Software Licenses LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS Michael I. Shamos, Ph.D., J.D. Institute for Software Research School of Computer Science Carnegie Mellon University

What is a License? A license is a permission to do something that would otherwise be illegal Example: a movie theatre is private property. I can’t go inside without permission or I would be a trespasser. A movie ticket is a license to enter the theatre for a particular period of time and stay in a particular place Playing a song over the radio is a public performance of the song. It violates the public performance right of the copyright owner. A permission to play the song is required, usually obtained from ASCAP, the American Society of Composers, Artists and PerformersASCAP

Software Licenses The owner of an authorized copy of a piece of software may copy and execute it under certain conditions: “it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided: (1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or (2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.” 1980 Software Amendments, 17 U.S.C. §117(a)17 U.S.C. §117(a) LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Software Licenses To avoid the effect of this provision, software companies often do not sell copies of their software They provide copies under a license agreement The customer does not become the owner of the copy and therefore does not obtain the benefit of the 1980 Software Amendments The customer is limited to the terms of the license agreement License rights can be restricted and allocated very finely, e.g. restricting the use to a single identified CPU LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Why Have License Agreements? Define the scope of the license Disclaim warranties –Sales contracts by law imply several warranties: –Warranty of merchantability Fit for the general purpose for which it is sold Conforms to standards in the trade Conforms to specifications on the package –Warranty of fitness for a particular purpose –Warranty of non-infringement Limit damages Provide choice of law, choice of forum Prohibit reverse engineering LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

License Provisions Scope –What the licensee is allowed to do Prohibitions –What the licensee can’t do, e.g. no ASP Warranties –What the licensor promises Transfer –How and when the license can be transferred Termination –Acts that result in termination of the license, e.g. exceeding permissible use LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Shrinkwrap A license agreement contained within packaged software whose terms cannot be viewed until the software is bought Usually provides that the user is bound once the package is opened No negotiation No opportunity to inspect the terms in advance Enforceable? LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7 th Cir. 1996) 86 F.3d 1447 (7 th Cir. 1996) ProCD published a set of CD-ROMs that allowed lookup of all listed U.S. telephone numbers They were distributed with a shrinkwrap license (inside the box) that limited further distribution of the data The license terms were on the CDs and appeared on the user’s screen each time the program was run Zeidenberg made the numbers available over the Internet ProCD sued to enforce the license agreement (Copyright protection was not available for reasons we will discuss later in the course.)

ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7 th Cir. 1996) 86 F.3d 1447 (7 th Cir. 1996) Shrinkwrap agreements are enforceable if –Terms are “commercially reasonable” and not unconscionable; and –User has the right to reject the terms on opening the package and receive a full refund Shrinkwrap need not display all of the terms so as to be visible from the outside of the package Why? The consumer is assured that the terms are commercially reasonable LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Clickwrap A license agreement whose terms are displayed on the user’s screen and acceptance is indicated by clicking on a button No negotiation But: opportunity to review the terms before agreeing Clickwrap agreements are enforceable if their terms are not “unconscionable” LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Comb et al. v. PayPal 218 F. Supp. 2d 1165 (N.D. Cal. 2002) 218 F. Supp. 2d 1165 (N.D. Cal. 2002) Plaintiff Toher opened a PayPal account, which included a clickwrap agreement PayPal made unauthorized transfers out of Toher’s bank account Toher sued and PayPal moved to compel arbitration under the clickwrap agreement, which contained an arbitration clause Toher argued that the arbitration clause was unconscionable LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

