Copyright (c) 1999 California Law Review
                                        California Law Review

                                           January, 1999

                                         87 Calif. L. Rev. 79

   LENGTH: 17628 words

   SYMPOSIUM: Contract and Copyright Are Not at War:
   A Reply to "The Metamorphosis of Contract into Expand"

   Joel Rothstein Wolfson**

   Copyright © 1999 California Law Review, Inc.
   * Joel Rothstein Wolfson is an Associate General Counsel for The Nasdaq Stock Market, Inc. in Washington,
   D.C. He graduated with distinction in Mathematics from the University of Wisconsin, Madison and holds a J.D.
   from Cornell Law School.

   ... This Comment replies to David Nimmer, Elliot Brown, and Gary N. Frischling's Article that proposes state
   legislation declaring contracts unenforceable if they are "non-negotiable," to the extent they: 1) license
   uncopyrightable information; or 2) "abrogate or restrict" fair use. ... Had the Nimmer proposal been the law and
   the shrink-wrap license in ProCD not been upheld, it is hard to imagine ProCD or any other commercial entity
   ever compiling another directory. ... Nasdaq does permit numerous entities to freely redisseminate its data, but
   it does so under a different contractual structure - a vendor agreement. ... Section (b) of the Nimmer proposal
   would declare unenforceable any clause that "abrogates or restricts" any fair use of the data, as that concept
   is defined under the Copyright Act. ... Since fair use under the Copyright Act does not explicitly regulate who
   can receive data, the D&B clause would likewise be declared unenforceable under the Nimmer proposal. ...
   Moreover, what the Nimmer proposal explicitly invites is state law interpretations of what is copyrightable and
   what is fair use under federal copyright law. ... That is, the authors argue that if ProCD is present law and
   Article 2B incorporates ProCD into a statutory enactment, and any contract is thus free of any preemption
   from the Copyright Act, then state contract law must have a provision, namely, the Nimmer proposal, that
   provides the same result under state law that section 301 would have provided. ...


   This Comment replies to David Nimmer, Elliot Brown, and Gary N. Frischling's Article that proposes state
   legislation declaring contracts unenforceable if they are "non-negotiable," to the extent they: 1) license
   uncopyrightable information; or 2) "abrogate or restrict" fair use. Both prongs create unintended consequences
   that far outweigh benefits because: 1) uncopyrightable information is a fast growing and socially important
   industry; and 2) contractual restrictions on fair use serve important purposes (such as protecting privacy or
   guarding against piracy). This Comment observes that a test of "non-negotiability" would prove unsustainable
   in practice, and that what the authors propose would not produce good law. This Comment suggests instead
   that we let courts use their existing powers to police oppressive terms or take the matter to Congress.

   In their Article The Metamorphosis of Contract into Expand, n1 David Nimmer, Elliot Brown, and Gary N.
   Frischling take issue with Article 2B of the Uniform Commercial Code (U.C.C.). Specifically, the authors argue
   that Article 2B subverts federal copyright policy by allowing information vendors to protect uncopyrightable
   material and to circumvent the fair use doctrine. As a remedy, they suggest amending Article 2B to prevent
   "non-negotiable" contracts from imposing conditions that would achieve these results.
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   n1. David Nimmer et al., The Metamorphosis of Contract into Expand, 87 Calif. L. Rev. 17 (1999).
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    [*80]  This proposal (the Nimmer proposal) is essentially a repackaging of the McManis motion, a proposal
   that the bodies drafting Article 2B have already rejected. n2 Despite the superficial appeal of the McManis
   motion - and now of the Nimmer proposal - this rejection is justified, because both proposals would create
   numerous harmful, if unintended, consequences.
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   n2. The first half of the Article presents a thoughtful and interesting argument that the formalities of contract
   formation may not be necessary in simple mass-market software transactions. Unfortunately, that argument
   does not get the authors where they want to go - namely, the conclusion that "non-negotiable" contracts
   cannot protect uncopyrightable works or limit "fair use." So the authors shift their discussion to the Boucher
   Bill, which the authors champion, pulling the Article towards a justification of that bill, despite the authors' own
   arguments earlier in the piece. This Comment focuses on the second half of the Article, in which the authors
   advance their proposals to limit Article 2B's reach. For further discussion of the first half of the Article, see
   infra note 46. The Nimmer proposal, though closely modeled on the McManis motion and the Boucher Bill, was
   not officially presented for adoption; rather, it is shorthand for the authors' position.
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   This Comment has three Parts. Part I provides a brief legislative history of the McManis motion, which, like the
   Nimmer proposal, sought unsuccessfully to limit the scope of Article 2B, and then gives a brief overview of the
   Nimmer proposal. Part II addresses the practical difficulties that the Nimmer proposal would create for the
   information industries. Finally, Part III demonstrates how the authors' flawed proposal relies on an erroneous
   legal analysis of existing case law on contract and copyright and therefore is an unnecessary solution to a
   nonexistent problem.

