Software Protection Paradigm (continued)

Likewise, in Arizona Retail Systems, Inc. v. Software Link, Inc., which involved the same defendant software producer as that in Step-Saver, the District of Arkansas also found that the shrinkwrap license on the packaging of the manufacturer’s software was not part of the parties’ original agreement and that, consequently, the plaintiff, which designed and installed multi-user systems, could bring its breach of warranty claims against the defendant. As in Step-Saver, the plaintiff in Arizona Retail ordered software from the manufacturer by telephone, and the manufacturer shipped the product to the purchaser. Although the shipped product contained a shrinkwrap license, there was no reference to the license during the telephone conversations when the purchases were made and there was no reference to the license on the invoices. Relying on Step-Saver, the District of Arkansas found that the parties had formed a contract when the purchaser placed the order, and the manufacturer agreed to ship the product. As a result, the shrinkwrap license was a proposed modification which materially altered the original contract. Because the purchaser never expressly agreed to the license, it did not become part of the agreement, and the purchaser was not bound by its terms.

However, in Arizona Retail, the District of Arkansas distinguished the plaintiff’s initial purchase of the software from all other subsequent purchases and found that the shrinkwrap license was part of the initial purchase agreement. Unlike the subsequent software purchase agreements, which had been completed over the telephone, the court found that the agreement surrounding plaintiff’s initial purchase of the software was not complete until after the plaintiff tested the software. In initially ordering the software, the plaintiff requested an evaluation disk with a copy of the software. The plaintiff did not decide to keep the a copy of the software until after he had tested the evaluation disk. The evaluation disk and the copy of the software were wrapped with plastic upon which was fixed a license. Moreover, the copy of the disk was sealed in an envelope which stated that by opening the envelope, the purchaser consented to all provisions of the license agreement. Thus, according to the court, the defendant was aware of the license when he made the final decision to purchase the software and consented to such terms when he opened the envelope containing the copy of the software. As a result, the initial purchase agreement was not formed until the defendant had made his final decision to keep the software, in contrast to the subsequent purchases of the software, where “the contract was formed before the purchaser [became] aware of the seller’s insistence on certain terms.”

In ProCD, Inc. v. Zeidenberg, the Seventh Circuit also held that the purchase contract was not formed until after the purchaser used the software and thereby accepted the terms of the license agreement. In ProCD, the purchaser bought his software product from a retail outlet. The software stated on its packaging that the software comes with restrictions stated in an enclosed license. The license, which was contained in the user manual and appeared on the screen every time the program ran, limited use of the software to non-commercial purposes. Despite this license, the purchaser made the program available on the World Wide Web to the public for a fee.

The district court found that the license was not part of the contract because its terms did not appear on the outside of the package. Because the purchaser did not have opportunity to inspect or consider the terms of the license at the point of sale, the license was not part of the original sales offer. Thus, following Super-Saver and Arizona Retail, the district court found that the shrinkwrap license was a proposed modification to the original sales agreement, and, because the purchaser never expressly agreed to such terms, it was not bound by the terms of the license.

On appeal, the Seventh Circuit found that it was irrelevant that the purchaser was not able to consider the terms of the license at the time of purchase. Rather, “[n]otice on the outside, terms on the inside, and a right to return the software for a refund if the terms are unacceptable (a right that the license expressly extend[ed]), may be a means of doing business valuable to buyers and sellers alike.” As noted by the court, this is common practice in numerous consumer transactions. For example, when one purchases an airline ticket, he calls an agent, reserves a seat, pays, and gets a ticket. The ticket contains numerous terms and conditions regarding the carrier’s liability and other matters which the purchaser does not see until he receives the ticket. If he uses the ticket, he accepts the terms.

Likewise, when a consumer purchases electronic equipment, he visits a store, pays, and walks out with a radio. Inside the box, there is typically a warranty booklet. Although the consumer does not read the warranty until he opens the box, there is no question that he is bound by the terms of the warranty.

The same rationale applies to software shrinkwrap licenses. As explained by the court:

A vendor, a master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. And that is what happened. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the license at leisure. This Zeidenberg did. He had no choice, because the software splashed the license on the screen and would not let him proceed without indicating acceptance. So although the district judge was right to say that a contract can be, and often is, formed simply by paying the price and walking out of the store, the UCC permits contracts to be formed in other ways. ProCD proposed such a different way, and without protest Zeidenberg agreed.

