Copyright Policy and the Limits of Freedom of Contract


table of contents




A. Contractual Arrangements Create Rights in Personam While Copyright Law Creates Rights in Rem

B. Contractual Arrangements Cannot Distort the Initial Endowment defined by a property rule


A. Defining the Bargain

B. Should Parties be Allowed to Contract Around Copyright Provisions?



The Seventh Circuit Court of Appeals recently heard one of the most significant cases defining the proper scope of federal copyright law-A couple of months ago the Seventh Circuit Court of Appeals held a decision in one of the most significant cases of copyright law in recent years.ProCD, Inc. v.Matthew Zeidenberg.1 In this case, the courthad to decide considered whether contractual restrictions that broaden the bundle of rights granted by copyright lawplaced by copyright owners on the use of their information are enforceable. Specifically, ProCD sought to limit contractually the right of users to distribute information contained in a database.2

The ProCD case was significant because Iinformation of all kinds (scientific data, educational texts, financial data, music, movies, or and even legal opinions), is increasingly being licensed to users online. Because Tthe Internet reduces transaction costs, it conceivably allows vendors of information to license every bit of information they control. In fact, licensing arrangements, supported by technological means of monitoring, may entirely replace the copyright regime with privatea regime based on contracts.3 While commentators generally assume that partiesshall will reach an efficient bargain by freely negotiatingcontracting their respective rights and obligations, private bargaining may sometimes produce inefficient outcomes.

This article revisits contractual relationships between copyright owners and users. It argues thatstandard form contractswhich that attempt to expand federal copyright protection should not be enforceable. After briefly introducing the economic rationale for copyright lawprinciples from an economic perspective, this article reconsiders some of the controversialchallenges the distinction between copyrights and contractual rights. The Zeidenberg case raised some controversial issues regarding contract formation that confronted the court in ProCD. The general validity of non-negotiated mass-market licenses is beyond the scope of this article; it does, however, touch upon questions of assent to the extent it affects copyright policy. In particular, this article argues that standard form contracts that require a very minimal level of assent for contract formation interferes with copyright policy. Finally, this article suggests several considerations that may affect freedom of contract in the context of copyrighted works.

II. The ProCD Case

Matthew Zeidenberg purchased copies of ProCD's SelectPhone CD-ROM, which combined a database of telephone listings with a computer program for accessing the listings.4 Zeidenberg didn't not sign any contract, though the box containing ProCD's database did indicated on the outsidethat the CD-ROMis was subject to a licensinge agreementenclosed.5 The terms of theat license were given inside the box and also appeared on the user's screen every time the user ran the software.6 The license provided that users shcould not make the software and listings available to other users.7 Zeidenberg uploaded the telephone listings stored on the CD-ROM discs to his computer, combined it with his own original search engine, and made the listings available to Internet users.8 ProCDargued filed suit, seeking an injunction against continued violations of the licensing agreement.9

The license at stake was a "Sshrinkwrap Llicense.". Shrinkwrap licenses are standard form contracts attached to mass-market software.10 The term "shrinkwrap" refers to the transparent plastic in which mass-market software is often sealed. Copies of mass-market copyrighted works were traditionally distributed without a license, simply carrying the familiar copyright notice.11 The rationale forof this practice was that copyright law sufficiently protecteds the interests of the publishers in such transactions. As new distribution technologies arose, licenses became more prevalent in mass distribution markets. Uncertainty regarding computer program copyrightability, and the scope of such copyrights, led vendors to use shrinkwrap licenses with mass-market software.12

Book publishers have also begun to use licensing agreements.License are now used not only by the software industry but also by books publishers. A purchaser of a book may expect to read it as many times as she wishes, to quote its text, or to use its excerpts. . Some may also wish to reproduce a few pages from a book in a library for later reading or reference and so on. These types of uses reflect our expectations when we purchase a book, and they are all considered "fair use" under copyright law.13 Yet books in recent years include statements that re-define the terms under which theybooks are being purchased. For example, Aa book may include the following terms on its cover:

Except for the quotation of short passages for the purposes of criticism and review, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher.

Are we bound by such restrictions? When the terms on the book provide that "no part of this publication may be reproduced," are we obliged to obtain permission for every quote we wish to make, regardless of its scope, nature, or purpose? When the terms allow "quotation of short passages for the purposes of criticism and review," do we need permission for quoting a short passage for another purpose-say a birthday card? What if the inner cover of a cookbook provides that "no recipe in this book may be used unless royalties are paid to the publisher?" Is cooking subject to royalties? What is the legal status of publisher statements purporting to restrict use?