   I The Nimmer Proposal and the Rejected McManis Motion
   Article 2B is a proposed addition to the U.C.C. that would govern licenses of information and software
   transactions. There are two co-sponsors of the Article 2B effort, the American Law Institute (ALI) and the
   National Conference of Commissioners on Uniform State Laws (NCCUSL). The McManis motion is named for
   Professor Charles McManis of the Washington University School of Law, who introduced the following proposal
   at the 1997 Annual ALI Meeting:

   I move that Section 2B-308 n3 of the Discussion Draft of Uniform Commercial Code Article 2B (dated April 14,
   1997) be amended by adding the following section (h):
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   n3. At the time, 2B-308 was the section of Article 2B that dealt with "mass-market transactions" - the
   concept analogous to the Nimmer proposal's "non-negotiable license." In the April 1997 Draft of Article 2B, a
   "mass-market transaction" was defined in 2B-102(26), in part, as:

   [A] transaction in a retail market for information involving information directed to the general public as a whole
   under substantially the same terms for the same information, and involving an end user licensee that acquired
   the information in a transaction under terms and in a quantity consistent with an ordinary transaction in the
   general retail distribution.

   Id. [All versions of Article 2B are available on the Internet. See National Conference of Commissioners on
   Uniform State Laws, Drafts of Uniform and Model Acts of Official Site (last modified Sept. 2, 1998)
   <>. The Official Site offers the Article 2B drafts in several file
   formats, among which the pagination is inconsistent. In this Comment and throughout this issue of the
   California Law Review, page references are to the pages as they are numbered in the Acrobat PDF file format.
   Only the prefaces to the drafts are cited by page number; all other material is cited by section number. The
   draft of August 1, 1998, has no page numbers in its on-line version, and therefore the preface of that draft is
   cited without page references. Ed.]
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    [*81]  (h) A term that is inconsistent with 17 U.S.C. Section 102(b) or with the limitations on exclusive rights
   contained in 17 U.S.C. Sections 107-112 and 117 cannot become part of a contract under this section. n4
   The discussion of the McManis motion at the 1997 Annual ALI meeting was relatively short, and it passed by a
   razor-thin margin of 86-84. Thereafter, both the information industries and the federal agencies that oversee
   them mobilized to inform the other co-sponsor of the Article 2B, NCCUSL, of the effects of the motion. n5 At
   its 1997 Annual Meeting, NCCUSL adopted the following motion:
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   n4. The motion and Professor McManis' supporting memorandum can be found at
   <> (visited Oct. 30, 1998).