Therefore, the defendant Zeidenberg was bound by the terms of the shrinkwrap license, and his commercial use of the software violated the license and infringed the plaintiff’s copyright.

2) Conclusions Regarding Shrinkwrap Licenses. Reconciling the Third Circuit’s decision in ProCD with Step-Saver and Arizona Retail is not easy. The Third Circuit avoided doing so by simply stating that Step-Saver and Arizona Retail were not “consumer transactions” and that they involved a “battle-of-the-forms.”

It is significant that in each of the cases, a defendant was attempting to avoid liability. In both Step-Saver and Arizona Retail, the software producer was trying to avoid a breach of warranty claim through enforcement of the shrinkwrap license, and in Pro-CD, the defendant was trying to avoid liability for copyright infringement through non-enforcement of the license. Thus, a court’s decision as to the enforceability of a shrinkwrap license may turn on principles of fairness.

Knowledge of the existence of the shrinkwrap license when the purchase is made, at least with regard to non-consumer transactions, also appears to be an important factor. In both Step-Saver and Arizona Retail, the courts expressly noted that there was no reference to the license agreement when the plaintiffs placed their orders for software copies over the telephone. Thus, the courts may have ruled differently if the software producer had expressly conditioned the sale on the plaintiff’s agreement to accept the terms of the license.

Therefore, with regard to consumer transactions, it appears that shrinkwrap licenses will likely be enforced by the courts “unless their terms are objectionable on grounds applicable to contracts in general.” However, to avoid the possible pitfalls of Step-Saver and Arizona Retail, notice of a shrinkwrap license should prominently appear on software packaging, in catalogs, on Internet home pages, and on promotional materials and should be given orally to consumers when products are purchased over the telephone. It would also strongly improve the likelihood that the license will be enforced, if, as in ProCD, the license is displayed on the computer screen whenever the program is opened, and the program requires the user to accept the terms of the license before he is able to continue using the program, as the plaintiff’s software did in ProCD.

With regard to non-consumer transactions, a software producer should expressly make acceptance of the license a condition of purchase when the initial order is placed. In addition, all invoices and purchase orders should make reference to the existence of the license. While these steps will not guarantee that a court will enforce the terms of the license, they should improve one’s chances of enforcement.

3) Proposed Revision to the U.C.C. Finally, it should be noted that the American Law Institute has proposed a new provision to the Uniform Commercial Code, § 2-2203, regarding the enforcement of standard form licenses. Under this proposed new section, a standard form license would be enforceable if:

(a) . . . prior to or within a reasonable time after beginning to use the intangible pursuant to an agreement, the party

(1) signs or otherwise by behavior manifests assent to a standard form license; and

(2) has an opportunity to review the terms of the license before manifesting assent, whether or not it actually reviewed the terms.

If this proposed provision gains substantial acceptance among the states, it should bring some degree of certainty to a very unsettled area of the law.

