January, 1999
87 Calif. L. Rev. 17
LENGTH: 36003 words
SYMPOSIUM: The Metamorphosis of Contract into Expand
David Nimmer, Elliot Brown, Gary
N. Frischling*
Copyright © 1999 David Nimmer, Elliot Brown, and Gary N. Frischling.
* The authors practice copyright law at Irell & Manella LLP in Los Angeles.
SUMMARY:
... Article 2B of the Uniform Commercial
Code (U.C.C.) provides model rules to govern transactions in the digital
domain, such as the licensing of
software and electronic contracting. ... When a copyright owner distributes
its software, it is free to grant
a license extending only to specified uses, while excluding others. ...
At least
for the modes of software distribution
used today, copyright law provides all the teeth a publisher needs to
control use and dissemination of
her work. ... Since the distribution right is an exclusive right in copyright
law,
distributions outside the license
infringe the copyright. ... If, however, the copyright owner elected a
licensing
framework, given the structure of
the transactions, the end user's right to "use" (e.g., copy) the software
depends on the end user license.
... The contract at issue in ProCD, Inc. v. Zeidenberg differs from the
foregoing examples in the one respect
relevant to nonstatutory preemption: it contravenes one of the core
policies of the Copyright Act by
extending quasi-copyright protection to works that do not qualify as "original."
... Although the Act limits the
copyright owner's rights to "public" distribution, publishers who follow
the logic
of ProCD, Inc. v. Zeidenberg may
amplify their statutory rights simply by wrapping books in cellophane,
subject
to the limitation that the buyer
is barred from passing the purchased copy on to a friend. ...
TEXT:
Article 2B of the Uniform Commercial
Code (U.C.C.) provides model rules to govern transactions in the digital
domain, such as the licensing of
software and electronic contracting. By addressing fundamental contract
issues in the burgeoning world of
digital commerce, it provides a salutary update to extant provisions of
the
U.C.C. dealing with traditional
goods sold in traditional modes of commerce. However, to the extent that
Article 2B aspires to protect copyright
owners from improper uses of copyrighted works, it solves a
non-problem. Copyright owners already
enjoy robust and adequate protections under the Copyright Act. Far
more troubling than solving this
non-problem, however, is the possibility that Article 2B will be used to
upset
copyright law's "delicate balance"
between the rights of copyright owners and copyright users. This balance
is
disrupted when state law is permitted
to enlarge the rights that copyright owners enjoy.
Attempts to alter the "delicate balance"
through contract should fail under the doctrine of preemption. Article
2B assumes a pose of neutrality
on the extent to which copyright law preempts contractual encroachment,
yet it facilitates emerging practices
designed to alter the balance and place the burden of defending the
proper bounds of copyright on copyright
users. In this Article, the authors argue that if Article 2B is to be
enacted, it must proscribe contracting
practices that seek to extend copyright protection beyond its current
scope.
The Death of Copyright: n1 A Short, Cautionary Tale
The year is 2010. With the closure
of the last B&N-Walden-Borders-Broadway superstore in Upton, California,
no more off-line retail content
stores remain in the United States (apart from the Scholar's Palazzo in
Disneyland). Theaters, music venues,
and movie houses have all but disappeared in the wake of in-home - not
to mention implantable - content
delivery. Funding for public libraries and the arts has been diverted into
providing each person in America
with access to the all-purpose device for accessing anything - Microsquish
Audiovisual Utilization System (MAUS).
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n1. With apologies to Professor Grant
Gilmore, author of The Death of Contract (1974). Rumors of contract's
death proved, of course, to be greatly
exaggerated, as will be evident from the analysis herein. Moreover, the
true specter confronted today is
not so much the death of copyright per se, but rather copyright as we know
it - a law striking a balance between
the rights of copyright owners and the rights of the public. Cf. David
Nimmer, The End of Copyright, 48
Vand. L. Rev. 1385 (1995) (arguing that new trade discipline has
eviscerated traditional notions
of autonomy in the copyright arena).
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Now, anyone who wishes to read poetry,
browse great works of art, enjoy a novel, watch an epic feature film
(or humble television show), or
experience any other work of authorship can, as a practical matter, do
so only
through the instrumentality of the
MAUS. To access any work through the MAUS, the user must first click "OK"
(or, in the case of implantable
access, blink a cortical acknowledgment) on the ubiquitous authorization
screen. That screen lets the user
acknowledge that she agrees to be obligated to abide by all terms and
provisions of <http://www.contracts.com
/ usurious perpetual adhesive overreaching / 2001$ $ $ £
<yen>.html>. This file (colloquially
known as the "Gates from Hell Agreement") contains a hundred pages of
boilerplate initially setting forth
the text of Title17, United States Code, in haec verba, but thereafter
subject
to innumerable accretions, modifications,
and revisions designed to magnify the rights of proprietors.
Some companies had initially expressed
reluctance at committing their works to protection under the foregoing
regime; they were concerned that
end users would find a way to circumvent the click-wrap contemplated
above. However, with a nod to Ovid,
the MYRRHA Encryption/Subversion Systems furnished the answer.
Thanks to MYRRHA, it has been conclusively
proven that no one anywhere can ever obtain access to any
protected works in any form whatsoever
without personally clicking on the omnipresent authorization screen.
In addition, proprietors take heart
from the fact that to buy any current equipment capable of accessing
content, users must sit down for
a half-hour tutorial at the appliance store and personally and meticulously
agree to the Gates from Hell Agreement.
The user's assent is, in each instance, routinely recorded on DCDVDB
crystal, capturing for posterity
not only the user's facial expression and utterances, but also her brain
state manifesting willing and voluntary
assent.
Overview
In a commercial world burgeoning
with transactions involving software and other electronically-delivered
copyrighted works, an oft-expressed
concern arises that traditional rules of commercial contract law - which
evolved to address trade in goods
- will prove ill-suited to address the peculiar needs of trade in digital
products. The Uniform Commercial
Code, after all, arose to address the paradigm of a sale of goods, a context
that typically involves, at least
in part, a negotiated contract between buyer and seller and where the value
lies in the physical object exchanged.
The typical software transaction, by contrast, does not involve a direct
sale between the software proprietor
and the end user; rather, it involves a non-negotiated license (otherwise
known as a "shrinkwrap" contract)
governing uses of the intangible asset (for example, software) embodied
in
a tangible thing that is sold (for
example, the diskette or CD-ROM) - or even absent the nominal sale of a
tangible thing (for example, delivery
directly over the Internet). It is natural to suspect that the law for
widgets may be inadequate for digits.
n2
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n2. "A body of law tailored to transactions
whose purpose is to pass title to tangible property can not be
simply applied to transactions whose
purpose was to convey rights in intangible property and information."
U.C.C. art. 2B, Preface at 4 (Draft,
Mar. 1998). [All versions of Article 2B are available on the Internet.
See
National Conference of Commissioners
on Uniform State Laws, Drafts of Uniform and Model Acts Official Site
(last modified Sept. 2, 1998) <http://www.law.upenn.edu/library/ulc/ulc.htm>.
The Official Site offers the
Article 2B drafts in several file
formats, among which the pagination is inconsistent. In this Article and
throughout this issue of the California
Law Review, page references are to the pages as they are numbered in
the Acrobat PDF file format. Only
the prefaces to the drafts are cited by page number; all other material
is
cited by section number. The draft
of August 1, 1998, has no page numbers in its on-line versions, and
therefore the preface of that draft
is cited without page references. Ed.]
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It is here that Article 2B of the
Uniform Commercial Code comes to the rescue. The proposed model law
addresses many of the questions
on which traditional commercial contract law is silent, for instance, whether
a digital signature constitutes
adequate consent to a contract, n3 what warranties attach to digital products,
n4 what choice-of-law rules apply
in transactions over the Internet, n5 what rules govern the transferability
of a license, and how notions of
mitigation, consequential damages, releases, inspection, etc., operate
in the
context of digital products. n6
In sum, it provides some measure of certainty to electronic contracting.
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n3. See U.C.C. 2B-113 (Draft, Mar. 1998).
n4. See id. 2B-401-409.
n5. See id. 2B-107.
n6. See id. 2B-502, 608, 701-716.
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Because Article 2B accommodates contracts
over copyrightable subject matter, it is relevant to both the
federal and state law planes of
legal discourse. As discussed below, the symbiosis between federal
copyright protection and state contract
law is ancient, inevitable, and fully consonant with the purposes of
copyright. In developing the law
of contracts for the "digital era," Article 2B therefore represents a salutary
update to the U.C.C. that can benefit
both buyers and sellers of digital goods by providing clear rights and
guidance in matters beyond the experience
and imagination of the drafters of the current U.C.C. n7 Article 2B
thus carries on the role that state
contract law has traditionally occupied in shaping commerce in copyrighted
works.
