1998 David Friedman.

David Friedman teaches in the law school and economics department of Santa Clara University. He can be reached at <ddfr@best.com> and much of his work is available at <http://www.best.com/~ddfr/Academic/Academic.html>.

1. U.C.C. Article 2B (July 24-31, 1998 Draft).

2. See Julie Cohen, Copyright and the Jurisprudence of Self-Help, 13 BERKELEY TECH. L.J. 1089 (1998).

3. See Sam Albert, Surprise! IBM May Crash the Internet Party, COMPUTERWORLD, June 10, 1996, at 41; Judith Evans, Want To Cryptolope?, NEWSDAY, May 21, 1996, at B23; Whit Andrews, IBM Retreats on Cryptolope, WebWeek, (Dec. 15, 1997) (visited Nov. 22, 1998) <http://www.internetworld.com/print/1997/12/15/news/19971215-cryptolope.html> (discussing recent change to the Cryptolope project); IBM Corp., IBM Cryptolope Technology, (visited Nov. 22, 1998) <http://www.software.ibm.com/security/cryptolope/>.

4. See InterTrust Technologies Corporation, InterTrust Products and Services (visited Nov. 11, 1998) <http://www.intertrust.com/products/index.html>.

5. See Kory D. Christensen, Fighting Software Piracy in Cyberspace: Legal and Technological Solutions, 28 LAW & POL'Y INT'L BUS. 435, 466-67 (1997).

6. See generally LON L. FULLER & MELVIN ARON EISENBERG, BASIC CONTRACT LAW, 628-52 (5th ed. 1990).

7. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996) ("The 'shrinkwrap license' gets its name from the fact that retail software packages are covered in plastic or cellophane 'shrinkwrap,' and some vendors ... have written licenses that become effective as soon as the customer tears the wrapping from the package.").

8. A recent case supports enforceability. See id. An older case was decided in the opposite direction. See Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 268-70 (5th Cir. 1988). For an extended discussion, see generally Mark A. Lemley, Intellectual Property And Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239 (1995).

9. Cohen, supra note , at *.

10. Id. at *.

11. For convenience, I will not bother to distinguish between sales and licensing agreements.

12. WYLBUR is the name of a mainframe text editing program whose misappropriation was the subject of an early computer crime case. See U.S. v. Seidlitz, 589 F.2d 152 (1978).

13. Cohen, supra note , at *.

14. Id. at *.

15. Id. at *.

16. See 17 U.S.C. 107 (1992).

17. Cohen, supra note , at *.

18. See Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964); Sears, Roebuck & Co v. Steiffel Co., 376 U.S. 225 (1964).

19. See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989).

20. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996) ("But are rights created by contract 'equivalent to any of the exclusive rights within the general scope of copyright?' Three courts of appeals have answered 'no.' ... Rights 'equivalent to any of the exclusive rights within the general scope of copyright' are rights established by law-rights that restrict the options of persons who are strangers to the author.") (internal citations omitted).

21. Cohen, supra note , at *.

22. See generally Terry Anderson & P.J. Hill, Privatizing the Commons: An Improvement?, 50 S. E CON. J. 438 (1983) (discussing application to homesteading); David Friedman, Standards As Intellectual Property: An Economic Approach, 19 U. DAYTON L. REV. 1109 (1994) (explaining the application to intellectual property), also available at <http://www.best.com/~ddfr/Academic/Standards/Standards.html> (visited Nov. 11, 1998); Gordon Tullock, The Welfare Costs of Tariffs, Monopolies, and Theft, 5 W. ECON. J. 224 (1967) (discussing the original rent seeking problem).

23. See generally ROBERT NOZICK, ANARCHY, STATE AND UTOPIA (1974); Baruch Brody, Redistribution Without Egalitarianism, 1 SOC. PHIL. & POL'Y 71 (1983); David Friedman, Comment on Brody "Redistribution Without Egalitarianism," 1 SOC. PHIL. & POL'Y 88 (1983), also available at <http://www.best.com/~ddfr/Academic/Comment_on_Brody/Comment_on_Brody.html> (visited Nov. 11, 1998).