Shrinkwrap licenses and book licenses are both contractual arrangements regarding the intellectual property aspects of goods. While the purchaser of a book or a CD-ROM may acquire ownership of the physical copy of the work she has purchased, she receives only limited use privileges in the copyrighted materials.14 Copyright law distinguishes between rights in a '"work of authorship,"', the intangible aspect of a work, and rights in its tangible manifestationsfixation in a tangible medium.15 A book purchaser becomes the owner of the book, but receives no copyright in it. The publisher remains the copyright owner, and copyright law prevents any unauthorized reproduction or public distribution of the work. The question is whether the bundle of rights retained by the copyright ownersuch use privileges in intellectual property are determined by law or whether they may be redefined by the parties to a contract. Under what circumstances must users of copyrighted works obey contract provisions that supplement or expand copyright protection? Are copyright owners free to expand their rights beyond those available under copyright law by imposing contractual restrictions on the use of their works? To what extent are such licenses binding?

The district court in the ProCDcase I found no binding contract between the parities. The court determined that Zeidenberg did not accept the terms of the license.16 Furthermore, the district court decided the contract was unenforceable sincebecause it conflicted with copyright policy. Licenses that prohibit the distribution of public information, the court held, "step into territory already covered by copyright law."17 If such provisions were enforceable they "would alter the 'delicate balance' of copyright law" and "allow parties to avoid copyright law by contracting around it."18 The legal doctrine under which the court held the license unenforceable was the preemption doctrine, to which I return later.

The court of appeals disagreed. The appellate courtCourt found that the purchase of the software was subject to athe license. The contract itself was formed when Zeidenberg accepted the terms of the license in the manner specified by ProCD-by using the software. In doing so, Zeidenberg was performing an act that ProCD (the offeror) proposed to treat as an act of acceptance.19 The court held that "[t]erms and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets."20 The court recognized that "some applications of the law of contract could interfere with the attainment of national objectives,", but concluded that the "general enforcement of shrinkwrap licenses of the kind before us does not create such interference."21 As a general matter, the court found any "simple two-party contract" (whether generous or restrictive in its terms) to be enforceable.22

The conflicting opinions ofby the two courts in the ProCD case demonstrate the potential conflict between copyright policy and freedom of contract. They reflect different approaches to the regulation of information. The approach taken by the district court perceives copyright law as a comprehensive, mandatory arrangement that restricts the freedom of the parties to contract around it. The opinion of the court of appeals, by contrast, reflects a perception of copyright law asa a set of "default rules" that in most cases should allow the parties to replace the statutory scheme with a contractual arrangement of their choice.23 While the first approach is concerned with preserving the "social bargain" regarding the use of information as reflected by copyright law, the latter empheasizes "freedom of contract" as a means for reaching effieicient functioning of the information market.

To understand better this controversy, an examination of the funduamental principles that govern copyright law and contract law is necessary. Let me turn now to the economic rationale of copyright l

III. The Economic rationale for copyright law Copyright perspective

Copyright law defines initial endowment in "original works of authorship"24 such as books and computer programs. The law specifies thesubstantial respective rights of owners and users in copyrighted works. Copyright owners are provided with a set of exclusive rights to authorize the reproduction, adaptation, public distribution, public display, and performance of their works.25 They may sell these rights or license them to others for a fee. Users are free under the law to make any use of the work that copyright law does not otherwise exclude.

The economic rationale offor copyright law is reasonably intuitive. Copyright law seeks to remedy a market failure in the dissemination of information,26, commonly referred to as the "public good" problem. Information is a "public good" in the sense that its creator cannot efficiently exclude its use.27 The costs of producing information-such as writing a book or developing a computer program-tend to be high, while the costs of copying-such as copying a program on a floppy disk-are often low. If creators must invest substantial moneya fortune in producing a work but cannot efficiently exclude non-payers, they may not reap themarginal value of their efforts.28 Free-riding may reduce incentives for investment in creation, and producers would under-supply information. Copyright law overcomes this difficulty and encourages creation by providing creators with a legal right to exclude others. It allows them to use the power of the federal government to exclude non-payers and to deter potential free-riders. By legally excluding non-payers, the law allows creators to collect fees for the use of their works and secure a return on their investment.29