   n5. Letters were submitted by the United States Securities and Exchange Commission, the United States
   Commodity Futures Trading Commission, the Information Industry Association (representing over 550
   information providers), the Consolidated Tape Administration (representing a number of securities markets
   including the New York Stock Exchange, The Nasdaq Stock Market, Inc., and the American Stock Exchange), a
   separate letter from the Chair of The Nasdaq Stock Market, Inc., the New York Mercantile Exchange, the
   Options Price Reporting Authority, and the Chicago Mercantile Exchange along with the Chicago Board of
   Trade. Copies of some of these submissions can be found at
   <> (visited Sept. 24, 1998).
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   In light of the significant concerns expressed by federal regulatory agencies, the major stock, commodity and
   mercantile exchanges and the software, publishing, entertainment and information industries, the Committee of
   the Whole believes that Article 2B should not address in its text the subject matter of the so-called McManis
   Motion, but should adopt a position of neutrality on the issues which are being actively debated at federal and
   international levels. This position of neutrality should be stated in the Official Comments. In light of the
   concerns articulated and this view, the Committee of the Whole respectfully suggests that ALI revisit the
   position expressed in a narrow vote at its 1997 Annual Meeting. n6
   Thus, NCCUSL not only rejected the McManis motion, but also took the unusual step of asking the ALI to
   reconsider its adoption of the McManis motion. The NCCUSL motion passed by a voice vote. Of the almost 400
   delegates in the room, fewer than ten appeared to vote against the NCCUSL motion. Next, the Article 2B
   Drafting Committee  [*82]  took up the McManis motion. After an hours-long debate, it is fair to say that the
   Committee had little interest in the McManis motion. In fact, no one on the Drafting Committee moved to
   adopt the McManis motion, or anything like it.
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   n6. The text of this motion can be found in a report about the meeting, at
   <> (visited Sept. 24, 1998).
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   Finally, the McManis motion was broadened and reintroduced at the 1998 ALI Annual Meeting. It provided:

   The current draft of proposed UCC Article 2B has not reached an acceptable balance in its provisions
   concerning mass-market licenses (2B-208) and the relationship between Article 2B and federal law (2B-105).
   Section 2B-208 reflects a persistent licensor bias that permeates the entire draft, substantially alters
   established principles of contract law, and creates a serious risk of conflict with, and eventual preemption in
   whole or in part by, federal copyright and/or patent law. Section 2B-105, while paying lip-service to the
   supremacy of federal law, does nothing to eliminate or reduce that risk of conflict, nor does it provide
   contracting parties or the courts with any meaningful guidance about how to avoid such conflicts. A
   fundamental change in approach is therefore needed to avoid the potential for conflict, not only between
   2B-208 and federal law, but also between U.S. law and various bodies of international and foreign law. n7
   As the motion's supporting memorandum makes clear, the 1998 version of the McManis motion not only sought
   to reintroduce the wording of the original 1997 version, but also offered four other alternatives to accomplish
   the same end. Professor McManis attributed two of these alternatives to papers presented at the April 1998
   Berkeley conference that gave rise to this Symposium. n8 After lengthy discussion, a voice vote was taken on
   the 1998 McManis motion. The vote was overwhelming in its rejection, so much so that the Chair did not even
   ask for a raising of hands to confirm the outcome (as the Chair did for some other motions made at the same
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   n7. The motion and Professor McManis' supporting memorandum can be found at
   <> (last modified May 5, 1998) [hereinafter 1998 McManis Motion].
   Detailed counter memoranda by Holly Towle, <> (last modified May 8,
   1998), and this Comment's author, <>" (last modified May 13, 1998), can
   also be found.

   n8. See 1998 McManis Motion, supra note 7, at 5-7.
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   Now Nimmer and his co-authors have proposed their own amendment to Article 2B. The Nimmer proposal

