1998 David A. Rice.

Professor of Law, Ralph R. Papitto School of Law, Roger Williams University. The author is a member of the U.C.C. Article 2B Drafting Committee as a representative of The American Law Institute. The positions and analyses expressed in this article are those of the author. They are not sponsored by or presented as positions or views of the Drafting Committee, National Conference of Commissioners on Uniform State Laws, The American Law Institute, or any other organization or client.

1. See infra note .

2. See U.C.C. 2B-207, 2B-208 (Aug. 1, 1998 Draft).

3. One of the major themes in modern commercial law is the steady expansion of freedom to alienate interests in property. This principle has moved from operating primarily within real property into tangible personal property law and, more recently, into the law governing choses in action and other intangible personal property. See E. ALLEN FARNSWORTH, FARNSWORTH ON CONTRACTS 11.2 (2d ed. 1998) and ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS 856 (1952) for discussions of this history, the public purposes furthered by legally facilitating commerce, and the factors and rationales considered in choosing to favor freedom to alienate over original proprietary interests.

4. RESTATEMENT (SECOND) OF CONTRACTS 317(2) (1981).

5. Id. 322(2)(a).

6. Id. 322(2)(b).

7. Compare U.C.C. 2-210(2)-(3) (1996) with RESTATEMENT (SECOND) OF CONTRACTS 317(2), 322(2)(b) (1981).

8. See U.C.C. 2A-303(3) (1996).

9. See infra Part VI.B.

10. See, e.g., U.C.C. 2-210(2), 2A-303(5)(b) (1996).

11. See RESTATEMENT (SECOND) OF CONTRACTS 317 (1981).

12. U.C.C. 2B-502 (Aug. 1, 1998 Draft).

13. See U.C.C. 2B-502, Committee Vote (Apr. 15, 1998 Draft) ("Voted 8-0 to delete provision that invalidated a prohibition on transfer in a mass market license. 1/4 Voted 10-0 to delete rule on transferability in the absence of relevant contractual terms").

14. Some decisions have stated that the sale itself is a disclosure for purposes of trade secret law. See, e.g., Roboserve Ltd. v. Tom's Foods, Inc., 940 F.2d 1441, 1445-1455 (11th Cir. 1991) (applying Georgia law). The better view, more accurately stated in the same decision, is that sale or other introduction into commerce exposes the secret to discovery by reverse engineering. See id. at 1455.

15. It is necessary to draw this distinction in dealing with Article 2B since section 2B-102(a)(24)'s definition of "information" includes software even though the latter is separately defined in more limited terms in section 2B-102(a)(44).

16. See U.C.C. 2B-102(a)(44) (Aug. 1, 1998 Draft).

17. See RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40(b) (1995); UNIF. TRADE SECRETS ACT 1(2)(ii) (1985).

18. Independent discovery, the other principal basis for loss of trade secret protection, must be eliminated from consideration in this discussion since it results from independent efforts rather than a transfer.

19. See U.C.C. 2B-502(3), 2B-507(a)(1) (Aug. 1, 1998 Draft).

20. See UNIF. TRADE SECRETS ACT 1 (1985); RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40 (a)-(b) (1995).

21. U.C.C. 2B-502(2) (Aug. 1, 1998 Draft).

22. The differences are discussed in more detail infra Part III.A.

23. See U.C.C. 2B-207, 2B-208 (Aug. 1, 1998 Draft).

24. Id. 2B-102(a)(21).

25. Section 2B-503(b)(2) makes it clear a licensee may not create a financier's interest in any intellectual property rights of the licensor, unless the licensor expressly consents to the creation and perfection of that interest in the license or another record. See also U.C.C. 2B-102, Reporter's Note 19 (Aug. 1, 1998 Draft). Some changes in section 2B-503 may occur in the process of conforming Article 2B to Revised UCC Article 9. Votes taken with respect to revised section 9-408 during the Final Reading and the vote to approve Revised Article 9 at the July 1998 Annual Meeting of the National Conference of Commissioners on Uniform State Laws will require conforming changes to be made in section 2B-503 due to the close interaction between the sections.

26. U.C.C. 2B-503 (Aug. 1, 1998 Draft).

27. See id. 2B-503(c).

28. This is exemplified by an equipment lease finance company that finances the lease of computer hardware and peripherals together with the licensed acquisition of operating system and other application software. Where the licensor or its subsidiary is the financing source, control over disposition of collateral is inherent. This is recognized by exclusion of licensors from the definition of financier. See id. 2B-102(a)(21).