However, copyright protection involves a deadweight loss: the owner's ability to exercise amonopoly power allows it to set the price for works at a level greater than the marginal cost of a copy.30 Consequently, potential purchasers who value the work at more than its marginal cost, but less than its monopoly price, will not purchase it, leading to the deadweight loss.31 In other words, while copyright law is designed to remedy the market failure of the "public good,", it causes another type of a market failure by creating a monopoly.32

The deadweight loss is amplified by another aspect of information. Information is non-rivalrous in the sense that once a work is created, its use by one user does not detract from the use of the same information by others.33 This quality of information suggests that once producers create information, maximizing its use would be optimal. Thus, a monopoly granted under copyright law should be limited to the scope necessary to provide incentives to create and should minimize restrictions on access to works.

Furthermore, sincebecause information is created incrementally, copyright protection increases the costs of creating new works.34 Information stimulates the creation of more information, as newly created works make use of prior art.35 Existing information becomes the building blocks of the information products of the future. A copyright monopoly may restrict further creation because royalties and transaction costs incurred in gaining access to prior art increase the cost of expression involved in producing new works. Limiting access to information may thus further inhibit innovation stimulated by existing works.

Given these basic qualities of information, copyright law seeks to balance the level of incentives to create and the interest in maximizing access to information once created. Finding the correct balance between access and incentives is the central task of copyright policy.36 Copyright monopoly induces production of information by allowing non-payers to be excluded and information to be marketed at a monopoly price. At the same time, however, copyright law limits this monopoly to serve the ultimate purpose of maximizing access to information. The law thus regulates access to information by balancing incentives to create and accessibility of information.37

These conflicting considerations under copyright law affect the nature of rights granted by the law. Copyright monopoly is contingent, instrumental, and limited to the level necessary to provide incentives. It is restricted under the statutory provisions and legal doctrines such as "fair use.".38 This instrumental perception of copyright monopoly suggests that users are free to access any information that falls outside the scope of copyright monopoly. Copyright law does not simply define the copyright owners' rights, but rather draws the boundaries between privately and publicly accessible information. It defines both owners' exclusionary rights and users' access rights. Users are allowed unrestricted use of any information that has not been explicitly excluded from the public domain.39

Copyright law includes many provisions that establish users' rights. Some of these provisions define thoseusers' rights explicitly, such as users'the rights to receive a compulsory license40, or access privileges for libraries.41 Other access rights derive from restrictions on the scope of the exclusive rights granted to owners. The monopoly granted to copyright owners under the law is limited. It lasts for only a set period of time and is restricted by statutory provisions.42 Similarly, the Ffair use doctrine defines permissible usage. When a use is found to be "fair,", the user is exempt from copyright liability, and this permissible usage provided by law thereby restricts the scope of the owner's copyright.43

Let us now return to our question: to what extent may individual contract provisions supplement or expand federal copyright protection? We have seen that rights granted under copyright law reflect a delicate balance between an owner's' monopolyies that induce creation and a user's' privileges that secure to access to information. It follows that any attempt to change theis balanceachieved struckunder by copyright law may distort federalcopyright policy. Contractual arrangements that provide owners with rights not granted to them under copyright law confine access to information in a way not intended by the law.

Two major objections may be raised against this argument, both essentially claiming that the argument fails to acknowledge the difference between contract law and copyright law. One possible objection is that a contractual right differs from a copyright sincebecause it cannot constitute a right against the world. Another objection is that copyright defines initial endowment while contract law governs only transferability of entitlements already determined. Therefore, a contractual claim may not change initial endowment. A contract only reflects subsequent bargains.

A. Contractual Arrangements Create Rights in Personam While Copyright Law Creates Rights in Rem

How can contractual arrangements distort copyright policy? After all, copyright law defines entitlements protected under a property rule, and therefore creates rights in rem, that is rights against everyone else. Contract law, by contrast, only creates rights against parties to the contract.

The ProCD II court addressed the issue of potential interference with copyright policy under the preemption doctrine.44 Federal copyright law preempts any state law claim that conflicts with the federal copyright policies embedded in the Copyright Act.45 One purpose of this statutory arrangement is "to prevent states from giving special protection to works of authorship that Congress has decided should be in the public domain . . . ."46 Rights in the subject matter covered by copyrightsubject matters are preempted if they are "equivalent to any of the exclusive rights within the general scope of copyright . . . ."47 One issue in ProCD is whether rights created by a contract can be equivalent to any exclusive copyrights.

