Beyond Preemption: The Law and Policy of Intellectual Propert Licensing Mark a. lemle Introduction I. The Tension Between Article 2B and Intellectual Property A. Article 2B's Expansion of the Scope and Power of Contracts B. Potential Conflicts with Intellectual Property Law aw 2. Copyright Law 4. Trademark law C. Conclusions II. Preemption as a Partial Solution A. The Nature of Intellectual Property Preemption 1. The Basic Nature of Preemption 2. Intellectual Property Preemption a. Patent law b. Copyright Law c. Applying Preemption to Contract Law School of rowe ssri ve saw of5出a油沿F出B是HkH是op 长a上Be品m8是最 Berkeler centee fos aw ea TercaralogwsoGonfesense no Aratinck' va thei a aito sh eomm esearch assistand
Beyond Preemption:The Law and Policy of Intellectual Property Licensing Mark A. Lemley1† Table of Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The Tension Between Article 2B and Intellectual Property . . . . . . . A. Article 2B’s Expansion of the Scope and Power of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Potential Conflicts with Intellectual Property Law . . . . . . . . . . . 1. Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Trade Secret Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Trademark Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Preemption as a Partial Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . A. The Nature of Intellectual Property Preemption . . . . . . . . . . . . 1. The Basic Nature of Preemption . . . . . . . . . . . . . . . . . . . . . 2. Intellectual Property Preemption . . . . . . . . . . . . . . . . . . . . . a. Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b. Copyright Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c. Applying Preemption to Contract Law . . . . . . . . . . . . . 1 Copyright © 1999 Mark A. Lemley and California Law Review, Inc. † Professor of Law, University of Texas School of Law; Visiting Professor of Law, Boalt Hall School of Law, University of California at Berkeley (Fall 1998); of counsel, Fish & Richardson P.C., Austin, Texas. I would like to thank Stephen Barnett, Julie Cohen, Richard Craswell, Robert Denicola, Rochelle Cooper Dreyfuss, Paul Goldstein, Robert Gomulkiewicz, Rose Hagan, Paul Heald, Dennis Karjala, Eric Lode, David McGowan, Charles McManis, Rob Merges, Maureen O’Rourke, Malla Pollack, Lloyd Weinreb, and participants in a faculty workshop at Stanford Law School and in the Berkeley Center for Law and Technology’s Conference on Article 2B of the Uniform Commercial Code for comments on an earlier draft. I would also like to thank Ryan Garcia and Sherri Shaw for research assistance. 111
CALiFORNiA LAW REVIEM TVol. 87: 111 The Limits of Preemption 1. Preemption Lacks Nuance 2. Intellectual Property Rules Arent Always Statuto 4."Contracts Are Different C. Conclusions III. Public Policy Restrictions on Information Contracts A. Copyright Misuse B. Licensing Contracts as Creatures of Federal Law C. State Public Policy Limits on Intellectual Property Contracts D. The Interaction of Public Policy and Article 2B 1. Doctrinal Questions 2. Normative Questions Conclusion
CALIFORNIA LAW REVIEW [Vol. 87:111 B. The Limits of Preemption 1. Preemption Lacks Nuance . . . . . . . . . . . . . . . . . . . . . . . . . 2. Intellectual Property Rules Aren’t Always Statutory . . . . . . 3. Intellectual Property Rules Aren’t Always Federal . . . . . . . 4. “Contracts Are Different” . . . . . . . . . . . . . . . . . . . . . . . . . C. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Public Policy Restrictions on Information Contracts . . . . . . . . . . . . A. Copyright Misuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Licensing Contracts as Creatures of Federal Law . . . . . . . . . . . . C. State Public Policy Limits on Intellectual Property Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. The Interaction of Public Policy and Article 2B . . . . . . . . . . . . 1. Doctrinal Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Normative Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 BEYOND PREEMPTION Beyond Preemption The Law and Policy of Intellectual Property Licensing Mark A Lemley Proposed Uniform Commercial Code Article 2B, which would govern transactions in information, would remake the law of intellectual property licensing in a radical way. But federal and state intellectual property laws and policies impose significant limits on the ability of states to change the rules of intellectual property licensing by contrac law. One such limit is preemption, but preemption is unlikely to provide significant protection for the established rules of intellectual property law. Several other doctrines will limit the ability of parties to set their terms by contract, even in the Article 2B world. The first is copyright misuse, which has been applied against restrictive licensing provisions. The second set of doctrines provides that a number of licensing rules are decided as questions of federal, not state, law. The third set of doctrines is a number of state public policies that cannot be overridden by contract. Taken together, these doctrines create a patchwork public policy of intellectual property law that Article 2B cannot alter [LEgislatures, courts, and scholars must consider copyright and patent misuse, and such other issues as federal preemption of state law affecting intellectual property-together with U.C. C. issues if they are to construct a coherent body of transactional rules -Robert m A act and end in to displace copyright it would surely benefit us all if lawmakers took care to apply to 2 .Robert P Merges, Intellectual Property and the Costs of Commercial Exchange: A Review Essav,93Mich.L.Rev.1570,1571-72(199
1999] BEYOND PREEMPTION Beyond Preemption:The Law and Policy of Intellectual Property Licensing Mark A. Lemley Proposed Uniform Commercial Code Article 2B, which would govern transactions in information, would remake the law of intellectual property licensing in a radical way. But federal and state intellectual property laws and policies impose significant limits on the ability of states to change the rules of intellectual property licensing by contract law. One such limit is preemption, but preemption is unlikely to provide significant protection for the established rules of intellectual property law. Several other doctrines will limit the ability of parties to set their terms by contract, even in the Article 2B world. The first is copyright misuse, which has been applied against restrictive licensing provisions. The second set of doctrines provides that a number of licensing rules are decided as questions of federal, not state, law. The third set of doctrines is a number of state public policies that cannot be overridden by contract. Taken together, these doctrines create a patchwork public policy of intellectual property law that Article 2B cannot alter. [L]egislatures, courts, and scholars must consider . . . copyright and patent “misuse,” and such other issues as federal preemption of state law affecting intellectual property—together with U.C.C. issues if they are to construct a coherent body of transactional rules. —Robert Merges2 As contract and encryption begin to displace copyright . . . it would surely benefit us all if lawmakers took care to apply to 2 .Robert P. Merges, Intellectual Property and the Costs of Commercial Exchange: A Review Essay, 93 Mich. L. Rev. 1570, 1571-72 (1995)