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n7. Although fashioned for the needs
of digital commerce, Article 2B theoretically allows proprietors of
traditional copyrighted works (such
as books) to "opt-in" to its framework as an alternative to the classic
structure of Article 2. See U.C.C.
2B-103(c) (Draft, Mar. 1998). As will be discussed below, applying Article
2B
to old-fashioned copyrighted works
creates a potential for mischief.
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But harmony is not the end of the
symphony. n8 When examined in light of its potential impact on copyright
law's "delicate balance," n9 Article
2B presents the specter of becoming an unwelcome meddler. On the one
hand, Article 2B might erroneously
be imagined to solve a fundamental problem that does not need solving -
protecting the rights of copyright
proprietors insofar as third parties exploit the intangible expression
underlying their works. On the other
hand, Article 2B ignores and potentially weakens the rights of copyright
users. These two phenomena are interrelated.
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n8. Part of the dissonance stems
from Microsoft v. Harmony, 846 F. Supp. 208 (E.D.N.Y. 1994), discussed
infra in Section II.B.
n9. The metaphor of a delicate balance
or equilibrium is widespread. As one court has articulated it: "The
copyright law seeks to establish
a delicate equilibrium. On the one hand, it affords protection to authors
as an
incentive to create, and, on the
other, it must appropriately limit the extent of that protection so as
to avoid
the effects of monopolistic stagnation.
In applying the federal act to new types of cases, courts must always
keep this symmetry in mind." Computer
Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 696 (2d Cir. 1992). We
will refer to this "delicate balance"
often, tracing its genealogy through Supreme Court cases and to Chief
Judge Crabb's opinion in ProCD,
Inc. v. Zeidenberg, 908 F. Supp. 640 (W.D. Wis.), rev'd, 86 F.3d 1447 (7th
Cir.
1996), treated at length below.
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As discussed below, n10 Article 2B
solves a non-problem to the extent that it aspires to protect the exclusive
rights of authors granted under
the Copyright Act from improper uses of digital products by end users.
The
rights of copyright proprietors
are already fully protected by the Copyright Act without the need for bilateral
contracts, and thus a fortiori without
the need for any provisions under the U.C.C. validating mass market
contracts.
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n10. See infra Part II.
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Solving a non-problem for copyright
proprietors may do no harm, but Article 2B's framework threatens to
create new problems for copyright
users. As further discussed below, n11 the copyright laws are designed
to achieve a "delicate balance"
between the rights of copyright proprietors and copyright users. This
balance is disrupted when state
law is permitted to enlarge the rights of copyright proprietors at the
expense
of copyright users. Although attempts
at altering the delicate balance struck by copyright law should fail under
the doctrine of preemption, a recent
decision from the Seventh Circuit n12 illustrates that courts sometimes
fail to appreciate the preemptive
force of copyright, even when the subject contract is intended to defeat
users' rights validated by on-point
United States Supreme Court precedent.
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n11. See infra Part IV.
n12. ProCD, 86 F.3d 1447. See discussion infra Part III.
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Article 2B purports to remain "neutral"
on questions of federal preemption based on encroachments by contract
on copyright doctrine. However,
by making provisions of software licenses presumptively enforceable while
providing no limitations on overreaching
contract terms that proprietors may unilaterally decide to impose,
Article 2B facilitates known practices
designed to alter the "delicate balance" and places the costs of
defending the proper bounds of copyright
on copyright users. This result is neither desirable nor necessary.
Article 2B can help maintain rather
than undo the delicate balance that lies at the core of copyright by giving
some guidance as to which types
of constraints are at odds with copyright and therefore preempted. But
absent appropriate corrections to
its current instantiation, it is likely to result in the use of contracts
- backed
up by the force of the U.C.C. -
systematically to displace the rights of users. It is important to appreciate
that such resort to contract does
not represent the election of contract protection in lieu of copyright.
Instead, it represents the use of
contract to distort copyright, grotesquely at times. Proprietors who might
take advantage of Article 2B do
not opt out of copyright protection; they enjoy all of its benefits plus
all of
the benefits that can be accorded
by contracts diminishing the rights of users. We suggest, accordingly,
that
if Article 2B is to be enacted,
it first be amended to evince greater sensitivity towards proscribing certain
contracting practices that are inconsistent
with sound copyright policy.
This Article proceeds in four Parts.
Part I reviews the existing relationship between federal copyright law
and
state contract doctrine. Part II
argues that copyright law already provides adequate protection to copyright
owners who distribute software,
and that attempts by copyright owners to enlarge their rights by contract
conflicts with copyright law's concern
for the rights of users. Part III undertakes a critical discussion of the
Seventh Circuit's decision in ProCD,
which upheld a "shrinkwrap" license that extended contractual protection
against copying to subject matter
that the Supreme Court has already declared uncopyrightable. Finally, Part
IV critiques the failure of Article
2B, under a guise of "neutrality," to take into account the rights of
information users and the demands
of federal law.
I The Inevitable Coexistence of Copyright and Contract
A. Transfer
Copyright is, at heart, a creature
of the Constitution and the Copyright Act. But ownership and exploitation
of
copyright are structured at every
turn by contract. Unlike the monistic copyright system of German law, under
which authors may never separate
themselves from ownership of the indivisible whole, U.S. copyright law
follows a regime of infinite divisibility.
n13 The statute itself contemplates transfers in the nature of "an
assignment, mortgage...or any other
conveyance, alienation, or hypothecation of a copyright or of any of the
exclusive rights comprised in a
copyright...." n14
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n13. Compare Adolf Dietz, Germany
4[2][a], in International Copyright Law and Practice (Melville B. Nimmer
&
Paul Edward Geller eds., 1998) with
3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright 10.03 (1998)
[hereinafter Nimmer on Copyright].
See generally Thomas F. Cotter, Pragmatism, Economics and the Droit
Moral, 76 N.C. L. Rev. 1, 8-10 (1997)
(contrasting German monistic system with U.S. copyright). The Act also
explicitly contemplates that the
copyright owner may transfer the copyright bundle or any piece of it by
"any
means of conveyance." 17U.S.C. 201(d)(1)
(1994). An exception to the general rule of alienability is the very
limited rights of visual artists,
conferred by a 1990 amendment. See 17U.S.C. 106A(e)(1) (1994). To this
highly
circumscribed extent, U.S. law resembles
the French notion of inalienability in the moral rights sphere. See 3
Nimmer on Copyright, supra note
13, 8D.01[A], 8D.06[D]. Yet even here it departs from the French template
of imprescriptibility, by allowing
waivers of moral rights. See 17U.S.C. 106A(e) (1994).
n14. 17 U.S.C. 101 (1994).
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One salient feature of the terms
just quoted is the failure of the Copyright Act to define any of them.
Given
that the United States Code nowhere
contains an established common law as to what constitutes a
"mortgage," resort to state law
to determine the nature of that device, as well as like hypothecations
of
ownership, appears inevitable.
Imagine for a moment that Atalanta
transfers ownership of her copyright to Busiris, who gives it to Cadmus,
who in turn mortgages it to Dindyma
Bank, which then forecloses and sells out to Erigone. In a worst-case
scenario for Erigone, her ownership
of the copyright could be subject to challenge on the grounds that
Atalanta was a minor who may disaffirm
the contract because it was not confirmed by the state court of her
domicile; n15 that Busiris (who
had previously been declared insane and placed under the control of a
conservator appointed by the courts
of the state in which he lived) was not bound because his legal guardian
failed to sign the purported grant;
that Cadmus neglected to perfect the mortgage in the manner
required by his own state's law;
and that Dindyma Bank had previously dissolved, thereby rendering its
purported transfer nugatory. n16
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n15. See Cal. Fam. Code 6750-6751
(West 1994). See also Baez v. Fantasy Records, Inc., 144 U.S.P.Q. 537
(Cal. Super. Ct. 1964) (disaffirming
contract by minor reaching her majority).
n16. "What if there is no "proprietor'
at the time of renewal, because the corporation in which copyright vests
has become defunct? Under general
principles, it would seem necessary to trace disposition of assets under
state corporate law to locate the
proprietor in that instance." 3 Nimmer on Copyright, supra note 13, 9.03
n.6.1.
