communicator, did not also apply to the SmartDownload plug-in.

"A reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the licensing terms before responding to defendants' invitation to download the free software," the judges wrote.

Monday's decision could undermine the enforcement of online pacts, sometimes known as click-wrap licenses, and could lead companies to rethink the use of agreements that customers are not required to actively click on.

The ruling bucks a trend in which courts have generally upheld such agreements. However, the case differs from traditional click-wrap cases because SmartDownload users never actively agreed to the licensing terms, either on the Netscape site or on other sites that allow people to download software.

Representatives from AOL did not immediately return requests for comment.

Joshua Rubin, an attorney with Abbey Gardy, who represents the plaintiffs, said the decision draws an important line between online and offline agreements.

"The court distinguished between contracts that are made on the Internet and contracts that are made on paper," he said.