CALIFORNIA LAW REVIER TVol. 87: 111 these two substitutes the historical norms of copyright -Paul goldstein ntroduction remake is roposed Uniform Commercial Code Article 2B (Article 2B) would he law of software and intellectual property licensing in a radical way Some of the more dramatic changes are apparent, invested the time in reading the rapid succession of 200-plus page drafts.5 But lurking behind the changes Article 2B would impose on the state law of transactions in information is another, more fundamental, shift that is larger than the debate over article 2B itself. article 2b creates a fundamental conflict between the goals of federal and state intellectual property law and the contract law that will govern intellectual property licenses. Under an Article 2B regime, litigation wont be about what the parties agreed to do with intellectual property. It wont even be about the scope or limits of intellectual property law itself. Rather, litigation will be about the limits that intellectual property law and policy impose on state enforcement of contracts that contravene, distort, or ignore that law. To paraphrase Whit Diffie, it will be about the transformation of copyright law from a creator 3.Paul Goldstein, Copyright and Its Substitutes, 1997 Wis. L. Rev. 865, 871 hanges, the reader hs re feed te he ether artiedes in this symposium as wep as inose con tained 1“Re209 discussing chang23ama1asye里maCm 雷器B是 erkeleper sheytus,obb oui Fane o k8}Y ke licensing Trade Secrets Easier( But Inmovation More Difficult), 87 Calif. L Article 2B. 13 Berkel hanges that Article 2B would involve, see J. Thomas Warlick, IV s8r19i9 Licensing and De Facto Copyright Legislation in UCC28, 45 J. Copyright Soc y (UsA) ments on of con e3B+}业18B
CALIFORNIA LAW REVIEW [Vol. 87:111 these two substitutes the historical norms of copyright . . . . —Paul Goldstein3 Introduction Proposed Uniform Commercial Code Article 2B (Article 2B)4 would remake the law of software and intellectual property licensing in a radical way. Some of the more dramatic changes are apparent, at least to those who have invested the time in reading the rapid succession of 200-plus page drafts.5 But lurking behind the changes Article 2B would impose on the state law of transactions in information is another, more fundamental, shift that is larger than the debate over Article 2B itself. Article 2B creates a fundamental conflict between the goals of federal and state intellectual property law and the contract law that will govern intellectual property licenses. Under an Article 2B regime, litigation won’t be about what the parties agreed to do with intellectual property. It won’t even be about the scope or limits of intellectual property law itself. Rather, litigation will be about the limits that intellectual property law and policy impose on state enforcement of contracts that contravene, distort, or ignore that law. To paraphrase Whit Diffie, it will be about the transformation of copyright law from a creator’s 3 .Paul Goldstein, Copyright and Its Substitutes, 1997 Wis. L. Rev. 865, 871. 4 .U.C.C. art. 2B (Draft, Aug. 1, 1998). Throughout this Article, I will refer to the August 1, 1998 Draft of Uniform Commercial Code Article 2B as “Article 2B,” with or without the “August Draft” or “draft” designation. References to other versions of the draft will so be noted. The reader should be aware that the draft is a moving target, and should not rely on this Article to identify changes to the draft made after August 1, 1998. The most recent version of the draft can be downloaded from . 5 .A few of these changes are discussed infra notes - and accompanying text. For other changes, the reader is referred to the other Articles in this Symposium, as well as those contained in a companion issue of the Berkeley Technology Law Journal, especially Peter A. Alces, W(h)ither Warranty: The B(l)oom of Products Liability Theory in Cases of Deficient Software Design, 87 Calif. L. Rev. 269 (1999) (discussing changes in warranty rules); Julie E. Cohen, Copyright and the Jurisprudence of Self-Help, 13 Berkeley Tech. L.J. (forthcoming Dec. 1998) (discussing changes in extra-judicial self-help); Rochelle Cooper Dreyfuss, Do You Want to Know a Trade Secret? How Article 2B Will Make Licensing Trade Secrets Easier (But Innovation More Difficult), 87 Calif. L. Rev. 191, 200-38 (1999) (discussing changes in trade secret law); Jane C. Ginsburg, Authors as “Licensors” of “Informational Rights” Under UCC Article 2B, 13 Berkeley Tech. L.J. (forthcoming Dec. 1998) (discussing changes in copyright provisions affecting authors). For an overview of the changes that Article 2B would involve, see J. Thomas Warlick, IV, A Wolf in Sheep’s Clothing? Information Licensing and De Facto Copyright Legislation in UCC 2B, 45 J. Copyright Soc’y (USA) 158 (1997). Some commentators assert that Article 2B is not “remaking” anything but is simply codifying existing law. See Robert W. Gomulkiewicz, The License Is The Product: Comments on the Promise of UCC Article 2B for Software Licensing, 13 Berkeley Tech. L.J. (forthcoming Dec. 1998) (manuscript at 1, on file with author) (“UCC Article 2B is not new law; it broadly accords with the law that is practiced today in the information and software industries.”). But even Ray Nimmer, Article 2B’s drafter, has apparently abandoned the pretense that the goal of Article 2B is to codify or restate existing law. Instead, Nimmer now promotes the draft as properly embracing change—at least change that “expand[s] the role of contracting.” Raymond T. Nimmer, Breaking Barriers: The Relation Between Contract and Intellectual Property Law, 13 Berkeley Tech. L.J. (forthcoming Dec. 1998) (manuscript at 1, on file with author); cf. Jessica Litman, The Tales That Article 2B Tells About
