1998 David McGowan.

Associate Professor of Law, University of Minnesota Law School. My thanks to Jim Chen, Mark Lemley, Christopher Leslie, and Miranda McGowan for helpful discussion on these topics and comments on an early draft of this paper.

1. U.C.C. 2B-105, Reporter's Note 3 (Apr. 15, 1998 Draft). As of the August 1998 version, the drafters' comments on the topics which are relevant here referred to Article 2B's "neutrality policy," eliminating any hint of an "aggressive" stance. The adjective was omitted beginning with the draft prepared for the July 1998 NCCUSL annual meeting.

2. See, e.g., State Oil v. Khan, 118 S.Ct. 275, 284 (1997) ("[T]he term 'restraint of trade,' as used in 1, also 'invokes the common law itself, and not merely the static content that the common law assigned to that term in 1890.'"); Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 731 (1988) ("The term `restraint of trade' in the statute, like the term at common law, refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances.").

3. See Business Elecs., 485 U.S. at 731-32 ("The changing content of the term 'restraint of trade' was well recognized at the time the Sherman Act was enacted .... The Sherman Act adopted the term 'restraint of trade' along with its dynamic potential. It invokes the common law itself, and not merely the static content the common law had assigned to the term in 1890."); Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373, 384 (1911) ("With respect to contracts in restraint of trade, the earlier doctrine of the common law has been substantially modified in adaptation to modern conditions."); HERBERT HOVENKAMP, ENTERPRISE AND AMERICAN LAW 1836-1937, at 268-95 (1991) [hereinafter HOVENKAMP, ENTERPRISE]; HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY, THE LAW OF COMPETITION AND ITS PRACTICE 52-54 (1994) [hereinafter HOVENKAMP, ANTITRUST POLICY].

4. See PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 104 (rev. ed. 1997) ("[A]lthough the framers of the Sherman Act may have thought in some generalized fashion that they were `enacting' the common law of trade restraints, the case law that emerged very quickly deviated from common law principles, was far more aggressive against cartels and mergers, and pursued unilateral conduct for the first time. However, in 1890 the common law itself was experiencing significant changes, and in many respects was moving in the same direction that the antitrust laws would go."); HOVENKAMP, ENTERPRISE, supra note 3 at 268 ("Antitrust policy has been forged by economic ideology since its inception. But even the common law experienced economic revolutions"). As Professor Hovenkamp notes, one important qualification to this point is antitrust's grant of standing to third parties to bring an action attacking an unlawful agreement. Id.; Apex Hosiery Co. v. Leader, 310 U.S. 469, 497 (1940) ("The common law doctrines relating to contracts and combinations in restraint of trade were well understood long before enactment of the Sherman law .... But the ... restraints of trade were not penalized and gave rise to no actionable wrong."). Even the standing question might have been resolved by a corollary to the rule granting intended third-party beneficiaries standing to sue for breach of an agreement to which they were not a party.

5. HOVENKAMP, ENTERPRISE, supra note 3 at 284-85; E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS 5.3 (1990) (noting usurpation of the common law of restraint of trade by antitrust statutes but noting continuing state review of covenants not to compete).

6. As Professor Lemley has emphasized in his work, whether an agreement by which software should be sold is a contract of sale or a license as defined by U.C.C. 2B-102(29) is a contested point that may vary depending on the economic circumstances of a transaction. See Mark A. Lemley, Beyond Preemption: The Federal Law and Policy of Intellectual Property Licensing, 87 CALIF. L. REV. 111 , 116 n.11 (forthcoming 1999). The issue appears to be more contested with respect to mass market transactions than others that are likely of more interest to the topics discussed in this Article. I use the terms contract, agreement, and license interchangeably, without wishing to imply any view on the characterization issue.

7. See Sega Enters., Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992).

8. See Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); Service & Training, Inc. v. Data General Corp., 963 F.2d 680, 687 (4th Cir. 1992).

9. Cf. Final Judgment, United States of America v. Microsoft Corp., No. 94-1564 IV(C) ("Microsoft shall not enter into any Per Processor License.") (July 15, 1994), available at <http://www.usdoj.gov/atr/cases/f0000/0047.htm> (visited Nov. 22, 1998).

10. See Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d 1255 (N.D. Ala. 1998).

11. The question is based on a memorandum to members of the American Law Institute from Jean Braucher and Peter Linzer suggesting that approval of shrinkwrap or click-on licenses might reduce nonprice competition. See Letter from Jean Braucher & Peter Linzer to Members of the American Law Institute (May 5, 1998), available at <http://www.ali.org/ali/Braucher.htm> (visited Nov. 22, 1998).

12. See, e.g,. Rudbart v. North Jersey District Water Supply Comm'n, 605 A.2d 681, 687 (N.J. 1992) (noting that among considerations pointing toward enforcement of a term in an adhesive contract "no investor was under any economic pressure to buy the notes .... They were not driven to accept the Commission's notes because of a monopolistic market or any other economic constraint."); Rozeboom v. Northwestern Bell Tele., 358 N.W. 2d 241 (S.D. 1984) (voiding damage limitation provision in agreement between advertiser and local telephone company and noting, "[i]t is crucial to understand that this case involves an individual versus a monopoly. We do not have two corporations dealing at arms length or two individuals dealing at arms length. We have a factual scenario where the bargaining power is wholly unequal. As a result of that economic inequality and monopoly of Bell, the terms of this contract become substantively unreasonable and should not be enforced"); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 404 (1960) (refusing to enforce disclaimer of implied warranty of merchantability in uniform warranty of Automobile Manufacturer's Association, of which firms producing over 90% of new cars were members: "Chrysler's attempted disclaimer of an implied warranty of merchantability and of the obligations arising therefrom is so inimical to the public good as to compel an adjudication of its invalidity"); Melvin Aron Eisenberg, The Bargain Principle and Its Limits, 95 H ARV. L. REV. 741, 754 (1982) ("The development and application of specific unconscionability norms is closely related to the manner in which the relevant market deviates from a perfectly competitive market."); Thomas S. Ulen, Courts, Legislatures, and the General Theory of the Second Best In Law and Economics, 73 CHI-KENT L. REV. 189, 208 (1998) ("Standard-form contracts, offered on a `take-it-or-leave-it' basis, may or may not be efficient. If the contract has terms to which the parties themselves ... would have agreed, had there been time and low transaction costs, then the terms may be efficient .... However, if A imposes the terms in a contract of adhesion on B ... because A has a monopoly position with respect to B, then there is no reason to believe that the contract will be efficient."). For the view that monopolists will exercise their power over price rather than in contract terms, see Richard Craswell, Property Rules and Liability Rules in Unconscionability and Related Doctrines, 60 U. CHI. L. REV. 1, 39-40 (1993) ("[T]he monopolist's incentive is normally to offer the most attractive non-price terms she can think of, the better to gouge her customers by charging them an even higher price."). Craswell notes, however, that "in some cases a less efficient non-price term might alter the pattern of demand in a way that increases the monopolist's profits, thus giving her an incentive to use a less efficient non-price term." Id. See also RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 102 (3d ed. 1986) (contending that competition should drive contract terms toward an efficient level and that in presence of monopoly power "there is no reason to expect the terms (such as the seller's warranties or the consequences of the buyer's default) to be different under monopoly from what they would be under competition; the only difference is that the monopolist's price will be higher. The problem is monopoly, not bargaining power ....").

13. Arthur Leff's dictionary, for example, distinguishes between terms offered in an effectively cartelized market and those offered in a market with competition on some terms. Arthur Alan Leff, The Leff Dictionary of Law: A Fragment, 94 Y ALE L.J. 1855, 1931-32 (1985) ("One set of legal responses would be proper with respect to 'adhesion contracts' used by all members of a particular industry such that a consumer could not acquire certain goods or services at all except on a particular set of terms. But the same response might not be proper if each member of an industry refused to change the terms of its own contract, but the contracts of each were not identical, such that a consumer could get materially different terms by choosing to deal with one competitor rather than another. To be concrete, the situation in which all automobile manufacturers put a disclaimer of warranty into their unmodifiable contracts would seem different from one in which half disclaim all warranties and half do not, or at least would 'undisclaim' if paid extra.").

14. Efficiency is often posited as an animating principle of contract law, though not necessarily the sole animating principle. See, e.g., Seabord Lumber Co. v. United States, 41 Fed. Cl. 401, 417 (1998) (rejecting claim of excuse under doctrine of impossibility of performance on ground that placing the burden of performance "on the party who originally accepted that burden, absent rather limited circumstances ... not only preserves the integrity of freedom of contract, but it also serves economic efficiency by the most rational allocation of risk and performance resources."); Selmer Co. v. Blakeslee-Midwest Co., 704 F.2d 924, 927 (7th Cir. 1983) (Posner, J.) (explaining that the doctrine voiding contract modifications exacted by promisee's threat to refuse to perform by "encouraging people to make contracts promotes the efficient allocation of resources"); Weather Shield Mfg., Inc. v. PPG Indus., Inc, 1998 WL 469913, *3 (W.D. Wis. 1998) (noting that the economic loss doctrine "protects the parties' freedom of contract and promotes economically efficient allocation of risk and insurance against risk"); Rudbart v. North Jersey Dist. Water Supply Comm'n, 605 A.2d 681, 687 (N.J. 1992) (concluding that in competitive securities markets "the principal justification for invalidating terms of a contract of adhesion are simply not present" and noting that, "if the market is working free from improper influence," prices and terms set through private contracting "tend toward an optimum allocation of resources and are an incentive to efficiency." (quoting W. David Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 H ARV. L. REV. 529, 553-54 (1971)); Harvey S. Perlman, Interference With Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine, 49 U. CHI. L. REV. 61, 79 (1982) ("Existing contract doctrine seems designed to promote allocational efficiency by minimizing transaction costs and encouraging nonperformance where efficiency gains result.").