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In each of those particulars, the
battle is waged primarily under state law. n17 To take the case of an
individual committed to an insane
asylum, for example, it is difficult to find any governing federal law,
and thus
to resist wholesale descent into
the minutiae of the subject state's ordinance. In the balance of the other
instances, federal law likewise
does not directly speak to the question of who holds the capacity to enter
into
a contract. Erigone therefore faces
the prospect of lengthy explorations of state law in order to validate
her
federal copyright claims. The best
she can hope for is the application not of the particular law of the state
in
which Atalanta, Busiris, Cadmus,
and the rest chanced to live, but instead a general notion of common law
as
applied throughout the several states.
n18 But even that victory does not invoke the application of federal
norms; instead, it looks to an abstract
notion of state law. n19
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n17. Another oft-litigated issue
in the copyright sphere arises when a party to a copyright contract attempts
to rescind it, for non-performance
or otherwise. The determination of whether the combined circumstances
warrant rescission arises either
under the law of the state in which the contract was executed (or the parties
were located) or more broadly under
the general state common law of contracts. See 3 Nimmer on Copyright,
supra note 13, 10.15[A] (collecting
cases).
n18. See id. at 9.03 n.6.1 (citing
Fleming v. Charles L. Harney Constr. Co., 177 F.2d 65, 70 (D.C. Cir. 1949)
(construing Surplus Property Act
of 1944 such that corporate "dissolution cannot be distinguished from the
death of a natural person," and
following general common law rather than rule of state of incorporation)).
n19. Whether the subject law tracks
that of an individual state or a more generalized notion of state law is
of
no moment to the discussion that
follows. Nonetheless, it strikes us that copyright law tends to focus on
the
"brooding omnipresence" of common
law, rather than on the particulars enacted in any given jurisdiction.
See,
e.g., Community for Creative Non-Violence
v. Reid, 490 U.S. 730 (1989) (determining status of "employee"
under Copyright Act by reference
to the factors set forth in the Restatement (Second) Of Agency). Cf. Erie
R.R. Co. v. Tompkins, 304 U.S. 64
(1938) (rejecting federal "general law" as rule of decision in diversity
cases).
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B. Works for Hire
As the above hypotheticals demonstrate,
the symbiotic relationship between copyright and contract continues
throughout the life of a copyright.
Moreover, it can begin even before copyright birth, the moment an original
work of authorship is fixed for
the first time in a tangible medium of expression. n20 In this guise, it
arises as a
factor in defining who the "author"
is and thus in determining the identity of the initial "copyright
owner." n21 Ordinarily, the author
is the efficient cause of parturition, that is, the human being(s) who
gave
birth to the work. The Act departs
from the default rule, however, when a preexistent contract applies to
certain categories of specially
commissioned works "if the parties expressly agree in a written instrument
signed by them that the work shall
be considered a work made for hire." n22 Thus, both at gestation and
throughout its life, a copyright
is owned according to a complex scheme deriving in large part from state
law.
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n20. See 17 U.S.C. 102(a) (1994).
n21. "Initial Ownership - Copyright
in a work...vests initially in the author or authors of the work." 17U.S.C.
201(a) (1994).
n22. 17U.S.C. 101 (1994). In the
Seventh Circuit, the contract must indeed be prenatal. See Schiller&
Schmidt, Inc. v. Nordisco Corp.,
969 F.2d 410, 413 (7th Cir. 1992). In the Second Circuit, a more ameliorative
rule prevails. See Playboy Enters.,
Inc. v. Dumas, 53 F.3d 549, 559 (2d Cir. 1995) (citing with approval 1
Nimmer on Copyright, supra note
13, 5.03[B][2][b]).
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C. Sale, Rental, Lease
But it is not solely the question
of ownership over which state law governs. Copyright exploitation, too,
can
often turn on distinctions that
equally derive from state laws. In this respect, we depart from the intangible
essence of the copyrightable work
and move to the tangible good in which it may be embodied. n23 Consider
that copyright owners enjoy the
exclusive right "to distribute copies or phonorecords of the copyrighted
work
to the public by sale or other transfer
of ownership, or by rental, lease, or lending." n24 Moreover, one in
possession of a lawfully made copy
"is entitled, without the authority of the copyright owner, to sell or
otherwise dispose of the possession
of that copy...." n25 As was the case with respect to "mortgage" and the
rest, neither the Copyright Act
itself nor other applicable features of federal law define when a "sale"
or
"rental" or act of "lending" of
a physical item has taken place. For these questions as well, resort to
state law
appears inevitable. n26
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n23. See 17 U.S.C. 202 (1994).
n24. 17 U.S.C. 106(3) (1994).
n25. 17 U.S.C. 109(a) (1994). This
provision - imprecisely labeled the "first sale" doctrine - plays a large
role
below. See infra Section III.B.
n26. One case apparently holds that
perfume with a copyrighted label, although imported from abroad, was in
fact "sold" within the United States
under the pertinent provision of the Uniform Commercial Code. See
Cosmair, Inc. v. Dynamite Enters.,
Inc., 226 U.S.P.Q. 344, 347 (S.D. Fla. 1985). That case treats gray market
importation, a subject that the
Supreme Court addressed in Quality King Distributors, Inc. v. L'Anza Research
International, Inc., 118 S. Ct.
1125 (1998).
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In sum, federal copyright doctrine
leaves to state law the vast bulk of issues concerning contracts affecting
copyright. It follows that state
contract law (and cognate doctrines arising under state law) determine
to a
great extent the destiny of a copyrighted
work and the physical object in which it is embodied. Those state
rules play a critical role in maintaining
the "delicate equilibrium" between the rights of copyright holders
to reap the rewards of their intellectual
property and the rights of the public to unimpeded advancement of
knowledge and expression.
D. Contract Formation
Consonant with the traditional interplay
between state contract law and federal copyright law, the U.C.C. can
help define the mechanics of contract
law in the context of contemporary transactions. For example, Article
2B creates rules to govern electronic
contracting and provides that the fact that a contract is in electronic
form does not alter or reduce its
effect, validity, or enforceability. It gives binding weight to electronic
signatures, and it sets forth rules
for determining who shall be held responsible for electronic messages.
n27 All
of these factors may arise in the
context of an electronic license of copyrightable subject matter - an
electronic contract for distribution
rights in a book or motion picture, for example - which parties modify
by
e-mail and sign using digital signatures.
Because federal copyright law, standing alone, is silent as to whether
such a contract is enforceable,
the U.C.C. can usefully fill the doctrinal gap in this and like instances.
Article
2B therefore can provide important
support to the goal of maintaining copyright's "delicate equilibrium" in
the
digital age.
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n27. See U.C.C. 2B-113-116 (Draft, Mar. 1998).
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E. Limits of Contract Rights
Nonetheless, federal abdication in
favor of determinations of contract principles under state law has its
limits.
In certain particulars, the Copyright
Act itself sets forth some governing parameters applicable to contracts
and other matters typically reserved
to determination under state law. When those circumstances obtain,
federal law controls, notwithstanding
contrary state doctrines. n28
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n28. For a lengthy discussion of
copyright contracts in contrast to state law doctrines of community property,
see generally David Nimmer, Copyright
Ownership By the Marital Community: Evaluating Worth, 36 UCLA L. Rev.
383 (1988).
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One example is so pronounced as to
have virtually escaped notice. Undoubtedly the most well-known aspect
of Anglo-American contract law is
its requirement of a quid pro quo - the doctrine of consideration. n29
It is
doubtful that the law of any state
in the union dispenses with that general requirement. n30 Were it applicable
to the copyright sphere, that doctrine
would invalidate grants of copyright ownership unrequited by
the grantee. n31 Yet "notwithstanding
that feature of state law, no consideration is necessary under federal
law to effectuate a transfer of
copyright ownership that does not purport to require consideration." n32
(Nonetheless, one must acknowledge
that few, if any, cases have tested the boundary of consideration-less
copyright grants, presumably because
grantees of valuable copyrights invariably recite the delivery of "$ 10
and other good and valuable consideration"
in order to escape serving as a test case. n33)
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n29. Thus, A's promise to B to pay
$ 1000 if A cannot run a marathon in under 5 hours is a nullity. But B's
agreement to give A a peppercorn
if A timely completes the marathon probably resuscitates the contract.
See
Restatement (Second) of Contracts
17 (1979).
n30. Of course, exceptions exist
under state law. Thus, A's promise to pay $ 1000 to the United Way without
any return obligation is often enforceable
under an exception to the doctrine of consideration for promises to
make charitable contributions.
n31. Recall that Busiris gave the
copyright hypothesized above to Cadmus gratis. Were a requirement of
consideration applicable to copyrights,
an additional quiver would accrue to the bow of Erigone's enemies.
n32. 3 Nimmer on Copyright, supra note 13, 10.03[A][8].
n33. See, e.g., id. Form21-21.
