Misappropriation & Clickwraps I
Intro to IP – Prof Merges
4.12.2012
Logistics
• Sample Exam + answer on bSpace; slides now
up to date
• Exam: limited open book: Casebook, outline
& Notes (no class slides, no commercial
outlines, no online resources, Westlaw etc.)
• Remaining classes: Next week,
Mon/Tues/Thurs – as scheduled; Next Friday
4/20, 1-2:30, room 140: material for Mon
4/24; material for Tues 4/25 covered Mon
4/24; Review session Tues 4/25; no Thu. 4/26
Agenda
• Overview: state protection, preemption
• INS v. AP
• Updating misappropriation doctrine
• Intro to Clickwrap contracts
Misappropriation: Overview
• State protection as remnant
• As leading edge
• As gap-filler
INS v AP
• Historical Background
• Facts – the heydey of competing newspapers
• Doctrine and developments
History
• Cast of characters
• Supreme Court and the progressive era
Justice Mahlon Pitney (1858-1924)
Oliver Wendell Holmes, Jr. (18411935)
OWD, Sr.; civil war experience
Louis D. Brandeis (1856-1941)
Brandeis’ career: Corporate law to
reform
• Warren and Brandeis, Boston: the highpowered boutique of its era
• Progressive reform movement: “the People’s
lawyer”
• Nominated by President Wilson in 1916;
four‐month confirmation battle, in which
conservative forces within American industry
and the bar fought furiously to defeat the
nomination. Wilson stood by Brandeis, and
reform groups of all varieties also backed the
nomination, which the Senate finally
approved in June.
Progressive reform and the loaded
term “property”
• Gilded age (roughly 1865-1901): “property”
as unquestionable entitlement; suggested
private ordering, resistance to regulation
• Progressive era (roughly 1890s – 1920s):
dawn of the modern “administrative state”
“Prophets of Regulation”
INS v AP
• Facts
– AP: Cooperative newsgathering
agency/organization
– Centralized news dissemination source
Majority – IPNTA 5th p. 967
• [I]t seems to us the case must turn upon the
question of unfair competition in business.
And, in our opinion, this does not depend
upon any general right of property analogous
to the common-law right of the proprietor of
an unpublished work to prevent its
publication without his consent; nor is it
foreclosed by showing that the benefits of
the copyright act have been waived.
• “Not only do the acquisition and
transmission of news require elaborate
organization and a large expenditure of
money, skill, and effort; not only has it an
exchange value to the gatherer, dependent
chiefly upon its novelty and freshness, the
regularity of the service, its reputed
reliability and thoroughness, and its
adaptability to the public needs; but also, as
is evident, the news has an exchange value to
one who can misappropriate it.”
“The fault in the reasoning lies in applying as a test
the right of the complainant as against the public,
instead of considering the rights of complainant
and defendant, competitors in business, as
between themselves. .. [I]t is taking material that
has been acquired by complainant as the result of
organization and the expenditure of labor, skill,
and money, and which is salable by complainant
for money, and that defendant in appropriating it
and selling it as its own is endeavoring to reap
where it has not sown, and is appropriating to
itself the harvest of those who have sown.”
Holmes, concurring
If the plaintiff produces the news at the same time
that the defendant does, the defendant's
presentation impliedly denies to the plaintiff the
credit of collecting the facts and assumes that
credit to the defendant. If the plaintiff is later in
Western cities it naturally will be supposed to have
obtained its information from the defendant. The
falsehood is a little more subtle, the injury, a little
more indirect, than in ordinary cases of unfair
trade, but I think that the principle that condemns
the one condemns the other.
Brandeis, dissenting
“If the property is private, the right of exclusion
may be absolute; if the property is affected
with a public interest, the right of exclusion is
qualified. But the fact that a product of the
mind has cost its producer money and labor,
and has a value for which others are willing
to pay, is not sufficient to ensure to it this
legal attribute of property.”
“The general rule of law is, that the noblest of
human productions-knowledge, truths
ascertained, conceptions, and ideas-become,
after voluntary communication to others,
free as the air to common use. Upon these
incorporeal productions the attribute of
property is continued after such
communication only in certain classes of
cases where public policy has seemed to
demand it. These exceptions are confined . .
.”
Updating INS: Online “Hot News”
Barclays Capital Inc. v. Theflyonthewall.com,,
3/18/10), 2010 WL 1005160 (SDNY No. 064908, March 18, 2010)
An online financial news service that collected
and redistributed portions of major financial
firms' investment reports misappropriated
the firms' “hot news”
Facts
• Equity Research Reports and
Recommendations – prepared by plaintiffs at
considerable expense
• Efforts to keep confidential: ”research reports
contain standard prohibitions, such as “[t]his
report or any portion hereof may not be
reprinted, sold or redistributed without the
written consent of [the Firm]”
• Defendant gets copies, posts
• Fly posts the Recommendations by sixty-five
investment firms' research analysts, including
the three plaintiff Firms. A typical Fly
headline from 2009 reflecting a
Recommendation by one of the Firms is
“EQIX: Equinox initiated with a Buy at
BofA/Merrill. Target $110.”
Associated Press v. All Headline News Corp., 89
USPQ2d 2020 (S.D.N.Y. 2009)
89 USPQ2d 2020
Associated Press v. All Headline News Corp.
