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ProCD: Are Contract Prohibitions Against Fair Use Enforceable? |
A recent Seventh Circuit case could seriously affect educational institutions. ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), reversing 908 F.Supp. 640 (W.D. Wis. 1996). The ProCD court found that shrinkwrap licenses were enforceable, including terms that may take away important rights granted to software and database users under federal copyright law. This result conflicts with other courts' opinions in the Third and Fifth Circuits. It also is unclear whether the result might be different if a court were considering nonprofit educational users' rights instead of commercial exploitation. Nonetheless, ProCD sounds an important alarm: educational institutions must carefully scrutinize license agreements and negotiate terms that meet the needs of the educational community.
ProCD created a database of phone numbers and other information from over 3000 phone books. It licensed the information in two versions: a consumer version and a higher priced commercial version. Zeidenberg bought a consumer version, but violated a restriction contained in the consumer license, copied the data, and made it available commercially on the Internet. ProCD sued to enforce its license restrictions.
The court considered two issues:
Unlike some other courts that had considered the first issue before, the ProCD court readily embraced the enforceability of unseen terms. The court analogized to insurance policies and concert tickets - the consumer buys a product before he knows all the terms of the contract, but after reading the terms, he can reject the contract by returning the policy or the tickets. The buyer of ProCD's software/database had the same right to return the product after reading the license terms. The defendant in this case clicked on an "I Accept" button that ProCD had designated as the contract acceptance mechanism. According to the court, this was sufficient to form a contract including all the terms, even the ones that were hidden at the time money changed hands.
Federal preemption principles govern which law will be enforced when two bodies of law addressing the same issues conflict. Our federalist system provides that if a state law, like contract law, conflicts with the intent of the federal law or interferes with or hinders important purposes or policies of the federal law, it cannot be enforced. This aspect of federal preemption is based on the Supremacy Clause of the U.S. Constitution.
More narrowly, the Copyright Act contains a section specifically nullifying state laws that may grant rights that are equivalent to any of the exclusive rights granted by copyright law. 17 U.S.C. 301. Congress added Section 301 in 1976 when copyright law was substantially rewritten. Before that time, federal copyright law only applied to published works, so most of the states had what were called "common law copyrights" to protect unpublished works. Under the 1976 Act, copyright would apply from the moment of fixation in a tangible medium of expression, so states no longer needed copyright-like protection for unpublished works. This aspect of federal preemption is called Section 301 or Copyright Act preemption and is limited to circumstances described in the narrow language of the statute.
Supremacy Clause preemption is a broad policy-based rule for resolving conflicts of laws. ProCD did not rely on Supremacy Clause preemption. The court only discussed Section 301 preemption and found that a contract between two individuals or entities poses no threat to the Copyright Act because it does not "grant rights that are equivalent to any of the exclusive rights" granted by copyright law. The court reasoned that rights under copyright law are good against everyone; rights under a contract are only good against the parties to the contract. Thus, they are not "equivalent" even if they address the same issues, such as the right to make copies. Hmmm.
The court did not consider whether contract terms that have become industry standards effectively replacing the federal scheme for protection among significant segments of the economy might be "equivalent," or might satisfy the requirements for Supremacy Clause preemption even if the requirements for Section 301 preemption are not met.
ProCD signals that we must be very careful about contract terms we agee to - even terms in shrinkwrap or "I accept" types of licenses. Prohibitions on rights such as fair use may be fully enforceable. This case probably indicates a trend toward more judicial support for contractual alternatives to the protection scheme established by copyright law.
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Last updated: November 8, 2001