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The most prominent example of federal
contract requirements trumping contrary state doctrine that has
received treatment in published
decisions is the Act's requirement that any transfer of copyright ownership
n34 "is not valid unless an instrument
of conveyance...is in writing and signed by the owner of the rights
conveyed...." n35 Even if state
law validates oral grants - attested by the grantor before the mythical
bench
of fifty bishops, for example -
that law must bow to the superior force of the federal enactment. n36
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n34. Note that such transfers definitionally
exclude nonexclusive licenses under copyright. See 17U.S.C. 101
(1994).
n35. 17U.S.C. 204(a) (1994).
n36. See, e.g., Valente-Kritzer Video
v. Pinckney, 881 F.2d 772, 775-76 (9th Cir. 1989) (holding preempted
claims for breach of oral contract
and tortious breach of contract); Marshall v. New Kids On The Block
Partnership, 780 F.Supp. 1005, 1009
(S.D.N.Y. 1991) (rejecting claim as one for breach of an oral contract
rather than for infringement of
the copyright orally transferred); Library Publications, Inc. v. Medical
Econs.
Co., 548 F.Supp. 1231, 1234 (E.D.
Pa. 1982) (finding unenforceable oral agreement for transfer of copyright
ownership), aff'd, 714 F.2d 123
(3d Cir. 1983).
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Another example of the same phenomenon
- though this one has gone unlitigated - arises under copyright's
termination-of-transfers doctrine,
which allows authors a "second bite of the apple" for works that they long
ago sold, gave away, or otherwise
alienated. n37 In particular, the Act itself provides with respect to
transfers of copyright ownership
that, following the lapse of a set period, n38 "termination of the grant
may be
effected notwithstanding any agreement
to the contrary, including an agreement to make a will or to make
any future grant." n39 Accordingly,
a contract not to exercise an author's termination rights may be
fully operational under state law,
yet the superior force of federal law nonetheless bars its enforcement,
effectively rendering it a nullity.
n40
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n37. See 17 U.S.C. 203, 304(c) (1994).
More technically, the Supreme Court has labeled the
reversion-of-renewals doctrine as
a "second chance" and, correlatively, the termination-of-transfers device
here under consideration a "third
opportunity" for authors to profit from works that they had long ago
alienated. Stewart v. Abend, 495
U.S. 207, 220, 225 (1990).
n38. In brief, grants effectuated
before 1978 are subject to termination following 56 years of the work's
copyright subsistence; grants effectuated
thereafter are subject to termination 35 years after the work's
publication. See generally 3 Nimmer
on Copyright, supra note 13, 11.05.
n39. 17 U.S.C. 203(a)(5), 304(c)(5) (1994).
n40. See generally 3 Nimmer on Copyright, supra note 13, 11.07.
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Much confusion arises in attempting
to reconcile these strands. n41 As an example, consider the ruling that
when Congress used the term "children"
in the context of termination of pre-1978 transfers n42 it intended to
adopt antecedent state family law
definitions as to who qualifies for that label, n43 whereas when Congress
used the same word in the same Act
to apply to termination of post-1978 transfers, it intended to adopt a
federal definition incorporated
into the Copyright Act itself. n44 The court reached that result by attempting
to follow Congress's will in enacting
a given provision of the Copyright Act. n45 As we shall see, that
desideratum furnishes the touchstone
for proper analysis in the journey that follows.
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n41. As the drafters of Article 2B
comment, "The relationship between federal law and state contract law is
complex." U.C.C. 2B-105 reporter's
note 1 (Draft, Mar. 1998). In our opinion, even the Courts of Appeals have
erred on both sides of the issue
under discussion, that is, state contract law control over disposition
of
copyrights. The Ninth Circuit misconstrued
Congress's will in holding doctrines of state contract law preempted
in Rano v. Sipa Press, Inc., 987
F.2d 580 (9th Cir. 1993), criticized in 3 Nimmer on Copyright, supra note
13,
11.01[B]. The Second Circuit, by
contrast, inappropriately failed to advert to Congress' will to allow even
oral
grants of nonexclusive licenses,
see infra note 47, by disallowing them under state law in Grappo v. Alitalia
Linee Aeree Italiane, S.p.A., 56
F.3d 427, 431-32 (2d Cir. 1995), criticized in 3 Nimmer on Copyright, supra
note 13, 10.03[A][8].
n42. On the termination-of-transfer doctrine, see the preceding paragraph and its footnotes.
n43. The rationale here stems from
DeSylva v. Ballentine, 351 U.S. 570 (1956), which looked to state family
law in the reversion of renewal
context. Yet even this Supreme Court ruling is not unlimited, as the Court
indicated that applicable state
law would not be followed to the extent that it defined children "in a
way
entirely strange to those familiar
with its ordinary usage." Id. at581.
n44. See Stone v. Williams, 970 F.2d
1043, 1064-65 (2d Cir. 1992), cert. denied, 508 U.S. 906 (1993),
discussed in 3 Nimmer on Copyright,
supra note 13, 11.03[A][2][a].
n45. The court followed the logic
that the provision applicable to pre-1978 grants was intended to continue
prior law on the subject, which
had been subject to the Supreme Court's gloss in DeSylva. By contrast,
the
provision applicable to grants entered
on January1, 1978, and thereafter was created out of whole cloth; in
this instance, Congress presumably
wished to apply the definition of "children" that it incorporated into
the
same new enactment. See Stone, 970
F.2d at 1064-65.
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II Contract Need Play No Role in Protecting Copyright Rights
Though Article 2B, as noted above,
can usefully serve a complementary role to copyright, there is one
significant function for which Article
2B is not needed: to protect the copyright interests of copyright
proprietors, especially in the context
of mass market distribution of software, one of the paradigmatic
transactions under Article 2B. Contrary
to the claim that Article 2B is needed to protect copyright interests in
that context, existing copyright
law adequately protects those owners when they distribute
copyrighted mass market software,
even in a world in which shrinkwrap agreements are not deemed
enforceable contracts. n46 That
conclusion follows because the exclusive rights granted under the copyright
laws effectively preclude use of
computer software - to the extent the Constitution and Congress accord
a
monopolytherein - without the express
or implied permission of the copyright owner.
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n46. Other interests of the copyright
owner, such as the right to a royalty stream, limitations of liability,
and
limitations of warranties, may,
by contrast, require enforceable contracts for protection. It is precisely
these
other interests that Article 2B
properly serves.
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A. Enforceability of Unilateral License Terms
When a copyright owner distributes
its software, it is free to grant a license extending only to specified
uses,
while excluding others. Moreover,
any such license does not require a bilateral contract. A simple, unilateral
statement by the copyright owner
of the scope of its license suffices. n47 In most cases, use beyond the
scope of that license constitutes
actionable copyright infringement under existing copyright law. n48 To
the
extent that any such use beyond
the scope of the unilateral license is not copyright infringement - for
instance, because it constitutes
fair use under section 107 - state contract law cannot produce a different
result.
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n47. See 3 Nimmer on Copyright, supra
note 13, 10.03[A] (citing cases). Indeed, even an oral statement may
be sufficient to grant a nonexclusive
license. See id.
n48. See, e.g., S.O.S., Inc. v. Payday,
Inc., 886 F.2d 1081, 1088 (9thCir. 1989) ("Copyright licenses are
assumed to prohibit any use not
authorized.").
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Several hypotheticals illustrate
the ability of publishers to protect their intellectual property rights
when
engaging in mass distribution of
software. First, Procne picks up the latest copy of SuperSmart321, a nifty
spreadsheet program, at CompUSA.
She purchases the program without opening the box and takes it home.
Unlike most software products, SuperSmart321
contains no license terms of any kind.
In this hypothetical, existing copyright
law permits Procne to do exactly what a typical publisher and typical
buyer would contemplate: use the
software on a single computer and make a backup copy. Because Procne
purchased a copy of the software,
she clearly falls within the ambit of the statutory section securing rights
to
those owners. n49 She thus is entitled
to copy the software onto her computer's hard drive in order to run it,
n50 as well as to make a tangible
backup copy. n51 Any further copying of the software - and thus,
effectively, use on any other computer
system - constitutes copyright infringement unless excused,
for instance as a fair use. n52
Thus, copyright law alone affords the publisher of SuperSmart321 ample
power
to prevent Procne from making or
distributing improper copies of the software, or even duplicating the
software on multiple machines in
her home or office. No bilateral contract is necessary to protect the software
publisher's rights.