ARTICLES REGARDING PROTECTING COMPUTER SOFTWARE
BY COPYRIGHT, PATENT AND TRADE SECRET LAW

Pamela Samuelson, Benson revisited: The Case Against Patent Protection for Algorithms and Other Computer Program-Related Inventions, 39 Emory L.J. 1025 (1990).
Randall M. Whitmeyer, Comment, A Plea for Due Processes: Defining the Proper Scope of Patent Protection for Computer Software, 85 NW.U. L. Rev. 1103 (1991).
Cary S. Kappel, Copyright Protection of SSO: Replete with Internal Deficiencies and Practical Dangers, 59 Fordham L. Rev. 699 (1991).
John C. Phillips, Note, Sui Generius Intellectual Property Protection for Computer Software, 60 Geo. Wash. L. Rev. 997 (1992).
Symposium, Copyright Protection: Has Look and Feel Crashed?, 11 Cardoso Arts and Entertainment L. Rev. 721 (1993).
Lloyd G. Pharr, Sega V. Akalade: Another Generation of Computer Program Copyright Cases Has Growing Pains, 27 Ga. L. Rev. 903 (1993).
Matthew P. Larvick, Questioning the Necessity of Copyright Protection for Software Interfaces, 1994 U. Ill. L. Rev. 187 (1994).
Tsu-Mann Peter Tu, Note, Copyright – Computer Software Copyright Infringement – Three-Step Test for Substantial Similarity, Involving Abstraction, Filtration, and Comparison, Should be Applied in Determining Whether Computer Software Copyright Has Been Infringed – Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2nd Cir. 1992), 25 Seton Hall, L. Rev. 412 (1994).
Nicolas P. Terry, Gui Wars: The Windows Litigation and the Continuing Decline of “Look and Feel”, 47 Ark. L. Rev. 93 (1994).
David A. Rice, Sega and Beyond: A Beacon for Fair Use Analysis. . . At Least as Far as it Goes, 19 U. Daton L. Rev., 1131 (1994).
Dennis S. Karjala, Copyright Protection of Computer Documents, Reverse Engineering, and Professor Miller, 19 U. Daton. L. Rev. 975 (1994).
Susan E. Dallas, Note, Computer Copyright Protection Narrows Has Video Game Giants Battle in Atari v. Nintendo, 71 Denv. U. L. Rev. 739 (1994).
John T. Soma, James Shortall, Jr., Vernon A. Evans, The Use of Quiet Title and Declaratory Judgment Proceedings in Computer Software Ownership Disputes, 71 Denv. L. Rev. 543 (1994).
Robert D. Sprague, Multimedia: The Convergents of New Technologies and Traditional Copyright Issues, 71 Denv. L. Rev. 635 (1994).
Diana Roberts, The State of Computer Software Product Claims After In Re Alappat, 2 S.U. L. Rev. 219 (1994).
________________________, Amanifesto Concerning the Legal Protection of Computer Programs, 94 Colum. L. Rev. 2308 (1994).
Jane C. Ginsburg, Four Reasons and a Paradox: The Manifest Superiority of Copyright Over Sui Generous Protection of Computer Software, 94 Colum. L. Rev. 2559 (1994).
J. H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 Colum. L. Rev. 2432 (1994).
Peter S. Menell, The Challenges of Reforming Intellectual Property Protection for Computer Software, 94 Colum. L. Rev. 2644 (1994).
Julian Velasco, The Copyright Ability of Nonliteral Elements of Computer Programs, 94 Colum. L. Rev. 242 (1994).
Donald F. McGahn, II, Copyright Infringement of Protected Computer Software: An Analytical Method to Determine Substantial Similarity, 21 Rutgers Computer and Tech. L. J. 88 (1995).
Peter A. Wald, et al., Standards for Interoperability and the Copyright Protection of Computer Programs, 414 PLI/PAT. 857 (June 22-23, 1995).
Michael M. Barry, Note, Software Copyright Upgrade – Engineering Dynamics v. Structural Software Extends Abstraction – Filtration – Comparison to Software Input Data Formats, 39 St. Louis L. J. 1309 (1995).
Jean Marie R. Pechette, Copyrights in Computers, 412 PLI/PAT 337 (July 10, 1995).
J.H. Reichman, The Know-How Gap in the Trips Agreement: Why Software Faired Badly, and What Are the Solutions, 17 Hastings Comm. & Ent. L. J. 763 (1995).
Mark A. Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239 (1995).
Julie E. Cowen, Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of “Lock-Out” Programs, 68 S. Cal. L. Rev. (1995).
Dennis M. Carlton, Note, Lotus Development v. Borland International: Determining Software Copyright Infringement is Not as Easy as 1-2-3, 56 U. Pitt. L. Rev. 919 (1995).
Gary L. Reback, Implications of Lotus v. Borland, 415 PLI/PAT 143 (September, 1995).
Amicus Advocacy: Brief Amicus Curiae of Copyright Law Professors in Lotus Development Corp. v. Borland International, Inc., 3 J. Intell. Prop. L. 103 (1995).
Jule L. Sigall, Comment, Copyright Infringement Was Never this Easy: Ram Copies and Their Impact on the Scope of Copyright Protection for Computer Programs, 45 Cath. U. L. Rev. 181 (1995).
Paul I. Kravetz, “Idea/Expression Dichotomy” and “Method of Operation”: Determining Copyright Protection for Computer Programs, 8 DePaul Bus. L.J. 75 (1995).
Andre R. Jaglom, Current Developments in Copyright Protection of Computer Software, Ca. 63 Ali-Aba 603 (January 15, 1996).
Robert L. Bocchino, Jr., Book Note, 9 Harv. J. Law and Tech. 213 (1996). (Reviewing Gregory A. Stobbs, Software Patents (1995)).
Ian C. Ballon and Heather D. Rafter, Computer Software Protection, 431 PLI/PAT 81 (March, 1996).
David Bender and Craig Nethercott, Lotus v. Borland: At the United States Supreme Court, 430 PLI/PAT 7 (March, 1996).
David Bender, Patents and Multimedia, 428 PLI/PAT 87 (January, 1996).
Robert A. Gorman, Comments on a Manifesto Concerning the Legal Protection of Computer Programs, 5 Alb. L.J. Sci. & Tech. 277 (1995).
David R. Owen, Note, Interfaces and Interoperability in Lotus v. Borland: A Market-Oriented Approach to the Fair Use Doctrine, 64 Fordum L. Rev. 2381 (1996).
Jason A. Whong and Andrew T.S. Lee, Note, Lotus v. Borland: Defining the Limits of Software Copyright Protection, 12 Computer and High Tech. L.J. 207 (1996).