15. For qualifications on this common assumption in the context of contract law, see Melvin Aron Eisenberg, The Limits of Cognition and The Limits of Contract, 47 STAN. L. REV. 211 (1995).

16. For elaboration on this point, see JULES L. COLEMAN, MARKETS, MORALS AND THE LAW 69-71 (1988). In part, of course, Coase demonstrated the importance of transaction costs in actual exchange. See RONALD H. COASE, THE FIRM, THE MARKET, AND THE LAW 174 (1988); Daniel A. Farber, Parody Lost, Pragmatism Regained: The Ironic History of the Coase Theorem, 83 VA. L. REV. 397 (1997).

17. See, e.g., Eisenberg, supra note 15, at 216-25 (discussing cognitive limitations relevant to contracting behavior generally); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615, 643 n.66 (1990) (noting judicial reluctance to enforce damage limitations in consumer contracts).

18. Externalities are effects of conduct that produce socially suboptimal outcomes. For example, the Antitrust Division's original proceeding against Microsoft worked in part from the premise that Microsoft's per-processor licenses increased the effective cost to original equipment manufacturers of operating systems that competed with Microsoft's products. United States v. Microsoft Corp., 159 F.R.D. 318, 321 (D.D.C.), rev'd 56 F.3d 1448 (D.C. Cir. 1995).

19. U.S. CONST. art. VI, cl.2.

20. 3 F. Supp. 2d 1255 (N.D. Ala. 1998). Intel's dispute with Intergraph is, among other things, one of the disputes cited by the Federal Trade Commission in a complaint issued against Intel in June 1998.

21. See infra note 25.

22. See Intergraph, 3 F. Supp. 2d at 1259.

23. See id. at 1263.

24. See id.

25. See id at 1263. Intergraph's website further states that it "is the world's largest company dedicated to supplying interactive computer graphic systems .... Intergraph is a billion-dollar, Fortune 1000 supplier of hardware, software, and services with sales and support offices in 65 countries." Intergraph, (visited Aug. 19, 1998) <http://www.intergraph.com>. The district court also noted that Intergraph was a global firm with 8,500 employees, 4,500 of whom were located in Huntsville, Alabama. See Intergraph, 3 F. Supp.2d at 1261.

26. See id. at 1264.

27. Id.

28. Id.

29. A variation on this theme has been alleged by Bristol Technology, a small firm marketing a product known as Wind/U, which it describes as "a suite of programs that enables application programs designed to run on the Windows operating system to be adapted to run efficiently under UNIX, Open VMS and OS/390 operating systems." Complaint for Damages and Injunction for Monopolization And Other Tortious Conduct, Bristol Technology, Inc. v. Microsoft Corp., No. 398CV1657 (JCH) (D. Conn. 1998), available at <http://www.bristol.com/legal/complaint.htm> (visited Aug. 20, 1998). Bristol alleged that it became a partner in Microsoft's Windows Interface Source Environment ("WISE") program in reliance on public and private assurances by Microsoft that it would provide WISE program members with "continuing access to all Windows source code, details of the Windows programming interface and other data (`compatibility information') necessary to assure that the products offered to consumers by WISE partners would evolve along with future versions of the Windows family of operating systems and assure applications compatibility and performance." Complaint at 49. Bristol alleged that Microsoft induced Bristol to accept a license for Windows source code, which caused Bristol to modify its business plan in a manner that rendered it completely dependent on access to Windows source code. Bristol further alleged that Microsoft later refused to agree to license Windows source code to Bristol in the future on commercially reasonable terms. Echoing the district court's approach in Intergraph, Bristol asserted antitrust claims under essential facilities and monopolization theories as well as a claim based on a promissory estoppel theory.

30. Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d. 1255, 1264 (N.D. Ala. 1988).

31. Id. at 1265.

32. Id. at 1259 n.4.

33. The district court described the relationship as follows:

Before mid-1996, Intel and Intergraph enjoyed a mutually beneficial business relationship. As a result of this relationship, Intel regularly provided Intergraph with CPUs, technical information, and support essential for Intergraph to be competitive in its chosen field. Intel regularly supplied Intergraph with early samples of its CPUs for testing and development, often within weeks of their first production. Intel provided motherboard design assistance, and it reviewed Intergraph's design schematics to ensure that any `bugs' or defects in the Intel CPU or chips were avoided. Intel provided detailed information on its technology and future plans, and it solicited Intergraph information and technology for incorporation into future Intel designs. Intel provided advance information on its own design and development efforts, and it supported Intergraph's development efforts.

Id. at 1269.

34. Id. at 1265.

35. According to the court, "other documents signed by the parties also provide that they create no obligation to supply products or confidential information and to engage in future business activities." Id. at 1266.

36. See Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d. 1255, 1266-67 (N.D. Ala. 1988).

37. See id.

38. Id. at 1267.

39. Id. at 1263.

40. Id. at 1272.

41. See id. at 1268.

42. Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d. 1255, 1288 (N.D. Ala. 1988).

43. See id. at 1288-93.

44. See id.

45. See infra notes 170-77.

46. U.S. CONST. art. VI, cl. 2.

47. 81 F.3d 597 (5th Cir. 1996). See infra notes 89-90 for a discussion of the case.

48. Earlier drafts stated a "fundamental philosophy [that] ... centers on supporting contractual choice and commercial expansion in information contracting." U.C.C. Article 2B, Preface at 9 (Apr. 15, 1998 Draft). Article 2B also states that it addresses an "important theme" involving "the need to create and preserve as broad as possible a field for expression and communication, commercially and otherwise, of ideas, images, and facts; material that this draft refers to as `informational content.' Id. This additional theme is said to "argue strongly for an approach to contract law in this field that does not encumber, but supports incentives for distribution of information." Id. at 10.

49. U.C.C. Article 2B, Preface at 11-12 (Nov. 1, 1998 Draft).

50. Id.

51. Id. The second sentence in this quotation was omitted from the July 1998 NCCUSL annual meeting draft.

52. See, e.g., R. KENT NEWMYER, SUPREME COURT JUSTICE JOSEPH STORY: STATESMAN OF THE OLD REPUBLIC 122-23 (1985) (noting Story's use of merchant juries to resolve issues of custom and usage while riding circuit in New England); Robert D. Cooter, Decentralized Law For A Complex Economy: The Structural Approach To Adjudicating The New Law Merchant, 144 U. PA. L. REV. 1643, 1648-49 (1996) (noting Lord Mansfield's efforts to derive legal rules from optimal business practice in the relevant trade).

53. U.C.C. Article 2B, Preface at 12 (Nov. 1, 1997 Draft) (quoting Grant Gilmore, On The Difficulties of Codifying Commercial Law, 57 YALE L.J. 1341, 1341 (1957)).

54. U.C.C. Article 2B, Preface at 14 (Nov. 1, 1997 Draft).

55. Id.

56. Alternative answers could be based in philosophical theories of obligation. See, e.g., CHARLES FRIED, CONTRACT AS PROMISE, A THEORY OF CONTRACTUAL OBLIGATION 1-6 (1981). Such theories, however, are at odds with the overall instrumental structure of both the U.C.C. and Article 2B.

57. Professors Cooter and Ulen define allocative efficiency as that state of affairs in which the allocation of goods and services cannot be altered to improve the position of some people without worsening the position of others. See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 12 (2d ed. 1997); COLEMAN, supra note 16, at 71; Herbert Hovenkamp, Antitrust Policy After Chicago, 84 MICH. L. REV. 213, 240 (1985) [hereinafter Hovenkamp, After Chicago] ("Allocative efficiency refers to the welfare of society as a whole. Situation A is more allocatively efficient than situation B if affected people as a group are somehow better off under A than they are under B.").

58. For a summary of the relevant sources, see RICHARD A. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE 4 (1976); Hovenkamp, After Chicago, supra note 57, at 215 (discussing "Chicago School" emphasis on allocative efficiency); Alan J. Meese, Price Theory and Vertical Restraints: A Misunderstood Relation, 45 UCLA L. REV. 143 (1997). The Supreme Court has of course not explicitly adopted any particular school of antitrust thought, though several cases over the last 20 years are at least plausibly consistent with either productive or allocative efficiency goals. See, e.g., State Oil v. Khan, 118 S.Ct. 275 (1997); Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993); Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Continental T.V., Inc. v. G.T.E. Sylvania, Inc., 433 U.S. 36 (1977). For simplicity and because one must specify the purpose of any law to engage in meaningful analysis, I here assume that the federal antitrust laws at least accommodate allocative efficiency as a goal.

59. U.C.C. Article 2B, Preface at 11 (Apr. 15, 1998 Draft).

60. Id. at 12. The July 1998 NCCUSL draft reworked this language, acknowledging the strong opinion of a number of commentators that Article 2B should embrace certain federal rules, in particular limitations on the scope of the copyright grant, rather than remaining neutral. The July 1998 revision states that

The basics of the neutrality policy are set forth in section 2B-105, which specifically recognizes federal preemption and that Article 2B does not displace state trade secret law.... Article 2B does not change the law on the enforceability of any restrictive clause that entails copyright misuse or that offends fundamental First Amendment concerns. We expect that, as they do today, courts will continue to reject abusive clauses when they encounter them by applying existing doctrines that preserve the role of information in society.