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n49. See 17 U.S.C. 117 (1994) ("It
is not an infringement for the owner of a copy of a computer program to
make...another copy or adaptation
of that computer program...as an essential step in the utilization of the
computer program in conjunction
with a machine....").
n50. See 17 U.S.C. 117(1) (1994).
n51. See 17 U.S.C. 117(2) (1994).
n52. See 17 U.S.C. 107 (1994).
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Second, Pandion picks up the latest
copy of SuperSmart321 by purchasing it via the Internet. He pays for it
with a credit card and downloads
it to the hard drive of his computer. Once again, the results will be
effectively the same as above, even
without a written license agreement. Pandion still owns the copy of the
computer program on his hard drive
and is authorized to use it (but not reproduce it except for backup
purposes) pursuant to the statutory
sections invoked above. n53
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n53. See 17 U.S.C. 117 (1994). One
could argue in this context that Pandion is not the "owner of a copy of
a
computer program" under section
117 because a "copy" under the Copyright Act is a material object in which
a
work is fixed and Pandion did not
purchase a material object (the hard disk), but only the data comprising
the
computer program. In light of the
fact that Pandion was authorized to download the data to his hard drive
(or
to another conventional storage
medium such as a diskette), it is more reasonable to conclude that Pandion
has purchased a copy of the program,
that is, a tangible medium in which the work is embodied. See, e.g.,
MAI Sys. Corp. v. Peak Computer,
Inc., 991 F.2d 511, 518-519 (9th Cir. 1993). See infra Section II.B. But
even accepting the proposition that
what is purchased must meet all the requisites of a "copy" before
downloading begins, Pandion would
seem to have a powerful argument that, by virtue of purchasing the
software on-line, he received an
implied license to use what he paid for. See, e.g., Effects Assocs., Inc.
v.
Cohen, 908 F.2d 555, 558-59 (9th
Cir. 1990) (implying license from delivery, without restriction, of special
effects footage for use in film).
In the absence of any terms to the contrary communicated at the time of
the
license, Pandion should have the
right to use the software for its ordinary and intended purpose, that is,
on a
single computer. For an extended
treatment, see David Nimmer, Brains and Other Paraphernalia of the Digital
Age, 10 Harv. J.L. & Tech. 1
(1996) [hereinafter Nimmer, Brains].
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Third, Itys purchases a "10 User
Pack" of Virulator, a software package that locates all computer viruses
on a
user's hard drive, removes them
and e-mails them to Iraq. He installs the software on the network server
in his
office. The envelope containing
the CD-ROM, as well as the install screen, inform Itys that: "This software
product is licensed for installation
on a network server, to be accessed by no more than 10users
simultaneously. All other rights
are reserved."
Under existing copyright law, the
manufacturer's 10-user limitation is enforceable regardless of whether
state
law treats the above notice as part
of a binding bilateral contract. n54 A copyright owner may grant a
non-exclusive license by any words
or conduct tending to show such a license. n55 Thus, by virtue of the
above language, the publisher of
Virulator has expanded Itys's right to use his copy on a single machine
n56 to include making one copy on a server and up to nine other copies
in the random access memory (RAM) of client computers. If Itys were to
allow 20 users to access the software, the copies existing in the
RAM of machines 11-20 would be unlicensed and hence infringing. n57 The
publisher thus has the lever it needs to preclude unlicensed use, without
obtaining Itys's enforceable promise via the U.C.C. not to use the software
on more machines than authorized.
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n54. The U.C.C. drafters lean in
the same direction. See U.C.C. 2B-111 reporter's notes (Draft, Mar. 1998)
(restricting usage for consumers
only enforceable under copyright law without any requirement for assent).
n55. See 3 Nimmer on Copyright, supra note 13, 10.03[A].
n56. That is, the default right that
Itys would have in the absence of the subject language under 17 U.S.C.
117.
n57. See MAI, 991 F.2d 511 (stating
that loading a copy of software into computer's RAM constitutes creation
of a "copy" under the Copyright
Act).
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Fourth, after her company's IPO,
Philomela decides that she has grown bored with life in the Silicon Valley,
exercises her stock options and
moves for a year to Tahiti (after thrashing Thrace). Before she moves,
she
posts an ad on the Internet offering
to rent her copy of MegaCAD 3D, an elaborate $ 10,000 software
package. Tereus has an eight-month
project for which he desperately needs MegaCAD. He spots Philomela's
ad and jumps at her offer. Tereus
pays $ 1,000 for a year's use of the disks. Can the publisher of MegaCAD
prevent this transaction?
Under existing copyright law, Philomela
may not rent or lease her copy of the software. n58 Similarly, Tereus is
not entitled to use the software,
as to do so would involve copying the software into the computer's RAM,
which constitutes infringement in
the absence of a license. n59 Thus, the publisher has a viable copyright
infringement claim against Philomela
and Tereus. An enforceable promise by Philomela not to rent her software
is unnecessary here, too.
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n58. See 17 U.S.C. 109(b)(1)(A) (1994).
n59. See, e.g., MAI, 991 F.2d 511.
Tereus cannot avail himself of the benefits of section 117 because he is
not the "owner" of the copy he wishes
to use, having simply rented it. See 17U.S.C. 202 (1994).
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Fifth, Bacchus needs software to
help him manage a fleet of trucks for his party-hearty business. Like all
good
small businessmen, Bacchus is cost-conscious.
He finds a shareware package on the Internet, OINOS, which
looks like it will do the trick.
Bacchus downloads the OINOS software, reads the license, which provides
that
he may use the software for his
own business purposes, but cannot modify or redistribute it. He pays the
$
19.95 registration fee and uses
the software. Two years later, Bacchus realizes he needs an integrated
system to link his truck management
software with the rest of his business. He hires an independent software
consultant to build such a system.
Because he loves OINOS so much, Bacchus specifically asks the consultant
to make his new system work just
the same way. The consultant, who is convinced he is underpaid, takes a
shortcut and includes a modified
version of some of the OINOS code in the system he has been
fermenting. Ultimately, the new
system is so successful that Bacchus markets it to other trucking businesses.
Can the author of OINOS complain?
Of course. It does not matter whether the license agreement that
accompanied the OINOS software is
deemed an enforceable contract. Under existing copyright law, Bacchus
had no right to have the OINOS software
modified or incorporated into another system, thereby creating
unauthorized derivative works. n60
Nor did he have the right to reproduce it for distribution to others, whether
as part of a new system or separately.
Article 2B adds nothing of substance to the rights of OINOS's owner.
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n60. See 17 U.S.C. 106(2) (1994).
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One could spin out numerous other
hypotheticals involving typical modes of software distribution and reach
the same result. At least for the
modes of software distribution used today, copyright law provides all the
teeth a publisher needs to control
use and dissemination of her work. No ersatz shark via contractual promise
is necessary to enforce these rights.
The conclusion that contract is not
needed to protect copyright interests further pertains when we consider
other forms of distribution in the
digital realm. Consider, for example, the Divx (Digital Video Express)
technology for distribution of movies,
which may be upon us in the very near future. Divx operates like a DVD
disk containing a movie, except
that the encryption software included on the Divx disk limits the user
to
playing the movie for a set number
of days following the first time she plays the disk. n61 Once the initial
viewing period expires, the owner
of a Divx disk can obtain additional play time, or in some cases convert
the
disk to unlimited play, for a fee.
n62 What if a studio selling movies on Divx disks feels it needs an enforceable
promise by the buyer not to attempt
to circumvent the lockout technology built into the software?
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n61. See Digital Video Express, LP,
About Divx Technology (visited Sept. 13, 1998)
<http://www.divx.com/about divx
divxtechnology.htm>.
n62. See id.
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Although one can appreciate the desire
of the studio to seek any and all legal protections it can, the copyright
laws of today (and certainly those
of tomorrow) should prove more than adequate to protect the studio's
interest, even absent the proposed
contract. n63 Modifying the Divx software to defeat the lockout
(assuming, for the sake of argument,
it were technically possible) likely would involve either unauthorized
reproduction of at least a portion
of the copyrighted work, or the creation of an unauthorized derivative
work.
Either way, copyright infringement
liability would result. Moreover, any doubt about the impropriety of
defeating anti-copying technology
will likely be laid to rest by pending federal legislation. n64 Thus, even
on
the so-called bleeding edge of technology,
we find it difficult to see a need for state law protection of
copyright rights in connection with
the mass-market distribution of copyrighted works.
