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Anyone who has bought software is familiar with the routine– to use the program, you will have to click a box that indicates you”agree” to be bound by what the manufacturer calls a “licenseagreement.” And there’s no negotiating with the machine — no click, noinstallation. Undoubtedly, only a tiny fraction of users ever takes the time toread the agreement. Those who do may find a “license” that preventsusers from selling or transferring the software, limits the number of computersthat may connect to a machine running the program, prohibits certain uses (suchas reverse engineering) and strictly limits warranties. While the typical userbelieves he or she has bought the software, the license will deny that,providing that it “is licensed, not sold.” These “clickwrap” agreements — cousins to”shrinkwrap” agreements, where assent supposedly is shown by rippingthe shrinkwrapping on a product package — are likely to become even moreimportant, and more restrictive, as distributors of software, movies, music andbooks attempt to control the use and distribution of their intellectualproperty. Their increasing use has generated criticism that clickwraps nullifyrights traditionally granted to consumers under the copyright laws — such asthe “first sale” doctrine, codified in � 109 of the Copyright Act,which allows “owners” of copyrighted materials to sell or lend thoseitems, and “fair use” under � 107. Are these significant restrictions, imposed withoutbargaining, actually enforceable? So far, the courts have been favorable toclickwraps, although the issue is far from settled. At least three challengesto clickwrap agreements have to be considered: whether the agreements are validas a matter of contract law, whether they are pre-empted by the Copyright Actand whether they may constitute “misuse” of copyright. CLICKWRAPS ARE ‘APPROPRIATE WAY TO FORM CONTRACTS’ The most basic challenge to clickwraps — that merelyclicking the box is not “acceptance” of an “offer” to enterinto an agreement — does not seem to be a promising line of attack. While someearly cases took a skeptical view of this issue ( see Step-Saver Data SystemsInc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991)), the trend is now theother way. For example, in January, the court in i.Lan Systems Inc. v.Netscout Service Level Corp., 183 F. Supp. 2d 328 (D. Mass. 2002), heldthat “clickwrap license agreements are an appropriate way to formcontracts.” The court held that, if it is “correct to enforce ashrinkwrap license agreement, where any assent is implicit, then it must alsobe correct to enforce a clickwrap license agreement, where the assent isexplicit.” Id. at 338. i.Lanis consistent with the approach of the proposedUniform Computer Information Transactions Act (available at www.nccusl.org),which explicitly recognizes clickwraps, as long as a consumer has theopportunity to review the proposed license. The act has been enacted only inMaryland and Virginia; legislation to adopt it has been introduced in sevenother states and the District of Columbia. While this issue appears settled, there is uncertainty overwhen an agreement will be deemed a license, or instead a sale, of copyrightedgoods. The distinction is significant because a licensee may be prohibited fromreselling, while an owner, protected by the first-sale doctrine, is free to doso. Two conflicting cases from California federal courts, involving the sameparty, illustrate the debate. In Softman Products Co. LLC v. Adobe Systems Inc.,171 F. Supp. 2d 1075 (C.D. Calif. 2001), a software vendor bought package setsof Adobe products, which sell at a discount, and then, in violation of Adobelicense agreements with its distributors, resold the individual components. Thecourt found that Adobe had sold, rather than licensed, its products todistributors, so that the vendor was entitled to resell under the first-saledoctrine. The court looked to “the economic realities of theexchange” and stressed that “the purchaser commonly obtains a singlecopy of the software, with documentation, for a single price,” which”constitutes the entire payment for the ‘license.’ The license runs for anindefinite term without provisions for renewal.” Id. at 1084. Thesame is likely to be true of a clickwrap “license” offered to aconsumer. On the other hand, the Softmancourt also noted thatAdobe’s distributors bore the risk of loss, and the risk that they will beunable to resell the product in the secondary market — factors that would notapply to a consumer license. Softmanrefused to follow an earlier casefinding that an Adobe distribution agreement was indeed a license. AdobeSystems Inc. v. One Stop Micro Inc., 84 F. Supp. 2d 1086 (N.D. Calif.2000). That court brushed aside the claim that an Adobe distribution agreementwas a sale, relying on expert testimony about the extensive use of licenses inthe software industry, and concluding that the significant restrictions in theagreement themselves made it clear that the parties had agreed to a license.These restrictions, the court said, “indicate a license rather than a salebecause they undeniably interfere with the reseller’s ability to furtherdistribute the software.” Id. at 1091. Even a valid license agreement