1999 BEYOND PREEMPTION rights statute to a consumer protection statute 6 The most obvious way in which these limits will be tested is through ederal preemption, either of particular provisions of state contract law or of rticular contract terms enforced by state courts. A number of commentators have ussed the nature and limits of intellectual property preemption, both in general? and in the specific context of state contract terms. 8 Indeed, some of the contributions to this Symposium address precisely this subject. 9 What one intellectual property preemption, and that the law of preemption is a mess to eral discern from this scholarship is that there are several different approaches to federal I want to suggest something a little different In this Article, I argue that the influence of intellectual property law and policy on contract enforcement is not solely a function of the complex and arcane rules of federal preemption. Three more nuanced doctrines can also influence contract enforcement: (1)copyright misuse (2)federal public policy that requires resolution of at least some intellectual property questions on intellectual property rather than contract terms, and (3) similar mandatory rules of state intellectual property law. These public policy limits certainly won't prevent the enforcement of all license terms, or even of all tted upright, not the eretectmen p, and indeed charged that the 如24出eh oncept of =m:H器m出 mer and improver riot出eBmg四sB 7 See, e. g, Howard B. Abrams, Copyright, Misappropriation, and Preemption: Constitutional Circle, 1974 Sup. Ct. Rev. 81; Paul Heald, Federal Intellectual Economics m joan shepardwlei e, Bono oats 7 informed it %andaor) Feeeranapte paod Heasainunona estriction on the Scope of state Law, 54U. ChL. L. Rev. 1411(1987)thereinafter 8 See, e.g,Dennis S. Karjala, Federal Preemption of shrinkwrap and On-Line Licenses, 22 U C0mN3如 greer iands3u ip itolicgev eder o2 0e gg2) of Sofware License Prohibitions c763R知4 mits of art icle 2b of the uniform commercial code on the future of information Commerce( ke has made a similar point. See Maureen A. O Rourke, Ce resolve nding consistent ther property preemption decisions
1999] BEYOND PREEMPTION rights statute to a consumer protection statute.6 The most obvious way in which these limits will be tested is through federal preemption, either of particular provisions of state contract law or of particular contract terms enforced by state courts. A number of commentators have discussed the nature and limits of intellectual property preemption, both in general7 and in the specific context of state contract terms.8 Indeed, some of the contributions to this Symposium address precisely this subject.9 What one can discern from this scholarship is that there are several different approaches to federal intellectual property preemption, and that the law of preemption is a mess.10 I want to suggest something a little different. In this Article, I argue that the influence of intellectual property law and policy on contract enforcement is not solely a function of the complex and arcane rules of federal preemption. Three more nuanced doctrines can also influence contract enforcement: (1) copyright misuse; (2) federal public policy that requires resolution of at least some intellectual property questions on intellectual property rather than contract terms; and (3) similar mandatory rules of state intellectual property law. These public policy limits certainly won’t prevent the enforcement of all license terms, or even of all 6 .See Whit Diffie, Address at the American Committee for Interoperable Systems Meeting (Feb. 18, 1998). Glynn Lunney has made a similar point. See Glynn Lunney, Protecting Digital Works: Copyright or Contract? (1998) (unpublished manuscript at 3-4, on file with author) (“For preemption to become not only a part of copyright, but in some sense the central part, would require a radical reconception of copyright. We would have to view copyright, not as a means for providing protection, but as a means for limiting the protection permitted.”). Jane Ginsburg has objected to this development, and indeed charged that the entire concept of “user rights” in copyright is loaded and largely undesirable. See Jane C. Ginsburg, Authors and Users in Copyright, 45 J. Copyright Soc’y (USA) 1, 2-3 (1997). Ginsburg makes her argument in part by redefining “user rights” to include only rights to make superseding and not transformative copies. See id. at 3-4. I think that this distinction is unreasonable because it seems both to restrict the concept of “users” of copyrighted works to only the subclass of consumers and to ignore the wholesale elimination of consumer and improver rights that is occurring across the board in copyright today. 7 .See, e.g., Howard B. Abrams, Copyright, Misappropriation, and Preemption: Constitutional and Statutory Limits of State Law Protection, 1983 Sup. Ct. Rev. 509; Paul Goldstein, Kewanee Oil Co. v. Bicron Corp: Notes on a Closing Circle, 1974 Sup. Ct. Rev. 81; Paul Heald, Federal Intellectual Property Law and the Economics of Preemption, 76 Iowa L. Rev. 959 (1991) [hereinafter Heald, Economics]; John Shepard Wiley, Jr., Bonito Boats: Uninformed but Mandatory Federal Preemption Policy, 1989 Sup. Ct. Rev. 283; Paul Heald, Comment, Unfair Competition and Federal Law: Constitutional Restrictions on the Scope of State Law, 54 U. Chi. L. Rev. 1411 (1987) [hereinafter Heald, Unfair Competition]. 8 .See, e.g., Dennis S. Karjala, Federal Preemption of Shrinkwrap and On-Line Licenses, 22 U. Dayton L. Rev. 511 (1997); Ramona L. Paetzold, Contracts Enlarging a Copyright Owner’s Rights: A Framework for Determining Unenforceability, 68 Neb. L. Rev. 816 (1989); 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, 602-04 (1992). 9 .See David Nimmer et al., The Metamorphosis of Contract into Expand , 87 Calif. L. Rev. 17, 40-76 (1999); see also J.H. Reichman & Jonathan A. Franklin, Privately Legislated Intellectual Property Rights: The Limits of Article 2B of the U.C.C., Address Before the Berkeley Center for Law & Technology’s Conference, Intellectual Property and Contract Law for the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Information and Commerce (Apr. 24, 1998). 10 .Maureen O’Rourke has made a similar point. See Maureen A. O’Rourke, Copyright Preemption After the ProCD Case: A Market-Based Approach , 12 Berkeley Tech. L.J. 53, 76 (1997) (“The confusion and inconsistency of preemption law makes preemption issues notoriously difficult to resolve.”). But see Heald, Economics, supra note , at 959 (finding consistent themes in intellectual property preemption decisions)
