Re: More on NBA v. Motorola

On Tue., Feb. 18, 1997, Mark Lemley <mlemley[_at_]mail.law.utexas.edu> wrote:

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I would think you could contract around Fiest. The issue is whether you can do it with a shrink-wrap contract, and if so, as to what issues such a contract can be effective.

Section 203 (raised by Mark Lemley) flat-out says you can't contract around its provisions. In the ProCD setting, by contrast, we have only an implied area of exclusive federal governance.

As Judge Easterbrook noted, "courts usually read preemption clauses to leave private contracts unaffected." Clearly, contracts in this area are not all categorically preempted.

But that does not mean that NO contracts are EVER preempted, and ProCD recognizes this ("some applications of the law of contract could interfere with the attainment of national objectives"). It turns on whether, under the particular facts and circumstances, there is a conflict with the policies underlying the Copyright Act.

On this score, Judge Easterbrook says that enforcement of the particular contract there before the court does not "interfere with the attainment of national objectives." Why not? Because it does not withdraw anything from the public domain. I.e., the underlying phone books are still out there. Anyway, the opinion continues, these agreements are arguably pro-competitive (for whatever that's worth in a copyright context).

Interesting. What does this tell us about a shrink-wrap case where the issue is reverse engineering? That application of a shrink wrap license WOULD withdraw the program's algorithms from the public domain, since without the clause, the reverse engineering might not constitute an infringement. With such a clause enforced, those algorithms can be reserved as a trade secret. On this point, Judge Easterbrook offers dictum to the effect that the anti-disassembly clause is "pro-competitive" as well.

I think it's fair to say that the ProCD opinion is narrowly crafted. I would argue that ProCD on its face is weaker authority in a reverse engineering shrink wrap case than in a use-restriction shrink wrap case. While the opinion opens with the broad statement that shrink wrap licenses are enforceable unless their terms are generally objectionable on contract law grounds, the actual holding appears to be quite a bit narrower.

On the broader point, the opinion does not deal with the contention that a shrink wrap is a peculiar sort of contract. In my view, a shrink wrap only constructively represents a "meeting of the minds." It's a case where state law policy (arguably) says that under the totality of facts and circumstances we are going to infer the existence of a contract as a matter of law, regardless of what the court may find about the buyer's actual intent. That, in my view, makes a qualitative difference.

A state's interest in enforcing a classic negotiated, signed agreement would be very strong, as would the interests of the persons who desire to enter into such contracts

But I think the analysis must be different in a shrink wrap situation. The reasons for upholding a shrink wrap agreement rest on a state's desire, for a variety of reasons (including economic reasons), to permit commercial entities unilaterally to impose certain standardized terms on certain consumer transactions. This may be good policy from a commercial law point of view. But whatever else might be said, it does represent a projection of policies that go beyond what is necessary to support the enforcement of the classic face-to-face negotiated signed written agreement. When you get into Judge Easterbrook's economic reasoning about price and "arbitrage," some of these these policies start to look a lot like intellectual property and misappropriation rationales.

By upholding such state rules in an area of conflict with copyright law, aren't we letting state policy dominate in an area impliedly reserved to federal law? In other words, by PRESUMPTIVELY elevating certain events to the status of contracts, state law creates rights independent of actual face-to-face contractual relations, which become difficult to distinguish from copyright rights "against the world," i.e., against strangers.

Is the stranger with a copy of SelectPhone found unwrapped "on the street" (Judge Easterbrook's example) different than a purchaser at Egghead? Maybe, since the purchaser at Egghead at least has reason to know, if he or she cares, that the vendor is *purporting* to attach restrictions via shrink wrap.
But this "distinction" begs the question of whether society is telling the Egghead purchaser that the purported contract is enforceable. I.e., the ultimate question before us.

To say it yet another way, yes, contracts do involve an "extra element" for preemption purposes. But in the shrink wrap case, that element is provided by operation of law -- state law -- and may accordingly be suspect for preemption purposes.

Ron Abramson
<abramson[_at_]hugheshubbard.com> Received on Thu Feb 20 1997 - 16:42:27 GMT