Contracts: Clickwraps and Idea
Submissions
Intro to IP – Prof Merges
4.16.2012
Agenda
• Shrinkwrap/clickwrap contracts
– K law
– Preemption
• Idea submission cases: implied K and
preemption issues
But first . . .
Cert granted
• Kirtsaeng v. John Wiley & Sons, Inc.,
Supreme Court No. 11-697, opinion
below, 654 F.3d 210 (2d Cir.
2011)(Cabranes, J.)
• Copyright – international
exhaustion
Question presented
Under § 602(a)(1) of the Copyright Act,
it is impermissible to import a work
‘without the authority of the owner’ of
the copyright. But the first-sale
doctrine, codified at § 109(a), allows
the owner of a copy ‘lawfully made
under this title’ to sell or otherwise
dispose of the copy without the
copyright owner's permission.
Decision options
Is it –
• Never ok to resell a copyrighted
item purchased overseas;
• Sometimes ok;
• Always ok?
American Law Institute
• Principles of Software Contracts (2010)
• Shrinkwrap/clickwrap agreements generally
are enforceable
• BUT: subject to significant limitations
ALI Principles
(a) This Section applies to standard-form
transfers of generally available software as
defined in § 1.01(l).
(b) A transferee adopts a standard form as a
contract when a reasonable transferor would
believe the transferee intends to be bound to
the form.
(c) A transferee will be deemed to have
adopted a standard form as a contract if --
(1) the standard form is reasonably accessible
electronically prior to initiation of the
transfer at issue;
(2) upon initiating the transfer, the transferee
has reasonable notice of and access to the
standard form before payment or, if there is
no payment, before completion of the
transfer;
(3) in the case of an electronic transfer of
software, the transferee signifies agreement
at the end of or adjacent to the electronic
standard form
or in the case of a standard form printed on or
attached to packaged software or separately
wrapped from the software, the transferee
does not exercise the opportunity to return
the software unopened for a full refund
within a reasonable time after the transfer;
and
(4) the transferee can store and reproduce the
standard form if presented electronically.
(d) Subject to § 1.10 (public policy),
§ 1.11 (unconscionability), and
other invalidating defenses supplied
by these Principles or outside law, a
standard term is enforceable if
reasonably comprehensible.
(e) If a transferee asserts that it did
not adopt a [term it has the burden
of proof]
Netscape holding
“We hold that a reasonably prudent offeree in
plaintoffs’ position would not have known or
learned, prior to acting on the invitation to
download, of the reference to
SmartDownload’s license terms hidden
below the “Download” button on the next
screen.” – IPNTA 5th ed. at p. 985
ApplianceZone v. NextTag 93
USPQ2d 1540 (S.D. Ind. 2009)
• Plaintiff agreed to terms of service for
plaintiff’s online “comparison shopping site”
• Agreement included IP license: NextTag
obtained right to use plaintiff’s registered
TMs, plus copyrighted price lists and product
descriptions
Online K
• Appliance Zone affirmatively “checked” a box
next to the statement “I accept the NexTag
Terms of Service” by “clicking”that box on the
web page.
• Pursuant to the terms of the Agreement
between the parties, Appliance Zone would
pay NexTag between$.32 and $.45 each time
a shopper “clicked” on one of Appliance
Zone's products.
K Terms
• NextTag Agreement included a forumselection clause mandating that all litigation
arising out of the Agreement be commenced
in a court located in San Mateo County,
California.
• Became relevant when plaintiff objected to
use of its TMs and prices to promote
competitor products – price comparison
display etc.
Plaintiff’s defenses to motion to
dismiss for improper venue
• Plaintiff’s agent (19 yr old website manager)
did not have authority to bind company
– “clothed with apparent authority” doctrine
• Did not intend to enter into K
– Irrelevant!
93 USPQ2d 1540, 1544
• NexTag made the Agreement highly visible
and easily accessible, and required as well an
affirmative acceptance of the terms of the
Agreement as a prerequisite to completing
registration. Justin Allen provided precisely
that sort of affirmative agreement to the
contract, after which Appliance Zone readily
engaged in and paid for NexTag's services.
§ 1.10 Public Policy
A term of an agreement is unenforceable if the
interest in enforcement of the term is clearly
outweighed in the circumstances by a public
policy against its enforcement.
Example: A restriction on any criticism of the
software; or perhaps a restriction on any and
all transfers of the software to 3rd parties
§ 1.09 Enforcement Of Terms Under Federal
Intellectual Property Law
A term of an agreement is unenforceable if it
(a) conflicts with a mandatory rule of federal
intellectual property law; or (b) conflicts
impermissibly with the purposes and policies
of federal intellectual property law; or (c)
would constitute federal intellectual property
misuse in an infringement proceeding.