29. Id. 2B-502.

30. To make the following exposition more readable, I use "know" and "knowledge" to include also "reason to know."

31. See supra Part II.B.

32. See IMAX Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164 (9th Cir. 1998); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993); Integrated Cash Management Services, Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990).

33. Liability exists only when a person knows or has reason to know that she is disclosing trade secret information in violation of an duty or obligation to not disclose. See UNIF. TRADE SECRETS ACT 1(2)(ii)(B)(II) (1985); RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40(b)(1) (1995).

34. See SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244, 1256 (3d Cir. 1985) (considering reasonable protective measures as a factor with respect to whether a trade secret existed at the relevant time, and in determining whether the means of acquisition was improper). See also UNIF. TRADE SECRETS ACT 1(4)(ii) (1985) (taking of reasonable security measures a factor in determining whether a protectable trade secret existed at the relevant time).

35. The relevant provisions of section 1(2) of the Uniform Trade Secret Act state that "misappropriation" means:

(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(ii) disclosure or use of a trade secret or another without express or implied consent by a person who

...

(B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was

(I) derived from or through a person who had utilized improper means to acquire it;

(II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(III) derived from or through a person who owned a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

UNIF. TRADE SECRETS ACT 1(2) (1985).

Sections 40, 41 and 43 of the Restatement (Third) of Unfair Competition somewhat differently define what constitutes actionable conduct, but are intended to be comparable in substance. See R ESTATEMENT (THIRD) OF UNFAIR COMPETITION 40, cmt. a (1995). Under either the Restatement or the UTSA, liability is based upon culpable conduct, and the stated conditions are specifically drawn to protect innocent third parties from liability. See RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40, cmt. d (1995).

36. U.C.C. 2B-507(b) (Aug. 1, 1998 Draft). The same result might be reached through section 2B-105(c), which provides that "principles of law and equity supplement this article" and further states that "laws supplementing, and not displaced by this article are trade secret laws and unfair competition laws." Id. 2B-105(c).

37. Reporter's Note 3 to section 2B-507 does provide explanation and guidance, and its substance undoubtedly will be reflected in the yet-unwritten Official Comment to the section. The Reporter's Notes state:

The rule stated in subsection (b) allows for a bona fide purchaser in reference to trade secret claims. ... If a party takes without notice of such restrictions, it is not bound by them; it is in effect a good faith purchaser, free of any obligations regarding infringement except as such exist under copyright, patent and similar law.

Id. 2B-507, Reporter's Note 3.

This is a statement that will prove helpful to the untutored, yet an affirmative statement in the black letter rather than use of an "[e]xcept as otherwise provided" leader seems feasible and warranted.

38. See Chicago Lock Co. v. Fanberg, 676 F.2d 400, 405 (9th Cir. 1982).

39. See id. at 404; Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 160 (1989).

40. See Bonito Boats, Inc., 489 U.S. at 160 (holding that state legislative prohibition of most efficient means for copying unpatented boat hull design is preempted by patent law); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 490 (1974) (explaining that state law recognition of reverse engineering as lawful means of discovery distinguishes trade secret from patent law, and is important to determination that trade secret law is not preempted by patent law).

41. Licenses sometimes authorize transfer in certain circumstances. See, e.g., Applied Info. Management, Inc. v. Icart, 976 F. Supp. 149, 151 (E.D.N.Y. 1997) (interpreting a software license whose terms allowed its transfer in connection with transfer of system acquired from plaintiff); Microsoft Corporation, End-User License Agreement for Microsoft Software, Microsoft Windows 95 (expressly authorizing transfer of the license in connection with the sale or other disposition of the computer) (on file with Berkeley Technology Law Journal).

42. See infra Part IV.B.

43. In the case of a computer program protected by copyright, use would constitute infringement. See id. Infringement may be enjoined under 17 U.S.C. 502 (1998). The effects of an injunction with respect to a business usually will not be contained to inability to use a software or information copy in the performance of a particular task. Interdependence of functions is the norm, not the exception, and disruption in one area typically has ripple effects in others.

44. This a minimum requirement. If section 2B-502(1)(B) is to be given full effect, it also seems prudent-and perhaps necessary-to inquire of all other software and information copy licensors to determine if copies of their products embody any trade secret or confidential business information.

