11997 Maureen O'Rourke.
† Associate Professor of Law, Boston University School of Law. Thanks to David Dana, I. Trotter Hardy, Keith Hylton, Rob Merges, participants in Digital Content: New Products and New Business Models, a conference at the University of California, Berkeley, Boalt Hall School of Law (1996), my research assistants, Jim Dowd and Aaron Moore, and to the Boston University School of Law Library staff. This paper was presented at the 1997 American Law and Economics Association annual meeting.
.See Copyright Act of 1976, 17 U.S.C. §§ 101-810, 1001-1010 (1994).
2. See Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239, 1241 & n. 5 (1996) (noting that shrinkwrap licenses had become part of commercial practice by the early 1980s).
3. 499 U.S. 340 (1991) (holding selection, coordination and arrangement of data contained in an alphabetical white pages telephone listing to be insufficiently original to qualify for copyright protection).
4. Note, however, that the Feist Court stopped well short of holding that factual compilations are never copyrightable:
Factual compilations . . . may possess the requisite originality [for copyright protection]. The compilation author typically chooses which facts to include, in what order to place them, and how to arrange the collected data so that they may be used effectively by readers. These choices as to selection and arrangement, so long as they are made independently by the compiler and entail a minimal degree of creativity, are sufficiently original that Congress may protect such compilations through the copyright laws.
Id.at 348. There is an extensive literature discussing Feist. For a listing of just some of that literature, see Paolo Cerina, The Originality Requirement in the Protection of Databases in Europe and the United States, 24 IIC: INT'L REV. OF INDUS. PROPERTY & COPYRIGHT L. 579, 589 n.71 (1993). Whether the Feist decision has in fact made any practical difference as to the copyrightability of such compilations is debatable. Prior to Feist, courts based copyright protection for these compilations on the labor that was involved in creating them. Now, they may accord that protection by stretching to find the originality required by Feist. For a synopsis of the cases decided after Feist, see MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 3.04[B], at 3-30 to 3-33 & n.76 (1996) (collecting cases and contending that generally courts have been faithful to Feist but also citing a Second Circuit case upholding the copyrightability of the Red Book listing of used cars).
5. See infra text accompanying note 18 (describing the contractual restriction involved in the ProCD case); see also Maureen A. O'Rourke, Drawing the Boundary Between Copyright and Contract: Copyright Preemption of Software License Terms, 45 DUKE L.J. 479, 555 & n.313 (1995) (setting forth relevant terms of LEXIS and WESTLAW subscriber agreements). Note that database providers did use contracts before Feist; providers have always included contracts with their electronic products. The need for contracting became more critical after Feist since contracts became the mechanism to replace the copyright rights that Feist had withdrawn. Cf. id. at 487-93 (offering a rationale for the use of contract even in cases in which copyright applies).
6. See Lemley, supra note 2, at n.107 (collecting authorities on the enforceability of shrinkwrap licenses). Although the provisions of negotiated licenses are often similar to those contained in shrinkwraps, this article, like the ProCD case, addresses only shrinkwrap licenses.
7. This has begun to change as authors are beginning to discuss the relevance of contract bargaining in the preemption inquiry. This commentary, however, is still at a formative stage. See, e.g., I. Trotter Hardy, Contracts, Copyright, and Preemption in a Digital World, 1 RICH. J.L. & TECH. 2 (1995) <http://www.urich.edu/~jolt/vlil/hardy.html>; Lemley, supra note 2; O'Rourke, supra note 5, at 479 & n.75 (arguing against preemption, particularly where contracts are negotiated, as well as listing other authorities on the subject); David A. Rice, Public Goods, Private Contract and Public Policy: Federal Preemption of Software License Prohibitions Against Reverse Engineering, 53 U. PITT. L. REV. 543, 610 (1992) (arguing that the bargaining process is irrelevant to the preemption inquiry).
8. But see O'Rourke, supra note 5, at 555-57 (arguing that the preemption analysis proposed therein to apply to copyrighted works could be extended to deal with noncopyrightable works).
9. 86 F.3d 1447 (7th Cir. 1996), rev'g 908 F. Supp. 640 (W.D. Wis. 1996) [hereinafter ProCD II].
10. See ProCD, Inc., v. Zeidenberg, 908 F. Supp. 640, 659 (W.D. Wis. 1996) [hereinafter ProCD I].
11. See ProCD II, 86 F.3d at 1449, 1454-55.
12. See id. at 1449.
13. Of course, both commercial and non-commercial users of the product are literally "consumers." In this article, the term "consumers" refers to private, non-commercial users, following the convention adopted by the 7th Circuit in the ProCD case.
14. See ProCD II, 86 F.3d at 1449 (noting also that ProCD adopted an intermediate strategy of making its database available to the general public on America Online).
15. Id. at 1450.
16. "Shrinkwrap licenses take many forms. The prototypical example is a single piece of paper . . . wrapped in transparent plastic . . . Other examples of the genre include licenses printed on the outside of boxes . . . licenses simply included somewhere within the box . . . or licenses shrinkwrapped with the owner's manual accompanying the software." Lemley, supra note 2, at 1241. In recent years, vendors have moved to "electronic shrinkwraps"-licenses that appear on the screen and which the user allegedly accepts by continuing to use the software. Thus, at this time, "shrinkwrap" might be more accurately defined as any standard form-contract included with mass-marketed software, regardless of the manner in which the purchaser is to be made aware of the license's existence.
17. See ProCD II, 86 F.3d at 1450.
18. Id. at 1449. Note that the program was protected by copyright and that the database was assumed not to be protected by copyright, even though "it is more complex, contains more information . . . is organized differently, and therefore is more original than the single alphabetical directory at issue in Feist." Id.
