What is a
Shrink Wrap Agreement Anyway?

The term shrink-wrap agreement or shrink wrap license has evolved over time. Originally referring to a literal and concrete use of shrink wrap film secured around physical products, it now refers to electronic versions of the same kind of legally binding contract. This article will cover both types of shrink wrap licenses, beginning with the original physical kind of shrink wrap contract.

Shrink Wrap Agreement Definition

The Business Professor website defines a shrink-wrap agreement as follows: “A legal agreement, purchase agreement or an undertaking made on packaged or shipped products. In this type of agreement, products are sealed or enclosed in shrink wrap (plastic wrap) implying that the goods can only be viewed by the customer who purchases it. Shrink wrap products can only be opened by a user after purchase. Also, Shrink wrap agreement may also include specific terms and conditions such as price of products, warranties, right of use and guideline, limitations and licenses as the case may be.

What does that mean in consumer terms?

It’s more simple than it may seem.

Shrink wrap licenses became a thing back when software was delivered to a purchaser on discs that contained the data needed to download the software onto a computer. This was back in the day when computers had disc drives. The purchaser or end user received a shipment of shrink wrapped software, which was basically several discs that were shrink wrapped together. Just like today, software use comes with rules and regulations. There are tons of rules but the most obvious one is that a person is not allowed to buy software and then share that software with fifty of their closest friends. Each person has to pay for the software.

The user agreement itself was often shrink wrapped separately inside the package or within the bundle of shrink wrap software. As soon as the end user or purchaser sliced that shrink wrap open, they were agreeing to the terms of the user agreement. Does it sound suspicious that users were agreeing to terms that they could not yet access until agreeing to the terms by the act of opening the shrink wrap? It always has and is at the root of legal challenges to shrink wrap contract enforcement. What is a shrink wrap agreement really? It’s what we now call an end user license agreement.

The Shrink Wrap Application to Digital Software

Long gone are the days when software arrived on hard discs that had to be fed into a machine and slowly loaded onto your gigantic desktop computer. In modern times we do software digitally. You go to a website, you pay a fee if applicable, and the software begins downloading directly to your computer.

But wait! As the download begins, you have to check a little box that follows a very lengthy agreement. This is the end user license agreement that spells out the rules you agree to abide by as it relates to the software. As this type of consumer agreement evolved from the physical to digital world it went from being called a shrink wrap agreement to a click wrap agreement and is now typically called an end user license agreement.

The Shrink Wrap Effect in the Courtroom

The enforceability of shrink wrap agreements is a topic of some controversy. This is particularly true when we are talking about agreements that have to be opened before they can be seen but are binding as soon as they are opened. If a consumer cannot read the terms of an agreement, how can they possibly agree to it? It’s a classic catch 22.

There are two opposing sides on the issue. On one hand, the argument goes something like this: some court rulings say that a consumer consents to the terms in a shrink wrap agreement by the act of paying for product, accepting the product, and opening the package. On the other side, courts say that the consumer could not possibly have consented to the terms of the agreement because they cannot view the terms until  the shrink wrap is removed.

Types of Products with Shrink-Wrap Agreements

Although there is no set standard for what products come with a shrink wrap license, there are some common elements found in most products that have a shrink wrap contract.

  • Product usually costs less than $20,000 per unit
  • High value to the organization behind the agreement, such as software
  • The product is not customized for the consumer. Rather it is sold “off-the-shelf” and is the same version for every consumer who purchases it.
  • The product is easy to install or implement by the consumer. Again, software is easily downloaded by the consumer and does not require help from a third party.
  • The product is commonplace in the market and its use is well understood.
  • The product is frequently available for a trial period that does not require a license.

Shrink wrap agreements are touched, literally or digitally, by nearly every modern consumer. Their use brings up issues of consent and transparency that continue to confuse purchasers and courtrooms. Knowing a bit more about them may have you at least scanning the fine print before you download your next software purchase.