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n63. To a certain extent, the best
protection for the studio will come from the quality of its technology.
Regardless of whether copyright
law or contract law forms the basis of a claim, suing individual buyers
of
movies for making illicit copies
on behalf of relatives or friends is unlikely to be economically worthwhile,
even if
one somehow concluded that it were
sound business practice. Pursuing large-scale pirates (including those
who sell devices or software to
defeat copy protection) can be done as effectively, if not more, under
the
copyright laws as under contract.
See Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829
(11th Cir. 1990).
n64. See WIPO Copyright Treaties
Implementation Act, H.R. 2281, 105th Cong. (1997). See generally David
Nimmer, Aus der Neuen Welt, 63 Nw.
U. L. Rev. (forthcoming 1998).
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B. The Conflation of Licensing with Distribution
The considerations set forth above
assimilate software contracts to traditional means of copyright
exploitation. The Article 2B posits
"two distinct frameworks" in this regard. n65 It is worth reviewing the
drafters' view of the matter at
some length:
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n65. U.C.C. art.2B Preface at7 (Draft, Mar. 1998).
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The first [framework] involves use
of a master copy and is common in the movie industry and in software
contracts. Under this framework,
a "distributor" receives access to a single master copy of the information
work and a license to make and distribute
additional copies or to make and publicly perform a copy. For
example, Correl Software may license
a distributor to allow its software to be loaded into the distributor's
computers or video games. The contract
will contain a number of terms. Correl may limit the distributor to no
more than 1,000 to be distributed
only in the computers and only if subject to an end user license. Since
both
the making copies of and the distribution
of copies are within the scope of the owner's copyright, acts that go
outside the contractual limitations
are infringements as well as contractual breaches.
An alternative methodology uses actual
copies of the software. Here, for example, Quicken may license a
distributor to distribute its accounting
software in packages provided to the distributor by Quicken. A license
is
used in the software industry here,
although some other industries may sell copies to the distributor for resale.
In the license, the distributor
may be allowed to distribute copies to retailers, provided that certain
conditions
are met, such as terms of payment,
retention of the original packaging, and making the eventual end user
distribution occur subject to an
end user license. Since the distribution right is an exclusive right in
copyright
law, distributions outside the license
infringe the copyright.
In both sequences, the information
product eventually reaches an end user. If it does so in an ordinary
chain of distribution complying
with the distribution licenses, the end user is in rightful possession
of a copy. If
the distribution involved sales
of copies, nothing more is required. The end user is the owner of the copy.
Copyright law spells out limited
rights that flow to the owner of the copy (e.g., to distribute it, make
a
back-up if it is software, make
some changes essential to use if [sic] its software). There is no direct
contractual relationship between
the copyright owner and the "end user."
If, however, the copyright owner
elected a licensing framework, given the structure of the transactions,
the
end user's right to "use" (e.g.,
copy) the software depends on the end user license. Typically, this is
characterized as a license from
the producer to the end user. It creates a direct contractual relationship
that
would not otherwise exist and which,
in light of concepts of privity, might not be implied as between these
parties. The contract, then, at
this point, jumps past the chain of distribution and creates a direct link
to the
producer by the end user. It is
also, in this sequence, the only contract that enables the end user to
make
copies of the software in its own
machine. n66
Given that, as the hypotheticals
set forth in the previous subsection of this Article reveal, n67 copyright
law
itself regulates the activities
of remote purchasers of software, why does Article 2B attempt to create
"a
direct link to the producer by the
end user"? n68 The answer stems from the language italicized above.
Through these various references,
the draft posits a framework that falls short of a sale, constituting merely
a
license.
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n66. Id. (emphases added, except for sixth emphasis ("these parties")).
n67. See supra Section II.A.
n68. Elsewhere, the draft goes even
further: "The form establishes for the first time a relationship between
the copyright owner and the end
user that may be central to the end user's right to use the information."
U.C.C. 2B-508 reporter's note 5
(Draft, Mar. 1998).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
The first two paragraphs quoted above
contrast "access to a single master copy" with the "alternative
methodology [that] uses actual copies
of the software." It is indeed possible to imagine access without making
actual copies. For instance, instead
of purchasing diskettes containing Microsoft Word 97 and loading it onto
your hard drive, you could pay a
monthly fee to log onto the Microsoft web site and create and edit
documents there. At the end of each
session, you would download your text and save it, but you would never
obtain any copy of the computer
program itself. That scenario indeed involves access without the alternative
of obtaining actual copies. By contrast,
if you do download Word 97 onto your hard drive, then you have
already moved to the realm in which
copyright law's first-sale doctrine applies. n69 This realm is
entered, moreover, regardless of
whether the label "license" applies to Microsoft's granting of rights in
the
copyright to the program.
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n69. See 17 U.S.C. 109 (1994).
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For these purposes, it is vital to
differentiate between tangible and intangible property. n70 When a software
publisher distributes its product,
it certainly does not part with copyright ownership. n71 Instead, the only
matter under examination is whether
it has parted with ownership of the physical media incorporating that
software. Article 2B evidently takes
the view that a status short of sale exists - which it calls "licensing"
-
whereby end users nonetheless acquire
full dominion over the tangible property that comes into their
safekeeping.
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n70. See 17 U.S.C. 202 (1994).
n71. Only to the extent that the
publisher assigns the copyright or exclusively licenses it (or engages
in other
hypothecations, such as mortgages)
does a transfer take place. In a typical mass market situation, no such
transfer of copyright interests
has occurred.
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One line of cases cited by the drafters
of Article 2B apparently vindicates the existence of this type of
"licensing" framework. It is exemplified
by Microsoft Corp. v. Harmony Computers & Electronics, Inc., n72 which
arose over the distribution of Microsoft's
MS-DOS and Windows software. The facts in the case are unclear. It
may be that some of the software
at issue in the case was pirated. To that extent, the subject diskettes
were clearly unauthorized, outside
the safe harbor of the first-sale doctrine, n73 and thus rightfully subject
to
seizure and suppression. n74 On
the other hand, the opinion can also be read to arise from a factual posture
in
which Microsoft produced copies
of Windows software, which it then distributed to Original Equipment
Manufacturers (OEMs). The OEMs then
disposed of the copies in their possession, as they were entitled to do
under the first-sale doctrine. To
the extent that the case implicated the first scenario, it is uninteresting
-
counterfeit products are clearly
not entitled to further distribution. But the second scenario is evidently
the
basis for the Article 2B drafters'
citation to the case. n75 It is accordingly necessary to evaluate it from
that
standpoint.
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n72. 846 F.Supp. 208 (E.D.N.Y. 1994), cited in U.C.C. 2B-508 reporter's note 5 (Draft, Mar. 1998).
n73. See 17 U.S.C. 109 (1994) (limiting protection to copies "lawfully made under this title").
n74. See Harmony, 846 F. Supp. at212.
An additional problem for the defense in that case was an inability to
trace its precise distributions
back to initial productions by Microsoft. See id. Given that the request
was for a
preliminary injunction, it is not
surprising that the factual record before the court at that time was sparse.
n75. See U.C.C. 2B-508 reporter's note 2 (Draft, Mar. 1998).
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Microsoft v. Harmony rejected the
defendants' first-sale defense on the basis that "Microsoft only licenses
and
does not sell its Products." n76
What does that holding mean? To appreciate its import, the buzzwords
"licenses" and "Products" must be
unscrambled.
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n76. 846 F.Supp. at213.
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License of tangible medium. If the
underlying facts were that Microsoft leased diskettes or CD-ROMs to
end users and sent its agent to
collect those physical media at a time specified in the lease, then no
sale of
those physical products occurred.
Under those assumed facts, Microsoft had not parted with possession of
a
physical copy. On that basis, no
sale occurred and copyright's first-sale doctrine does not come into play.
n77
That is one possible sense in which
Microsoft may have "licensed" its "Product."
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n77. See 17 U.S.C. 109 (1994). Note
that the statute itself does not actually require a "sale" for the section's
protections to be triggered; instead
it applies to all "owners" of lawfully made copies.
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License of copyrighted work embodied
in tangible medium. By contrast, if the underlying facts were that
Microsoft issued only a license
to its MS-DOS and Windows products, but did so through the sale or other
permanent disposition of tangible
items embodying those products, then the first-sale implications are wholly
different. Imagine, for example,
that Microsoft gave OEMs diskettes with the intent that they would be
distributed to end users who could
discard the diskettes in the trash or erase and reuse them n78 - so long
as
the users did not reproduce the
subject software. n79 Under this latter scenario, a sale of the physical
medium has occurred, and its purchaser
is clothed under the Copyright Act with the rights belonging to rightful
owners of physical property, subject
to all of the obligations under the Act that are reserved to Microsoft
of
exercising copyright dominion. This
is the second sense in which Microsoft may be said to "license" its
"Product."