U.S. District Court
Southern District of New York
No. 08 Civ. 323 (PKC)
Decided February 17, 2009
Cause of action for misappropriation of hot
news is viable under New York law and is not
preempted by federal law, and such claim
arises if plaintiff generates or gathers
information at cost, information is timesensitive, defendant's use of information
constitutes “free riding” on plaintiff's efforts,
defendant is in direct competition with
product or service offered by plaintiff, and
ability of other parties to free-ride on efforts
of plaintiff or others would so reduce
incentive to produce product or service that
its existence or quality would be threatened
From misappropriation to
Contract
• Both provide opportunities to
expand the coverage of IP law
beyond the statutory basis
• Both therefore implicate questions
of federal coordination, i.e.,
statutory preemption
Justice Sonia Sotomayor
Ancillary Issues
• Agreement to arbitrate
• UCC vs. common law of contracts
• Sale vs license – crucial distinction
– UCC vs. IP licensing law
– 1st sale/exhaustion doctrine
Netscape: assent issues
• Communicator (browser): required assent
before downloading
• “SmartDownload” (plug-in) did not
Specht v. Netscape Communications
Corp., 306 F.3d 17 (2d Cir.2002).
We rule against Netscape and in favor of the users of
its software because the users would not have seen
the terms Netscape exacted without scrolling down
their computer screens, and there was no reason
for them to do so. The evidence did not
demonstrate that one who had downloaded
Netscape's software had necessarily seen the terms
of its offer.
Online Assent
We recognize that contract offers on the
Internet often require the offeree to click on
an “I agree” icon. And no doubt, in many
circumstances, such a statement of
agreement by the offeree is essential to the
formation of a contract . . .
Hill v. Gateway
“Terms inside Gateway’s box stand or fall
together. If they constitute the parties’
contract because the Hills had an opportunity
to return the computer after reading them,
then all must be enforced.”
“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.”
The question in ProCD was not whether terms
were added to a contract after its formation,
but how and when the contract was
formed—in particular, whether a vendor may
propose that a contract of sale be formed,
not in the store (or over the phone) with the
payment of money or a general “send me the
product,” but after the customer has had a
chance to inspect both the item and the
terms. ProCD answers “yes,” for merchants
and consumers alike
Notice of terms?
Gateway’s ads state that their products come
with limited warranties and lifetime support.
How limited was the warranty—30 days, with
service contingent on shipping the computer
back, or five years, with free onsite service?
What sort of support was offered? Shoppers
have three principal ways to discover these
things [ask, request K terms, or wait for the
product to arrive].”
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
ProCD v. Zeidenberg
Judge Frank Easterbrook
SELECT PHONE is on 5 CDs, contains 90 million
listings from both White and Yellow Pages of 77.8
million residential and 13.8 million businesses. You
can search for listings on any field: name, address,
city, state, ZIP, area code, business heading and SIC
code. It offers reverse search capability, matches
addresses or phone numbers with names and
provides counts by business heading or SIC code.
And its fast - just a second or two to search for the
listing you want. In addition you have unlimited
downloading of listings into a database, word
processor, spreadsheet or contact management
program. The value and utility of this should be
apparent to any salespeople, fundraisers, research
and market testing firms, . . .
SMALL FRY GO ONLINE – 11/1995
Technology lets even tiny businesses outmarket the giants
Pro CD Inc., Database America, Cole Publications (a unit
of MetroMail), and Dun & Bradstreet all sell nationwide
telephone listings on compact disks, including names
and addresses, for as little as $175. The CDs let you
search by name, zip code, and, in some, by income or
business type
Matthew Zeidenberg
District court holding
• Was there a K?
• What were its terms?
What term is at issue in ProCD?
What term is at issue in ProCD?
• “No commercial use”
7th Circuit Holding
• When is K formed?
• Who is offeror? What is mode of acceptance?
Easterbrook: why is this good policy?
• Business motive
• “Freedom of K”
• Consumer benefits
Price Discrimination
Price
$5
$3
Total Revenue
D
100
170
Quantity Demanded (000s)
Price Discrimination
Price
Softcover
$5
$3
Hardcover
D
100
170
Quantity Demanded (000s)
Total Revenue
Without Price
Discrimination
With Price
Discrimination
$510
$710
Price Discrimination
Price
Noncommercial
Users
$5
$3
Commercial Users
D
100
170
Quantity Demanded (000s)
Price Discrimination
Price
$5
$3
Arbitrage!
Commercial Users
D
100
170
Quantity Demanded (000s)
“Perfect Arbitrage”
Price
Arbitrageurs’
profits
$5
$3
Total Revenue
D
100
170
Quantity Demanded (000s)
Freedom of Contract in ProCD
• What happens if we prohibit “rolling K
formation”?
Freedom of Contract in ProCD
• What happens if we prohibit “rolling K
formation”?
 All sorts of beneficial K’s will be prohibited;
inconvenience for many buyers will result
K Analysis
• UCC 2-204 policy: K may be formed in any
manner . . .
• 2-606: acceptance of goods (shows that
terms in form Ks may not be the final step in
acceptance)
• UCITA draft – not persuasive for Easterbrook
Preemption analysis
• K involves only 2 parties . . .
• Not “good against the world”