Simple example
• Extension of © or patent term by K
• Prohibited under numerous IP cases
on preemption
ProCD v. Zeidenberg
What term is at issue in ProCD?
• “No commercial use”
What is preemption?
• To preempt: to set aside; preclude;
prevent
• So federal law precludes or prevents the
application of state law (including
potentially legislation or state common
law – such as enforcement of a contract)
The Supremacy Clause
“Th[e] Constitution, and the Laws of
the United States which shall be
made in Pursuance thereof ... shall
be the supreme Law of the Land;
and the Judges in every State shall
be bound thereby, any Thing in the
Constitution or Laws of any State to
the Contrary notwithstanding.” U.S.
Const. art. VI, cl. 2
In its § 301, the Copyright Act contains an
express preemption provision, stating that “all
legal or equitable rights that are equivalent to
any of the exclusive rights within the general
scope of copyright ... and come within the
subject matter of copyright ... are governed
exclusively by this title.” 17 U.S.C. § 301(a).
Courts interpret this language to mean that a
cause of action is preempted if the subject
matter at issue is within the scope of the Act
and the rights a party seeks to enforce or
protect are not qualitatively different from
rights under the Act.
Pro CD: Preemption analysis
• K involves only 2 parties . . .
• Not “good against the world”
“ProCD is about the law of contract,
not the law of software. Payment
preceding the revelation of full
terms is common for air
transportation, insurance, and many
other endeavors. Practical
considerations support allowing
vendors to enclose the full legal
terms with their products.”
ProCD – Copyright Preemption
Contracts do not create ‘‘exclusive rights.’’
Someone who found a copy of SelectPhone
(trademark) on the street would not be
affected by the shrinkwrap license—though
the federal copyright laws of their own force
would limit the finder’s ability to copy or
transmit the application program.
-- IPNTA 5th ed at p. 994
Easterbrook examples
• IPNTA 5th 994-995
• TS K’s
• Sale of white pages; pmt under K
• Lexis example: Note, price discrimination
again
Total Revenue
Without Price
Discrimination
With Price
Discrimination
$510
$710
Does Easterbrook support
enforcement of ALL K’s in IP field?
• NO; “we think it prudent to refrain from
adopting [such a rule].
• IPNTA 5th at 995.
Conflict preemption
Applies when state law would impermissibly
interfere or “conflict” with the purpose of the
federal scheme. An impermissible conflict
occurs when “either [ ] compliance with both
state and federal regulations is a ‘physical
impossibility,’ or where state law stands as an
‘obstacle to the accomplishment and
execution of the full purposes and objectives
of Congress.’ ” Am. Soc'y of Composers v.
Pataki, 930 F.Supp. 873, 878 (S.D.N.Y. 1996)
Two types of contracts can raise preemption
questions under both patent and copyright law.
The first category includes terms that expand the
affirmative exclusive rights that the intellectual
property statutes would otherwise confer by, for
example, providing additional rights in protected
material or creating copyright or patent-like
rights in unprotected material. The second group
of terms consists of those that narrow or exclude
statutory (such as fair use in copyright) or
common-law limitations on the exclusive rights.
Preemption case study: no reverse
engineering clauses
A term prohibiting reverse engineering may be
reasonable in the context of a negotiated
agreement under which the transferor and
transferee are in a confidential relationship,
and the transferor seeks to maintain the
trade-secrecy status of the source code. It is
more troublesome when contained in a
standard-form agreement in a retail-like
transaction. – ALI S/w Principles
Nadel v. Play-by-Play
• Facts
– Toy industry structure
• Causes of action here
– Breach of K; quasi-K; “unfair competition”
The toy industry is a 30 billion dollar-a-year
business. It's also the last frontier for aspiring
independent inventors, with an annual new
product turnover of 60 percent and plenty of
opportunities for the creative mind. Here,
one of the most recognized and successful
toy and game inventors in the business teams
up with the former head of research and
development at Hasbro to bring clear,
comprehensive information to aspiring toy
and game inventors...who just might bring us
the next hula hoop!
Facts
• Nadel meets with Wasserman
• Nadel sends prototype
• The secretary’s testimony – killer for
Wasserman!
Doctrine
• Specific to NY State law: the role of novelty in
“theft of idea” cases
• General (vs. specific) novelty: applied by
District Court to bar Nadel’s claims
• District Court: true for (1) misappropriation
and (2) breach of K causes of action
Apfel (NY Case)
• Distinguished “novelty to the buyer” from
“originality”
• Consideration argument rejected
Property vs contract
• Cases on “property-based” vs.
• “Contract-based” causes of action
Held
• Reversed and remanded
• Question of novelty to be determined below