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n78. See Nimmer, Brains, supra note 53, at 22.
n79. An exception to the copyright
owner's exclusive reproduction right of course is coterminous with the
rights secured to users to actually
exploit the computer program, guaranteed to them under 17U.S.C. 117.
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These two paradigms are illustrated
by the evolution of motion-picture exploitation. Film owners have the
option not to sell their works,
but only to "license" them. For decades, the motion-picture studios followed
exactly that course, jealously guarding
ownership of the celluloid prints and only renting them to theaters for
exhibition, retrieving the physical
stock at the end of the theatrical run. n80 That course of action matches
the first set of facts hypothesized
above. Alternatively, motion-picture studios also have the option of
distributing tangible copies of
their films - as they have done since the advent of the videotape era.
n81 That
conduct from the 1980s to the present
matches the second scenario.
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n80. In the later era of television
syndication, film proprietors adopted the practice of "bicycling" film
prints
from one television station to another,
again to preserve strict control over the physical stock. See National
Broad. Co. v. Sonneborn, 870 F.2d
40, 51 (2d Cir. 1989).
n81. See 2 Nimmer On Copyright, supra note 13, 8B.01[B].
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Software publishers likewise enjoy
the same rights. They can engage solely in rental or lease of physical
media, mandating return of the subject
tangible items at the end of the term. Or they can incorporate
their software onto physical items
that they then release from their control, setting them into the stream
of
commerce. In the latter instance,
the end user, while admittedly a licensee of the copyright, is not a licensee
of the diskette or CD-ROM in her
possession. Instead, she is the owner of those physical media containing
licensed works. As such, she is
clothed with full rights under the first-sale doctrine. No innovation in
software
distribution so far has forced reevaluation
of the traditional paradigm.
Which circumstance actually obtained
in Microsoft v. Harmony, the exemplar of the "licensing" paradigm?
Sadly, the opinion fails to clarify
the matter, and that inability to distinguish between differing paradigms
is
only too typical. n82 Nonetheless,
lack of clarity does not create a new "licensing" paradigm. Instead, if
there
were a bona fide lease of the physical
goods, then one legal regime pertained; if Microsoft actually sold or
otherwise permanently disposed of
those physical goods, retaining full copyright ownership in itself, then
another legal regime governed. Current
copyright law does not recognize any regime of "licensing" n83 that
stands intermediate between those
two possibilities. n84
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n82. Other examples are Microsoft
Corp. v. Gray Computer, 910 F.Supp. 1077, 1084 (D.Md. 1995) and Triad
Systems. Corp. v. Southeastern Express
Co., 64 F.3d 1330, 1333 (9th Cir. 1995). See generally 2 Nimmer on
Copyright, supra note 13, 8.12[B][1].
See also Nimmer, Brains, supra note 53, at 21-25 (discussing MAI v.
Peak, 991 F.2d 511).
n83. In Quality King Distributors,
Inc. v. L'Anza Research International, Inc., 118 S.Ct. 1125 (1998), the
Supreme Court distinguishes between
the ""owner' of a lawfully made copy" and "any nonowner such as a
bailee, a licensee, a consignee,
or one whose possession of the copy was unlawful." 118 S.Ct. at 1131.
Standing by itself, that dictum
cannot illuminate who, in the Court's mind, deserves the status of "licensee,"
although its juxtaposition with
"a bailee [and] a consignee" hints that the Court views "a licensee" in
this
context as one who has not obtained
ownership of the physical product, corresponding to the category
posited above of "license of tangible
medium." We thus must revert to the potential constructions of that term
set forth in the text.
n84. It is instructive to undertake
some archaeological excavation into the myth that a separate "licensing"
paradigm exists. One student commentator
maintains that "if the software is only licensed, then the software
developer may prevent the user from
transferring ownership in a copy to a third party." Ira V. Heffen, Note,
Copyleft: Licensing Collaborative
Works in the Digital Age, 49 Stan. L. Rev. 1487, 1499 (1997). As support,
the
Note cites the current case of Microsoft
v. Harmony and traces its genealogy back to a handbook published by
the Practicing Law Institute. See
id. at 1494 n.37 (citing William H. Neukom & Robert W. Gomulkiewicz,
Licensing Rights to Computer Software,
in Technology Licensing and Litigation 1993, at 778 (PLI Patents,
Copyrights, Trademarks & Literary
Property Course Handbook Series No. G4-3897, 1993), available in
WESTLAW, 354 PLI/Pat 775). The authors
of that PLI handbook serve as Senior Vice President for Law and
Corporate Affairs and Senior Corporate
Attorney, respectively, with Microsoft Corporation. They explain "that
software publishers license rather
than sell software in order to negate the doctrine of first sale...." Id.
One
must congratulate their employer
on realizing, in Microsoft v. Harmony, its goal - conceded with admirable
candor - of voiding copyright's
first-sale doctrine. Nonetheless, for the reasons set forth in the text,
the
statute itself does not permit that
result, to the extent that the underlying essence of the transaction results
in a user obtaining ownership of
the physical product containing the copyrightable expression.
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Nonetheless, an innovation might
be said to be occurring through Internet distribution. Are the old
barriers breaking down such that
U.C.C. Article 2B must come to the rescue of a tottering copyright system?
We answer that question, too, in
the negative. As the foregoing example of Pandion reveals, n85 purchases
over the Internet do not suffer
from a fatal lack of privity between software owner and end user which
requires legal redress. Instead,
copyright law itself governs the usages to which Pandion may put the product
that he purchased over the Internet.
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n85. See supra Section II.A.
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Indeed, it is possible to go further
here. Someone like Pandion who purchases SuperSmart321 as embodied in
CD-ROM form has unambiguously acquired
the right to pass the CD-ROM on to a friend. Does a parity of
reasoning indicate that Pandion
himself likewise has the right to sell his computer when he wishes to upgrade
his whole system, even if the hard
drive thereby transferred contains a copy of SuperSmart321 that he
purchased over the Internet?
Now the pedal comes down to the metal:
Can Pandion keep his computer, deferring upgrades to a later day,
but nonetheless pass along solely
SuperSmart321 (by transferring the files to a friend and deleting them
from
his own hard drive, let us say)?
There are two possible answers to this question:
Yes. Under this rationale, Pandion
can take advantage of a "digital first-sale defense." n86 Pandion, by this
logic, is as much an owner of the
"copy" purchased over the Internet as he would be of the CD-ROM. Granted,
the copy in this instance cannot
be as conveniently hefted and hoisted aloft, but the mere fact of its
dispersion over manifold sectors
of the hard drive does not detract from its status as a material object
in
which the subject software is fixed
and from which it can be retrieved. n87
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n86. Nimmer, Brains, supra note 53, at 9, 33.
n87. See 17 U.S.C. 101 (1994) (defining
"copy"); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511,
518 (9th Cir. 1993) (stating that
"loading of copyrighted software into RAM creates a "copy' of that software"
under the copyright laws).
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No. An alternative view is that Internet
distribution is different. No tangible copy has been released, because
there is no discrete "material object"
of the type invoked above that contains SuperSmart321. The
ever-shifting sectors and buffers
where the work flits and dances fail to qualify as either "material" or
an
"object" under the statutory language.
The latter view - that Internet distribution
is different because it does not result in a "copy" - must be
rejected as implausible. For were
it correct that the recipient of an Internet instantiation does not obtain
a
"copy," Pandion would be able to
distribute that instantiation freely over the Internet to thousands of
remote recipients without infringing
the copyright in SuperSmart 321. n88 Such a construction would be
disastrous for copyright owners,
and should not be viewed as implementing Congress's intent.
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n88. See 17 U.S.C. 106(1), (3) (1994)
(limiting copyright owner's rights to reproduction and distribution of
"copies").
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It is not necessary, however, to
resolve whether Internet distribution results in a "copy" to test the
adaptability of extant copyright
law to new technologies. Under the "yes" view, Pandion may dispose of his
volatile "copy" under the first-sale
doctrine; under the "no" view, he cannot. Under the former view, Internet
sales of software are assimilated
to current methods of film exploitation via videocassettes, laser discs,
DVD,
and the rest (that is, a first sale
arises), whereas under the latter view, such sales are assimilated to
motion-picture distribution in the
pre-videotape era (that is, there was no first sale). In either event,
no new
paradigm is required. n89
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n89. See Nimmer, Brains, supra note 53, at 11.