U.C.C. Article 2B, Preface at 16 (July 24-31, 1998 Draft).

61. Changed in the March 1998 draft to "Relationship To Federal Law."

62. U.C.C. 2B-105(a) (July 24-31, 1998 Draft).

63. The motion was to amend section 2B-110, addressing unconscionability; the proposed language specified that "[i]f a court as a matter of law finds the contract or any term of the contract to have been unconscionable or contrary to public policies relating to innovation, competition, and free expression at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the impermissible term as to avoid any unconscionable or otherwise impermissible result." U.C.C. 2B-105 (Aug. 1, 1998 Draft).

64. The August 1998 draft also proposes a section 2B-105(c), which states that "principles of law and equity supplement this article. Among the laws supplementing, and not displaced by this article are trade secret laws and unfair competition laws." Id. 2B-105(c). This version of Article 2B also contains a section 2B-105(d), providing that unless otherwise specified, "in the case of a conflict between this article and a statute or regulation of this State establishing a consumer protection in effect on the effective date of this article, the conflicting statute or regulation controls." Id. 2B-105(d).

65. Id. 2B-105, Reporter's Note 1 (Aug. 1, 1998 Draft).

66. U.C.C. 2B-105 (Apr. 15, 1998 Draft).

67. Charles R. McManis, Motions and Supporting Comments (visited Nov. 22, 1998) <http://www.ali.org/ali/mcmanis.htm> [hereinafter McManis, Motions]. For a detailed statement of Professor McManis' conclusions, see Charles R. McManis, Intellectual Property Protection and Reverse Engineering of Computer Programs in the United States and the European Community, 8 H IGH TECH. L.J. 25 (1993).

68. U.C.C. 2B-105 (Apr. 15, 1998 Draft). Using the signal in its full Leffian sense of "this fits here, but I can't tell how," is Arthur A. Leff, Unconscionability And The Code-The Emperor's New Clause, 115 U. PA. L. REV. 485, 530 n.178 (1967) [hereinafter Leff, Unconscionability]. Cf., Karl Llewellyn's speech to the Tennessee Bar Association, "Why A Commercial Code?" 22 U. TENN. L. REV. 779, 783 (1953):

It is an amazing thing to see the difference between the operations of the American Law Institute for example, which is a very distinguished body, and the Commissioners. The difference is that the members of the Institute by and large appraise things from the angle of theory; they love a point of theory. They were trained, I guess, under the theoreticians, and they have come to enjoy points of theory; but you can't do anything with theory on the floor of the Conference of Commissioners.... You find the thing tested against the way it looks in the office when you are dealing with practical affairs, or the way it is going to look in court when you present a case. Since the men come from all over the country and are men of wide experience and shrewd observation, it means that you have a testing of material in terms of its practicality, which I think is what we need.

Id. It may, of course, be the case that Professor Llewllyn spoke with an eye toward an audience of practitioners. Professor Patchell's discussion of Llewellyn's theory of a commercial code, the methodological implications of that theory, and some limitations of the methodology, add some perspective to this quotation. See Kathleen Patchell, Interest Group Politics, Federalism, and the Uniform Law Process: Some Lessons From The Uniform Commercial Code, 78 MINN. L. REV. 83 (1993).

69. U.C.C. 2B-105, Reporter's Note 1 (Apr. 1998 Draft).

70. The March 1998 Draft notes that in a February 1998 drafting meeting a motion "to provide that the Article does not change state common law or competition law rules because Article 2B simply does not deal with these issues" was rejected by a vote of 2-8. U.C.C. 2B-105, Votes and Action d (Mar. 1988 Draft).

71. As Professor McManis stated following the ALI meeting, he "believe[d] that the use of this unilateral form of contract to contract around these provisions would in effect deprive the entire public of certain federally created user's rights, thus conflicting with the paramount policies of federal copyright and/or patent law." E-mail from Charles R. McManis to 2Bguide (June 16-17, 1997), available at <http://www.2Bguide.com/ali.html#mcm> (visited Nov. 22, 1998).

72. Before the language was omitted in the March 1998 Draft, the Reporter's Notes to section 2B-208 made clear Article 2B's general aversion to mandatory terms: "Some argue that law should preclude a vendor from defining the terms under which it markets its product or service. That viewpoint argues that the law should mandate terms, conditions, and risks under which information is distributed. This regulatory structure is not accepted in Article 2B." U.C.C. 2B-208, Reporter's Note 3 (Nov. 1, 1997 Draft). Though this language is omitted from the March draft and subsequent drafts, it is an accurate description of Article 2B's efforts to adopt default rules that facilitate exchange and avoid mandatory terms to the extent possible.

73. McManis, Motions, supra note 67.

74. Id.

75. Braucher & Linzer, supra note 11.

76. U.C.C. 2B-105, Reporter's Note 1 (Apr. 15, 1998 Draft).

77. Id. 2B-105, Reporter's Note 2.

78. Id. 2B-105, Reporter's Note 3.

79. It is indeed something of a defensive term, though a touch of defensiveness is understandable in a document intended for enactment by state legislatures but which is sometimes defined by reference to a federal statute (thus the reference to Article 2B as governing contracts in "copyright industries"), and one containing an express preemption clause at that. See 17 U.S.C. 301 (1995).

80. Reporter's Note 1 to section 2B-105 in the August 1998 draft states that "Article 2B deals solely with contract law, not intellectual property, competition, or trade regulation law." U.C.C. 2B-105, Reporter's Note 1 (Apr. 15, 1998 Draft).

81. Professor Llewellyn felt that comments to the code were desirable in part for a closely related reason: "For the fact is that our courts have not the time, in the disposition of single cases, to fathom the handling of a whole field by a whole uniform act or code chapter. They are courts of good will. But they are also courts of general, infinitely varied, jurisdiction, working under severe time pressure on a most heterogeneous assemblage of cases. The bearing of parts of an Act or Code on one another and on the whole the courts are willing to see, glad to see; but counsel do not show that full bearing, and the Conference has not undertaken to show it, either." W ILLIAM TWINING, KARL LLEWELLYN AND THE REALIST MOVEMENT 527 (1973) (quoting undated memorandum by Llewellyn entitled "The Reasons for a Uniform Commercial Code").

82. See Memorandum from Connie Ring & Ray Nimmer on UCC Article 2B Significant Issues for Committee of the Whole (July 1, 1998), available at <http://www.law.upenn.edu/bll/ulc/ucc2b/ucc2bpol.htm> ("Some of the criticisms of Article 2B arise from the desire of some parties for a more regulatory approach. The fundamental premise of the U.C.C. has been freedom of contract and the provision of `default' rules as gap fillers when the parties have not covered the point. The Drafting Committee does not propose to modify U.C.C. policy.").

83. U.C.C. 2B-105, Reporter's Note 1 (Aug. 1, 1998 Draft). The Note goes on to reaffirm that, "[i]n some cases, however, a conflict exists and fundamental public policy other than the policy freedom of contract enforcement may over-ride and control." Id.

84. Id.

85. Id.

86. U.C.C. 2B-105, Reporter's Note 5 (Nov. 1, 1997 Draft).

87. Id.

88. U.C.C. 2B-105, Reporter's Note 5 (Feb. 1, 1998 Draft).

89. U.C.C. 2B-105, Reporter's Note 3 (Mar. 1, 1998 Draft).

90. Id. 2B-208, Reporter's Note 6. This Note also stated:

Exactly where and how these themes interface and what limits they may place on particular contractual relationships is clearly a question of federal policy, rather than state contract law. With the transition from print to digital media as a main method of conveying information, major policy disputes have erupted concerning the redistribution of rights in light of the fact that the media of distribution allows many different and potentially valuable (for users or authors) uses of information products. The difficulty of balancing policies in this context is demonstrated by the fact that disputes about underlying social policy have erupted and been left unresolved in numerous contexts in the U.S. and internationally. State law that conflicts with the resolution of those questions in federal law may be preempted if that is the policy choice made in federal law. Indeed, currently pending in Congress are proposals dealing with these questions specifically as a matter of federal policy.


91. Id.

92. 977 F.2d 1510, 1515 (9th Cir. 1992).

93. U.C.C. 2B-105, Reporter's Note 3 (Aug. 1, 1998 Draft).

94. Id. At a November 1998 drafting session, the Article 2B drafting committee "adopted a proposal that expressly safeguards fundamental public policies, including those that deal with innovation, competition and free expression, against potential over-reaching through contracting practices." Press Release, Committee Drafting New Article 2B of Uniform Commercial Code Makes Major Changes To Protect Consumers and Small Businesses, and to Safeguard Public Interests in Free Speech and Fair Criticism in the Electronic Age, (visited Nov. 22, 1998) <http://www.2Bguide.com/docs/prsr1198.html>. A summary of actions at the drafting session written by Carlyle C. Ring, Jr. characterizes the proposal as providing:

Terms of an agreement can be overridden (not enforced) if fundamental public policy clearly outweighs the interests of enforcement of the agreement made by the parties. By this provision, terms (particularly in non-negotiated agreements) such as restrictions on freedom to comment, fair use, archival use, interactivity engineering etc. may in appropriate cases be overridden by a court. This provision is in addition to the unenforceability of unconscionable terms (2B-110); the proscription on bad faith enforcement or performance of duties and obligations under the contract or Article 2B (2B-102(23) and 1-203); and the supplemental rules of law and equity (such as fraud, misrepresentation, duress, coercion, etc.) under Section 1-103 of Article 1.

Carlyle C. Ring, Jr., Summary of Actions At Article 2B Meeting Nov. 13-15 1998, (visited Nov. 22, 1998) <http://www.2BGuide.com/docs/cr1198sum.html>.