CALiFORNiA LAW REVIEM TVoL. 87: 111 terms that conflict with contract law. But they will bar some license terms that Article 2B purports to validate. And even if Article 2B isn t adopted, these limits will play an important role in regulating the growth of contract law In Part I, I briefly explain why the potential for conflict between contract nd intellectual property law arises at all. In Part Il, I suggest that while preemption has an important role to play in resolving this conflict, it will not and cannot solve the problem alone. Finally, in Part Ill, I examine court decisions that have applied"public policy rationales to reject or avoid enforcing objectionable contract terms. I also offer some thoughts on how some key Article 2B provisions will fare under such public policy tests. Specifically, I suggest that even if Article 2B is adopted, its effect on intellectual property licensing will be limited by the existence of numerous rules from outside contract law Before I begin, a word about my methodology is in order. My goal this Article is largely descriptive and predictive, rather than normative. Elsewhere I have argued that there is good reason to be skeptical about the expansionist owners. II Most other commentators have taken a similar position 12 But whether one thinks that the changes wrought by Article 2B are good or bad, we will have to confront the difficult task of drawing a line between conflicting aspects of intellectual property policy and contract law. I am not arguing(here)for the creation of a new public policy exception to state contract law for cases in which contract law touches on matters of intellectual property concern. Rather, I am uggesting that the public policy jurisprudence already exists, and we can only understand article 2B in its context The Tension Between Article 2B and Intellectual Property Article 2B is a big document, and as the papers in this Symposium demonstrate, its interaction with intellectual property law is complex. 13 While S Cal L. Rev. 1239, 1274-92(1995)hereinafter Lemley, Shrinkwrap licenses] C3如pb9m用是p 9%R如m137Fm知mmh1匙 s I ation ang ane from the Au stess con thac, unless soe article 2B appers unto arsing the scope provisions of Article 2B is worthy of 3(a(1)(Draft, Aug. 1, 1998). A license tithe o f opti so ona T ths trass tian ssible transaction in information is a"license, even those that everyone would
CALIFORNIA LAW REVIEW [Vol. 87:111 terms that conflict with contract law. But they will bar some license terms that Article 2B purports to validate. And even if Article 2B isn’t adopted, these limits will play an important role in regulating the growth of contract law. In Part I, I briefly explain why the potential for conflict between contract and intellectual property law arises at all. In Part II, I suggest that while preemption has an important role to play in resolving this conflict, it will not and cannot solve the problem alone. Finally, in Part III, I examine court decisions that have applied “public policy” rationales to reject or avoid enforcing objectionable contract terms. I also offer some thoughts on how some key Article 2B provisions will fare under such public policy tests. Specifically, I suggest that even if Article 2B is adopted, its effect on intellectual property licensing will be limited by the existence of numerous rules from outside contract law. Before I begin, a word about my methodology is in order. My goal in this Article is largely descriptive and predictive, rather than normative. Elsewhere, I have argued that there is good reason to be skeptical about the expansionist vision of contract law as a supplement to the power of intellectual property owners.11 Most other commentators have taken a similar position.12 But whether one thinks that the changes wrought by Article 2B are good or bad, we will have to confront the difficult task of drawing a line between conflicting aspects of intellectual property policy and contract law. I am not arguing (here) for the creation of a new public policy exception to state contract law for cases in which contract law touches on matters of intellectual property concern. Rather, I am suggesting that the public policy jurisprudence already exists, and we can only understand Article 2B in its context. IThe Tension Between Article 2B and Intellectual Property Article 2B is a big document, and as the papers in this Symposium demonstrate, its interaction with intellectual property law is complex.13 While 11 .See Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 Tex. L. Rev. 989, 1048-72 (1997) [hereinafter Lemley, Economics of Improvement]; Mark A. Lemley, Romantic Authorship and the Rhetoric of Property, 75 Tex. L. Rev. 873, 900-03 (1997) [hereinafter Lemley, Romantic Authorship ]; Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239, 1274-92 (1995) [hereinafter Lemley, Shrinkwrap Licenses]. 12 .See, e.g., Julie E. Cohen, Lochner in Cyberspace: The New Economic Orthodoxy of Rights Management, 97 Mich. L. Rev. (forthcoming 1998); Niva Elkin-Koren, Contracts in Cyberspace: Rights Without Laws, 73 Chi.-Kent L. Rev. (forthcoming 1998) [hereinafter Elkin-Koren, Contracts in Cyberspace]; Niva Elkin-Koren, Copyright Policy and the Limits of Freedom of Contract, 12 Berkeley Tech. L.J. 93, 106-13 (1997) [hereinafter Elkin-Koren, Copyright Policy]; Karjala, supra note , at 519-20; Jessica Litman, Revising Copyright Law for the Information Age, 75 Or. L. Rev. 19, 25-30 (1996); Rice, supra note , at 561-67. For a contrary view, see Tom W. Bell, Fair Use vs. Fared Use: The Impact of Automated Rights Management on Copyright’s Fair Use Doctrine, 76 N.C. L. Rev. 557, 592 (1998); Trotter Hardy, Property (and Copyright) in Cyberspace, 1996 U. Chi. Legal F. 217, 228. 13 .Merely parsing the scope provisions of Article 2B is worthy of one or more papers unto itself. As near as I can determine from the August Draft, the provisions of Article 2B apply to all “licenses” of information and all software and access contracts, unless specifically excluded. See U.C.C. § 2B-103(a)(1) (Draft, Aug. 1, 1998). A license is defined broadly to mean virtually any express contract relating to information unless it is an unconditional transfer of ownership of informational property rights. See id. § 2B-102(a)(28). Indeed, a transaction is a “license”—and therefore within the scope of Article 2B—even if it transfers title to a copy, so long as the transaction itself “expressly grants less than all informational rights in the information.” Id. This means that virtually every possible transaction in information is a “license,” even those that everyone would
1999 BEYOND PREEMPTION Article 2B does many unobjectionable things-and even some good thingsl4-that have nothing to do with intellectual property law, the critical thing about Article 2B for my purposes is its dramatic expansion of the scope and power of contracts, particularly contracts drafted by software vendors and intellectual property owners. This expansion leads to potential conflicts and tensions between Article 2B and intellectual property law. In this Part, I discuss the ways in which Article 2B expands the scope and power of contracts, as well as the conflicts with intellectual property law that this expansion may create A article 2B's expansi on of the Scope and Power of Contracts Article 2B expands the scope and power of contracts in three ways. 15 First, Article 2B reverses the well-settled rule of existing law that in determining whether a transaction is a sale. a lease. or a license. courts look to the economic the iteral lang agg oof this provisi 包 the very least, of patents, also fall within Article 2E What constitutes software, and which patents are"software patents, "is itself far from clear. See ant ectuel 始4gm既mE以m￥Tmgb例‰ digitai s 3 Berkeley Tech. L.J. (forthcoming Dec. 1998)(challenging the Article 2B framework for o'g是骤h要温:3E92C2翻 蛊唱址B出沿邮品 础eDbR,P粥 nst explicit federal rules insofar as reasonably possible art. 2B the other han lNstitute the aha e Namon Conuterelnt, of omdmisste 品w盟m咄m咫氵 ENCCoS Rostheltecooper Dreyfuss (Sept:2199on urity interests Intellectual Property and Commercial Law Collide, 96 Colum. L Rev. 1645(1996)