19. Id. at 1450.
20. See ProCD I, 908 F.Supp. at 644 ("Plaintiff contends that defendants' actions constitute copyright infringement, breach of the express terms of the parties' software license agreement, a violation of Wisconsin's Computer Crimes Act, misappropriation and unfair competition.").
21. ProCD I, 908 F. Supp. at 652 ("Defendants accepted plaintiff's offer to sell Select PhoneTM in a reasonable manner at the moment they purchased the product by exchanging money for the program . . . Paying for a software program is a reasonable manner of accepting the offer implicit in the program's display on a store shelf.").
22. Id. ("Section 2-602 of the Wisconsin Code grants buyers receiving a tender or delivery of goods an opportunity to inspect the goods before accepting. It guarantees that buyers will not be saddled with goods that have been damaged or are otherwise unsatisfactory upon arrival but it does not create a right to inspect additional written contractual terms.").
23. The three decisions addressing issues involving shrinkwraps are: Step-Saver Data Systems, Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991) (holding that a standard form disclaimer of warranties and limitation of remedies clauses contained on a shrinkwrap license was unenforceable under U.C.C. § 2-207 as a material alteration); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988) (holding that a decompilation provision in a shrinkwrap license sanctioned by a state statute was constitutionally preempted under § 117 of the Copyright Act.); and Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993) (holding shrinkwrap terms enforceable in a transaction in which the licensee opened the package with notice that such action would result in an enforceable contract, but the contract was not enforceable in subsequent transactions in which such notice was lacking). The district court placed primary reliance on the Step-Saver and Arizona Retail cases, see ProCD I, 908 F. Supp. at 652-55, while the court of appeals dismissed all three as irrelevant to the facts of ProCD.
As [the titles of all three cases] suggest, these are not consumer transactions. Step-Saver is a battle-of-the-forms case, in which the parties exchange incompatible forms and a court must decide which prevails. Our case has only one form; U.C.C. § 2-207 is irrelevant. Vault holds that Louisiana's special shrinkwrap-license statute is preempted by federal law, a question to which we return. And Arizona Retail Systems did not reach the question, because the court found that the buyer knew the terms of the license before purchasing the software.
ProCD II, 86 F.3d at 1452 (citations omitted).
24. See 2 WILLIAM D. HAWKLAND, UNIFORM COMMERCIAL CODE SERIES § 2-207:02 (1992) (recognizing that "[s]ection 2-207(1) repudiates the common law principle, sometimes known as the 'mirror image rule,' that a response to an offer constitutes an acceptance only if it 'complies exactly with the requirements of the offer, omitting nothing from the promise or performance requested.'"); see also Douglas G. Baird & Robert Weisberg, Rules, Standards, and the Battle of the Forms: A Reassessment of § 2-207, 68 VA. L. REV. 1217, 1220-23 (1982) (recognizing the conventional wisdom that "[t]he drafters of 2-207 had the salutary, indeed the unexceptional purpose of overcoming the rigidity of one of the oldest and most mechanical common-law rules of offer and acceptance-the mirror-image rule," but arguing that the principles underlying the rule remain fundamentally sound); Daniel A. Levin & Ellen Blumberg Rubert, Beyond U.C.C. Section 2-207: Should Professor Murray's Proposed Revision be Adopted?, 11 J.L. & COM. 175, 175-84 (1992) (examining the resolution of the mirror-image rule and battle of the forms/last shot problems both before and after the adoption of § 2-207).
25. Different parts of Article 2 draw on different facets of the definition of merchant set forth in § 2-104(1).
"For purposes of [§ 2-207] almost every person in business would . . . be deemed to be a 'merchant' under the language [of § 2-104(1) stating that a merchant means a person] 'who . . . by his occupation holds himself out as having knowledge or skill peculiar to the practices . . . involved in the transaction . . .' since the practices involved in the transaction are non-specialized business practices . . . ." U.C.C. § 2-104 cmt. 1 (1996).
26. See U.C.C. § 2-207(2) (1996).
27. Under § 2-207(1), an acceptance may still be effective even though it contains terms additional to those offered. See U.C.C. § 2-207(1) (1996). "The additional terms are to be construed as proposals for addition to the contract." Id. at § 2-207(2) (1996).
28. ProCD I, 908 F. Supp. at 655.
29. The court had earlier stated that it was improbable that consumers would be held to terms from which merchants would be given protection. See id. Therefore, one could infer that the court meant that even a merchant would be given protection from the use restriction under § 2-207(2) had such merchant stood in the shoes of Zeidenberg. Under § 2-207(2), the term would not become part of the contract if Zeidenberg objected to it, the offer limited acceptance to its terms, or the term materially altered the contract. Since there is no evidence that Zeidenberg objected to the use restriction or that the offer limited acceptance to its terms, one can infer that the court meant that the use restriction was a material alteration. This would be consistent with the holding in Step-Saver. See supra note 23.
30. U.C.C. § 2-209(1) (1996) ("An agreement modifying a contract within this article needs no consideration to be binding."); see infra notes 70-83 and accompanying text (discussing § 2-209).
31. ProCD I, 908 F. Supp. at 655 (citations omitted).
33. ProCD II, 86 F.3d at 1451-52 (enumerating a number of common "pay now, get terms later" transactions at odds with the district court's contention, which the court of appeals characterized as follows: "According to the district court, the U.C.C. does not countenance the sequence of money now terms later.").
34. See id. at 1452; see also U.C.C. § 2-204(1) (1996) ("A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.").
35. ProCD II, 86 F.3d at 1452.
36. See id.
39. U.C.C. § 2-606(1)(a) (1996).
40. ProCD II, 86 F.3d at 1453; see also infra notes 61-63, and accompanying text (reviewing Code goals, including flexibility).
