Software Licenses Michael I. Shamos, Ph.D., J.D.

Software Licenses Michael I. Shamos, Ph.D., J.D.
Institute for Software Research School of Computer Science Carnegie Mellon University LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

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 Performers

LAW OF COMPUTER TECHNOLOGY FALL 2018 © 2018 MICHAEL I. SHAMOS
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.” Software Amendments, 17 U.S.C. §117(a) LAW OF COMPUTER TECHNOLOGY FALL © 2018 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 © 2018 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 © 2018 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 © 2018 MICHAEL I. SHAMOS

Contract of Adhesion A standardized contract offered on a take-it or leave-it basis—usually by a merchant No opportunity for the consumer to negotiate terms Takes advantage of the superior position of the merchant – he has something the consumer wants; all the consumer has is money Contracts of adhesion are enforceable if there is fair opportunity for the consumer to learn the terms and “adhere” (agree) or not Almost all consumer software licenses are contracts of adhesion. LAW OF COMPUTER TECHNOLOGY FALL © 2018 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 © 2018 MICHAEL I. SHAMOS

ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th 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 (7th 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 © 2018 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 © 2018 MICHAEL I. SHAMOS

Comb et al. v. PayPal 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 © 2018 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 © 2018 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 © 2018 MICHAEL I. SHAMOS

Comb et al. v. PayPal A procedurally unconscionable contract (e.g. a contract of adhesion) 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 © 2018 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 © 2018 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) 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 © 2018 MICHAEL I. SHAMOS

Affinity Internet v. Consolidated Credit 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 (terms not conspicuous)

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 © 2018 MICHAEL I. SHAMOS

Vitacost.com, Inc. v. McCants (Fla. 4th Dist. Ct. App. Feb. 15, 2017)
McCants bought dietary supplements from Vitacost’s website He alleges that they caused severe liver damage McCants sued Vitacost in Florida state court Vitacost’s site had a “terms and conditions of sale” link that required all disputes to be settled by aribitration. The link was visible during the purchase process at the bottom of the seller’s webpage and requires scrolling to the bottom LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

Vitacost.com, Inc. v. McCants
Bottom of Vitacost’s webpage: HYPERLINK VISIBLE ON MOUSEOVER

Vitacost’s checkout page:

The trial court found the browswrap not conspicuous and refused to dismiss the case to arbitration. Vitacost appealed. On appeal, factual findings are upheld if “supported by competent evidence.” The appeals court wrote (unanimously, 3 judges): “Uniformly, courts have declined to enforce ‘browsewrap’ agreements when the hyperlink to the terms and conditions is buried at the bottom of the page, and the website never directs the user to review them.” LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

“Here, unlike Hubbert, none of the webpages made the plaintiff’s purchase subject to the ‘terms and conditions of sale.’ The seller’s website allowed a purchaser to select a product and proceed to check-out without seeing the hyperlink to the “terms and conditions” because the hyperlink would not be visible unless the purchaser scrolled to the bottom of the page. Once on the check-out webpage, the hyperlink is only labeled ‘terms and conditions,’ and the page contains no statement that the sale is subject to those ‘terms and conditions’.” The arbitration clause is not enforceable. The court case can proceed. (It’s still ongoing. Will try in 2019) LAW OF COMPUTER TECHNOLOGY FALL © 2018 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) LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

Software Contracts of Adhesion
Contract Type Description Enforceability Shrinkwrap Printed contract that the user cannot see until after purchasing a product If terms are commercially reasonable and not unconscionable AND User can reject the terms and receive a FULL refund. Browsewrap Terms are viewable by following a hyperlink Generally enforceable against corporations, but not against individuals unless there is evidence of agreement and the link is CONSPICUOUS. Clickwrap License is displayed on the user’s screen and acceptance is indicated by clicking on a button If not unconscionable. User has expressly agreed. License must be CONSPICUOUS. Scrollwrap User must physically scroll to the end of the contract before accepting If not unconscionable. User has taken an action with respect to the contract. Sign-in wrap Web page says that acceptance of "terms of use" is required in order to continue, but no agreement is necessary. GENERALLY NOT ENFORCEABLE unless agreement by the user can be proven. Shrinkwrap contracts are physical (included in a box with a product) Browsewrap, Clickwrap, Scrollwrap & Sign-in wrap are electronic online contracts over networks LAW OF COMPUTER TECHNOLOGY FALL © 2018 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 © 2018 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 © 2018 MICHAEL I. SHAMOS

Open Source Licenses Apache License 2.0 BSD 3 (Berkeley): “New” or “Revised” license BSD 2: (Berkeley) “FreeBSD” license GNU General Public License (GPL) MIT license Mozilla Public License 2.0 Common Development and Distribution License Eclipse Public License Visit choosealicense.com LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

GNU General Public License (GPL)
Very popular type of open source license 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 © 2018 MICHAEL I. SHAMOS

Artifex Software, Inc. v. Hancom, Inc. (N.D. Cal., Apr. 25, 2017)
Artifex developed Ghostscript, an open-source interpreter for Adobe Postscript Artifex made Ghostscript available under the GNU Public License (GPL) Hancom, Inc., a S. Korean company, incorporated Ghostscript into its word processing product This was allowed under GPL But, GPL requires the user (Hancom) to make any modifications it makes available under a GPL Hancom didn’t do that, and wouldn’t take a paid license, so Artifex sued for an injunction and back royalties

Artifex Software, Inc. v. Hancom, Inc.
Hancom claimed the GPL was unenforceable because Hancom never signed anything. The GPL states: You are not required to accept a copy of the Program. … However, nothing other than this License grants you permission to propagate or modify any covered work. These actions infringe copyright if you do not accept this License. Therefore, by modifying or propagating a covered work, you indicate your acceptance of this License to do so. Hancom’s website stated that it had licensed Ghostscript under the GPL. The court found the GPL enforceable against Hancom.

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 © 2018 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 (prominently visible) Open source is not the same as public domain Open source licenses are enforceable LAW OF COMPUTER TECHNOLOGY FALL © 2018 MICHAEL I. SHAMOS

Software Licenses Michael I. Shamos, Ph.D., J.D.

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