1999] BEYOND PREEMPTION Article 2B does many unobjectionable things—and even some good things14—that have nothing to do with intellectual property law, the critical thing about Article 2B for my purposes is its dramatic expansion of the scope and power of contracts, particularly contracts drafted by software vendors and intellectual property owners. This expansion leads to potential conflicts and tensions between Article 2B and intellectual property law. In this Part, I discuss the ways in which Article 2B expands the scope and power of contracts, as well as the conflicts with intellectual property law that this expansion may create. A. Article 2B’s Expansion of the Scope and Power of Contracts Article 2B expands the scope and power of contracts in three ways.15 First, Article 2B reverses the well-settled rule of existing law that in determining whether a transaction is a sale, a lease, or a license, courts look to the economic agree are sales of goods under current law. Indeed, it would appear impossible to sell a book under the literal language of this provision. While the reporter’s note 26 to section 2B-102 states that the term “license” “does not include a sale of a copy of a book since there is no express contractual restriction on the use of the information,” id. § 2B-102 reporter’s note 26, this reflects a misunderstanding about intellectual property law. A sale of a book does not grant the buyer ownership of the copyright in the book, and books typically make that clear on the copyright page. A sale of a book is, therefore, within the literal definition of a “license.” Transactions involving copyrights, trade secrets, and the right of publicity are certainly within the scope of Article 2B. Trademarks and patents appear at first to be excluded from coverage, see id. § 2B-104(2), but we are then told that they will be included if “associated with a license or software contract that is otherwise covered by this article . . . .,” id. Since under the definition of a “license” any transaction in information is almost certainly included, at the very least, software patents, and arguably a much broader group of patents, also fall within Article 2B. What constitutes software, and which patents are “software patents,” is itself far from clear. See 14 .Chief among the good aspects of Article 2B is its establishment of uniform rules regarding on-line and electronic contracting. This may truly be an area where having a uniform rule matters more than what the rule actually says. Cf. Peter A. Alces & Harold F. See, The Commercial Law of Intellectual Property 346-47 (1994) (noting the importance of certainty in commercial law). But see A. Michael Froomkin, 2B as Legal Software for Electronic Contracting: Operating System or Trojan Horse, 13 Berkeley Tech. L.J. (forthcoming Dec. 1998) (challenging the Article 2B framework for digital signatures). 15 .Article 2B has claimed a posture of “aggressive neutrality” with respect to federal intellectual property law. See U.C.C. art. 2B Preface at 48 (Draft, Feb. 1998); see also U.C.C. art. 2B Preface at 33 (Draft, Apr. 1998) (“This Article does not concern, and does not alter any law creating or limiting intellectual property rights or privileges in information.”). In fact, however, a change in the terms of contract law necessarily will affect the contract-intellectual property interface. Such a change cannot be considered “neutral” in application, even if it is neutral in intent, because the balance of rights between vendors and users is necessarily a function of all the legal rules that apply to them. Further, the draft concedes that it is not always neutral even in intent: “[I]n several situations, provisions push against explicit federal rules insofar as reasonably possible.” U.C.C. art. 2B Preface (Draft, Aug. 1, 1998). The preference of the drafters for some federal rules and not others might be discerned in the rather schizophrenic approach Article 2B takes toward preemption. On the one hand, Article 2B asserts that state law should be made consistent with federal law, because to do otherwise would be to “create[] true traps for the unwary.” Id. On the other hand, the same page of the draft rejects any effort to inject other federal principles into the debate, claiming “neutrality,” see id., despite instruction by both the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL) to take account of those federal policies. See Charles R. McManis, The Privatization (or “Shrink-Wrapping”) of American Copyright Law, 87 Calif. L. Rev. 173 (1999) (discussing the ALI instruction); Electronic Mail from Harvey Perlman, Nebraska Commissioner on Uniform State Laws, NCCUSL, to Rochelle Cooper Dreyfuss (Sept. 22, 1998) (on file with California Law Review) (discussing NCCUSL instruction). Contrast this approach with Article 9 of the Uniform Commercial Code (U.C.C.), which contains “stepback” provisions for cases in which its provisions on security interests overlap with federal law, including federal intellectual property law. See U.C.C. §§ 9-104, 9-302 (1994). For a discussion of inconsistencies in the Article 9 approach, see Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 Colum. L. Rev. 1645 (1996)
CALiFORNiA LAW REVIEM TVol. 87: 111 realities of the exchange. 16 Under Article 2B, a transaction is automatically a icense unless it constitutes an assignment of the intellectual property right itself. 17 And if it is a license, Article 2B applies. 18 Article 2B thus creates a new meaning of"licensing" information. This meaning is unknown to copyright or patent lay nd encompasses transactions that intellectual property has always dealt with as sIa the scontexdiog tre ditiosnctionassomark st tress cti se fora satires th e a tota site oaf hehe The box contains a single price, which the purchaser pays up front, and which constitutes the entire 雷如m出邮出me 54.3SaRE雷sJsh rne ogan Sys, int,r i% Ss3好好开:品息 1987),U 208, 212(EDNY: 1994 assuming without analysis that a mass-market transaction was economic realities of a transacti time. On-line distribution looks less like a traditional sale of goods than does distril of copies, though of course they may be both. C. Mark A. Leml definition of a license !把础如m"mgmg恐 Dactunate-Re th] context c/. Lunney, supra note, at 5 (arguing that the word license is simply 18. See, U.C.C:8 2B-103(ay 1)(Draft, Aug. 1, 1998). The, drafters, assure us that consumers asa leather thay a number of rights Apposed they e rele ind wt that trcensorsoma he wiling to give away some part of what federal