may be unenforceable if it ispre-empted by the Copyright Act. Section 301 of the act broadly pre-empts “all legalor equitable rights that are equivalent to any of the exclusive rights withinthe general scope of copyright as specified by section 106″ of the act,the section that grants copyright owners exclusive rights includingreproduction, distribution and preparation of derivative works. In determiningwhether a claim is pre-empted, many courts focus on whether the right inquestion is infringed by the mere act of reproduction or distribution, in whichcase it is pre-empted, or whether an “extra element” beyond that actis required to establish the claim. The most sweeping decision on the pre-emption issue is JudgeFrank Easterbrook’s opinion in ProCD Inc. v. Zeidenberg, 86 F.3d 1447(7th Cir. 1996). The plaintiff in ProCDproduced a CD-ROM including datafrom more than 3,000 phone books. In doing so, it took advantage of FeistPublications Inc. v. Rural Telephone Service Co. Inc., 499 U.S. 340 (1991),which held that a phone directory could not be copyrighted. To try to preventothers from turning the tables and reselling its work, ProCD created ashrinkwrap license forbidding noncommercial use of the product. DefendantMatthew Zeidenberg ignored the license and made the database available on theInternet, for a fee. The 7th Circuit rejected Zeidenberg’s defense that theshrinkwrap was pre-empted by the Copyright Act. It reasoned that rights createdby contract are by nature not “equivalent” to rights”established by law.” “A copyright is a right against the world.Contracts, by contrast, generally affect only their parties; strangers may doas they please, so contracts do not create ‘exclusive rights.’ Someone whofound a copy of [ProCD's product] on the street would not be affected by theshrinkwrap license — though the federal copyright laws of their own forcewould limit the finder’s ability to copy or transmit the applicationprogram.” 86 F.3d at 1454. While the court did not establish a firm rulethat no contract claims can be pre-empted, its logic supports that result, andhas been read that way by some courts. See Architectronics Inc. v. ControlSystems Inc., 935 F. Supp. 425 (S.D.N.Y. 1996). Most courts, however, have declined to “embrace theproposition that all state law contract claims survive pre-emption simplybecause they involve the additional element of promise.” Wrench LLC v.Taco Bell Corp., 256 F.3d 446, 457 (6th Cir. 2001). Instead, pre-emption islimited to contracts that do no more than protect exclusive rights grantedunder the copyright laws. “If the promise amounts only to a promise to refrainfrom reproducing, performing, distributing or displaying the work, then thecontract claim is pre-empted.” Id. Most provisions of softwareclickwrap agreements should survive that test. No court yet has ruled thatcontracts that prohibit the exercise of rights granted under the copyright lawsare pre-empted. How would a court react to an announcement displayed on atelevision screen that a viewer who proceeds to watch has consented to a”license” that bars home taping of a TV show? COPYRIGHT MISUSE IS ANOTHER POSSIBLE DEFENSE The still-evolving doctrine of copyright misuse — which wasgiven impetus by the 4th U.S. Circuit Court of Appeals’ decision in LasercombAmerica Inc. v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990), provides adefense to copyright infringement when a copyright “is being used in amanner violative of the public policy embodied in the grant of acopyright.” While misuse is most clear when restrictions in a copyrightlicense accomplish an antitrust violation, that is not necessary. For example,in Practice Management Information Corp. v. American Medical Ass’n, 121F.3d 516 (7th Cir. 1997), the court found misuse without proof of an antitrustviolation when the American Medical Association licensed a coding system to agovernment agency for free, on the condition that the agency agree not to useany other system on Medicare and Medicaid claim forms. Therefore, it isdifficult to predict how the doctrine will apply. Moreover, it may be invoked by a defendant in a copyrightaction, even though that party is not affected by the “misuse.” Untilthe misuse is “purged” — presumably, by removing the offendingprovisions from the license agreement — the copyright is unenforceable. Forthose reasons, and because of its unpredictability, the doctrine may pose adanger to copyright holders. While it has yet to be applied to clickwrapagreements, it may well operate as a limit on the restrictions copyright ownerscan impose, particularly when those restrictions can be expected to have an impacton competition or market conditions. As the copying and distribution of creative material overthe Internet becomes more widespread, copyright owners will continue to useclickwraps to attempt to control use of their products, and courts willcontinue to define the grounds on which they may be challenged. Lewis R. Clayton is a litigation partner in the New Yorkoffice of Paul, Weiss, Rifkind, Wharton & Garrison, and co-chair of thefirm’s intellectual property litigation group. Susanna Buergel, an associate atthe firm, assisted in the preparation of this article.

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