The district court answered affirmatively. CThe possibility of "individually crafted evasions" of copyright law concerned the court. The Ccourt found that when "a contract erects a barrier on access to information" that should would otherwise be accessible under copyright law, it alters the "delicate balance" created by law.48 In such a case, the district court held, the contract should be preempted.49

The court of appeals disagreed. The court held that rights created by contracts cannot be equivalent to copyrights.50 A right created by a contract is a right in personam-a right that may be asserted only against a party to the transaction; a contractual arrangement may not create an exclusive right against the world-a right in rem. When strangers are able to access the work there is indeed a significant difference between restrictions created by copyright law and restrictions created by contract. Copyright law allows owners to impose restrictions only on a party to the contract; rights in rem allow owners to impose restrictions on strangers. As demonstrated by the court in ProCD II:

Someone who found a copy of SelectPhone . . . on the street would not be affected by the shrinkwrap license-though the federal copyright laws of their own force would limit the finder's ability to copy or transmit the application program.51

However, the significance of the distinction between copyrights and contractual rights depends on the inability of owners to limit unlicensed use. In other words, the more a producer can prevent access to unlicensed copies, the less significant the distinction becomes. Thus, if ProCD iswere able to eliminate unlicensed use by technological or legal means, there willwould be no "stranger" who iswas not bound by a license and wasis free of any contractual restrictions.

Such elimination of unlicensed use is not an abstract idea discussed here for the sake of argument. It was, in fact, enabled by the decision of the court of appeals. Recall that the court accepted the view that a contract is formed when the software is being used.52 In fact, a contract may be formed whenever the potential licensee acts in a way defined as an acceptance by the offeror (the master of the offer). If that method of acceptance is defined by ProCD to be the use of the software, then any stranger who finds the CD-ROM in the street and uses it would become a party to the license agreement. In other words, if the standard of assent necessary to form contractual relationships is minimal, then no unlicensed access to works will be possible. The outcome will be very similar to the effect of a right in rem.

Furthermore, the introduction of new distribution technologies blurs the distinction between rights in personam and rights in rem. The availability of direct communication with users and the technical ability to prevent any unlicensed access by technological fencing facilitate a regime that is very similar in its nature to a property regime.

On-line dissemination substantially enhances the capabilities of licensing. The Internet allows direct communication between sellers and buyers and thereby facilitates contractual relationships between vendors and end users in mass distribution. Networking establishes direct communication between publishers and users. It provides the means for negotiating and entering into licensing agreements for different uses of works. SinceBecause on-line providers control the physical access to their works, they are able to make access contingent upon accepting the terms of their license. Technology also provides the means for monitoring and enforcing contractual provisions. On-line distribution allows owners fully to control access to their works and facilitates the collection of fees on a pay-per-use basis. Thus, the Internet tends to reduce transaction costs by allowing authors and publishers to collect royalties directly from the users, and in precise proportion to the use being made. Charges may be based on the time spent on a document, or on the type of usage (search, downloading, or just browsing).53

When all access to the work is controlled and contingent upon agreement to a standard form license, the terms of the license govern all relationships between the content owner and anyone who acquires access to the work. This outcome is again very similar to a regime of exclusive rights. Even though this right is established "merely" against a party to a contract, no one may gain access to the work without being subject to a contract. With on-line dissemination, contractual arrangements converge with physical means of exclusion, monitoring, and control to create a de facto property right.

B. Contractual Arrangements Cannot Distort the Initial Endowment Defined by a Property Rule

Another objection to the claim that contracts may threaten the delicate balance achieved by copyright law is that contracts cannot distort the initial endowment defined by a property rule. This objection relates to the different functions of copyright law and of contract law. The argument states that copyright law defines initial endowment in works of authorship,54 while contract law governs only transferability of entitlements already determined by a property rule. The relative complexity of the issue stems from the mixture of property rights and contract modes of protection that is typical of any copyright case. Copyright law is a mixed regime of property law and contractual arrangements.55

Determining the transferability of property rights is principally a function of contract law.56 Contract law governs bargaining-namely, the transferability of rights. Private exchange operates upon the initial endowment as determined by copyright law. Therefore, a contractual arrangement cannot change initial endowment and can only reflect subsequent bargains.