41. See id. ("[A]djusting terms in buyers' favor might help Matthew Zeidenberg today (he already has the software) but would lead to a response, such as a higher price, that might make consumers as a whole worse off.").
42. "Standardization of agreements serves many of the same functions as standardization of goods and services; both are essential to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than the details of individual transactions." Id. at 1451 (citing RESTATEMENT 2D OF CONTRACTS § 211 cmt. a (1981)).
43. Id. ("Transactions in which the exchange of money precedes the communication of detailed terms are common"; citing the purchase of insurance, airline tickets, and concert seats as examples of such arrangements).
44. See id.
45. Id. ("[S]o far as we are aware no state disregards warranties furnished with consumer products."); see also Earl Brace & Sons v. Ciba-Geigy Corp., 708 F.Supp. 708, 710-11 (W.D. Pa. 1989) (finding that a warranty disclaimer appearing not on the outside of the box but in bold type on a booklet attached to containers of herbicide within the box, did not fail of its essential purpose, nor work in an unconscionable fashion, and therefore was enforceable under Pennsylvania commercial law). But see JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE § 12-5, 427 & n. 22 (4th ed. 1995) (noting that warranty disclaimers which the buyer finds only after the delivery of the goods are disfavored and should be construed as modifications to the contract and citing Gaha v. Taylor-Johnson Dodge, Inc., 53 Or. App. 471, 632 P.2d 483 (1981) (holding a disclaimer of warranty appearing in a booklet delivered two weeks after purchase to be ineffective)). Since its decision in ProCD, the Seventh Circuit has upheld an arbitration clause on a set of terms enclosed in a box, citing ProCD for support. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1148-49 (7th Cir. 1997).
46. See ProCD II, 86 F.3d at 1451.
47. Id. at 1452.
48. Id. at 1451-52.
49. See id.
51. See id. at 1449 ("ProCD decided to engage in price discrimination, selling its database to the general public for personal use at a low price (approximately $150 for the set of five discs) while selling information to the trade for a higher price.").
52. Id. ("If ProCD had to recover all of its costs and make a profit by charging a single price-that is, if it could not charge more to commercial users than to the general public-it would have to raise the price substantially over $150.").
53. Id. If because of high elasticity of demand in the consumer segment of the market the only way to make a profit turned out to be a price attractive to commercial users alone, then all consumers would lose out-and so would the commercial clients, who would have to pay more for the listings because ProCD could not obtain any contribution toward costs from the consumer market.
54. ProCD II, 86 F.3d at 1450.
55. Id. ("Anyone can walk into a retail store and buy a box. Consumers do not wear tags saying 'commercial user' or 'consumer user.'"); see also O'Rourke, supra note 5, at 499 (contending that one reason software providers include standard form contracts with provisions against decompilation is to account for their inability to distinguish among types of users).
56. ProCD II, 86 F.3d at 1450 ("Instead of tinkering with the product and letting users sort themselves-for example, furnishing current data at a high price that would be attractive only to commercial customers, and two-year-old data at a low price-ProCD turned to the institution of contract.").
57. Id. at 1449.
58. See, e.g., Lemley, supra note 2, at 1263-64 n.107 (collecting authorities discussing the issue).
59. See supra note 23 (describing the cases addressing shrinkwrap licensing prior to ProCD).
60. Lemley, supra note 2, at 1253.
61. U.C.C. § 1-102(2) (1996).
62. See, e.g., supra note 24 and accompanying text (describing § 2-207 which rejected the common law mirror-image rule in order to accommodate commercial reality).
63. The Code-particularly Article 2-is often described as being based on Karl Llewellyn's legal realist philosophy. See WILLIAM TWINING, KARL LLEWELLYN AND THE REALIST MOVEMENT 302-40 (1973) (discussing the jurisprudence of the U.C.C. and the role Karl Llewellyn and his legal realist philosophy played in developing it); Richard Danzig, A Comment on the Jurisprudence of the Uniform Commercial Code, 27 STAN L. REV. 621 (1975). But see William A. Schnader, A Short History of the Preparation and Enactment of the Uniform Commercial Code, 72 U. MIAMI L. REV. 1, 5 (1967) ("I can also state that what Professor Llewellyn believed should be the articles of an ideal commercial code were not the articles as they emerged from the crucible of debate when the Code was promulgated."). In Llewellyn's own words, "I am ashamed of [the U.C.C.] in some ways; there are so many pieces that I could make a little better; there are so many beautiful ideas I tried to get in that would have been good for the law, but I was voted down." Karl Llewellyn, Why a Commercial Code?, 22 TENN. L. REV. 779, 784 (1953). However, out of all of the Articles in the Code, Article 2 probably best reflects Llewellyn's philosophy. See Peter A. Alces, The Revision of Article 2 of the Uniform Commercial Code, 35 WM. & MARY L. REV. 1299, 1299 (1994) ("Quite simply, Article 2 of the U.C.C., 'Sales,' is, more than any other article of the Code, Llewellyn's Llaw.") (citation omitted).
64. See Mark D. Rosen, What Has Happened to the Common Law?-Recent American Codifications, and their Impact on Judicial Practice and the Law's Subsequent Development, 1994 WIS. L. REV. 1119, 1170 (noting that the U.C.C. "bid[s] the legalists to make context-specific inquiries to infer the rules implicit in each situation.") (citation omitted). For example, the Code modifies the parol evidence rule by permitting evidence of usage of trade, course of dealing and course of performance to explain or supplement even a fully integrated agreement. U.C.C. § 2-202 (1996). Thus, an agreement is interpreted against the backdrop of shared assumptions inherent in a particular industry. See ALAN SCHWARTZ & ROBERT E. SCOTT, COMMERCIAL TRANSACTIONS-PRINCIPLES AND POLICIES 63-64 (2d ed. 1991) (noting that the result of including trade usage as a source of contractual meaning may be to decrease negotiation costs because parties are not required to memorialize common practices).