CALIFORNIA LAW REVIEW [Vol. 87:111 realities of the exchange.16 Under Article 2B, a transaction is automatically a license unless it constitutes an assignment of the intellectual property right itself.17 And if it is a license, Article 2B applies.18 Article 2B thus creates a new meaning of “licensing” information. This meaning is unknown to copyright or patent law, and encompasses transactions that intellectual property has always dealt with as 16 . In the context of traditional mass-market transactions for software, the totality of the circumstances surrounding the transaction strongly suggests that the transaction is in fact a sale rather than a license. There is no bargaining over license terms. The purchaser (licensee?) commonly obtains a single copy of the software, along with documentation, in a box at a retail software store. The box contains a single price, which the purchaser pays up front, and which constitutes the entire payment for the “license.” The purchaser also pays sales tax on the “license.” The license does not run for a definite term and need not be renewed, but is perpetual unless terminated by the vendor (something that almost never occurs). In light of these indicia, and because most purchasers think they are “buying” a physical copy of a program, almost all courts and commentators that have considered the issue have concluded that a shrinkwrap license transaction is a sale of goods rather than a license, and that it is therefore covered by Article 2 of the current U.C.C. See, e.g., In re Dak Indus., Inc., 66 F.3d 1091, 1094 (9th Cir. 1995); Step-Saver Data Sys. v. Wyse Tech., 939 F.2d 91, 99-100 (3d Cir. 1991); Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675-76 (3d Cir. 1991); RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 546 (9th Cir. 1985); Synergistic Techs., Inc. v. IDB Mobile Communications, Inc., 871 F. Supp. 24, 29 (D.C. 1994); Arizona Retail Sys. Inc. v. Software Link, Inc., 831 F. Supp. 759, 762 (D. Ariz. 1993); Hospital Computer Sys. Inc. v. Staten Island Hosp., 788 F. Supp. 1351, 1360 (D.N.J. 1992); In re Amica, Inc ., 135 B.R. 534, 552-53 (Bankr. N.D. Ill. 1992); Neilson Bus. Equip. Ctr. Inc. v. Italo V. Monteleone, 524 A.2d 1172, 1174-75 (Del. 1987); Photo Copy, Inc. v. Software, Inc., 510 So. 2d 1337, 1338-39 (La. Ct. App. 1987); USM Corp. v. Arthur D. Little Sys. Inc., 546 N.E.2d 888 (Mass. App. Ct. 1989); Dreier Co., Inc. v. Unitronix Corp., 527 A.2d 875, 879 (N.J. Super. Ct. App. Div. 1986); Schroders, Inc. v. Hogan Sys., Inc., 522 N.Y.S.2d 404, 405-06 (Sup. Ct. 1987); Communications Groups, Inc. v. Warner Communications Inc., 527 N.Y.S.2d 341, 343-44 (Civ. Ct. 1988); Lemley, Shrinkwrap Licenses, supra note , at 1244 n.23; Bonna Lynn Horovitz, Note, Computer Software as a Good Under the Uniform Commercial Code: Taking a Byte Out of the Intangibility Myth, 65 B.U. L. Rev. 129 (1985); cf. Applied Info. Management, Inc. v. Icart, 976 F. Supp. 149, 155 (E.D.N.Y. 1997) (finding that whether a transaction denominated a “license” was in fact a sale conveying ownership was a disputed question of fact). But see Microsoft Corp. v. Harmony Computers & Elecs., Inc., 846 F. Supp. 208, 212 (E.D.N.Y. 1994) (assuming without analysis that a mass-market transaction was a license rather than a sale). Of course, the economic realities of a transaction may change over time. On-line distribution looks less like a traditional sale of goods than does distribution through a store or mail order catalog; this could change the analysis under existing law. Cf. Joel Rothstein Wolfson, Information Transactions on the Information Superhighway: It’s Not Just Software Law Anymore, 6 J. Proprietary Rts. 1, 3-5 (1994) (arguing that on-line contracts have fewer enforcement problems than real-world contracts). And some on-line transmission schemes look more like performances than the distribution of copies, though of course they may be both. Cf. Mark A. Lemley, Dealing with Overlapping Copyrights on the Internet, 22 U. Dayton L. Rev. 547, 550-62 (1997) [hereinafter Lemley, Overlapping Copyrights] (arguing that Internet transmission is a copy, a distribution, and a public performance). 17 .The definition of a license is, [A] contract that authorizes access to or use of information or of informational rights and expressly limits the contractual rights or permissions granted . . . or expressly grants less than all informational rights in the information. A contract may be a license . . . whether or not the contract transfers title to a copy. U.C.C. § 2B-102(28) (Draft, Aug. 1, 1998). Since the intellectual property owner has effective control over the terms of the “contract,” see infra notes - and accompanying text, this means that so long as the intellectual property owner transfers less than her complete ownership interest in the information, the transaction will be deemed a license. For a discussion of this important shift in approach, see David A. Rice, Digital Information As Property and Product: U.C.C. Article 2B, 22 U. Dayton L. Rev. 621 (1997); cf. Lunney, supra note , at 5 (arguing that “the word ‘license’ is simply inaccurate” in this context). 18 .See U.C.C. § 2B-103(a)(1) (Draft, Aug. 1, 1998). The drafters assure us that consumers shouldn’t be worried about this because “[t]he end user is often benefited by a license rather than a sale transaction.” Id. § 2B-208, reporter’s note 5(a). This is a bit disingenuous. Sales convey a number of rights to users under federal intellectual property law; they may exhaust some of the seller’s rights with respect to the intellectual property embodied in the product sold. See 17 U.S.C. § 109(a) (1994). Licenses typically purport to do no such thing. Even the examples cited by reporter’s note 5(a) in support of the proposition that licenses benefit consumers suggest exactly the opposite—they merely indicate that licensors may be willing to give away some part of what federal law would require them to were the transaction a sale
1999 BEYOND PREEMPTION Second. Article 2B redefines what constitutes a contract. aband focus on offer and acceptance, and therefore on the agreement at the time the parties conclude a deal, in favor of a rule that the intellectual property owner's standard form terms will be enforced, even if they are contained in a"shrinkwrap"or clickwrap"license that the buyer cannot see until the transaction has already occurred20 In so doing, Article 2B adopts a view that is decidedly in the minority among current courts, 2I and that is dramatically to the benefit of the drafters of e,a4mg:匙太出m是妞课田n lcense so provides.出PY 部盘阳如度 involved at all in the assent process. See id. 8 d. reporters note 5. The reporters notes to 3题能Bgmg出e础ee图 A出oa the license terms before indberg nene rceabe of copevigst 2zh rg Licenses udins hat shrink wa- geass sse a mest 9a. oas only brought to tion of the buver after the ourt to have enforced a shrinkwrap license. rOCD decision is a sufficiently radical departure from tra Ram时知2 see nem cved trom the current draft, a significant further change in goveming law outsid nney contrasts Hill with Authors Newspapers Ass'n 1 O Gorman Co., 147 F at 619-20,in which the court rej 出m器:mra品mr最 普出m米emP既e是, Michael J. Madison, " Legal Ware Contract and Copyright in the Digital Age em:3bXm3别和Cnm是om7明Emm cobert i. Morfim comment denraic ifo Pron and the dentin w reisen 4 Case Comm(eng oi eidenberg, 32 New Eng. L Rev. 513, 537-50(1998) Shrinkwrap"Sofhrare Licenses, 31 Loy. L.A. L. Rev. 325(1997); Ste Future of Information Commerce Under Contemporary Contract and Copyright Principles, 46 Am. U