The PayPal Arbitration Clause “Arbitration. Any controversy or claim arising out of or relating to this Agreement or the provision of Services shall be settled by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. Any such controversy or claim shall be arbitrated on an individual basis, and shall not be consolidated in any arbitration with any claim or controversy of any other party. The arbitration shall be conducted in Santa Clara County, California, and judgment on the arbitration award may be entered in any court having jurisdiction thereof...” LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Comb et al. v. PayPal The PayPal arbitration clause is of standard form and very common in contracts The Court found it unenforceable under California law Procedurally unconscionable if it is a “contract imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” PayPal argued that it was not unconscionable because it did not concern essential items such as food or clothing and Toher had meaningful alternative sources for payment services. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Comb et al. v. PayPal A procedurally unconscionable contract may be enforceable if its terms are “reasonable.” The Court found the PayPal agreement unreasonable because it was “subject to change by PayPal without prior notice (unless prior notice is required by law), by posting of the revised Agreement on the PayPal website” Since the agreement was unenforceable, the arbitration clause was void and the Court did not order arbitration LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Browsewrap A license agreement whose terms are viewable by following a hyperlink (e.g. “Terms of Use”) Provides that the user is bound by using the site No requirement that the user actually know about, view or agree to the terms Enforceable? Usually only against knowledgeable parties, such as corporations, not individuals. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Specht v. Netscape Comm. Corp. 150 F. Supp. 2d 585 (S.D.N.Y 2001), aff’d. 306 F.3d 17 (2nd Cir.2002)306 F.3d 17 (2nd Cir.2002) Court refused to enforce a Netscape browsewrap license Netscape did no more than place notice of the license on the same webpage where it had made the download available Netscape's license “allows a user to download and use the software without taking any action that plainly manifests assent to the terms of the associated license or indicates an understanding that a contract is being formed.” LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Affinity Internet v. Consolidated Credit 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006) 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006) Affinity did business as Skywebnet. Its contract customers contained the clause, “This contract is subject to all of SkyNetWEB’s terms, conditions, user and acceptable use policies located at The terms were actually posted at which contained a standard arbitration clause A dispute arose and Consolidated sued. Affinity moved to compel arbitration The Court held that the contract between the parties did not contain an arbitration clause LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Browsewrap Agreements Contrast Affinity with Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill App 5 Dist., August 12, 2005) app. denied, 844 N.E.2d 965 (Ill. 2006) Hubbert bought a computer using Dell’s website, which contained a browsewrap agreement with an arbitration clause Multiple Dell pages viewed by Hubbert during the ordering process contained links to the agreement A printed copy of the agreement was included in the box in which the computer was shipped The appeals court unanimously held that the arbitration clause was conspicuous and the contract was enforceable. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Other “Wrap” Agreements Scrollwrap –User must physically scroll through an online agreement and click on a separate "I agree" button. –Generally enforceable Sign-in-wrap –Web page says that acceptance of "terms of use" is required in order to continue. Does NOT require the user to click on a box showing acceptance but states, e.g., “By clicking 'NEXT' I agree to the terms of use and privacy policy.” –Generally not enforceable. See Berkson v. Gogo LLC (S.D.N.Y, Apr. 9, 2015)Berkson v. Gogo LLC LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Open Source Licenses Scope –What the license is allowed to do Warranties –What the licensor promises Transfer –Under what conditions the license can be transferred Termination –Acts that result in termination of the license, e.g. exceeding permissible use LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Other License Types Freeware – Free proprietary software, no source code Shareware, trialware, demoware –Trial software for a limited time (usually 30 or 60 days). Then a paid license is required. Not for Resale (NFR) –Versions distributed for testing, preview, or donation purposes. –Cannot be sold or redistributed LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Forms of Open Source Open source –Source code available to the general public for use and/or modification free of charge –Typically for collaborative effort in which programmers improve the code & share changes Corporate source –Source is “open” to a closed community, such as programmers from one company, or collaborating teams Disclosed source –Source is disclosed to the public for examination but is still proprietary (full copyright) LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

GNU General Public License (GPL) Most popular type of open source license (70%) You must accept the license without modifications You may copy and distribute verbatim copies of the source code You may modify the copy with conditions You must provide your changes to others Patent infringement does not excuse you from license obligations Allows geographic restrictions No warranties are given LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Major Ideas Shrinkwrap software licenses are enforceable if the user has the ability to return the software for a full refund after examining the license The key to enforceability of clickwrap licenses is reasonableness of terms Browsewrap licenses must be conspicuous Open source is not the same as public domain LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Q A &