95. For a broader discussion of this debate, see Anthony L. Clapes, Confessions of An Amicus Curiae: Technophobia, Law, and Creativity in Digital Arts, 19 U. D AYTON L. REV. 903 (1994); Julie Cohen, Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of `Lock Out' Programs, 68 S. CAL. L. REV. 1091 (1995); Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CALIF. L. REV. 479 (1998) [hereinafter Lemley & McGowan, Network Effects]; David McGowan, Regulating Competition in the Information Age: Computer Software as an Essential Facility under the Sherman Act, 18 HASTINGS COMM. & ENT. L.J. 771, 847-48 (1996); Arthur R. Miller, Copyright Protection For Computer Programs, Databases and Computer-Generated Works: Is Anything New Since CONTU?, 106 HARV. L. REV. 977 (1993) (opposing reverse engineering rights); David A. Rice, Sega and Beyond: A Beacon for Fair Use Analysis ... At Least As Far As It Goes, 19 U. DAYTON L. REV. 1131 (1994) (all favoring reverse engineering rights). It is possible that the importance of legal rules facilitating reverse engineering has been exaggerated. A software firm recently alleged in connection with antitrust (essential facilities) and contract claims brought against Microsoft that "[w]hile it is possible to derive most compatibility information through a laborious process of reverse engineering, the cost of doing so would be prohibitive and the time required would be too great to permit effective competition. The target would have moved again by the time the information had been reverse engineered." Bristol Technology, supra note 29, at 83.

96. These competition policy concerns focus on the probability that competitive programs will be introduced into a market and the cost (and therefore probability) of consumers moving from one product "standard" to another. See Lemley & McGowan, Network Effects, supra note 95, at 525-27; McGowan, supra note 95, at 833-35, 847-48.

97. See Lemley & McGowan, Network Effects, supra note 95, at 847-48; Mark A. Lemley & David McGowan, Could Java Change Everything? The Competitive Propriety of A Proprietary Standard, 43 A NTITRUST BULL. (forthcoming 1998) [hereinafter Lemley & McGowan, Java].

98. U.C.C. 2B-105, Reporter's Note 5 (Nov. 1, 1997 Draft).

99. 977 F.2d 1510 (9th Cir. 1992).

100. 975 F.2d 832 (Fed. Cir. 1992).

101. Atari, in fact, acquired Nintendo's object code from the Copyright Office under false pretenses. See Id. at 836. Because its purpose was to render its games compatible with Nintendo's consoles, rather than to free ride, I treat the use as transformative here, though it did not involve the sort of decompilation at issue in Sega.

102. 49 F.3d 807, 821 (1st Cir. 1995), aff'd, 165 S.Ct. 804 (1996).

103. 64 F.3d 1330 (9th Cir. 1995).

104. See id. at 1333.

105. See id.

106. See id.

107. See id. at 1332.

108. See 64 F.3d at 1336. According to the court,

Southeastern's activities are wholly unlike the reverse- engineering in Sega. Southeastern did not make a minimal use of Triad's programs solely to achieve compatibility with Triad's computers for Southeastern's own creative programs. Rather, Southeastern has invented nothing of its own; its use of Triad's software is, in the district court's words, `neither creative nor transformative and does not provide the marketplace with new creative works.


109. U.C.C. 2B-105, Reporter's Note 5 (Feb. 1998 Draft)

110. 81 F.3d 597 (5th Cir. 1997)

111. See id. at 398.

112. See id. at 599.

113. See id.

114. See id.

115. See id. at 599-600.

116. The court stated that the defense "'forbids the use of the copyright to secure an exclusive right or limited monopoly not granted by the Copyright Office,' including a limited monopoly over microprocessor cards." Id. at 601 (quoting Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 977 (4th Cir. 1990)).

117. 81 F.3d at 601.

118. U.C.C. 2B-105, Reporter's Note 3 (Aug. 1, 1998 Draft).

119.See id.

120. On the latter point, see Dennis S. Karjala, Federal Preemption of Shrinkwrap and On-Line Licenses, 22 DAYTON L. REV. 511 (1997); Robert A. Kreiss, Accessibility and Commercialization In Copyright Theory, 43 U.C.L.A. L. REV. 1 (1995); McGowan, Regulating Competition, supra note 95, at 773.

121. U.C.C. 2B-102(32) (Aug. 1, 1998 Draft).

122. The February draft appeared to place importance on the probability that a term would actually have been studied by the parties and adopted by mutual consent, which is presumed to be higher in the limited distribution context than in the mass market context. The February draft section 2B-208(a)(2) (mass market licenses) replaced a reference to "negotiated terms" with a reference to "terms to which the parties have expressly agreed," a change the Reporter's Note indicates was made to avoid any inference that "dickering is a precondition to the licensee protection contemplated under this Section." U.C.C. 2B-208(a)(2) (Feb. 1, 1998 Draft). The point that negotiations are desirable as a proxy for deliberative agreement rather than as such (in the abstract they are transaction costs) is a fair one, which applies conceptually to section 2B-105 as well.

123. U.C.C. 2B-102(32), Reporter's Note 28 (Aug. 1, 1998 Draft).

124. See Leff, Unconscionability, supra note 68. Article 2B echoes this distinction somewhat, with the Reporter's Note to section 2B-208 stating that the doctrine traditionally "blends questions about the contracting process with questions about the substantive character of the terms themselves. It is aimed at preventing abuse and unfair surprise." U.C.C. 2B-208, Reporter's Note 3(b) (Aug. 1, 1998 Draft). The March draft restates the point in slightly more Leffian terms: "Traditionally, unconscionability doctrine blends questions about the contracting process (procedural) with questions about the substantive character of the terms (substantive)." U.C.C. 2B-208, Reporter's Note 4(b) (Mar. 1998 Draft). Professor Craswell and others have questioned whether this dichotomy is a sensible explanation of unconscionability theory or doctrine. See e.g., Craswell, supra note 12, at 17. Professor Craswell's use of property and liability rules to analyze unconscionability problems leads him to conclude that in some cases (liability rules) both "procedural" and "substantive" unconscionability would be required to avoid enforcement of a term. Id. at 12. Standard-form contracts are one such case, as to which Professor Craswell suggests the law seeks to avoid increasing transaction costs that would result if every term in an agreement was voidable unless it had been specifically explained. To counterbalance enforcement of agreements that likely have not been read, the law enforces only reasonable terms, as judged by the type of transaction and other relevant circumstances. The March 1998 draft makes the latter point explicit in terms of consumer protection, stating that the doctrine "prevents abuse and unfair surprise in standard form contracts. In a [] non-bargained market where purchasers make choices mainly about price and about whether or not to enter into a transaction, this doctrine provides an important safeguard against over-reaching." U.C.C. 2B-208, Reporter's Note 4(b) (Mar. 1998 Draft).

125. See Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239, 1292 (proposing that terms prohibiting transformative use be deemed void in mass market licenses and leaving open the question of enforceability in negotiated transactions) [hereinafter Lemley, Shrinkwraps]. See also e-mail from Charles R. McManis to 2Bguide, supra note 71 (noting that such contracts deprive the public of work to which federal law provides rights).

126. The following approach is, of course, borrowed from Leff, Unconscionability, supra note 68, at 544-45.

127. In point of fact, video game cartridges are often actually sold. According to the Ninth Circuit, "Accolade explored the possibility of entering into a license agreement with Sega" to obtain access to game code, "but abandoned the effort because the agreement would have required that Sega be the exclusive manufacturer of all games produced by Accolade." Sega Enters Ltd. v. Accolade, Inc., 977 F.2d 1510, 1514 (9th Cir. 1992). I couch the sale of cartridge as a license here for the sake of simplicity. One can, of course, view the terms Sega actually offered as a form of exclusive dealing in an effort to obtain market power, using the console as a bottleneck. It is, however, not clear whether demanding such terms would tend to enhance or diminish power: being refused a Sega license Accolade might have focused its energies on writing games for Sega's competitors, such as Nintendo, which apparently licensed its code and charged royalties. See Michael L. Katz and Carl Shapiro, Systems Competition and Network Effects, 8 J. E CON. PERSP. 93, 103 (1994).

128. One can imagine a copyright rule approving contracts in which Sega agreed to the opportunity cost/revenue splitting counteroffer, but crafting such a rule would not alter rational bargaining strategies without the additional rule, wherever located in the law, that flat prohibitions on reverse engineering were unenforceable. In other words, if Sega could enforce a flat ban while offering Accolade revenues greater than Accolade could earn from available alternatives, Sega would have no reason to accept the counteroffer.

129. This very important assumption is discussed in detail in Part V.

130. 64 F.3d 1330.

131. Cf. Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 474, 476 (1992) (advancing information-based failure in primary market as one potential basis for tying claim in aftermarket). The Kodak court also posited the cost of switching from one copier to another as a market imperfection potentially warranting antitrust intervention. See id. To the degree the Court had in mind inefficiencies relating to unanticipated costs, bargaining with complete information in a competitive primary market would alleviate this concern as well. For those who believe Image Technical was wrongly decided, the hypothetical is unlikely to present any question relevant to competition policy at all. See, e.g., Daniel J. Gifford, The Damaging Impact of the Eastman Kodak Precedent upon Product Competition: Antitrust Law in Need of Correction, 72 WASH. U. L. Q. 1507 (1994).