65. See Rosen, supra note 64, at 1222-23 (contending that Article 2 is based on an "Agreement" theory aimed toward ensuring enforcement of the parties' agreement); see also U.C.C. § 1-102 cmt. 2 (1996) ("Subsection (3) [of § 1-102] states affirmatively at the outset that freedom of contract is a principle of the Code . . . .").
66. The U.C.C. does contain some mandatory rules as well as vague admonitions that serve to limit the parties' flexibility. See SCHWARTZ & Scott, supra note 64, at 4 (noting that Code rules can be classified as belonging to one or more of 4 categories-directives, risk allocations, enabling provisions, and vague admonitions). For example, § 2-201 is a mandatory rule providing that a contract for the sale of goods of $500 or more must be evidenced by a writing to be enforceable. U.C.C. § 2-201 (1996). See also U.C.C. § 1-102(3) (1996) ("The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement . . . ."); U.C.C. § 2-302 (1996) (granting courts broad discretion to reform unconscionable contracts or clauses).
67. Today's U.C.C. does not explicitly address shrinkwrap licensing. However, the National Conference of Commissioners on Uniform State Laws, and the American Law Institute are currently drafting a new Article-Article 2B-for addition to the Code. Proposed Article 2B is still under discussion; it is not currently a part of the U.C.C., nor has it been adopted by any state. Article 2B would cover licensing transactions such as that entered into by ProCD and Zeidenberg. At least one of its drafts contains a provision that would sanction shrinkwraps like ProCD's. Both courts addressed this provision. The district court characterized it as "evidence that the American Law Institute views current law as insufficient to guarantee the enforcement of standard form contracts such as shrinkwrap licenses." ProCD I, 908 F. Supp. at 655. However, the Seventh Circuit argued that the district court's conclusion regarding the proposal "depends on a faulty premise. To propose a change in a law's text is not necessarily to propose a change in the law's effect. New words may be designed to fortify the current rule with a more precise text that curtails uncertainty." ProCD II, 86 F.3d at 1452.
68. U.C.C. § 2-207 cmt. 1 (1996).
This section is intended to deal with two typical situations. The one is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is offer and acceptance, in which a wire or letter expressed and intended as an acceptance . . . adds further minor suggestions or proposals.
69. For articles discussing the pro's and con's of shrinkwraps, see Page M. Kaufman, The Enforceability of State Shrink-Wrap License Statutes in Light of Vault Corp. v. Quaid Software Ltd., 74 CORNELL L. REV. 222 (1988); see also David A. Einhorn, Box-Top Licenses and the Battle-of-the-Forms, 5 SOFTWARE L.J., 401, 406-12 (1992) (discussing the validity of shrinkwrap contracts in light of U.C.C. Article 2); Karen Puhala, Note, The Protection of Computer Software Through Shrink-Wrap Agreements, 42 WASH. & LEE L. REV. 1347 (1985) (identifying issues associated with shrinkwraps, including the likely inability of vendors unilaterally to impose terms on a user after completion of the sale but contending that shrinkwraps are enforceable when the user is able to read the license prior to purchase); Michael G. Ryan, Note, Offers Users Can't Refuse: Shrink-wrap License Agreements as Enforceable Adhesion Contracts, 10 CARDOZO L. REV. 2105 (1989) (arguing for the enforceability of shrinkwraps but noting objections to them including the failure of the bargaining model to fit classical notions of contract); Michael Schwarz, Note, Tear-Me-Open Software License Agreements: A Uniform Commercial Code Perspective on an Innovative Contract of Adhesion, 7 COMPUTER/L. J. 261 (1986) (discussing the problem of identifying when offer and acceptance occur with respect to shrinkwraps and assessing the enforceability of particular terms).
70. See ProCD I, 908 F. Supp. at 655.
71. U.C.C. § 2-209(1) (1996).
72. U.C.C. § 1-201(3) (1996).
73. U.C.C. § 1-201(3) cmt. 3 (1996).
74. See, e.g., Morrison v. Devore Trucking, Inc., 68 Ohio App. 2d 140, 143, 428 N.E.2d 438, 441 (1980) ("Subsequent acts and agreements may modify the terms of a contract."); Wolpert v. Foster, 312 Minn. 526, 254 N.W.2d 348 (1977) (holding that a court may find an agreement to modify a written contract in the offeree's conduct); see also J.W. Goodliffe & Son v. Odzer, 283 Pa. Super. 148, 423 A.2d 1032 (1980) (holding conduct may constitute a waiver of a term requiring a modification to be in writing); Bone Int'l , Inc. v. Johnson, 74 N.C. App. 703, 329 S.E. 2d 714 (1985) (holding a post-sale agreement to be an oral modification); WHITE & SUMMERS, supra note 45, § 1-6, at 30.
75. Under the Copyright Act, the purchaser of a copyrighted work is subject to the exclusive rights of the copyright owner as detailed in § 106. The exclusive rights of the copyright owner include the right to reproduce the copyrighted work and prepare derivative works from it. 17 U.S.C. § 106 (1994). These exclusive rights are, however, limited in time (generally life of the author plus fifty years, 17 U.S.C. § 302(a) (1994)) and subject to other limiting doctrines such as the fair use (17 U.S.C. § 107 (1994)) and first sale doctrines (17 U.S.C. § 109) (1994)).