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In sum, the new paradigm of "licensing"
instead of sales, on the one hand, and lending, on the other hand,
collapses. For that reason, no new
conceptual breakthrough via U.C.C. Article 2B is required.
III The Limits on Contract via the Preemptive Force of Copyright
Our discussion in Part I demonstrates
that state contract law acts as a necessary complement to the
Copyright Act by delineating the
basic mechanics of contract formation, performance, and interpretation.
Those salutary goals can find further
expression in Article 2B. The analysis in Part II demonstrates that state
contract law is not needed to protect
the copyright interests of copyright proprietors. Those interests are
safeguarded by the Copyright Act
itself. What remains to be discussed are the ways in which state contract
law can improperly meddle with the
copyright laws by altering the copyright laws in favor of proprietors at
the
expense of users. The phenomenon
of attempted contractual displacement of copyright, and the limits of
contract in that regard, arises
in the doctrinal context of preemption.
A. General Preemption Notions
Copyright law and contract law not
only clash overtly but may clash covertly to the extent that they pursue
different implicit purposes and
objectives. When conflicts occur, preemption principles force state contract
law
to yield. The source of copyright's
preemptive power is the United States Constitution. To the extent that
any
state law "stands as an obstacle
to the accomplishment and execution of the full purposes and objectives
of Congress," n90 the Supremacy Clause mandates that the law of Congress
reign supreme. n91
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n90. Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
n91. Constitutional preemption of
a competing state law regime was established in the first copyright case
to
go before the Supreme Court. See
Wheaton v. Peters, 33 U.S. (8 Pet.) 591 (1834) (holding federal copyright
law preempts state common law protection
for published works).
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Some cases describe preemption as
the upshot of a clash between state and federal law in which state law
is
vanquished. n92 Other cases have
enunciated even stricter principles according to which federal law does
not
tolerate parallel state regimes.
n93 As the Supreme Court put it in its most recent pronouncement on the
subject of parallel regimes of federal
and state intellectual property protection, "The offer of federal protection
from competitive exploitation of
intellectual property would be rendered meaningless in a world where
substantially similar state law
protections were readily available." n94
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n92. See Kewanee Oil Co. v. Bicron
Corp., 416 U.S. 470, 480 (1974) ("If the scheme of protection developed
by [a state] ... "clashes with the
objectives of the federal ... laws' then the state law must fall." (citation
omitted)).
n93. See, e.g., Compco Corp. v. Day-Brite
Lighting, Inc., 376 U.S. 234, 237 (1964) ("When an article is
unprotected by a patent or a copyright,
state law may not forbid others to copy that article. To forbid
copying would interfere with the
federal policy, found in Art.I, 8, cl.8, of the Constitution and in the
implementing federal statutes, of
allowing free access to copy whatever the federal patent and copyright
laws
leave in the public domain.")
n94. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 151 (1989).
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On the other hand, in one case predating
the adoption of the current Act, the Supreme Court allowed greater
tolerance for state schemes covering
the same subject matter as copyright. In particular, Goldstein v.
California n95 held that the states
retain concurrent power to afford copyright protection to the works of
authors as long as such protection
does not conflict with federal law. Nonetheless, state laws enacted
pursuant to such concurrent power
can, of course, be subject to preemption by federal statute.
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n95. 412 U.S. 546, 570 (1973).
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When enacting section 301 of the
current Act, Congress took precisely that action of preempting concurrent
state law in the copyright domain.
Unlike the parallel federal and state tracks that previously applied to
the
copyright realm, section 301 federalizes
much of the domain of protection for copyrightable expression. n96 By
reason of that explicit federal
preemption, states' concurrent copyright powers lack almost all practical
significance. n97
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n96. For certain residual matters
that the states may still regulate, such as unfixed works and phonorecords
pre-dating February15, 1972, see
1 Nimmer on Copyright, supra note 13, 2.02.
n97. Goldstein held that state law
is not preempted if "Congress has drawn no balance; rather, it has left
the
area unattended...." 412 U.S. at
570. As a practical matter it may often be hard, if not impossible, to
distinguish benign from conscious
neglect, that is, to know if Congress has "left the area unattended," or
whether Congress affirmatively decided
that federal protection is not available.
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B. A Case Study in the Contract/Copyright Clash: ProCD v. Zeidenberg
1. A Twist on Feist
In ProCD, Inc. v. Zeidenberg, n98
plaintiff spent millions of dollars to produce a massive "telephone book"
of
nationwide scope. Because the "book"
contained almost one hundred million listings, plaintiff released it on
CD-ROM with copyrighted search software
designed to navigate through the mass of information. The CD-ROM
was placed in a box that stated
that the software came with restrictions listed in an enclosed license.
The
license was encoded on the CD-ROM
discs, printed in the manual, and appeared on a user's screen every time
the software ran. It expressly provided
that the end user "will not make the [search] Software or the
[telephone] Listings in whole or
in part available to any other user in any networked or time-shared
environment, or transfer the Listings
in whole or in part to any computer other than the computer used to
access the Listings." n99
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n98. 908 F. Supp. 640 (W.D. Wis.), rev'd, 86 F.3d 1447 (7th Cir. 1996).
n99. ProCD, 908 F. Supp. at645.
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When the matter under discussion
combines listing from the white pages of the telephone book and allegations
of copyright infringement, the Supreme
Court's landmark holding in Feist Publications, Inc. v. Rural Telephone
Service Co. springs immediately
to mind. n100 If that unanimous decision made anything clear, it is that
not
even a massive expenditure of funds
to compile phone listings can render them copyrightable. Instead, they
repose in the public domain - both
as a matter of statutory construction and of constitutional necessity.
Relying on Feist, defendants in
ProCD copied all the listings off the plaintiff's CD-ROMs, composed their
own
software to access the names and
addresses, and went into business in competition with plaintiff by making
all
the listings available for search
on an Internet web page.
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n100. 499 U.S. 340 (1991).
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The plaintiff responded by bringing
suit. Barred by Feist from bringing a copyright claim against the copying
of
telephone listings, plaintiffs sought
redress against defendants' constitutionally privileged copying by alleging
breach of contract and misappropriation.
2. Issues State and Federal
On the latter cause of action, the
district court concluded that "because plaintiff's misappropriation claim
is
not qualitatively different from
a copyright infringement claim, the underlying rights plaintiff seeks to
vindicate
are equivalent to federal rights
and are preempted by the Copyright Act." n101 In reference to the contract
issue, the district court noted
that most commentators disfavor rights asserted under shrinkwrap
licenses, given users' inability
to bargain over precise terms. More fundamentally, those licenses "pose
important questions about the extent
to which individual contract provisions can supplement or expand federal
copyright protection." n102 The
district court accordingly concluded that section 301 preempted the contract
claim. As Chief Judge Crabb held,
any other ruling would "alter the "delicate balance' of copyright law"
and,
more particularly, constitute an
impermissible end-run around Feist. n103
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n101. ProCD, 908 F.Supp. at661.
n102. Id. at650.
n103. Id. at658.
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This solicitude for "delicate balance"
is not an aberration. As the Supreme Court itself has noted,
It is Congress that has been assigned
the task of defining the scope of the limited monopoly that should be
granted to authors or to inventors....
This task involves a difficult balance between the interests of authors
and inventors in the control and
exploitation of their writings and discoveries on the one hand, and society's
competing interest in the free flow
of ideas, information, and commerce on the other hand.... n104
This ventilation of the contract
issue in the context of copyright poses two analytically separate issues.
n105
The first question is whether, as
a matter of contract law, the shrinkwrap license unilaterally imposed by
the
manufacturer constitutes a binding
agreement. That first question implicates construction of state law,
namely, the Uniform Commercial Code
as implemented into Wisconsin law. Assuming an affirmative answer, the
second question is whether that
contract can govern in the copyright context. This second question arises
under federal law, as a matter of
preemption via the statute or the Constitution.
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n104. Sony Corp. v. Universal City
Studios, Inc., 464 U.S. 417, 429 (1984); accord Twentieth Century Music
Corp. v. Aiken, 422 U.S. 151, 156
(1975) ("The limited scope of the copyright holder's statutory monopoly,
like
the limited copyright duration required
by the Constitution, reflect a balance of competing claims upon the
public interest." (citation omitted)).
n105. For a valuable untangling of
the two strands implicated here, see MaureenA. O'Rourke, Copyright
Preemption After the ProCD Case:
A Mar