1999] BEYOND PREEMPTION sales.19 Second, Article 2B redefines what constitutes a contract, abandoning the focus on offer and acceptance, and therefore on the agreement at the time the parties conclude a deal, in favor of a rule that the intellectual property owner’s standard form terms will be enforced, even if they are contained in a “shrinkwrap” or “clickwrap” license that the buyer cannot see until the transaction has already occurred.20 In so doing, Article 2B adopts a view that is decidedly in the minority among current courts,21 and that is dramatically to the benefit of the drafters of 19 .See Nimmer et al., supra note , at 34-40 (discussing this shift); Reichman & Franklin, supra note , at 49 (same). Article 2B’s drafter Ray Nimmer has elsewhere pointed out the critical distinction between sale and license for copyright purposes. See Raymond T. Nimmer, Article 2B: An Introduction, 16 J. Marshall J. Computer & Info. L. 211, 218-19 (1997). 20 .Article 2B provides that terms are considered part of a contract if the buyer “manifest[s] assent.” U.C.C. § 2B-208(a) (Draft, Aug. 1, 1998). This phrase is broad enough to include engaging in the “affirmative conduct” of using the information one has already bought, if the shrinkwrap license so provides. See id. § 2B-111(c); id. § 2B-111 reporter’s note 3. Indeed, no person need be involved at all in the assent process. See id. § 2B-111(c); id. reporter’s note 5. The reporter’s notes to Article 2B section 2B-111 also provide that contract terms can be included even without a manifestation of assent, simply by giving prior notice to the other party of the terms. See id. § 2B-111 reporter’s note 6. This too represents a change from current law. See, e.g., Authors & Newspapers Ass’n v. O’Gorman Co., 147 F. 616, 619-20 (D.R.I. 1906) (holding that merely including “license” terms on the inside cover of a book did not create a contract on those terms). By contrast, in some on-line “clickwrap” licenses, the buyer can see the license terms before entering into the contract. Such licenses are more likely to be enforceable under traditional contract doctrine. See, e.g., Hotmail Corp. v. Van Money Pie Inc., 47 U.S.P.Q.2d 1020 (N.D. Cal. 1998). 21 .Numerous courts have rejected shrinkwrap licenses as unenforceable. See Step-Saver Data Sys. v. Wyse Tech., 939 F.2d 91, 98-100 (3d Cir. 1991); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 270 (5th Cir. 1988); Novell, Inc. v. Network Trade Ctr., Inc., No. 95Cv00523 (D. Utah 1997); Morgan Labs., Inc. v. Micro Data Base Sys., Inc. 41 U.S.P.Q.2d 1850 (N.D. Cal. 1997) (refusing to allow a shrinkwrap license to modify a preexisting contract); Arizona Retail Sys., Inc. v. The Software Link, Inc., 831 F. Supp. 759, 764-66 (D. Ariz. 1993); Foresight Resources Corp. v. Pfortmiller, 719 F. Supp. 1006, 1010 (D. Kan. 1989); see also L. Ray Patterson & Stanley W. Lindberg, The Nature of Copyright 220 (1991) (concluding that shrinkwrap licenses are almost certainly unenforceable); Lemley, Shrinkwrap Licenses, supra note , at 1248-59 (discussing these cases); cf. Microstar v. Formgen, Inc., 942 F. Supp. 1312, 1317 (S.D. Cal. 1996) (noting but not resolving the issue), aff’d in part, rev’d in part on other grounds, 1998 WL 598544 (9th Cir. Sept. 11, 1998). While these decisions were rendered on various grounds, a typical conclusion is that the contract was formed when the software was exchanged for money, and that the terms of the contract do not include a shrinkwrap license that was only brought to the attention of the buyer after the exchange. See Step-Saver, 939 F.2d at 98-100. The Seventh Circuit is the only court to have enforced a shrinkwrap license. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996); cf. Hill v. Gateway 2000, Inc., 105 F.3d 1147, 1150 (7th Cir. 1997) (extending ProCD in a non-shrinkwrap case), cert. denied, 118 S. Ct. 47 (1997). The Hill decision is a sufficiently radical departure from traditional principles of contract formation that every Article 2B draft until the present one rejected it. See U.C.C. § 2B-111(b) (Draft, Apr. 1998) (“[M]ere retention of a record without objection is not a manifestation of assent.”). Section 111(b) was removed from the current draft, a significant further change in governing law outside the Seventh Circuit. Lunney contrasts Hill with Authors & Newspapers Ass’n v. O’Gorman Co., 147 F. at 619-20, in which the court rejected an attempt to impose contractual terms on the sale of a copyrighted book by placing those terms on the inside cover. See Lunney, supra note . The Authors & Newspapers court noted that “affirmative proof of communication, additional to that afforded by the mere fact that a notice is in the book, is essential to show that the purchaser agreed.” Authors & Newspapers, 147 F. at 619; see also Lunney, supra note , at 7 (endorsing this result). For criticism of ProCD on contract law grounds, see, e.g., Michael J. Madison, “Legal Ware”: Contract and Copyright in the Digital Age , 67 Fordham L. Rev . (forthcoming 1999); Apik Minassian, The Death of Copyright: Enforceability of Shrinkwrap Licensing Agreements, 45 UCLA L. Rev. 569 (1997); Jason Kuchmay, Note, ProCD, Inc. v. Zeidenberg: Section 301 Copyright Preemption of Shrinkwrap Licenses—A Real Bargain for Consumers?, 29 U. Tol. L. Rev. 117 (1997); Kell Corrigan Mercer, Note, Consumer Shrink-Wrap Licenses and Public Domain Materials: Copyright Preemption and Uniform Commercial Code Validity in ProCD v. Zeidenberg, 30 Creighton L. Rev. 1287 (1997); Robert J. Morrill, Comment, Contract Formation and the Shrink Wrap License: A Case Comment on ProCD, Inc. v. Zeidenberg , 32 New Eng. L. Rev. 513, 537-50 (1998); Christopher L. Pitet, Comment, The Problem With “Money Now, Terms Later”: ProCD, Inc. v. Zeidenberg and the Enforceability of “Shrinkwrap” Software Licenses, 31 Loy. L.A. L. Rev. 325 (1997); Stephen P. Tarolli, Comment, The Future of Information Commerce Under Contemporary Contract and Copyright Principles, 46 Am. U