76. Under the Code, "[e]ven though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy." U.C.C. § 2-204(3) (1996). For example, the Code will fill in an open price term (U.C.C. § 2-305 (1996)), and/or an open delivery term (U.C.C. §§2-307 to 2-309 (1996)).
77. But see James T. Peys, Note, Commercial Law-The Enforceability of Computer "Box-Top" License Agreements Under the U.C.C., 7 WHITTIER L. REV. 881 (1985) (reviewing U.C.C. law on modifications and concluding that shrinkwraps are not enforceable modifications); Puhala, supra note 69, at 1373-76 ("[A] user's opening of the separate diskette package and use of the software is unlikely to indicate the user's acceptance of the modified terms . . . because the user usually does not intend to accept the modified terms by his ordinary act of using the software.").
78. U.C.C. § 2-202 makes clear that usage of trade may be used to interpret a contract already formed. "Terms . . . may be explained or supplemented (a) by course of dealing or usage of trade . . . or by course of performance." U.C.C. § 2-202(a) (1996). Less clear is whether that usage of trade may also inform the question of whether a contract has been formed. The expansive definition of usage of trade, see infra text accompanying note 79, supports the argument that it should be used to help put the Code's rules on offer and acceptance into the context of the relevant industry. See also Ore & Chem. Corp. v. Howard Butcher Trading Corp., 455 F. Supp. 1150 (E.D. Pa. 1978) (holding usage of trade relevant in determining the content of an offer and whether acceptance had occurred); Avery Katz, The Strategic Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation, 89 MICH. L. REV. 215, 220-21 (1990) (citations omitted):
Beyond the necessarily general language of black-letter formulations, American contract law also allows contracting parties considerable leeway to choose the form of their agreement in practice. This is especially so for contracts governed by Article II of the Uniform Commercial Code, which in large part reflects the view of Llewellyn and his colleagues that commercial law should be grounded in the expectations of the community of traders. Aside from its variety of specific provisions referring to trade usage, course of dealing, course of performance, good faith, and commercial reasonableness, Article II directs courts generally to defer to private usage in adjudicating formation issues.
But seeWichita Sheet Metal Supply, Inc. v. Dahlstrom & Ferrell Constr. Co., 246 Kan. 557, 565, 792 P.2d 1043, 1049 (1990) ("Clearly, usage of trade is limited to explaining language used in an existing contract or filling in some gap in the contract. It cannot be used to create a contract where none previously existed.").
79. U.C.C. § 1-205(2) (1996).
80. See generally Lisa Bernstein, Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms, 144 U. PA. L. REV. 1765, 1803 & n.128 (1996) (explaining the rationale for Code reliance on trade usage and questioning the advisability of this practice).
81. U.C.C. § 1-205(3) (1996) ("A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.").
82. U.C.C. § 2-302 (1996) ("Unconscionable Contract or Clause"); see also U.C.C. § 1-205 cmt. 6 (1996) ("The policy of this Act controlling explicit unconscionable contracts and clauses . . . applies to implicit clauses which rest on usage of trade and carries forward the policy underlying the ancient requirement that a custom or usage must be 'reasonable.'"); U.C.C. § 1-203 (1996) ("Every contract or duty within th[e] Act imposes an obligation of good faith in its performance or enforcement.").
83. See infra text accompanying notes 87-91 (discussing unconscionability in more detail).
84. ProCD II, 86 F.3d at 1453.
85. Of course, the more defective the formation process, the more likely particular terms will be unenforceable.
86. Cf. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (upholding the enforceability of a forum-selection clause in a boilerplate contract).
87. See Kansas City Wholesale Grocery Co. v. Weber Packing Corp., 93 Utah 414, 73 P.2d 1272, 1275 (1937); U.C.C. § 2-302 cmt. 1 (collecting unconscionability cases).
88. See generally Peys, supra note 77, at 908-10 (discussing the malleability of the unconscionability inquiry).
89. U.C.C. § 2-302 cmt. 1 (1996).
90. See Williams v. Walker-Thomas Furniture, 350 F.2d 445, 448-50 (D.C. Cir. 1965) (interpreting unconscionability under § 2-302 of the Code to require primary concern with the terms of the contract considered in light of the circumstances existing at contract formation); Henningsen v. Bloomfield Motors, Inc. 32 N.J. 358, 387-88, 161 A.2d 69, 85-86 (1960) (discussing the pre-Code equitable doctrines used to avoid unconscionable results in the enforcement of standardized commercial contracts); WHITE & SUMMERS, supra note 45, § 4-5, at 137 ("It is not possible to define unconscionability. It is not a concept, but a determination to be made in light of a variety of factors not unifiable into a formula.").
91. The cases finding unconscionability based on excessive price offer support for this proposition. They seem to be based on the courts' intuitive belief that the buyer did not get the benefit of its bargain-i.e., the buyer expected or should have expected more for the price which it paid. See WHITE & SUMMERS, supra note 45, § 4-5, at 140-45 (discussing various excessive price cases).
92. This statement depends in large part on one's perception of copyright's purpose. For example, adherents of the freedom of contract principle would say that if a provision is enforceable under contract law, it is not to be preempted by the Copyright Act. See infra notes 132-34 and accompanying text (contending that a freedom of contract perspective views copyright as a boilerplate contract which the parties are free to contract around; thus if a provision is enforceable under contract law, it is not preempted by the Copyright Act).