45. See generally PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090, 1095 (6th Cir. 1979). See also Unarco Indus., Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972), cert. denied 410 U.S. 929 (1973) (acquisition of business and its assets).

46. See National Car Rental Systems, Inc v. Computer Associates Int'l, Inc., 991 F.2d 426 (8th Cir. 1993), cert. denied, 510 U.S. 861 (1993) (finding that use of software copy to process data of other firms, in violation of restriction, constituted a breach of contract, but not copyright infringement).

47. See U.C.C. 2B-501(b)(1) (Aug. 1, 1998 Draft). Indeed, with respect to mere information, no such underlying rights exist at this point in time. See Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991). Legislation proposed in Congress may eventually regulate use of information acquired from another, and in some sense therefore create rights in information that are not currently recognized in copyright or patent law, and for which protection must be through regulation pursuant to the Commerce Clause rather than legislative articulation of rights under the Patent and Copyright Clause. See H.R. 2281, 105th Cong. (1998).

48. The literature demonstrates awareness of the need to identify, review, and determine the transferability of intellectual property licenses, and does not indicate that it is common practice to similarly identify, review, and determine the transferability of nonexclusive software and information copy use licenses. See, e.g., Henry Less, Some Practical Suggestions for the M&A Due Diligence Process, in A DVANCED DOING DEALS: A STRATEGIC APPROACH TO COMPLETING THE TRANSACTION, PLI CORPORATE LAW AND PRACTICE COURSE HANDBOOK SERIES 403 (1998) (Due Diligence Checklist 11); Catherine H. Stockwell, A Primer on Due Diligence Reviews of Intellectual Property Assets, in HANDLING MERGERS & ACQUISITIONS IN A HIGH-TECH AND EMERGING GROWTH ENVIRONMENT, PLI CORPORATE LAW AND PRACTICE COURSE HANDBOOK SERIES 303 (1997). Attention to copy use licenses is suggested in Diane W. Savage, Intellectual Property Due Diligence in Acquisitions of Technology Companies, in HANDLING MERGERS & ACQUISITIONS IN A HIGH-TECH AND EMERGING GROWTH ENVIRONMENT, PLI CORPORATE LAW AND PRACTICE COURSE HANDBOOK SERIES 329 (1997).

49. U.C.C. 2B-503(b)(3) (Aug. 1, 1998 Draft).

50. Ronald J. Mann, The Role of the UCC in Facilitating the Financing of Software Licenses, (unpublished manuscript, on file with Berkeley Technology Law Journal) (Mar. 30, 1998).

51. Furthermore, larger enterprises may be more likely to acquire expensive, high-end software financed under arrangements in which the publisher-licensor is a participant, thus avoiding the effects of section 2B-503.

52. The literature is extensive and growing. Rather than gather and list numerous citations to various symposia and articles, I direct attention to recent University of Virginia Law Review and Cornell Law Review symposium issues for their inclusion of diverse views, and to one of many contributions to the dialogue by Professor Ronald J. Mann, a contributor to this symposium. Symposium on the Revision of Article 9 of the Uniform Commercial Code, 80 V A. L. REV. 1783 (1994); Symposium on the Priority of Secured Debt, 82 CORNELL L. REV. 1279 (1997); Ronald J. Mann, The Role of Secured Credit in Small Business Lending, 86 GEO. L.J. 1 (1997).

53. U.C.C. 2B-102(a)(24) (Aug. 1, 1998 Draft).

54. Id. 2B-102(a)(28).

55. Id. 2B-103(a).

56. In fact, the definition of "license" in section 2B-102(a)(28) and "nonexclusive license" in section 2B-102(a)(34) both explicitly include consignments. This would make consignment of a copy by the licensee an attempted creation of a sublicense. The definition of "transfer" in section 2B-102(a)(48) offers some basis for claiming that consignment is not a transfer, but that is limited to cases in which the consignee is exercising contractual rights of its consignor. Transfer of the license and copy to a third party is something which the example specifically makes an act outside the scope of the license.

57. It is to be noted that my Microsoft Windows 95 license does expressly authorize transfer of the license in connection with the sale or other disposition of my computer, provided that I do not make or retain a copy of the software. Microsoft Corporation, supra note .

58. 17 U.S.C. 117 (1998).

59.Id.

