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

But first...

Cert granted Kirtsaeng v. John Wiley & Sons, Inc., Supreme Court No , opinion below, 654 F.3d 210 (2d Cir. 2011)(Cabranes, J.) Copyright – international exhaustion

Question presented Under § 602(a)(1) of the Copyright Act, it is impermissible to import a work ‘without the authority of the owner’ of the copyright. But the first-sale doctrine, codified at § 109(a), allows the owner of a copy ‘lawfully made under this title’ to sell or otherwise dispose of the copy without the copyright owner's permission.

Decision options Is it – Never ok to resell a copyrighted item purchased overseas; Sometimes ok; Always ok?

American Law Institute Principles of Software Contracts (2010) Shrinkwrap/clickwrap agreements generally are enforceable BUT: subject to significant limitations

ALI Principles (a) This Section applies to standard-form transfers of generally available software as defined in § 1.01(l). (b) A transferee adopts a standard form as a contract when a reasonable transferor would believe the transferee intends to be bound to the form. (c) A transferee will be deemed to have adopted a standard form as a contract if --

(1) the standard form is reasonably accessible electronically prior to initiation of the transfer at issue; (2) upon initiating the transfer, the transferee has reasonable notice of and access to the standard form before payment or, if there is no payment, before completion of the transfer; (3) in the case of an electronic transfer of software, the transferee signifies agreement at the end of or adjacent to the electronic standard form

or in the case of a standard form printed on or attached to packaged software or separately wrapped from the software, the transferee does not exercise the opportunity to return the software unopened for a full refund within a reasonable time after the transfer; and (4) the transferee can store and reproduce the standard form if presented electronically.

(d) Subject to § 1.10 (public policy), § 1.11 (unconscionability), and other invalidating defenses supplied by these Principles or outside law, a standard term is enforceable if reasonably comprehensible. (e) If a transferee asserts that it did not adopt a [term it has the burden of proof]

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

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.

§ 1.10 Public Policy A term of an agreement is unenforceable if the interest in enforcement of the term is clearly outweighed in the circumstances by a public policy against its enforcement. Example: A restriction on any criticism of the software; or perhaps a restriction on any and all transfers of the software to 3 rd parties

§ 1.09 Enforcement Of Terms Under Federal Intellectual Property Law A term of an agreement is unenforceable if it (a) conflicts with a mandatory rule of federal intellectual property law; or (b) conflicts impermissibly with the purposes and policies of federal intellectual property law; or (c) would constitute federal intellectual property misuse in an infringement proceeding.

Simple example Extension of © or patent term by K Prohibited under numerous IP cases on preemption

ProCD v. Zeidenberg

What term is at issue in ProCD? “No commercial use”

What is preemption? To preempt: to set aside; preclude; prevent So federal law precludes or prevents the application of state law (including potentially legislation or state common law – such as enforcement of a contract)

The Supremacy Clause “Th[e] Constitution, and the Laws of the United States which shall be made in Pursuance thereof... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2

In its § 301, the Copyright Act contains an express preemption provision, stating that “all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright... and come within the subject matter of copyright... are governed exclusively by this title.” 17 U.S.C. § 301(a). Courts interpret this language to mean that a cause of action is preempted if the subject matter at issue is within the scope of the Act and the rights a party seeks to enforce or protect are not qualitatively different from rights under the Act.

Pro CD: Preemption analysis K involves only 2 parties... Not “good against the world”

“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.”

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

Easterbrook examples IPNTA 5 th TS K’s Sale of white pages; pmt under K Lexis example: Note, price discrimination again

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

Does Easterbrook support enforcement of ALL K’s in IP field? NO; “we think it prudent to refrain from adopting [such a rule]. IPNTA 5 th at 995.

Conflict preemption Applies when state law would impermissibly interfere or “conflict” with the purpose of the federal scheme. An impermissible conflict occurs when “either [ ] compliance with both state and federal regulations is a ‘physical impossibility,’ or where state law stands as an ‘obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ ” Am. Soc'y of Composers v. Pataki, 930 F.Supp. 873, 878 (S.D.N.Y. 1996)

Two types of contracts can raise preemption questions under both patent and copyright law. The first category includes terms that expand the affirmative exclusive rights that the intellectual property statutes would otherwise confer by, for example, providing additional rights in protected material or creating copyright or patent-like rights in unprotected material. The second group of terms consists of those that narrow or exclude statutory (such as fair use in copyright) or common-law limitations on the exclusive rights.

Preemption case study: no reverse engineering clauses A term prohibiting reverse engineering may be reasonable in the context of a negotiated agreement under which the transferor and transferee are in a confidential relationship, and the transferor seeks to maintain the trade-secrecy status of the source code. It is more troublesome when contained in a standard-form agreement in a retail-like transaction. – ALI S/w Principles

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