93. ProCD I, 908 F. Supp. at 644, ("I conclude . . . [d]efendants never assented to the license agreement included in the Select PhoneTM user guide and are not bound by it. Even if defendants had assented, the license agreement is preempted by federal copyright law to the extent plaintiff intended it to apply to uncopyrightable data."). While the court's discussion of the preemption issue is arguably dicta since it was not necessary to the disposition of the case once the court had held the shrinkwrap unenforceable, the court of appeals characterized the preemption discussion as a holding: "The district court held that, even if Wisconsin treats shrinkwrap licenses as contracts, § 301(a) of the Copyright Act, 17 U.S.C. § 301(a), prevents their enforcement." ProCD II, 86 F.3d at 1453.
94. 499 U.S. 340 (1991).
95. See id.
96. See id. at 342.
97. See id. at 343.
98. See id. at 343-44.
99. Id. at 344. The statutory basis for the Court's statement that facts are not copyrightable is found in § 102(b) of the Act: "In no case does copyright protection . . . extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery." 17 U.S.C. § 102(b) (1994). "Section 102(b) is universally understood to prohibit any copyright in facts." Feist, 499 U.S. at 356.
100. 499 U.S. at 347 (1991) (citation omitted).
101. Id. at 362.
102. Id. at 350 (citation omitted).
104. See id. at 359-60.
105. See id. at 352-53 (quoting Jeweler's Circular Publishing Co. v. Keystone Publishing Co., 281 F. 83, 88 (2d Cir. 1922)):
The right to copyright a book upon which one has expended labor in its preparation does not depend upon whether the materials which he has collected consist or not of matters which are publici juris, or whether such materials show literary skill or originality, either in thought or in language, or anything more than industrious collection. The man who goes through the streets of a town and puts down the names of each of the inhabitants, with their occupations and their street number, acquires material of which he is the author.
106. William S. Strong, Database Protection After Feist v. Rural Telephone Co., 42 J. COPYRIGHT SOC'Y U.S.A. 39, 56-57 (1994) ("The Fourth and Seventh Circuits now reverently cite Feist. . . . [R]eading their recent opinions one would never know they had once been bastions of the 'sweat of the brow' theory."); see also Theodore H. Davis, Jr., Copying in the Shadow of the Constitution: The Rational Limits of Trade Dress Protection, 80 MINN. L. REV. 595, 630 n.168 (1996):
The Seventh Circuit's adherence to the sweat of the brow doctrine under the 1909 Act was such that the court in Toksvig v. Bruce Publishing Co., 181 F.2d 664 (7th Cir. 1950) enjoined the defendant from using facts from the plaintiff's work that were readily available from other sources in the public domain.
107. Feist, 499 U.S. at 359-60.
108. Preemption may also be constitutionally based. A particular cause of action may be preempted under the Supremacy Clause if its enforcement would "stand[ ] as an obstacle to the accomplishment of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941). Hines pre-dated the enactment of the specific preemption section of the Copyright Act but the constitutional inquiry may still survive. See Wendy J. Gordon, On Owning Information: Intellectual Property and the Resitutionary Impulse, 78 VA. L. REV. 149, 155 n.22 (1992) (stating that the inquiry of whether state law interferes with congressional intent should survive the enactment of § 301). It is unclear, however, what the constitutional inquiry would add to § 301. It is reasonable to assume that both courts would have arrived at the same conclusions they did even under a constitutional standard since the policy concerns they addressed would have been relevant in the constitutional inquiry. But see D.C. Toedt III, COUNTERPOINT: Shrinkwrap License Enforceability Issues, 13 COMPUTER L.J. 7, 8-9 (contending that the Seventh Circuit failed to address Supremacy Clause preemption and setting forth a case for such preemption).
109. 17 U.S.C. § 301(a) (1994). Note that both ProCD courts treated the data as falling within the subject matter of copyright-and thus subject to § 301-despite the fact that the data lacked the originality required to afford it copyright protection. See ProCD I, 908 F. Supp. at 656-57 (reviewing authorities and concluding that § 301 applies to works that "fit within the general subject matter of §§102 and 103, whether or not the works qualify for actual protection"); see also ProCD II, 86 F.3d at 1453 (ostensibly agreeing with the district court); infra text accompanying notes 111-12 (noting that in conducting part of its preemption query, the district court effectively considered whether the act of breach of contract would constitute copyright infringement if the data had been copyrightable).
110. See, e.g., Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 659 (4th Cir. 1993), cert. denied, 510 U.S. 965 (1993).
111. ProCD, 908 F.Supp. at 657.
112. Id. at 657-58.
113. Id. at 659.
114. Id. at 658.
115. See id. at 659.
116. ProCD II, 86 F.3d at 1454.
120. See id.
121. See id.
122. See id.
123. See id.
125. Id. at 1455.
128. See O'Rourke, supra note 5, at 519-23 (discussing preemption law and conflicting judicial authority).
129. See id.
130. ProCD II, 86 F.3d at 1454.
131. ProCD I, 908 F. Supp. at 658.
132. Prof. I. Trotter Hardy was the first to set forth these competing views in the context of preemption. See I. Trotter Hardy, Copyright, Contracts, and Preemption in a Digital World, 1 RICH. J.L. & TECH. 2 ¶¶ 37-43 (1995) (noting changes in perception of the meaning of copyright over the years).
133. See id. at ¶ 37 (arguing that the original intent of the Framers was that copyright would be like any other property right and thereby include the owner's right to transact as he saw fit).
134. Cf. id. at ¶ 38 ("[T]he traditional, property view sees the copyright statute as simply providing a backdrop for individual bargains and negotiations over licenses.").