60. Id. 109(a).

61. Curiously, the provision in former section 2B-502 was touted as recognizing and effectuating the copy owner's right under section 117 of the Copyright Act. See U.C.C. 2B-502, Reporter's Note 3(a) (Mar. 10, 1998 Draft). More importantly, it stated that this rule applied in the absence of a contract term to the contrary, and elsewhere directly provided that such a contractual prohibition is enforceable and a transfer made in violation of the term is a breach and ineffective. U.C.C. 2B-503(2)-(3) (Mar. 10, 1998 Draft).

62. U.C.C. 2B-102(a)(28) (Aug. 1, 1998 Draft).

63. Id. 2B-102(a)(29).

64. Preemption in this instance more likely would be based in the Supremacy Clause, not section 301(a) of the Copyright Act. It is arguable that state law is creating rights in copyright subject matter equivalent to those created by federal law, in that contract is used to expand the rights created by section 106 through elimination of one of the statutory limitations to which those rights are expressly subject. This would make section 301(a) applicable. Still, the more general argument based on state law intruding into a domain created and defined by federal law, and altering the operation of express provisions of a federal statute, seems the more direct approach. For a discussion of constitutional preemption, see P. G OLDSTEIN, COPYRIGHT 15.3.3 (2d ed. 1996).

65. The author published one of the early papers on the subject: David A. Rice, Licensing the Use of Computer Program Copies and The Copyright Act First Sale Doctrine, 30 JURIMETRICS J. 157 (1990) [hereinafter Rice, Licensing].

66. 86 F.3d 1447 (7th Cir. 1996) (holding that standard form license terms not available for review until after purchase are nonetheless enforceable).

67. The law journal case comments, notes, and articles on the ProCD decision substantially outnumber citations to the decision in published judicial decisions. It appears that the commentators generally supporting the court's reasoning and outcome are substantially fewer than those who are critical of either or both the enforceability of standard form agreements or copyright preemption issues.

68. U.C.C. 2B-708(a) (Aug. 1, 1998 Draft).

69. See supra Part III.A.1.

70. It is clear that transfer of trade secret information constitutes a "disclosure." See RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40, cmt. a (1995). The liability of a transferee who subsequently uses or discloses that information turns on whether she knew or had reason to know at the time of the transfer that the information was transferred or disclosed in breach of a licensee-transferor duty not to disclose, or that the licensee-transferor utilized improper means to acquire the trade secret. See UNIF. TRADE SECRETS ACT 1(2)(ii)(B) (1985); RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40(b)(3) (1995).

71. See UNIF. TRADE SECRETS ACT 2(b)(2)(B)(ii) (1985); RESTATEMENT (THIRD) OF UNFAIR COMPETITION 40(b)(1) (1995). Comment c indicates that disclosure is a "use," but not the contrary. Id. 40 cmt. c.

72. See discussion supra Part III.A.

73. See MAI Systems Corp. v. Peak Computing, Inc., 991 F.2d 511, 518 (9th Cir. 1993) (holding that loading a program into memory constitutes making a copy for purposes of copyright law. Such copying is a necessary antecedent to running any program in a modern computer.).

74. See U.C.C. 2B-507(a)(1) (Aug. 1, 1998 Draft).

75. See 17 U.S.C. 502 (1998).

76. Id. 504(a)(1), (b).

77. Id. 504(a)(2), (c).

78. Id. 505.

79. See United States ex rel. Berge v. Board of Trustees of the University of Alabama, 104 F.3d 1453, 1462-65 (4th Cir. 1997), cert. denied 118 S.Ct. 301 (1997); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990); Patrick v. Francis, 887 F. Supp. 481, 482-484 (W.D.N.Y. 1995).

80. Section 2(a) of the Uniform Trade Secrets Act states that "[a]ctual or threatened misappropriation may be enjoined ...." Section 3(a) states that "[e]xcept to the extent that a material and prejudicial change of position prior to acquiring knowledge of reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation ...."

UNIF. TRADE SECRETS ACT 3(a) (1985).

81. See supra Part III.A.2

82. 489 U.S. 141 (1989).

83. See David A. Rice, Public Goods, Private Contract, and Public Policy: Federal Preemption of Software License Prohibitions Against Reverse Engineering, 53 U. PITT. L. REV. 543, 552-55 (1992) [hereinafter Rice, Public Goods]; Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239, 1245 (1995).

84. See Computer Assoc. Int'l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992) and Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807 (1st Cir. 1995), aff'd by an equally divided Court, 116 U.S. 804 (1996).

