Mitigating Risk in Shrink-Wrap and Click-Wrap Agreements – Part III

A few weeks ago, I wrote about the various methods used by businesses in addressing shrink-wrap, Web-wrap, and click-wrap agreements. As discussed, there are essentially three methods of addressing the risk of shrink-wrap agreements: blind acceptance, knowing acceptance, and mitigation. In my last post, we talked about the blind acceptance (aka “ostrich”) approach. This week, we finish up with the mitigation approach.

The mitigation approach is used in circumstances where the relevant license agreement presents unusual risks or in situations where the purchaser operates in a regulated industry where the protection of data and contracting requirements, in general, are of heightened concern. It has become common in those industries to review proposed uses of shrink-wrap products as they would for any other product purchase transaction. With due regard for the relatively limited ability of purchasers to negotiate these types of agreements, purchasers quickly assess the risks posed by a new engagement and focus on mitigating only the most substantial risks. This is commonly done in the form of an amendment to the shrink-wrap agreement. Such amendments are usually brief, addressing only terms like basic warranties, basic infringement indemnity, audit rights, and protection of the purchaser’s own intellectual property.

A number of large organizations are now using these types of amendments to quickly mitigate key risks in these engagements. Their acceptance by vendors, particularly in larger transactions, is growing. If the amendment is rejected by the vendor and no alternate vendor of a similar product is readily available, the risks would be clearly identified in a memorandum for review and, if the cost-benefit of the engagement warrants, potential approval by senior management.