135. Court cases and the literature present ample statements to this effect. See, e.g., Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349-50 (1991) ("The primary objective of copyright is not to reward the labor of authors, but '[t]o promote the Progress of Science and useful Arts.' . . . To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work." (quoting U.S. CONST. art. 1, § 8, cl. 8) (citing Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 556-57 (1985)); Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 429 & n.10 (1984) (citing legislative history from the 1909 Act to the effect that copyright law is to advance public welfare and stating:
As the text of the Constitution makes plain, 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 in order to give the public appropriate access to their work product. Because 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, our patent and copyright statutes have been amended repeatedly.);
Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) (stating:
The limited scope of the copyright holder's statutory monopoly, like the limited copyright duration required by the Constitution, reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.
(footnotes omitted)); see also Jessica Litman, Innovation and the Information Environment: Revisiting Copyright Law for the Information Age, 75 OR. L. REV. 19, 46 (1996) (arguing that "[c]opyright owners have no legitimate claim to fence off the public domain material that they have incorporated in their copyrighted works from the public from whom they borrowed it," and promoting the merits of a system that explicitly recognizes the public interest in public domain material); Jessica Litman, The Public Domain, 39 EMORY L.J. 965, 967 (1990) ("[T]he public domain is the law's primary safeguard of the raw material that makes authorship possible.").
136. See Hardy, supra note 132, at ¶ 38 ("[T]he modern view sees the statute as specifying what are essentially the actual quite specific terms of large classes of 'bargains' over the use of intellectual property.").
137. See id. at ¶ 44 (contending that wholesale adoption of the modern view of copyright would imply "a more aggressive interpretation of copyright's preemption clause").
138. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609, 612-15 (National Bureau of Economic Research eds., 1962); ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 108 (1988) (defining a public good as one "for which there is no rivalry in consumption"). For a general economic perspective on copyright law, see William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325 (1989).
139. For an explanation of the "sweat of the brow theory," see supra note 105 and accompanying text.
140. See, e.g., 17 U.S.C. § 109 (1994) (codifying the "first-sale" doctrine, which provides that the purchaser of a copyrighted work is free to do with it as he or she pleases subject only to the copyright owner's § 106 exclusive rights). However, note that the first-sale doctrine is limited in the case of software. While other purchasers are free to dispose of other copyrighted works as they see fit, since the Computer Software Rental Amendments Act of 1990, § 109 prohibits "any person in possession of a particular copy of a computer program . . . [from,] for the purposes of direct or indirect commercial advantage, dispos[ing] of, or authoriz[ing] the disposal of, the possession of that . . . computer program . . . by rental, lease or lending." 17 U.S.C. § 109(b) (1994); see also Thomas M. S. Hemnes, Restraints on Alienation, Equitable Servitudes, and the Feudal Nature of Computer Software Licensing, 71 DENV. U. L. REV. 577 (1994) (comparing the development of software licensing to the feudal system of land tenure and arguing that the law on restraints on alienation and real estate law on equitable servitudes may assist courts in determining what covenants should run with the software). Note also that the textual proposition seems to undercut Easterbrook's argument that the purchaser should expect the use restriction given the price it pays. See supra section II.A.2. The user's expectations with respect to the rights it obtains for a particular price are based not only on contract but also on longstanding copyright principles, which include the right to use facts.
141. See O'Rourke, supra note 5, at 523-28.
142. ProCD II, 86 F.3d at 1454.
143. See supra text accompanying notes 33-57 (discussing the Seventh Circuit's use of economic considerations in upholding the shrinkwrap); text accompanying notes 123-27 (discussing the economic factors influencing the Seventh Circuit's preemption holding).
144. ProCD II, 86 F.3d at 1455 (citing American Airlines, Inc. v. Wolens, 115 S. Ct. 817, 824-25 (1995)).
145. See supra text accompanying note 57 (noting that Easterbrook contends that shrinkwraps are enforceable unless they fail some contractual test such as unconscionability).
146. This literature is extensive. See Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 VA. L. REV. 821, 823-24 & nn.10-19 (citing default rules literature).
147. See, e.g., Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L. J. 87, 87 (1989) ("The legal rules of contract and corporations can be divided into two distinct classes. The larger class consists of 'default' rules . . . while the smaller class consists of 'immutable' rules.").
148. See id.
149. See generally id.
150. Id. at 88.
151. See id.
152. See SCHWARTZ & SCOTT, supra note 64, at 21, 23 (stating the textual proposition and contending that such a choice of default rule is desirable because it saves negotiation costs); Cf. Ayres & Gertner, supra note 147, at 89 (stating that "[f]ew academics have gone beyond one-sentence theories stipulating that default terms should have been set at what the parties would have wanted" and going on to question whether the "would have wanted" theory should always apply in setting default rules).
153. See Barnett, supra note 146, at 906-07 (identifying express terms, course of dealing and usage of trade as important sources to aid in understanding the parties' intent).
154. See supra text accompanying notes 51-56 (setting forth the economic rationale of the Seventh Circuit in upholding the shrinkwrap); notes 78-83 (arguing that usage of trade supports both the manner of contracting and the particular terms).
155. See Ayres & Gertner, supra note 147, at 91 (calling such default rules "penalty defaults" and stating "[i]n contrast to the received wisdom, penalty defaults are purposefully set at what the parties would not want-in order to encourage the parties to reveal information to each other or to third parties (especially the courts)"); see also Barnett, supra note 146, at 888-89 (using a consent theory to explain penalty defaults).
156. The Copyright Act, in one form or another, has been with us since 1790. Therefore, it is reasonable to expect that purchasers have some sense of what it is. Major revisions to the Act were enacted in 1831, 1870, 1909 and 1976. See generally WILLIAM F. PATRY, LATMAN'S THE COPYRIGHT LAW 2-15 (6th ed. 1986) (outlining the history of the Copyright Act).