CALIFORNIA LAW REVIER TVol. 87: 111 standard forms, who will not even need a signature(or its electronic equivalent)in order to enforce their terms 22 Because of this shift contracts under Article 2B eally more akin to property rights: the contracts can be viewed as equitable servitudes that"run with" the goods in much the same way that some property owners once tried to impose restrictions on chattel. 23 This shift is extremely important. The existing relationship between intellectual property and contract law is based on a conception of what constitutes an enforceable contract. Article 2B changes that conception; as a result, it cannot help but change the relationship as Finally, Article 2B makes virtually all of its default rules subject to hange by"agreement of the parties, 24 including its provisions on choice of 8=即m跳p野职 Eiecoron's dEbases 868- procD ezendeth ber nll N ster The sag lenses witha bleodefeion foe al Cyberspace: The Case for Contracting with Potential Infringers, 35 Colum 0m是9m zeidenberg. 10 Harv Bran de Techiryss, 9g, Genry avid Morde, dominent, ProCD: Inc: V 预吧如留B、出)里 Shrink-Wrap Licenses, 16J. Marshall J Computer Info L, 439, 442(1997). not licensees, will be able oppa 8 2B-203 transactions outside of the mass market, by contrast, are treated more 2B-207(setting forth requirements for adopting terms of records that are not deper 23. Some stators have made this See thomas m.s. Hemnes. Restraints oi omputer Sofware Licensing, 71 Der C27sHE是gh1mR出E牌m amge3签留上总 phefomfreedom: f entracte The en 证k3温 ive externalities. sterk s posint has even 1998)(stating as a theme of Article 2B that"the Undamental tenet of the 2A) 中 Contract Default Rules, 83 Cornell L. Rev. 609 allow peeple to avoid them. Or-公以7A亮 Yale Lj.87(1989)
CALIFORNIA LAW REVIEW [Vol. 87:111 standard forms, who will not even need a signature (or its electronic equivalent) in order to enforce their terms.22 Because of this shift, contracts under Article 2B are really more akin to property rights: the contracts can be viewed as equitable servitudes that “run with” the goods in much the same way that some property owners once tried to impose restrictions on chattel.23 This shift is extremely important. The existing relationship between intellectual property and contract law is based on a conception of what constitutes an enforceable contract. Article 2B changes that conception; as a result, it cannot help but change the relationship as well. Finally, Article 2B makes virtually all of its default rules subject to change by “agreement of the parties,”24 including its provisions on choice of L. Rev. 1639 (1997); Lunney, supra note . For criticism of ProCD on copyright preemption grounds, see Elkin-Koren, Copyright Policy, supra note , at 106-13; Karjala, supra note , at 521; McManis, supra note , at 178-79, 182-84; Minassian, supra, at 569; O’Rourke, supra note ; Brian Covotta & Pamela Sergeeff, Comment, ProCD, Inc. v. Zeidenberg, 13 Berkeley Tech. L.J. 35 (1998); Thomas Finkelstein & Douglas C. Wyatt, Note, Shrinkwrap Licenses: Consequences of Breaking the Seal, 71 St. John’s L. Rev. 839, 868-69 (1997); Jeannett M. Hill, Note, The State of Copyright Protection for Electronic Databases Beyond ProCD v. Zeidenberg : Are Shrinkwrap Licenses a Viable Alternative for Database Protection?, 31 Ind. L. Rev. 143, 165-72 (1998); Mercer, supra, at 1287; Tarolli, supra, at 1639; Brett L. Tolman, Note, ProCD, Inc. v. Zeidenberg: The End Does Not Justify the Means in Federal Copyright Analysis, 1998 BYU L. Rev. 303; Note, Seventh Circuit Holds That Shrinkwrap Licenses Are Enforceable, 110 Harv. L. Rev. 1946 (1997). For arguments endorsing the result in ProCD, see Michael A. Jaccard, Securing Copyright in Transnational Cyberspace: The Case for Contracting with Potential Infringers, 35 Colum. J. Transnat’l L. 619 (1997); Darren C. Baker, Note, ProCD v. Zeidenberg : Commercial Reality, Flexibility in Contract Formation, and Notions of Manifested Assent in the Arena of Shrinkwrap Licenses, 92 Nw. U. L. Rev. 379 (1997); Brandon L. Grusd, Note, Contracting Beyond Copyright: ProCD, Inc. v. Zeidenberg, 10 Harv. J.L. & Tech. 353 (1997); Jerry David Monroe, Comment, ProCD, Inc. v. Zeidenberg: An Emerging Trend in Shrinkwrap Licensing? , 1 Marq. Intell. Prop. L. Rev. 143 (1997); Joseph C. Wang, Casenote, ProCD, Inc. v. Zeidenberg and Article 2B: Finally, The Validation of Shrink-Wrap Licenses, 16 J. Marshall J. Computer & Info. L. 439, 442 (1997). 22 .Actually, the draft clearly contemplates that only licensors, not licensees, will be able to take advantage of some of these new provisions enforcing standard forms. For example, section 2B-208, dealing with mass-market licenses, is drafted in such a way that it applies only to terms written by licensors that bind licensees. See U.C.C. § 2B-208 (Draft, Aug. 1, 1998). Thus, it speaks of parties having “an opportunity to review a mass-market license before becoming obligated to pay for the information,” id. § 2B-208(b), and entitlement to receive a refund from the licensor, see id. § 2B-208(b)(1). These terms clearly contemplate only licensor-drafted contracts, not licensee-drafted contracts. Transactions outside of the mass market, by contrast, are treated more neutrally. See id. § 2B-207 (setting forth requirements for adopting terms of records that are not dependent on the party’s status). 23 .Some commentators have made this point. See Thomas M.S. Hemnes, Restraints on Alienation, Equitable Servitudes, and the Feudal Nature of Computer Software Licensing, 71 Denv. U. L. Rev. 577 (1994) (discussing enforceability of restrictions on software use by reference to the doctrine of equitable servitudes); Margaret Jane Radin & Polk Wagner, The Myth of Private Ordering: Rediscovering Legal Realism in Cyberspace 73 Chi.-Kent L. Rev. (forthcoming 1998); Lunney, supra note ; cf. Stewart E. Sterk, Freedom from Freedom of Contract: The Enduring Value of Servitude Restrictions, 70 Iowa L. Rev. 615 (1985) (justifying restrictions on equitable servitudes on the grounds that such servitudes create significant negative externalities). Sterk’s point has even greater force for intellectual property than it does for real property. 24 .See U.C.C. art. 2B Preface (Draft, Aug. 1, 1998) (stating as a theme of Article 2B that “‘the fundamental tenet of the common law [is the] freedom of the parties to contract.’ . . . A default rule applies only if the parties do not agree to the contrary.”) (quoting U.C.C. art. 2A). A recent study by Russell Korobkin has found that people naturally treat default rules as “endowments” and demonstrate an “irrational” preference for retaining them. See Russell Korobkin, The Status Quo Bias and Contract Default Rules, 83 Cornell L. Rev. 608 (1998). If this is right, it may matter what default rules are selected even in the context of a statute like Article 2B, which seems designed primarily to allow people to avoid them. On the design of default rules, see Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87 (1989)
