Contracts: Clickwraps and Idea
Submissions
Intro to IP – Prof Merges
4.20.2010
Agenda
• Shrinkwrap/clickwrap contracts
– K law
– Preemption
• Idea submission cases: implied K and
preemption issues
ProCD v. Zeidenberg
What term is at issue in ProCD?
• “No commercial use”
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”
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 – 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
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.
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