85. The Supreme Court has contrasted patent and trade secret law in these terms, stating, "[w]here patent law acts like a barrier, trade secret law functions relatively as a sieve." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490 (1974).

86. Congress recently made a limited entry into the field when it enacted the Economic Espionage Act of 1996, 18 U.S.C. 1831 (1996).

87. See generally RESTATEMENT (THIRD) OF UNFAIR COMPETITION 39, cmt. a (1995).

88. See, e.g., SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244 (2d Cir. 1985); Chicago Lock Co. v. Fanberg, 676 F.2d 400 (9th Cir. 1982). State trade secret law recognition of this principle was a key consideration in the Supreme Court's rejection of the argument that state trade secret law conflicts with and is preempted by federal patent law. See Bonito Boats, 489 U.S. at 160; Kewanee, 416 U.S. at 476, 490. Whether, or to what extent, various rules of Article 2B may be preempted by federal law has been vigorously disputed throughout the Article 2B drafting process, and provisions related to trade secret law have been one of the topics in this continuing debate. It is beyond the scope of this comment to describe the various issues and debates or to identify and assess the legal arguments. Analyses and expressions of the author's views on the topic include Rice, Public Goods, supra note , and David A. Rice, Digital Information as Property and Product, 22 U. D AYTON L. REV. 623, 646 (1997).

89. The point owes much to a recent discussion with Professor Wendy Gordon. Concerning copyright ownership itself conferring the ability to price discriminate by making arbitrage by licensees of statutory rights profitless, see Wendy Gordon, Price Discrimination Redux, 73 CHI.-KENT L. REV. (forthcoming 1998).

90. Switching costs, inclusive of those for a license to use an alternative computer program, migration of systems and data, and retraining of personnel will be substantially higher than payment for the transfer or a new license. See, e.g., Mark A. Lemley & David McGowan, Legal Implication of Network Economic Effects, 86 CALIF. L. REV. 479, 532-34 (1998); Peter S. Menell, An Analysis of the Scope of Copyright Protection for Application Programs, 41 STAN. L. REV. 1329, 1357-58 (1987).

91. See Rice, Licensing, supra note .

92. The landmark decision is Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), but the principle was followed in lower federal courts prior to that decision. Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 118 S.Ct. 1125, 1128 n.4 (1998).

93. Prohibition of computer program rental by the owner of a copy is a primary example of such an exception. See 17 U.S.C. 109(b)(1)(A) (1998).

94. Patent and copyright are instrumental exceptions to the competition-favoring policy expressed in antitrust laws. See, e.g., United States v. Paramount Pictures, Inc., 441 U.S. 1, 157-58 (1948) (holding block booking to be illegal because, among other things, it added to or extended the statutory copyright monopoly); United States v. Singer Mfg. Co., 374 U.S. 174, 196 (1963) (finding no exemption from antitrust law and policy beyond the limits of the patent monopoly); Simpson v. Union Oil Co., 377 U.S. 13, 24 (1964) (clarifying that patent laws are to be construed together with antitrust laws and modify them to the extent necessary).

95. U.C.C. 2-210(2) (1996).

96. Section 2A-303(5)(b) provides that, in the case where a personal property lease is silent with respect to the right to transfer, the transferor is liable in damages for loss suffered by the other lease party if the transfer "materially impairs the prospect of obtaining a return performance 1/4, materially changes the duty of [the aggrieved party], or materially increases the burden or risk imposed on [the aggrieved party] 1/4." U.C.C. 2A-303(5)(b) (1996).

97. U.C.C. 2B-502, Reporter's Note 1 (Aug. 1, 1998 Draft).

98. Id.

99. Id.

100. Further, the general statement that federal law may in fact prohibit transfer which lacks at least implied consent is erroneous. See discussion infra Part VI.B.

101. See supra Part V.A.

102. Article 9 in fact adopts a far stronger pro-transfer rule in providing that the debtor's rights in collateral may be voluntarily or involuntarily transferred "not withstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default." U.C.C. 9-311 (1996). The function is to make the transfer effective, even though possibly actionable as a breach.

103. See generally FARNSWORTH, supra Note , 11.4; CALAMARI & PERILLO, THE LAW OF CONTRACTS 18.2 & 18.12 (4th ed. 1998).

104. See U.C.C. 2-210, cmt. 4 (1996).

105. Id. 2-210(a). In the case of a personal property lease, transfer is allowed except when "an actual delegation of a material performance" is effected by a lessee's violation of a contract term that prohibits creation of a security interest in its leasehold interest. Id. 2A-303(3).