While contractual arrangements may not change initial entitlements, they may change the final outcome of bargaining over these rights. If copyright law is viewed as law that regulates production of and access to information, then such contractual bargains should be examined from a copyright policy perspective. The question is whether policy considerations under copyright law support (or even require) limiting the freedom of contract when copyright transactions are involved. Under what circumstances would limiting freedom of contract be justified when contractual arrangements expand copyrights?

One assumption underlying copyright law is that owners of works (information) are not able to use technology to exclude non-payers. If this assumption is not valid, this undermines the justification for copyright law. Contractual arrangements backed by technological fencing may replace copyright law.

The availability of technological and contractual means of exclusion may further suggest that copyright law should be transformed into a body of law that not only defines owners' rights, but also explicitly guarantees users' rights. Securing those rights in a contractual regime may involve determining that some users' rights are inalienable. It may also involve other limitations on the freedom of parties-copyright owners and users-to contract. These issues are discussed in the next section.

IV. Copyright Law and the Freedom of Contracts

While part III of this paper demonstrated that a very low standard of assent makes contractual provisions essentially equivalent to copyright protection, the following discussion examines whether society should allow parties to contract around copyright provisions. The ProCD II case demonstrated how copyright owners may expand their copyrights by using a license. The following discussion begins by analyzing such transactions and examines whether licenses which contract away users' rights should be enforceable.

A. Defining the Bargain

Private exchange operates upon the initial endowment determined by copyright law. Owners are able to license their exclusive rights to willing users. Copyright owners of the cookbook discussed earlier may license the reproduction of the recipes for a fee or sell their exclusive right to make public distribution of the book to a publisher. However, copyright owners may not license a use that lies outside the scope of the monopoly granted under copyright law. Thus, the owner of the cookbook's copyright is unable to license the right to cook according to the book's recipes simply because he has no exclusive right over such cooking. In other words, he has no right to prevent others from doing so. Whether or not a copyright owners licenses readers to cook, everyone is free to use the recipes for cooking (although a person may not, without permission, distribute copies of the recipes).57 Copyright law provides owners with a monopoly over the copyrights in the work, namely, the exercise of rights that fall within the scope of the owners' exclusive rights. It does not empower owners to control any use of their works.58

What license was used in theIn ProCD, case?ProCD-licensed59 CD-ROMs included copyrighted software and telephone listings on which ProCD had no copyrightssince. The user agreement provided that:

You will not make the Software or the 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.60

While ProCD had the legal power to authorize unilaterally the reproduction and distribution of the software, it had no such proprietary right in the telephone listings. The listings were not protected by copyright law since they were not sufficiently original.61 The listings were thus in the public domain and everyone was free to use them. The listings, however, were the only thing copied by Zeidenberg.62

As we have seen, seeking to control authorization for uses that fall beyond the monopoly of the copyright owner is in fact an attempt to make a bargain using legal rights which belong to someone else-the user. If users are free to use recipes in a cookbook, a copyright owner may not limit their right to do so. If users are free to reproduce or distribute telephone listings, since they are in the public domain, ProCdD may not unilaterally restrict their rights by a license. Dissemination of information that society has chosen to make publicly accessible under copyright law cannot become restricted merely via a unilateral license imposed by the copyright owner.63

Nevertheless, ProCD may offer users a bargain in which users give up their use privileges, in return for access to the work. In such a transaction, ProCD does not license its copyright, but instead licenses the use of the listings. ProCdD controlled access to the tangible medium that carried the listings and was therefore able to make access subject to restrictions. For such a bargain to be valid, it has tomust be bilateral. As such, it is not merely an unwarranted exercise of power by the copyright owner, but rather an exchange of contractual obligations that creates rights and duties and requires the consent of both parties. Users are selling their use privileges to the copyright owner when they choose to use the CD-ROM.

No matter how we describe the transaction, the fact that ProCD sought to expand its copyright by contractual provisions is apparent. The question is therefore whether such contractual provisions are enforceable;. that is, Uunder what circumstances should parties be allowed to contract around copyright provisions?

B. Should Parties be Allowed to Contract Around Copyright Provisions?

The question of whether copyright owners may expand their copyrights by contracts must involve not only the rights of owners but also those of users. Limiting the legal power of copyright owners to contract around some copyright provisions correspondingly restricts the power of users to contract away their fair use rights granted under copyright law. It makes users' rights, at least to some extent, inalienable. Is such inalienability justifiable?