132. See, e.g., E. THOMAS SULLIVAN AND HERBERT HOVENKAMP, ANTITRUST LAW, POLICY, AND PROCEDURE 1997 Supp. 34-35 ("The contracting system encourages market participants to take rational risks at the time of contracting. Antitrust intervention providing ex post 'fixes' for contracts that have become unfavorable to one party or the other would not only exceed antitrust's mission, it would also undermine the market for assessing risks by providing post-hoc relief to those who lost, thus reducing or destroying the incentives to those who win as well. But the entrepreneurial market depends on parties' willingness to take risks"). Sullivan and Hovenkamp conclude, with respect to installed-base opportunism cases, that "[e]ven if the basic 'lock-in' thesis is plausible, it applies only to situations where the consumer buys the original product at time T1, and then is caught by surprise when required to pay a high price for a repair part o[r] aftermarket component at time T2. It has no application whatsoever when both products are purchased at the same time." Id. at 37-38. For further analyses along these lines, see McGowan, supra note 95, at 801-02; Carl Shapiro, Aftermarkets and Consumer Welfare: Making Sense of Kodak, 63 ANTITRUST L.J. 483, 496 (1995).

133. Cf. Lemley, Shrinkwraps, supra note 125, at 1277 ("Agreements between private parties to expand the licensor's rights beyond those provided by patent law affect third parties as well.").

134. See, e.g., Karjala, supra note 120, at 527-30 (arguing in connection with preemption analysis that the bargain principle provides little justification for enforcement of mass market licenses); Lemley, Shrinkwraps, supra note 125, at 1286-89 (noting that "the 'fiction' of blanket assent has given way to fantasy in the case of shrinkwrap licenses.").

135. Professor Llewellyn, among many others, discussed such terms; from the perspective of free contracting, he considered such terms at least potentially problematic:

when a contract ceases to be a matter of dicker, bargain by bargain, and item by item, and becomes in any field or any outfit's business or any trade's practice a matter of mass production of bargains, with the background (apart from price, quantity, and the like) filled in not by the general law but by standard clauses and terms, prepared often by one of the parties only - then what?

Karl N. Llewellyn, Book Review, 52 HARV. L. REV. 700 (1939).

136. See Thorton v. Shoe Lane Parking, Ltd., 2 Q.B. 163 (Eng. C.A. 1970) (noting, in case involving parking garage tickets, and in reference to precedent involving railways, steamships, and cloakrooms, that "[t]hese cases were based on the theory that the customer, on being handed the ticket, could refuse it and decline to enter into the contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat"); Eisenberg, supra note 15, at 243 ("The verbal and legal obscurity of preprinted terms renders the cost of searching out and deliberating on these terms exceptionally high.").

137. The case for considering form agreements generally to be enforceable finds support in the R ESTATEMENT (SECOND) OF CONTRACTS 211 (1981) (standardized agreements) as well as Professor Llewellyn's later work. See KARL N. LLEWELLYN, THE COMMON LAW TRADITION: DECIDING APPEALS 370 (1960), noting:

Instead of thinking about "assent" to boiler-plate clauses, we can recognize that so far as concerns the specific, there is no consent at all. What has in fact been assented to, specifically, are the few dickered terms, and the broad type of transaction, and but one thing more. That thing is a blanket assent (not a specific assent) to any not unreasonable or indecent terms the seller may have on his form ....

Id. See also, 1 CORBIN ON CONTRACTS 1.4 p.14 (rev. ed. 1993) ("Although the flourishing existence of the contract of adhesion and other standardized contracts is a challenge to much contract theory, the contract of adhesion is part of the fabric of our society."). For a general discussion of the problem of forms in contract law generally, exploring limitations on the rational-actor model, see Eisenberg, supra note 15, at 240-48.

138. Leff, Unconscionability, supra note 68, at 504. Leff also noted, however, that the process of adhesion contracting "is not one of haggle or cooperative process but rather of a fly and flypaper." Arthur Alan Leff, Contract As Thing, 19 A M. L. REV. 131, 143 (1970). Professor Llewellyn, whose concerns regarding form agreements we noted earlier, also recognized that standardized agreements could:

save trouble in bargaining. They infinitely simplify the task of internal administration of a business unit, of keeping tabs on transactions, of knowing where one is at, of arranging orderly expectation, orderly fulfillment, orderly planning. They ease administration by concentrating the need for discretion and decision in such personnel as can be trusted to be discreet. This reduces human wear and tear, it cheapens administration, it serves the ultimate consumer. Standardizing contracts is in this a counterpart of standardizing goods and production processes, as well as a device for adjustment of law to need.

Llewellyn, Book Review, supra note 135, at 701; see also, RESTATEMENT, SECOND, OF CONTRACTS, 211 comment a. ("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 to details of individual transactions").

139. See Maureen A. O'Rourke, Drawing the Boundary Between Copyright and Contract: Copyright Preemption of Software License Terms, 45 D UKE L.J. 479, 516 (1995) ("[it] is questionable whether the end user wishes to purchase anything more than the functionality that is obtained by running the object code"). Cf. Mark A. Lemley, The Economics of Improvement In Intellectual Property Law, 75 TEX. L. REV. 993, 1027 (1997) (noting that "improvers are more likely to be motivated by commercial purposes than many classes of users, such as teachers and reporters").

140. Cf. Karjala, supra note 120, at 519 (noting that many software purchasers might willingly contract away rights they were granted under the Copyright Act); O'Rourke, supra note 139, at 532 ("if, in the mass market context, transaction costs were such that the parties would bargain, they might agree to a decompilation prohibition").

141. See Craswell, supra note 12, at 9-10 ("[the] costs of obtaining Y's 'proper' consent depend heavily on just what is necessary for Y's consent to be proper. In some cases, it may be appropriate to spare X that task by adopting a liability rule."); O'Rourke, supra note 139, at 495 ("In the case of mass market software ... licensors cannot practically incur the huge transaction costs that would be involved if they attempted to negotiate with every licensee"). Craswell discusses the tradeoff between contract terms and price in some detail. See id. at 29-30 and n.60 (collecting sources discussing this point). Robert Gomulkiewicz has consistently emphasized the value of shrinkwrap agreements in minimizing transaction costs. Robert W. Gomulkiewicz, The License IS The Product: Comments on the Promise of Article 2B For Software Licensing , 13 BERKELEY TECH. L. J. * (1998); Robert W. Gomulkiewicz & Mary L. Williamson, A Brief Defense of Mass Market Software License Agreements, 22 RUTGERS COMPUTER & TECH. LAW J. 335, 338-41 (1996).

142. See, e.g., Craswell, supra note 12, at 35 (noting that "if Y's only alternative is so bad that it invalidates his consent to X's contract, it should also invalidate his consent to the terms selected [as 'reasonable'] by the court"); W. David Slawson, Mass Contracts: Lawful Fraud in California, 48 S. CAL. L. REV. 1, 47-48 (1974) ("When General Motors deals with me, it will always have the superior bargaining power. If disparity of bargaining power were sufficient to invalidate a contract, General Motors and I could never make a valid contract.").

143. See, e.g, Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 547 (9th Cir. 1991) ("A firm may acquire a monopoly simply by virtue of being a better competitor .... Because this type of monopolist behaves in an economically efficient manner, the antitrust laws do not stand as an obstacle to its existence."); Olympia Leasing Co. v. Western Union Tele. Co., 797 F.2d 370, 375 (7th Cir. 1986) ("the lawful monopolist should be free to compete like everyone else; otherwise the antitrust laws would be holding an umbrella over inefficient competitors") (Posner, J.); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 543-44 (9th Cir. 1982) ("[T]he Sherman Act ... does not render unlawful all monopolies .... A monopolist, no less than any other competitor, is permitted and indeed encouraged to compete aggressively on the merits."); Sargeant-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701, 712 (7th Cir. 1977) (monopolist "is not for bidden from improving his efficiency in manufacturing or marketing, even though the effect of doing so will maintain or improve his sales").

144. Article 2B's statement of methodology is ambiguous regarding its favored defaults. It states that it seeks "an intermediate or ordinary framework whose contours are appropriate, but whose terms will be altered in the more sophisticated environments" rather than explicitly seeking to adopt majoritarian rules in either some or all cases. U.C.C. Article 2B, Preface at 9 (Aug. 1, 1998 Draft).

The scholarship on derivation of optimal default rules has grown quite large. For a discussion of majoritarian and alternative default rules and issues pertaining to the choice, see, for example, Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87, 91-94, 101-104 (1989) [hereinafter Ayres & Gertner, Filling Gaps] (questioning desirability of majoritarian rules and suggesting employment of "penalty defaults" to induce bargaining in appropriate circumstances); Ian Ayres, Preliminary Thoughts On Optimal Tailoring Of Contractual Rules, 3 S. CAL. INTERDIS. L.J. 1 (1993); Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L. REV. 729 (1992) (arguing that strategic contracting behavior can undermine efficiency of majoritarian default rules) [hereinafter Ayres & Gertner, Optimal Choice]; Jason S. Johnston, Bargaining Under Rules Versus Standards, 11 J. LAW ECON. & ORG. 256 (1995); Jason S. Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615, 624 n.33 (1990) (noting scholars' use of majoritarian default concept as a way to minimize transaction costs); Ian Ayres, Book Review, Making A Difference: The Contractual Contributions of Easterbrook and Fischel, 59 U. CHI. L.REV. 1391 (1992).