106. See supra Part III.A.

107. U.C.C. 2B-502, Reporter's Note 1 (Aug. 1, 1998 Draft).

108. It is interesting to observe that the quoted Reporter's Notes justify the rule by reference to characteristics of non-retail transactions and that the rule itself applies to all transactions, retail and non-retail alike.

109. See U.C.C. 2B-502, Reporter's Note 3 (Mar. 10, 1998 Draft).

110. 89 F.3d 673 (9th Cir. 1996).

111. The limited extent to which Article 2B permits any such transfer without first obtaining express consent apparently is grounded in surmise that implied consent exists in certain types of transactions unless a contract term expressly provides that the copy use license is not transferable.

112. 734 F.2d 1329 (9th Cir. 1984).

113. See Everex, 89 F.3d at 679-80 (patent); Harris, 734 F.2d at 1333-34 (copyright); Unarco Indus., Inc. v. Kelley Co., 465 F.2d 1303, 1306 (7th Cir. 1972), cert. denied 410 U.S. 929 (1973) (patent); In re Patient Educ. Media, Inc., 210 B.R. 237, 242 (S.D.N.Y. 1997) (copyright).

114. See Rochelle Cooper Dreyfuss, Do You Want to Know a Trade Secret? Licensing Under Article 2B of the Uniform Commercial Code, 87 CALIF. L. REV. 191 (forthcoming 1999). This article does not address whether Everex and related decisions are correct in concluding that the usual state contract law rule of free transferability must be supplanted by a contrary federal law in certain instances. It assumes, solely for the sake of argument, their substantive correctness. It shows, even so, that the courts' opinions and the Constitution strictly limit application of the nonassignability rule to nonexclusive licenses of property rights created by federal statute. These authorities offer no guidance for-let alone prescribe the content of-Article 2B rules governing the transfer of nonexclusive licenses to use a software or information copy.

115. See Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489, 494-95 (1st Cir. 1997), cert. denied, 117 S. Ct. 2511 (1997). Facially, this seems a sufficient response to one of the previously identified consequences of the Article 2B anti-transfer rules. See supra Part III.B.1. However, it merely offers potential relief in select cases and does not deal with the fact that the relied upon federal court decisions have nothing to do with mere copy and use license transfers on their facts or as a matter of law.

116. See PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090 (6th Cir. 1979); see also Unarco, 465 F.2d at 1306 (acquisition of business and its assets).

117. See Everex, 89 F.3d at 677 (citing McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917, 920 (Fed. Cir. 1995)); Unarco, 465 F.2d at 1306; In re Patient Education Media, 210 B.R. at 242 (citing Bourne v. Walt Disney Co., 68 F.2d 621, 631 (2d Cir. 1995), cert. denied, 517 U.S. 1240 (1996)).

118. See, e.g., Everex, 89 F.3d at 678; Unarco, 465 F.2d at 1305; In re Patient Educ. Media, 210 B.R. at 242.

119. 304 U.S. 64 (1938). Several of the cases expressly refer to Erie as the foundation for the rule that state law ordinarily governs interpretation and construction of patent and copyright licenses, and in stating that exceptions created in order to deal with conflict between state contract law and federal law and policy are special and specific exceptions. See, e.g., Everex, 89 F.3d at 678; Unarco, 465 F.2d at 1305; In re Alltech Plastics, Inc., 71 Bankr. 686, 689 (W.D.Tenn. 1987).

120. See Everex, 89 F.3d at 679; Unarco, 465 F.2d at 1306.

121. See Lear, Inc. v. Adkins, 395 U.S. 653, 661-62 (1969).

122. See Everex, 89 F.3d at 679.

123. See id. (criticizing the opinion in Unarco for not taking care to make clear that application of a federal common law rule is limited, and that state contract law otherwise governs construction of patent licenses).

124. Sola Elec. Co. v. Jefferson Co, 379 U.S. 173, 176 (1942). See also O'Melveny & Myers v. Federal Deposit Ins. Corp., 512 U.S. 79, 87 (1994).

125. Notably, the distinction is made clear in cases relied upon in the Reporter's Notes for the proposition that the federal patent and common law rule that a license of federal rights is nonassignable. See Harris, 734 F.2d at 1334; SQL Solutions, Inc. v. Oracle Corp., No. C-91-1079 MHP, 1991 U.S. Dist. LEXIS 21097, at *15 (N.D. Cal. Dec. 18, 1991).