24. Cohen, supra note , at *.

25. Id. at *.

26. See id. at * ("First, the 'lost value' attributable to a product whose value lies chiefly in its public good aspect is inherently speculative. Failure to recover a car after the buyer defaults precludes the secured creditor from recovering a portion of its investment; failure to recover a copy of a creative or informational work does not preclude the information provider from realizing a profit on the work. Particularly in the case of digital works, the supply of copies is infinite and virtually costless, and there is no necessary or inevitable relationship between the price charged to consumers and the value invested in each copy.").

Failure to recover a car after the buyer defaults does not preclude the producer from realizing a profit on total sales of that model of car. It does not even guarantee that the producer will not realize a profit on that particular car - the default might have occurred on the last month's payment. But being unable to enforce the terms of the sales agreement does raise the producer's cost or reduce his revenue - whether for cars or for software.

27.Id.

28. Id. at *.

29. Repossession based on monitoring of activity is more like the intermediate case and raises more serious privacy issues.

30. Cohen, supra note , at *.

31. A second agreement is on the undesirability of law that treats software capable of defeating technological protection as the digital equivalent of burglar's tools. If such laws exist, producers who wish to sell such software openly will embed it in more general purpose software, making it difficult to enforce the law without hindering legitimate activities. In any case, the nature of the online world makes the enforcement of such laws against covert distribution of the banned software virtually impossible.

32. However, this is an occurrence that can, and perhaps will, be made less frequent in future online transactions by the use of encryption, digital cash, and related technologies. See David Friedman, A World of Strong Privacy: Promises and Perils of Encryption, 13 SOCIAL PHILOSOPHY AND POLICY 212 (1996).

33. Cohen, supra note , at *.

34. Id. at *.

35. Id. at *.

36. Professor Cohen makes it clear that this is the sort of protection that she is concerned with when she writes, "My concern here is with the new kind of self-help that digital technologies allow-self-help that consists solely of 'dumb,' hard-wired prevention of unauthorized conduct." Id. at *.

37. See Richard Spaulding, Improving the Apple's Core, SAN DIEGO UNION & TRIB., Mar. 18, 1986, at AA1.

38. Cohen, supra note , at *.

39. Id. at *.

40. I interpret Cohen as referring to the technology of invading privacy. We would get a more attractive result in a world where it was the protection, not the invasion, of privacy that was limited only by its technology-a world where, for example, strong public key encryption and related technologies were legally unrestricted and widely used. See Friedman, supra note 32, at 213-17 .

41. See Clem Richardson, Jailers Experiment With Electronic Tags, NEWSDAY, Apr. 10, 1991, at 20.

42. Cohen, supra note , at *.

43. Id. at *.

44. Id. at *.

45. Id. at *.

46. See Friedman, supra note , at 212.

47. Cohen, supra note , at *.

48. Cohen would probably say that the outcome is better, but not necessarily more efficient. She writes, "Allocative efficiency is a poor measure of social welfare, however. Social welfare is in part a function of nonmonetizable values, external effects, and distributional concerns, all of which the allocative criterion ignores." Id. at *. But this is to misunderstand the concept of economic efficiency. External effects are sometimes ignored by the market, but if so, the result is to reduce the efficiency of its outcome-that is why economists have traditionally proposed Pigouvian taxes as a way of making market outcomes more efficient. It is true that efficiency ignores distributive issues-but, as I point out below in discussing her reference to "distributional concerns," it is hard to see how that limitation can be used to derive an argument for her conclusion.

49. For an analogous argument, see Friedman et al., Some Economics of Trade Secret Law, 5 J. ECON. PERSP. 61 (1991), also available at <http://www.best.com/~ddfr/Academic/Trade_Secrets/Trade_Secrets.html> (visited Nov. 11, 1998) (defending the efficiency of permitting trade secret as an alternative to patent).

50. While the absence of copyright results in an inefficiently low number of originals available to be copied.

51. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449-50 (7th Cir. 1996).

52. A political theorist named Andrew Galambos argued that ideas were the primary form of property, claimed a property right in his own ideas, and required his students to agree not to repeat them. That may be one of the reasons you have never heard of him. The tactic does not recommend itself in a commercial context either. See generally Synergy Server, About Andrew J. Galambos (visited Nov. 11, 1998) <http://www2.banned-books.com/ft/ftpeople/ajg/about.html>; Synergy Server, What Is Property? (visited Nov. 11, 1998) <http://www2.banned-books.com/ft/ftpeople/ajg/define/property.html>.

53. Cohen, supra note , at *.

54. See generally Friedman, supra note .