Article 2B's citation to Ayres & Gertner's 1992 article, U.C.C. Article 2B, Preface at 13, n.14 (Aug. 1, 1998 Draft), is interesting because Ayres & Gertner cast a skeptical eye on majoritarian defaults. See Ayres & Gertner, Optimal Choice, supra, at 765 (concluding that "[t]he settings in which strategic contractual behavior can undermine the use of majoritarian defaults, however, are not negligible"). Article 2B, while not explicitly endorsing majoritarian defaults, does specifically eschew "tailored" defaults in favor of "an intermediate or ordinary framework." U.C.C. Article 2B, Preface at 14 (Aug. 1, 1998 Draft). While an intermediate, ordinary default may not be a majoritarian default, Article 2B does not clarify any differences it may have in mind.

145. See Lemley & McGowan, Network Effects, supra note 95, at 525-26.

146. Though his concentration on preemption leads him to focus on bargaining as an important variable, Professor Karjala frames the welfare problem in similar terms, stating that it arises because "the public interest implemented by the federal limitations [on copyright] is not represented in the contracting process." Karjala, supra note 120, at 519. Both Professor Karjala and Professor O'Rourke, supra note 139, at 523-24, argue that the case for statutory copyright preemption is more compelling in mass market transactions than negotiated transactions. Whatever one thinks of the preemption question, however, it is not clear as a matter of contract policy or social welfare that bargaining is a desirable basis for distinguishing between enforceable and unenforceable agreements.

147. See JULES COLEMAN, RISKS AND WRONGS 169 (1992) (noting that "there appears to be nothing expressed by the concept of hypothetical consent that is not already captured in the idea of rational self interest").

148. See Ronald H. Coase, The Problem of Social Cost, 3 J. L. & ECON. 1 (1960).


150. See RONALD H. COASE, THE FIRM, THE MARKET, AND THE LAW 174 (1988); Farber, supra note 16.

151. COLEMAN, supra note 16, at 76.

152. Id.

153. See also, Lemley & McGowan, Network Effects, supra note 95, at 482 n.5. Professors Liebowitz and Margolis have stressed this distinction in writings about network effects. See S.J. Liebowitz & Stephen Margolis, Network Externality: An Uncommon Tragedy, 8 J. E CON. PERSP. 133, 135 (1994) (distinguishing between third-party effects and externalities).

154. U.C.C. Article 2B, Preface (Aug. 1, 1998 Draft). The efficiency presumption is further qualified by the stipulation that consent to the agreement must not be obtained improperly. See Craswell, supra note 12, at 34-44 (discussing normative basis of consent concept).

155. MICHAEL J. TREBILCOCK, THE LIMITS OF FREEDOM OF CONTRACT 58 (1993); RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 12 (3d ed. 1986) (noting that most transactions have effects on third parties, if only by changing the price of other goods); Hovenkamp, After Chicago, supra note 57 at 244 ("Today we know that externalities are pervasive in almost every market transaction.").

156. On the distinction between these two concepts of efficiency, see Hovenkamp, After Chicago, supra note 57, at 238-40. The example in the text would meet the Kaldor-Hicks criterion of efficiency but not that of Pareto superiority. See id.

157. See, e.g., Herbert Hovenkamp, Antitrust's Protected Classes, 88 MICH. L. REV. 1, 12 (1989) [hereinafter Hovenkamp, Protected Classes] ("Competition is by nature exclusionary, and we do not want to penalize companies for engaging in efficient competition").

158. See TREBILCOCK, supra note 155, at 58-59. Professor Coase states that "the fact that there are transaction costs and that they are large implies that many effects of people's actions will not be covered by market transactions. Consequently, 'externalities' will be ubiquitous. The fact that governmental intervention also has its costs makes it very likely that most 'externalities' should be allowed to continue if the value of production is to be maximized." COASE, supra note 150, at 26.

159. See, e.g., Harper & Row Publishers, Inc. v. The Nation Enters., 471 U.S. 546 (1985) ("The rights conferred by copyright are designed to assure contributors to the store of knowledge a fair return for their labors"); Mark A. Lemley, Book Review, Romantic Authorship and the Rhetoric of Property, 75 TEX. L. REV. 873, 889-90 (1997) (collecting cases, statutes, and commentary to this effect); William W. Fisher, III, Reconstructing the Fair Use Doctrine, 101 HARV. L. REV. 1661, 1687 (1988) ("[T]he elaborate combination of grants and reservations that comprise the Copyright Act is designed to advance the public welfare by rewarding creative intellectual effort sufficiently to encourage talented people to engage in it, while at the same time making the fruits of their genius accessible to as many people as possible as quickly and as cheaply as possible."); Karjala, supra note 120, at 515 ("The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."); Karjala, supra note 120, at 515 n.7 (listing cases noting that the ultimate aim of copyright law is to stimulate artistic creativity); Robert A. Kreiss, Accessibility And Commercialization In Copyright Theory, 43 UCLA L. REV. 1 14 (1995) ("The copyright system seeks to promote the public benefit of advancing knowledge and learning by means of an incentive system. The economic rewards of the marketplace are offered to authors in order to stimulate them to produce and disseminate new works"); William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 18 J. LEGAL STUD. 325, 326 (1989); Lemley, supra note 139, at 1043 (noting need for balance between incentives to innovate and interest in distribution); Lemley, Shrinkwraps, supra note 125, at 1275; McGowan, supra note 95, at 773-75; O'Rourke, supra note 139, at 483-84 ("American law historically has cited an economic rationale as the theoretical underpinning of the copyright clause set forth in the Constitution. In its simplest terms, this rationale may be described as a response to market imperfections caused by a public goods problem.").

160. Thus, Professor Kaplow notes the conflicting approaches of antitrust and patent law, see Louis Kaplow, The Patent-Antitrust Intersection: A Reappraisal, 97 HARV. L. REV. 1813, 1817 (1984)), while suggesting that conflicts between antitrust and patent law may be easier to resolve than conflicts between antitrust and other legal regimes because "the primary competing issues can be translated into a 'common denominator'-economic welfare loss-to a far greater degree than one could hope for in most other areas of the law." Id. at 1888. See also Lemley, supra note 139, at 996 ("intellectual property rights must permit prices to rise above marginal cost in some cases to have their intended effect of providing an incentive to create"); Ramsey Hanna, Note, Misusing Antitrust: The Search For Functional Copyright Misuse Standards, 46 STAN. L. REV. 401, 419 (1994)("While both antitrust and intellectual property laws ultimately aim to enhance public welfare, the paths these two bodies of law chart in promoting that ultimate objective diverge.").

161. Cf. O'Rourke, supra note 139, at 480 ("The [Copyright] Act confers fair use rights nonexclusively on the public without explicitly indicating whether or not the public or its members are free to contract away those rights.").

162. One could attempt to use Professor Craswell's analysis to characterize the reverse engineering right in the middle of the continuum as a property right that could not be taken unless true assent had been gained. See Craswell, supra note 12, at 36. However, because assent does not address the third-party effects at the heart of the problem, the property rule construction will not provide an answer to the problem.

163. In place of a collective right terminology one could frame the same argument by interpreting the Copyright Act as positing a public interest in reverse engineering and define harm to that interest as an external effect of prohibitions on reverse engineering. This is, for example, the substance of Professor Karjala's argument. See Karjala, supra note 120, at 518. Further, it is only a slight modification of Professor Lemley's earlier argument. See Lemley, Shrinkwraps, supra note 125, at 1277 ("Agreements between private parties to expand the licensor's rights beyond those provided by patent law affect third parties as well"). Imposing copyright's rate of return regime as background allows the conversion of the effect into an externality: an agreement that creates losses not within the scope of losses imposed by the Copyright Act.

164. Thus, as Professor Lemley has said, the truly "fundamental question regarding contracts and intellectual property" is "whether signed, bargained contracts that alter intellectual property rights can or should be enforced." Lemley, Shrinkwraps, supra note 125, at 1292.

165. I believe Professor O'Rourke is correct to say that an agreement reached by bargaining between sophisticated parties with respect to reverse engineering is likely to be priced in light of the rights conveyed. See O'Rourke, supra note 139, at 524. However, pricing between parties does not guarantee an efficient outcome if the copyright background is interpreted as embodying third-party interests affected by such an agreement.

166. See Karjala, supra note 120.

167. Kreiss, supra note 120, at 5; Lemley, Shrinkwraps, supra note 125, at 1280 (noting that "the public's 'reward' for copyright" is "access to the ideas in the public domain").

168. Kreiss, supra note 120, at 6.

169. See McGowan, supra note 95, at 775-77; 827-32.

170. Kreiss, supra note 120, at 5 n.13, 14-19.

171. See U.C.C. 2B-105, Reporter's Note 5 (Feb. 1988 Draft).

172. Karjala, supra note 120, at 513 n.2.

173. One could conceive of this as a choice whether to opt into copyright's revenue-generating regime, and to that extent the model casts copyright as a default that may be modified subject to certain conditions. As Professor Karjala rightly concludes, however, Professor Kreiss's model would not support a choice to opt in to only certain portions of copyright's revenue-generating regime (i.e., the floor) while contracting around others (i.e., the ceiling). See Karjala, supra note 120, at 518.

174. This issue of course pertains as well to the mandatory rule implied by the collective rights concept discussed above. As Professors Baird, Gertner, and Picker put it,

[T]he willingness of a party to agree voluntarily to a term in a contract may signal the parties' type. Imposing a mandatory term may prevent this signaling and thereby reduce the amount of information transferred .... A contract term based on an observable event can communicate information only if parties have a choice about whether to include such a term in their contract. Every mandatory term potentially brings with it a hidden cost because it may prevent parties from revealing nonverifiable information to one another.


175. On pooling equilibria generally, see id. at 145, 154-57 (noting possibilities and limitations of contracts to separate among different types of contracting parties); Ayres & Gertner, Filling Gaps, supra note 144, at 111-112; Johnston, supra note 145, at 625 and n.36.