AMERICAN LAW INSTITUTE PROPOSED
REVISIONS TO UNIFORM COMMERCIAL CODE

Section 2-2203. Standard Form Licenses

(a) Subject to [the section on disclaimer of warranties in consumer licenses], a party adopts the terms of a standard form license if, prior to or within a reasonable time after beginning to use the intangibles pursuant to an agreement, the party

(1) signs or otherwise by its behavior manifests assent to a standard form license; and

(2) had an opportunity to review the terms of the license before manifesting assent, whether or not it actually reviewed the terms.

(b) Terms adopted under subsection (a) include all of the terms of the license without regard to the knowledge or understanding of individual terms by the party assenting to the form. However, except as otherwise provided in subsection (c), a term does not become part of the license if:

(1) the term creates an obligation or imposes a limitation which conflicts with the negotiated terms of the prior agreement of the parties relating to the intangibles and the party assenting to the form does not expressly consent to that term;

(2) in a mass market license the term creates an obligation or imposes a limitation that the licensor has reason to know would cause most licensees engaged in transactions of similar type to refuse the license if the term were brought to the attention of the licensee and the term was not brought to the licensee’s attention; or

(3) in a contract other than a mass market license the term creates an obligation or imposes a limitation that the party who prepared the form knows would cause the other party to refuse the license if the term were brought to the attention of that party and the term was not brought to that party’s attention.

(1) transfers rights or creates restrictions on the behavior of the licensee which give the licensee no fewer rights than would be given to a purchaser at a first sale under federal intellectual property law; or

(2) limits the licensee’s remedy for breach of the license to replacement of the licensed materials or refund of license fees unless the damage from breach of warranty involves personal injury.

APPENDIX “D”d) A party has an opportunity to review the terms of a license if:

(1) the license is made available to the party (i) prior to its acquisition of a copy of the intangibles and in a manner designed to call the license terms to the attention of the party assenting to the form, or (ii) provided to the party in a manner so that the terms of the license will be conspicuous in the normal course of its initial use or preparation to use the intangibles; and

(2) in a mass market license, the party assenting to the form is authorized to obtain a refund of all license fees paid by returning the copy of the intangibles or discontinuing use following its opportunity to review the terms of the license.

(e) A party manifests assent to the license if, having had an opportunity to review the terms of the license, it engages in conduct that the license provides will constitute acceptance of the terms of the license and it had an opportunity to decline to engage in this conduct after having had an opportunity to review the terms of the license.

(f) A licensee expressly consents to a term of a license by its behavior if the term is conspicuous and, given the opportunity not to do so, the licensee engages in conduct that signifies acceptance of that term.

(g) Whether a term is conspicuous is a question of law.