126. Monopoly in most other contexts is, of course, anathema and its creation or preservation by contract is generally unlawful. This is the essence of the Sherman Antitrust Act, 15 U.S.C. 1 (1998).

127. See 35 U.S.C. 271(a) (1998).

128. See 17 U.S.C. 106(1), (3) (1998).

129. The author's intention is to use "make or distribute copies" as illustration of the more numerous exclusive rights of a copyright owner under section 106 of the Copyright Act. The limited purpose is to avoid cumbersome repetition of an exhaustive listing of statutory rights in the text.

130. See Everex, 89 F.3d at 679. See also Unarco, 465 F.2d at 1305 (where the would-be transferee of licensed patent rights was in fact a party to whom the patent holder had consistently refused to grant a license).

131. See, e.g., Everex, 89 F.3d at 679 (patent); Insitut Pasteur, 104 F.3d at 492 (patent); Harris, 734 F.2d at 1333 (copyright); In re Patient Educ. Media, 210 B.R. at 242 (copyright).

132. See supra note .

133. See, e.g., Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991).

134. This is the essential point of section 202 of the Copyright Act, 17 U.S.C. 202, which provides that transfer of a copy of a book, computer program, or other work conveys no rights in the copyrighted work itself.

135. This failure is particularly striking because Everex, the decision most heavily relied upon and even extensively quoted in Reporter's Notes when representing that federal law requires or supports Article 2B adoption of anti-transfer rules, is the case that most carefully and fully develops this point. See Everex, 89 F.3d at 678.

136. This is the position presented in Reporter's Note 2 to former section 2B-502 and echoed in Reporter's Note 2 to former section 2B-504 of the February and March 1998 Drafts. It is to be noted that this provision was made expressly subject to any contract term that prohibited transfer. See U.C.C. 2B-502(c) (Mar. 10, 1998 Draft).

137. U.C.C. 2B-502, Reporter's Note 2 (Aug. 1, 1998 Draft).

138. See generally FARNSWORTH, supra note , 11.2.

139. Section 2B-503, Reporter's Note 2 states: "For non-exclusive licenses, the transferability of a licensee's rights is constrained in law by federal policy limitations that presume non-transferability without licensor consent." U.C.C. 2B-503, Reporter's Note 2 (Aug. 1, 1998 Draft). See id. 2B-502(1); Everex, 89 F.3d at 673. See also In re Patient Educ. Media, 210 B.R. 237 (copyright license).

140. See supra Part VI.B.

141. U.C.C. 2B-503, Reporter's Note 2 (Aug. 1, 1998 Draft).

142. Id.

143. The drafting process is inherently political, and the more so because Drafting Committee meetings are open. Success of the project ultimately turns on the enactability of the final product, so the views of industry representatives and other observer-participants have great sway. Predictably, the meetings are attended primarily by representatives of affected interests, and especially publisher-licensor representatives. Lawyers and others primarily involved in practice areas such as general business or mergers and acquisition are not a presence because software and information copy distribution is not central to their work.

Participation, its nature, and its effects recently have been the subject of several significant law review articles dealing with the U.C.C. drafting process. A selective sample includes Kathleen Patchell, Interest Group Politics, Federalism, and the Uniform Laws Process: Some Lessons from the Uniform Commercial Code, 78 MINN. L. REV. 83 (1993); Edward L. Rubin, Thinking Like a Lawyer, Acting Like a Lobbyist: Some Notes on the Process of Revising UCC Articles 3 and 4, 26 LOY. L.A. L. REV. 743 (1993); Donald J. Rapson, Who is Looking Out for the Public Interest? Thoughts About the UCC Revision Process in the Light (and Shadows) of Professor Rubin's Observations, 28 LOY. L.A. L. REV. 249 (1994); Alan Schwartz, The Political Economy of Private Legislatures, 143 U. PA. L. REV. 595 (1995).

144. American Law Institute 1998 Annual Meeting motions and votes were so characterized in a July 15, 1998 memorandum addressed to the members of the National Conference of Commissioners on Uniform State Laws by the Business Software Alliance, Software Publishers Association, and Information Industry Association. The memorandum is available on the 2B Guide at <http://www.2BGuide.com/docs/amemo981.html> (visited Nov. 5, 1998).