157. See supra note 99 (setting forth the statutory basis for the free use of facts). Admittedly, Feist was decided relatively recently, in 1991. However, the Court emphasized that its statement that facts are not copyrightable has been the law at least since 1909. See Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 355-56 (1991).
158. ProCD II, 86 F.3d at 1453.
159. See SCHWARTZ & SCOTT, supra note 64, at 106 (explaining the signaling function of warranties).
160. See supra text accompanying notes 51-56 (explaining why ProCD adopted a price discrimination scheme and how it worked).
161. Zeidenberg's database containing ProCD's listings "was receiving approximately 20,000 'hits' per day on the Internet." ProCD I, 908 F. Supp. at 646. The effect on ProCD's market was unspecified.
162. How conspicuous ProCD made the use restriction is not clear. However, the license agreement was printed in a number of places in the package and appeared on the screen each time the user loaded the software. See supra text accompanying note 17.
163. One obvious difference between the two would be in the case of the nonconspicuous use restriction employed in an efficient market. The Easterbrook model would enforce it while the default rules model would not since it fails to comply with the mandatory requirement of conspicuousness.
164. Note, however, that market analysis would likely be admissible in evaluating constitutional preemption if such preemption survives § 301. See supra note 108 (considering whether constitutional preemption survives).
165. See NIMMER & NIMMER, supra note 4, §§ 13.05, 13-152 to 13-157; see also 17 U.S.C. § 107 (1994) (listing "purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research..." as nonexclusive examples of the types of uses which may be privileged as fair).
166. 17 U.S.C. § 107 (1994).
167. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 (citing Stewart v. Abend, 495 U.S. 207 (1990)).
168. See Roxana Badin, Note, An Appropriate(d) Place in Transformative Value: Appropriation Art's Exclusion From Campbell v. Acuff-Rose Music, Inc., 60 BROOK. L. REV. 1653, 1678-79 (1995) (stating that the Court weighs the first and fourth factors "heavily in its fair use determination").
169. I am indebted to Prof. Hardy for suggesting that importing some or all of the fair use factors into a preemption inquiry may be appropriate. Letter from I. Trotter Hardy, Professor of Law, The College of William & Mary School of Law to Maureen A. O'Rourke, Assoc. Professor of Law, Boston University School of Law, November 25, 1996 (on file with the author). Any errors in the analysis are, of course, my own.
170. U.C.C. § 1-203 (1996). Of course, a court might also imply a requirement of conspicuousness under § 2-302 on unconscionability or as a matter of statutory interpretation. See e.g., Schroeder v. Fageol Motors, Inc., 86 Wis. 2d 256, 544 P.2d 20 (1975) (suggesting a limitation of remedy clause could be unconscionable if it were inconspicuous); Gindy Mfg. Corp. v. Cardinale Trucking Corp., 111 N. J. Super. 383, 268 A.2d 345 (1970) (reading into the UCC a requirement that an "as is" disclaimer be conspicuous to be enforceable despite the lack of statutory language to that effect). Neither of these approaches is likely to be availing in the case of use restrictions. As argued earlier, they are generally not unconscionable, see supra notes 87-91 and accompanying text (discussing unconscionability). Also, there is no section in the UCC on use restrictions that would provide a basis from which a court could read in a conspicuousness requirement.
171. See 1 WILLIAM D. HAWKLAND, UNIFORM COMMERCIAL CODE SERIES § 1-203:01, n. 1 (1995) (collecting cases on both sides of the issue); see also Fred H. Miller, The Obligation of Good Faith and the New PEB Commentary, 48 CONSUMER FIN. L. Q. REP. 54, 54 (1994) (reviewing issues associated with good faith and noting that the Permanent Editorial Board of the UCC issued a commentary indicating that "UCC section 1-203 does not create an independent cause of action because one cannot simply act in good faith; one acts in good faith relative to the agreement of the parties.").
172. See supra note 67 (discussing the Article 2B effort).
173. See Litman, Revisiting Copyright, supra note 135; Pamela Samuelson et al., A Manifesto Concerning the Legal Protection of Computer Programs, 94 COLUM. L. REV. 2308, 2310-11, nn.1 & 5 (1994) (listing some of the extensive literature regarding the appropriate level of protection for computer software and also contributing to it).
174. See FINAL REPORT OF THE NATIONAL COMMISSION ON NEW TECHNOLOGICAL USES OF COPYRIGHTED WORKS (1979).
175. INTELLECTUAL PROPERTY AND THE NATIONAL INFORMATION INFRASTRUCTURE: THE REPORT OF THE WORKING GROUP ON INTELLECTUAL PROPERTY RIGHTS (1995).
176. See, e.g., H.R. 2441, 104th Cong., 1st Sess. (1996) (proposed National Information Infrastructure (NII) Copyright Protection Act).
177. See H.R. 3531, 104th Cong., 2d Sess. (1996) (proposing a new form of legal protection for databases to safeguard the investment made in creating the database against exploitation by others); Bill, Treaty Proposal Would Create New Protection of Databases, 52 PAT. TRADEMARK & COPYRIGHT J. 141 (1996) (summarizing the proposal and citing Feist as creating interest in adopting a new form of database protection).
178. In fact, in introducing the database legislation, Rep. Moorhead seemed to assume that contract was a viable option for database owners, stating that state contract law remains an "essential tool" for protecting databases. Bill, Treaty Proposal Would Create New Protection of Databases, supra note 177, at 141.
179. See, e.g., O'Rourke supra note 5, at 551 (contending that while decompilation provisions in software license agreements should generally be enforced, such provisions should be preempted when the licensor has market power sufficient to allow it to engage in exclusionary practices or to leverage its power into another market).