Freedom of contract suggests that parties should be allowed to bargain freely over their rights. It assumes that assenting parties who voluntarily enter a private exchange have reached a bargain that makes them both better off, or else they would not have entered into it.64. In other words, if a copyright owners and a users agree to restrict the user's' privileges of use, the presumption is that such transactions are Ppareto superior.65 Users who place high value on receiving the information will be willing to accept restrictions on its use.

That conclusion holds true, of course, only in the absence of any market failure that would undermine the fundamental propositions on which the freedom of contracts rests (for instance, the proposition that both parties acted voluntarily or that they were fully informed.). In the absence of a perfect market, limitations on the parties' abilities to engage freely in transactions may be a more effective way of achieving economic efficiency.66 Such market imperfections, and the resulting need for limitations, may occur when copyright owners use contractual provisions to expand their rights under copyright law.67

1. The dangers of using contractual arrangements to expand copyrights

Freedom of contract assumes that users are the best guardians of their own interests, and that if users did not believe that they would benefit from the transactions in which they waive their use privileges, they would not enter into such transactions. Thus, the court of appeals in the ProCD IIcase held that "[t]erms and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets"68 and should therefore not be subject to preemption. Terms of the contract, the court held, should be determined by competition:

Terms of use are no less a part of "the product" than are the size of the database and the speed with which the software compiles listings. Competition among vendors, not judicial revision of a package's contents, is how consumers are protected in a market economy.69

However, users' choices in transactions regarding copyrightable materials are very limited, because copyright law provides "legal fencing" for works that are non-excludable. It prevents strangers from making copies of the work, and thus forces them to enter into a contract with the copyright owner in order to gain access. The user must accept the owner's demands or forego the product.

A license that expands the creator's rights in copyrighted subject matter is tied to a product that is already protected under copyright law. . The copyright monopoly is thus being used to expand market power and prevent competition. The copyright owner inthe ProCDcase, for instance, used the licenses to reduce competition. A provision in the user agreement prohibited making the Llistings, or any part of them, available to any other users. The restrictions were broad enough to cover any distribution of the listings, either for free or for a fee.70 The license thusrestricted limited any ProCD's competition in the market for electronic telephone databases. Iteliminated reduced the ability of users to access freely any data that was explicitly held by the Supreme Court to be in the public domain,71 even though the free availability of this data is what enabled ProCD to develop its database in the first place.

Users are arguably always subject to restrictions when they use a copyrighted work. But restrictions imposed by copyright law are limited and reflect the balance between the need to induce creation and the need to guarantee public access to information. If copyright owners are free to use contractual arrangements to restrict use, and are then able to use copyright to prevent any use that is not subject to these restrictions, owners are gaining absolute monopoly over their works.72

When owners exercise absolute monopoly, users' choices become very limited. Users must either accept the contractual restrictions or relinquish access to the work altogether. Although some works of authorship may have perfect substitutes, many works maydo not.73 Even when substitutes are available, such as in the case of telephone listings, the likelihood of competition over the terms of the license is low. Terms that restrict users' privileges under copyright law, such as publishers' statements on books and shrinkwrap licenses, tend to be uniform. This uniformity may reflect the fact that many users do not value these privileges; for example, they do not want to reproduce a book other than for critical review or to reverse -engineer a computer program.74 Even valuable uses, for which some users may be willing to pay a special fee, may not be licensed. Owners may not license a use-such as reverse engineering a video game console-that may threaten their market for other products.75 . Owners may also refrain from licensing uses that are critical of their works, such as parodies.76 Such valuable uses are privileged under copyright law, but they may not occur under a contractual regime.

Finally, the low standard of assent that ProCD II helddetermined by the Court of Appeals in the Zeidenberg case to be sufficient for contract formation does not promote competition over the terms. When validating a transaction does not require informing users of the terms of the license prior to the completion of the transaction, owners have no incentive to reveal the license restrictions in advance. Indeed, in ProCD II, the Ccourt emphasized that users are able to reject the terms after purchasing the software and before beginning to use it.77 Yet at this stage users have already incurred various costs such as search costs, loss of other transactions, and costs of delivery and adaptation to the users' environment; consequently, users may be reluctant at this point to reject the terms knowing that they would not be able to recover these costs. By enforcing holding as valid licenses that were not bargained for, the Ccourt may have reduced incentives for competition over the terms of the transaction.