176. See BAIRD ET AL., supra note 174, at 145 ("A rule that mandates particular actions or particular contract terms imposes a cost on the party who would, in fact, bargain for a different term."); O'Rourke, supra note 139, at 516 ("A program that includes the Atari/Sega right to decompile would probably cost the end user more than one that did not"). For a similar application of this concept to the classic case of shippers and carriers in the context of Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854), see BAIRD ET AL., supra note 174, at 147-52; Johnston, supra note 144, at 630-31; Ayres & Gertner, Filling Gaps, supra note 144, at 94-95, 112-113. As Ayres and Gertner emphasize, contracting around a default rule may enhance efficiency by revealing information but also increase transaction costs. Both effects must be taken into account in assessing the desirability of any given default rule.

177. A similar concern underlies Judge Easterbrook's reasoning in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996) (arguing that prohibition on commercial use of software facilitated price discrimination); Karjala, supra note 120, at 538-39 (agreeing that price discrimination could yield benefits to software vendor but arguing that legislation rather than contract is the appropriate method of deciding the issue). Judge Easterbrook makes a related point using the pricing of academic journals as an example, in which he argues that rampant copying in academia (on which see ELLICKSON, supra note 149, at 258-64) has induced publishers to raise subscription costs to prohibitive levels as a form of "advance fee for photocopying." Frank H. Easterbrook, Cyberspace and The Law of the Horse, 1996 U. CHI. LEGAL F. 207, 209 (1996). Readers interested in Judge Easterbrook's opinion in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), may find in his article at least a partial elaboration of the principles on which the opinion rests.

178. U.C.C. 2B-105, Reporter's Note 3 (Aug. 1, 1998 Draft).

179. Reporter's Note 3 to section 2B-105 recommends that courts follow this approach: "Under the general principles in subsection (b), courts also may look to federal copyright and patent laws for guidance on what types of limitations on the rights of owners of information ordinarily seem appropriate, recognizing, however, that private parties may have sound commercial reasons for contracting for limitations on use and that enforcing private ordering arrangements in itself reflects a fundamental public policy enacted through the [U.C.C.] and common law." Id. This statement reflects as well can be expected the difficulties Article 2B faces in reconciling its free contracting philosophy with social interests that might be implicated by such contracting.

180. See Karjala, supra note 120, at 515, 518-20; Lemley, Economics of Improvement, supra note 139, at 996 ("[I]ntellectual property rights must permit prices to rise above marginal costs in some cases if they are to have their intended effect of providing an incentive to create. This means that in many cases fewer people will buy the work than if it were distributed on a competitive basis, and they will pay more for the privilege."). Cf. Kaplow, supra note 160, at 1514 ("[T]he very purpose of a patent grant is to reward the patentee by limiting competition, in full recognition that monopolistic evils are the price society will pay.").

181. See Landes & Posner, supra note 159, at 326. To the degree copyright is analogous to patent law, there is little reason to have confidence that the optimal balance has been struck, or even that the optimal balance is knowable. Cf. Kaplow, supra note 160, at 1833 ("[O]ur knowledge is inadequate to inspire great confidence even in the desirability of having a patent system at all, much less in the ability to make the subtle measurements of marginal effects that determine the ratio implicit in the optimal patent life.").

182. See id. at 1825 n.29 (discussing risk associated with innovation and concomitant need for increased potential of returns under plausible assumption of increasing marginal costs and decreasing marginal benefits to extended patent term); id. at 1831 ("Every patent life implies a specific ratio. The ratio implicit in a given patent life simply refers to the ratio of incremental reward to incremental loss that results from marginal adjustment of the patent life"); id. at 1840 ("[S]etting the patent life and determining patent-antitrust doctrine are interdependent endeavors"); McGowan, supra note 95, at 830-32 (noting effects of risk adjustments on incentives to invest).

183. Cf. Kaplow, supra note 160, at 1825 ("The optimal patent life is that length of time at which the marginal social cost of lengthening or shortening the patent life equals the marginal social benefit.").

184. See Jefferson Parish Hosp. No. 2 v. Hyde, 466 U.S. 2, 37-40 (1984) (O'Connor, J., concurring); P HILLIP AREEDA & LOUIS KAPLOW, ANTITRUST ANALYSIS 441-42 (1988); HOVENKAMP, ANTITRUST POLICY, supra note 3, 8.3 at 219; Lemley, Economics of Improvement, supra note 139, at 996 and n.26.

185. One analogue in antitrust would be its favorable view of certain economic arrangements, such as vertical integration or mergers, that enhance productive efficiency-the ratio between a firm's inputs and production. Hovenkamp, After Chicago, supra note 57, at 237-38. As Professor Hovenkamp points out, the notion that firms should be allowed to enhance their own productive efficiency is not generally controversial. Favoring steps that maximize production for a given level of inputs, however, is only tangentially related to the dominant copyright question of how strong intellectual property rights should be to strike the optimal balance between production and dissemination of copyrightable work. There is also a relationship between antitrust and copyright returns in the sense that antitrust, like contract, is part of the legal background against which copyrighted work is exploited. A change in antitrust doctrine at its intersection with copyright would therefore at least potentially change the effective scope of the copyright grant and therefore the returns available to the copyright holder and the social costs created.

186. Technological advances have rendered the natural monopoly conclusion less certain and less stable than it once was, and network theory has assisted in directing our attention to interfaces and standards as points of concern as well. See Lemley & McGowan, Network Effects, supra note 95, at 549-51; Jim Chen, Titanic Telecommunications, 25 S OUTHWESTERN UNIV. L. REV. 535, 542 (1996) ("The accelerating pace of the technical revolution in telecommunications" may produce a paradigm shift). As of this writing, however, competition in local telephony has yet to emerge. See Bart Ziegler, Whatever Happened to Competition for Local Phone Service? It's Simple Economics, WALL ST. J., Sept. 21, 1998, at R6 (noting little change in local telephone competition in wake of 1996 Telecommunications Act).

187. Alternatively, one could conceive of the case as a tying claim. In either event, the problem involves use of economic power in one market to derive revenues from an adjacent but distinct market.

188. See, e.g., Lasercomb Am. v. Reynolds, 911 F.2d 970, 973 (4th Cir. 1990).

189. See O'Rourke, supra note 139, at 542 ("It is impossible to know where the balance between creativity and competition would settle if either rule-preemption or nonpreemption of decompilation provisions-were adopted."). For Professor O'Rourke the inconclusive nature of copyright principles as applied to these problems suggests the invocation of antitrust and, in particular, the essential facilities doctrine. For an alternative view, see Hanna, supra note 160, at 318 ("Antitrust doctrine does not provide the tools necessary to judge whether a particular mode of exploitation exceeds the permissible bound of the statutory copyright monopoly conferred. Antitrust doctrine does not define the scope of copyright privileges. It looks to copyright law to ascertain what degree of anticompetitive conduct is permissible.") (emphasis added). Hanna concludes that "[i]n weighing claims of copyright misuse, courts must develop a functional delineation of the scope of the exclusive privileges inherent to a copyright grant that is compatible with the intellectual property statutes' goal of promoting the development and diffusion of innovative works. Antitrust law is of little aid in this regard." Id. at 418 n.110.

190. Professor O'Rourke states a legitimate concern that it is "unclear whether a copyright misuse defense grounded in an antitrust violation requires the usual detailed antitrust proof of that violation" while noting that "the quantum of proof is somewhat less." O'Rourke, supra note 139, at 550. On the debate generally, see Lemley, Beyond Preemption, supra note 6; AREEDA & KAPLOW, supra note 183, at 183.

191. See Practice Management Info. Corp. v. American Med. Ass'n, 121 F.3d 516, 521 (9th Cir. 1997) ("We agree with the Fourth Circuit that a defendant in a copyright infringement suit need not prove an antitrust violation to prevail on a copyright misuse defense"); Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990) ("So while it is true that the attempted use of a copyright to violate antitrust law probably would give rise to a misuse of copyright defense, the converse is not necessarily true-a misuse need not be a violation of antitrust law in order to comprise an equitable defense to an infringement action. The question is not whether the copyright is being used in a manner violative of antitrust law (such as whether the licensing agreement is 'reasonable'), but whether the copyright is being used in a manner violative of the public policy embodied in the grant of a copyright.").

192. Professor O'Rourke, for example, states that application of tying principles in software markets is appropriate because "the Copyright Act grants a limited monopoly that is not intended to permit the copyright owner to leverage its statutory monopoly into another market." O'Rourke, supra note 139, at 548. If the Copyright Act reflects this policy, that fact alone should preclude conduct that might escape sanction under antitrust tying principles.

193. Conversely, one could conceive of a regime in which the producers of Titanic owned the copyright in the film but could not assert it to squelch derivative products that competed in distinct markets-such as books about the making of the film that incorporate its footage, T-shirts or posters with photographs of the stars, and the like. Or one could conceive of a what Professor Lemley has called a "blocking copyrights" regime in which creators of derivative works owned rights in their improvement but would have to negotiate with the owner of rights in the original work to avoid infringement claims. See Lemley, Economics of Improvement, supra note 139, at 1074-76. Even if both alternatives would enhance social welfare relative to the status quo, it does not follow that a manufacturer of a derivative work may (or should be able to) assert an antitrust counterclaim to an infringement action.

