Contracts: Clickwraps and Idea Submissions Intro to IP – Prof Merges

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 Quantity Demanded (000s) D $5 100 $3 170 Total Revenue Price Discrimination

Price Quantity Demanded (000s) D $5 100 $3 170 Price Discrimination Hardcover Softcover

Total Revenue Without Price Discrimination With Price Discrimination $510$710

Price Quantity Demanded (000s) D $5 100 $3 170 Price Discrimination Commer- cial Users Non- commercial Users

Price Quantity Demanded (000s) D $5 100 $3 170 Price Discrimination Commer- cial Users Arbitrage!

Price Quantity Demanded (000s) D $5 100 $3 170 Total Revenue “Perfect Arbitrage” Arbitrageurs’ profits

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 policy: K may be formed in any manner : 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 – 1 st 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...

“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.” Hill v. Gateway

“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 5 th 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 5 th 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 forum- selection 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