2. Contractual arrangements that expand copyrights in mass-market distribution may conflict with goals of public policy

We have seen that the combination of copyright law and the legal power to restrict the use of information by standard form contracts expands owners' monopolyies far beyond those intended under copyright policy. However, the shift to on-line dissemination suggests that the role of copyright law in securing owners' interests may be dispensable. As noted above, on-line dissemination not only facilitates licensing, but also enhances the ability of owners to exclude physically non- payers. The prospects of replacing a copyright system with a contract-based system are improvinggrowing high.

The question is whether this system will leave any information for free bargaining between owners and users. This section suggests that even though users may agree to restrict their use privileges in return for access to information, such restrictions may impose costs on society as a whole. Such costs may not be internalized by parties to any specific transaction, and thus, the implementation of use restrictions across the board may affect the public at large. These costs may impair the balanced control over information, previously imposed by copyright law, which is essential for its production and dissemination.

Information is not a typical commodity. Its commodification was enabled, in fact, by copyright law. As noted above, information is non-rivalrous and its use by one does not detract from the ability of another to use it. Thus, once information is produced, it is socially optimal to maximize its use by the public. If To the extent that on-line dissemination replaces current distribution channels such as books, television, and radio, thisthen all information wcould become subject to license restrictions. In the absence of alternatives to current channels for distributing free information (such as television or public libraries78), our current capacity to access information at low cost will be restricted.79

Furthermore, the creation of new information, to a large extent, depends on exposure to existing information. Making some information freely available to the public is essential for stimulating further creation. We refine our ideas about the world through interactions with others' ideas, feelings, beliefs, and discoveries. A licensing regime will not facilitate random access to information as well as the existing copyright regime. If owners are able to restrict any use of information, they could attempt to charge for each and every use of the work. If information owners are able to charge for every conceivable use of their works, fewer users will be able to afford to purchase such access to information, and this cost barrier may limit opportunities for further development. A regime that allows owners to charge for any such interaction is detrimental to any vision of learning and growth. Even if price discrimination is available, many of the acts we currently do for free (and indeed take for granted), such as reading a book borrowed from the public library, will be subject to a licensing fee.

Random access to information is essential not only for stimulating further creation, but also for individuals' ability to shape their preferences. If every use of information involves a fee, users are required to choose in advance what information they seek to access. But how could we know in what we are interested before we even know what is available? How can our expectations be shaped in the absence of random observation of what is available to us? The need to choose our areas of interest in advance may narrow our experience of the world and of ourselves. Information is essential for self-actualization. Political opinions and preferences depend upon our ideas and understandings about the world, upon our values and our concept of the good. Preferences are affected by information about what is available to us and to others. The type of information we are able to access will determine the options we perceive as available to us. Therefore, our ability to access information (surveys, movies, historical texts, legal opinions) and to use it when interacting with others is crucial for self-actualization.

Finally, a licensing regime may have social and political consequences by causing information deprivation and information inequality. Collecting fees for each and every use means that some people will be deprived of information because they cannot afford it. The power to control every conceivable uses of information places a privilege never enjoyed by the public under private control. It therefore enhances the ability of owners to exclude access to cultural forms and to limit access to information on the basis of economic power. Information in the broad sense of the term-comprising data, books, movies, music-constitutes culture. Depriving access to cultural artifacts may have political consequences. It may severely restrict the ability of people to react and respond to cultural symbols. In addition, it may hamper the ability of people to participate in political deliberations and social dialogue.

The special nature of information that allows it to be shared at minimal cost and makes existing information essential for future creation suggests that information dissemination and use should be maximized. A contractual regime that allows owners to commodify information may raise use barriers to an extent that would be socially undesirable.

V. Conclusion

Today, more than ever before, we need a theory that defines the boundaries of the freedom of contracts in the context of copyright law. In the past, copyright law was limited to contexts in which contracting was impossible or was prohibitively expensive; in fact, copyright law arose to address the inability of contractual means of exclusion. On-line dissemination and other technological methods of licensing allow the replacement of copyright law by a contractual regime, which suggests that copyright may no longer play a central role in protecting owners' rights.80 However, copyright may now become crucial for defining the balance between owners and users. Just as legal intervention in the market for information was originally necessary to allow the exclusion of non-payers, legal intervention in the market is now necessary to allow the inclusion of non-payers. The need to secure general access to information will require maintaining copyright schemes in contractual regimes.