That Forum Selection Clause in Your Software License Matters

Here is a story to tell clients wondering why you are negotiating so hard over a seemingly mundane forum selection clause.  An Illinois court, swayed in part by the fact that a paper software license had also been presented in a click-wrap agreement, enforced a forum selection clause in the license agreement that the plaintiff-licensee had contended was unenforceable and unreasonable.  Advance Steel Erection, Inc. v. Design Data Corporation, No. 1-11-1977, 2012 Ill. App. Unpub. LEXIS 1257 (App. Ct. Ill. May 30, 2012) (non-precedential).  Clients are often skeptical that forum selection clauses matter.  This case illustrates that they do.

After receiving the licensed software, and paying for it, the licensee received, from the licensor, a paper copy of the license agreement containing the forum selection clause.  The licensee signed and returned the license agreement.  Subsequently, claiming that the software did not work, the licensee stopped using it and returned it to the licensor.  The licensee contended that the parties negotiated, albeit unsuccessfully, for a return of the purchase price.  The licensee later brought suit in an Illinois Circuit Court, which granted the licensor's motion to transfer venue to a Nebraska court, as specified in the forum selection clause.

Noting that the appeal turned on questions of law that could be considered de novo, the court found that the license agreement was enforceable even though it had been executed after the software was delivered and paid for.  Not only did the plain language of the executed paper copy of the agreement evidence that it was a binding software contract, but the software indisputably could not be operated unless a click-wrap version of the agreement was accepted.  The court found it "reasonable and acceptable . . . for contractual documents to be delivered in a soft format preceding a paper copy to afford parties a signed paper copy for their records."  Therefore the license agreement was enforceable.

Further, the court dismissed the licensee's argument that, the enforceability of the overall agreement notwithstanding, the forum selection clause was unreasonable, and therefore unenforceable.  The licensee argued that the boilerplate nature of the license, and other factors, demonstrated unequal bargaining power, and weighed in favor of venue in Illinois.  To this the court responded that the license agreement provided for Nebraska as the exclusive forum, and that a forum non conveniens analysis did not apply.  A forum selection clause would be invalid only if it effectively denied a party of its day in court, which was not the case here.  After considering Illinois' six-factor test for evaluating the reasonableness of a forum selection clause, and in particular rejecting the argument that the parties had unequal bargaining power because the forum selection clause was in the licensor's boilerplate, the court held the clause reasonable and enforceable.

The bottom line was that the licensee "failed to meet its burden to overcome the presumptive validity and enforcement of the bargained-for forum selection clause," and therefore "the circuit court properly granted [the licensor's] motion to transfer venue to Lancaster County in Nebraska based upon the forum selection clause in the parties' software license agreement specifying Nebraska as the exclusive forum to conduct any litigation arising under the agreement."

Upcoming Webinar

We are delighted to kick off the first B2 IP Webinar of 2019 with David Hannon, Of Counsel at Bejin Bieneman, who will provide an outline of issues for decision by a US brand owner in its pursuit of trademark protection in China. Mr. Hannon will dis…Register

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