194. Professor Areeda referred to this instead as "an epithet in need of limiting principles." Phillip Areeda, Essential Facilities: An Epithet In Need Of Limiting Principles, 58 ANTITRUST L.J. 841 (1990). Professor Hovenkamp favors elimination of the doctrine accompanied by adjustments in the rules governing a monopolist's refusal to deal. HOVENKAMP, ANTITRUST POLICY, supra note 3, at 7.7. Professor O'Rourke has suggested the doctrine as of potential use in informing copyright fair use analysis. See O'Rourke, supra note 139, at 546. For the reasons stated in the text, I am skeptical of the ability of the essential facilities doctrine to provide efficient answers in such cases, particularly given the significant incursion into intellectual property law the doctrine implies. Development of antitrust doctrine relating to refusals to deal by monopolists that entail anticompetitive effects outweighing any benefits-Professor Hovenkamp's suggestion-would seem to be a better course to follow. See Image Technical Servs. Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1209-11 (9th Cir. 1997) (rejecting the argument that a claim based on unilateral refusals to deal by monopolist must be controlled by the essential facilities doctrine and holding that section 2 "prohibits a monopolist from refusing to deal in order to create or maintain a monopoly absent a legitimate business justification"); Data Gen. v. Grumman Sys. Corp., 36 F.3d 1147, 1183-84 (1st Cir. 1994) (holding that a section 2 refusal-to-deal claim need not conform to the essential facilities doctrine).

195. See United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912).

196. See Otter Tail Power Co. v. United States, 410 U.S. 366 (1973).

197. See HOVENKAMP, ANTITRUST POLICY, supra note 3, at 275 ("The courts have generally interpreted the essential facilities doctrine to require a showing that no practical alternatives are available, including alternatives that entail cost disadvantages."). See MCI Communications Corp. v. AT&T Co., 708 F.2d 1081 (7th Cir.), cert. denied 464 U.S. 891 (1983).

198. See Carribean Broad. Sys. v. Cable & Wireless PLC, 148 F.3d 1080, 1088 (D.C. Cir. 1998) ("[T]he elements of an antitrust claim for denial of access to an essential facility are: (1) a monopolist who competes with the plaintiff controls an essential facility; (2) the plaintiff cannot duplicate that facility; (3) the monopolist denied plaintiff the use of the facility; and (4) the monopolist could have granted the plaintiff use of the facility."); Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995) (Posner, J.) ("[T]he concept of essential or bottleneck facilities has been used from time to time to require a natural monopolist to cooperate with would-be competitors."); Alaska Airlines Inc. v. United Airlines, Inc., 948 F.2d 536, 544 (1991) ("A facility that is controlled by a single firm will be considered 'essential' only if control of the facility carries with it the power to eliminate competition in the downstream market" and such power is "relatively permanent" rather than momentary.); MCI v. AT&T, 708 F.2d at 1132-33.

199. That is to say, because compulsory access doctrines go to the heart of the core statutory right to control copies, invocation of the doctrine would alter the implied statutory structure of returns and costs. McGowan, supra note 95, at 834. Because the copyright grant itself is the barrier to replication in such cases the question whether software is a natural monopoly is of heuristic interest and may be necessary to interpretation of the doctrine in the view of some judges, but is not necessary to resolution of these issues. The court in David L. Aldridge Co. v. Microsoft Corp., 995 F. Supp 728, 751-55 (S.D. Tex 1998), appeared to assume that operating system software could be an essential facility; the court granted summary judgement for Microsoft on the essential facilities claim without addressing copyright rate of return issues.

200. See 15 U.S.C. 15.

201. See, e.g., SULLIVAN & HOVENKAMP, supra note 132, at 166-68; Hovenkamp, Protected Classes, supra note 157; Herbert Hovenkamp, Treble Damages Reform, 33 ANTITRUST BULL. 233 (1988).

202. See Kaplow, supra note 160, at 1840 ("In general, setting the patent life and determining patent-antitrust doctrine are interdependent endeavors; in other words, the system of equations that defines the optimization process must be solved simultaneously.").

203. I would speculate that a greater number of patents create market power in an antitrust sense than do copyrights, as the example of Time and Newsweek suggests, though I cannot prove the speculation and, as software becomes an integral part of more goods than it has in the past, the economic strength of at least software copyrights may be increasing relative to the implied economic power of copyrights in other products. The increasing number of software copyright misuse case may reflect the increasing ability of copyright to create barriers to competition previously seen only in patents. Cf. Reed-Union Corp. v. Turtle Wax, Inc., 77 F.3d 909, 913 (7th Cir. 1996) (Easterbrook, J.) ("[C]opyrights do not exclude independent expression and therefore create less market power than patents.").

204. Cf. Kaplow, supra note 160, at 1834 (noting that "there is ... insufficient information to determine any component of the patent-antitrust doctrine unless one also knows the ratio [of gains to patentees and social losses] implicit in the optimal patent life. Yet our knowledge is inadequate to inspire great confidence even in the desirability of having a patent system at all, much less in the ability to make the subtle measurements of marginal effects that determine the ratio implicit in the optimal patent life"); id. at 1888 ("[T]here is no way of knowing whether the current level of reward provided by the combination of the patent system and the patent-antitrust doctrine is anywhere near the optimal level.").

205. To some extent, of course, this distinction is semantic. If a court could measure social costs and benefits directly and conclude that a given practice imposes greater marginal costs than benefits, and if both copyright and antitrust sought to maximize production of creative work at the lowest cost, one could classify the analysis within the taxonomy of the law either as one of either copyright or antitrust. Different classifications would be meaningful for purposes of standing to bring an action and damages, which might well effect the degree to which a decision achieved an optimal outcome, but the core methodology might well be the same. This is one implication of conceiving of copyright as a method of ameliorating market failure (public goods) limited in scope such that marginal benefits exceeded costs. Analysts might well differ, however, on the question whether the copyright regime we actually have matches these parameters, or is even intended to approximate them.

206. See Kaplow, supra note 160, at 1848-49. The approach in the text, which is one of Professor Kaplow's examples of a formal approach, is analogous to Professor Baxter's inquiry into whether a premium derived from patent exploitation "constitute[s] income of the kind contemplated by the patent system." William F. Baxter, Legal Restrictions On Exploitation of the Patent Monopoly: An Economic Analysis, 76 YALE L.J. 267, 343 (1966).

207. In other words, if competitors and consumers had the right freely to copy or manipulate Microsoft's products. For more on the per-processor example, see United States v. Microsoft Corp., 159 F.R.D. 318, 323 (D.D.C.), rev'd 56 F.3d 1448 (D.C. Cir. 1995). For alternative interpretations of this issue, see Kenneth C. Baseman et al., Microsoft Plays Hardball: The Use of Exclusionary Pricing and Technical Incompatibility to Maintain Power in Markets for Operating System Software, 40 A NTITRUST BULL. 265, 267-68 (1995) (criticizing per-processor licenses); Robert J. Levinson, Efficiency Lost?: The Microsoft Consent Decree, in THE ECONOMICS OF THE ANTITRUST PROCESS 175, 182-85 (Malcolm B. Coate & Andrew N. Kleit eds., 1996) (suggesting that willing acceptance of such terms by some OEMs vitiates inference of competitive harm).

208. OEM's, for example, would have had no incentive to accede to license terms that, after all, reduced their ability to play competitors off against one another, if they could have freely copied Microsoft's code. Of course, if that were the case OEMs would have had no incentive to agree to any terms at all, in which case Microsoft might have had no incentive to write the code, bringing us back to fundamental copyright principles.

209. One additional caveat is in order. Given the realities of the legislative process it may well be that under the current copyright regime marginal social costs exceed marginal social benefits. As noted above, at least with respect to software, copyright protections are suspect on this count. But if Congress has enacted legislation creating losses disproportionate to gains, I do not believe antitrust claims may be employed to move copyright protection away from the regime Congress gave us, even if such moves enhance social welfare.

210. For those courts that appear to view essential facilities claims as requiring the presence of a natural monopoly, see, for example, Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995), an essential facilities claim against a firm whose market position rests on intellectual property rights would be particularly troubling. If intellectual property rights create a monopoly one might well argue that it was socially constructed-instrumental rather than natural. A court might understandably be more reluctant to reach a natural monopoly conclusion regarding firms whose market position rested on rate-of-return statutes such as the patent or copyright laws than it would with respect to firms such as local power distributors or local telephone companies.

211. See Intergraph Corp. v. Intel Corp., 3 F. Supp. 2d 1255, 1262 (N.D. Ala 1998).

212. See Bristol Technology, supra note 29, at 49-60.

213. See, e.g., Digital Equip. Corp. v. Uniq Digital Tech., Inc., 73 F.3d 756, 763 (7th Cir. 1996) (Easterbrook, J.) ("This is a mundane commercial case, in which a buyer has used the antitrust laws to postpone paying its debts.").

214. See SULLIVAN & HOVENKAMP, supra note 132, at 34.

215. Cf. Olympia Equiptment Leasing Co v. Western Union Telegraph Co., 797 F.2d 370, 376 (7th Cir. 1986) ("If a monopolist does extend a helping hand, though not required to do so, and later withdraws it ... does he incur antitrust liability? We think not. Conceivably, he may be liable in tort or contract law, under theories of equitable or promissory estoppel or implied contract ....").

216. To reiterate, none of this suggests that cases in which a claim is based in part on negotiating tactics or contract terms are immune from antitrust scrutiny. Some claims, such as the coercive reciprocity theory alleged in Intergraph, as well as tying and exclusive dealing theories, are of course based on economic consequences produced by contract terms. In such cases the economic consequence must be evaluated under antitrust law (using an allocative efficiency standard) regardless whether the concerns of contract law are satisfied.