   When a work is distributed to the public subject to non-negotiable license terms, such terms shall not be
   enforceable [ ] to the extent that they - (1) limit the reproduction, adaptation, distribution, performance, or
   display, by means of transmission or otherwise, of material that is uncopyrightable under section 102(b) [of
   the Copyright Act] or otherwise; or (2) abrogate or  [*83]  restrict the limitations on exclusive rights specified
   in sections 107 through 114 and sections 117 and 118 of [the Copyright Act]. n9
   The Nimmer proposal thus follows in the footsteps of the McManis motion, while broadening its scope and
   altering some of its details. The McManis motion was cast as an amendment to section 308 of Article 2B and
   thus limited itself to "mass-market transactions," that is, licenses of products found in a retail market with
   quantities consistent with typical purchases in that marketplace. The Nimmer proposal extends to a far
   broader category of licenses, which could well include large procurements between sophisticated parties where
   the recipient of the standard form has reviewed the form, but because it appears acceptable, chooses not to
   negotiate the terms. Likewise, the McManis motion limited itself to a "term that is inconsistent with 17 U.S.C.
   Section 102(b)," n10 whereas the Nimmer proposal covers any limitation on "reproduction, adaptation,
   distribution, performance, or display, by means of transmission or otherwise," not just that which is
   inconsistent. The Nimmer proposal also extends its prohibitions to "material that is uncopyrightable under
   Section 102(b) or otherwise." n11 Finally, the McManis motion declares unenforceable limitations inconsistent
   with "17 U.S.C. Sections 107-112 and 117," whereas the Nimmer proposal extends to "sections 107 through
   114 and sections 117 and 118."
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   n9. Nimmer et al., supra note 1, at 72.

   n10. 17 U.S.C. 102(b) provides:

   In no case does copyright protection for an original work of authorship extend to any idea, procedure,
   process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is
   described, explained, illustrated, or embodied in such work.

   n11. Id. Nimmer et al., supra note 1, at 72 (emphasis added).
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   The Nimmer proposal raises several interesting points. First, it declares unenforceable terms that purport to
   deal with "reproduction, adaptation, distribution, performance, or display, by means of transmission or
   otherwise" that the authors contend are (and I will refer to as) the "exclusive rights" of a copyright owner
   under section 102 of the Copyright Act when the license deals with "material that is uncopyrightable under
   section 102(b) [of the Copyright Act] or otherwise." Second, it declares unenforceable terms that purport to
   deal with exclusive rights where the terms "abrogate or restrict the limitations on exclusive rights specified in
   sections 107 through 114 and sections 117 and 118 of [the Copyright Act]." Third, it declares the above types
   of terms unenforceable only when they are "non-negotiable license terms."


   II The Harmful Unintended Consequences of the Nimmer Proposal
   The Nimmer proposal would have several harmful unintended consequences for the information industries.
   Before turning to the flaws in the authors' legal analysis, then, I shall address four key areas where adoption
   of the Nimmer proposal would create undesirable outcomes: (1) denying protection to socially valuable but
   uncopyrightable information; (2) guaranteeing abuse of the "fair use" doctrine; (3) raising the ire of the United
   States' trading partners; and (4) creating an unworkable rule for "non-negotiable" contracts. Even if the
   current state of the law were as troublesome as the authors claim it is, that would still not justify legislation
   that would produce so many harmful results in the real world.

   A. The Growing Importance of Uncopyrightable Information
   An increasing proportion of the value of the United States economy depends on the creation and compilation
   of information "that is uncopyrightable under section 102(b) [of the Copyright Act] or otherwise," n12 for
   which contract is the chief, and sometimes the only, means of protection. Yet the authors would apparently
   deny such information any contractual protection from unauthorized copying.
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   n12. Id.
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   A recent study highlights the importance of the information industries to the United States economy. Just in
   the last year, the American Electronics Association published Cybernation, a study of the importance of
   high-technology industries to the economy. n13 The study contained statistics about the growth of the
   "information retrieval services" sector of the high-technology industry. While the category includes purveyors
   of both copyrighted and non-copyrighted information, there is no reason to believe that the uncopyrighted
   portion of the sector is growing any slower than the information sector as a whole. In tabular form, the study
   reported the following growth pattern:
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   n13. See American Electronics Association, Cybernation (1998). In the interest of full disclosure, I note that
   this study was partially funded by The Nasdaq Stock Market, Inc.
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   [SEE TABLE IN ORIGINAL]  [*85]  These conclusions are similar to those published in the 1998 U.S. Industry
   and Trade Outlook. Discussing a segment of the information industry termed "electronic information services,"
   that report stated:

   This subsector grew at close to 9 percent on average between 1994 and 1996. Export revenues from this
   subsector were $ 1.3 million in 1995, an increase of almost 15 percent. Exports increased at an average of 28
   percent a year between 1992 and 1995, and strong export growth is expected to continue....Estimates,
   though sketchy, indicate that consumer on-line services had on the order of 9 to 11 million subscribers in
   1995, a 70 to 100 percent increase over 1994. Growth of this magnitude will probably continue through 2000.
   Similarly, a 1998 study by Laura D'Andrea Tyson and Edward F. Sherry summarizes various statistics on what
   they term the "database industry": n15
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   n14. Dep't of Commerce, U.S. Industry & Trade Outlook "98 26-28 (1998).

   n15. Laura D'Andrea Tyson & Edward F. Sherry, Statutory Protection for Databases: Economic and Public
   Policy Issues 9 (1998) <> (visited Sept. 24, 1998). Reprinted with
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   In addition to these studies, recent cases illustrate the principle that important information products are often
   not protected - or are only weakly protected - by copyright. A good start is ProCD v. Zeidenberg. n16 There,
   ProCD had produced a CD-ROM of 95,000,000 residential and commercial telephone listings compiled from
   approximately 3,000 publicly available telephone books. n17 As the Court of Appeals noted, ProCD spent over $
   10,000,000 to compile the information from the directories onto its CD-ROM. n18 Unquestionably, a CD-ROM of
   telephone directories is a socially useful product that costs millions of dollars to produce, verify, market,
   support, and update. Yet, copyright protection was completely unavailable to protect ProCD from a graduate
   student, Matthew Zeidenberg, who took the entire CD-ROM and posted it on the Internet in competition with
   ProCD. Needless to say, Zeidenberg incurred none of the costs of producing the CD, but used it to attract
   20,000 hits per day on his World Wide Web site. n19
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   n16. 908 F. Supp. 640 (W.D. Wis.), rev'd, 86 F.3d 1447 (7th Cir. 1996).

   n17. See 908 F. Supp. at 644.

   n18. See 86 F.3d at 1449.

   n19. See 908 F. Supp. at 646.
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   Were it not for the ability of ProCD to protect its product contractually, ProCD would have had no cause of
   action against Zeidenberg, who would have been free to reap what he had not sown. Had the Nimmer proposal
   been the law and the shrink-wrap license in ProCD not been upheld, it is hard to imagine ProCD or any other
   commercial entity ever compiling another directory. Intentional or not, one consequence of the Nimmer
   proposal would be the loss of many such economically useful, but non-copyrightable, databases.

   A similar situation was presented in Warren Publishing Co. v. Microdos Data Corp. n20 There, Warren, the
   publisher of the Television & Cable Factbook, sued Microdos, which had scanned the entire book and then sold
   a CD-ROM of the same information in competition with Warren's paper publication. The Factbook has been
   published every year since 1948. The portion of the Factbook involved in the litigation contained approximately
   1,340 pages of data on 8,413 cable systems and their owners. A directory section provided addresses and
   telephone numbers for these systems, as well as viewership and programming  [*87]  information. n21 Warren
   is a small family-owned business. It employs a staff that each year re-surveys and re-verifies the information
   in the Factbook. While the Factbook is a valuable source of information (I have consulted it in my own
   practice), this information is collected by survey, much the way census data is collected. As the Supreme
   Court noted in Feist Publications, Inc. v. Rural Telephone Service Co., n22 this type of survey data does not
   enjoy copyright protection:
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   n20. 115 F.3d 1509 (11th Cir. 1997).

   n21. See id. at 1511-12.

   n22. 499 U.S. 340 (1991).
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   One who discovers a fact is not its "maker" or "originator." The discoverer merely finds and records.
   Census-takers, for example, do not "create" the population figures that emerge from their efforts; in a sense,
   they copy these figures from the world around them. Census data therefore do not trigger copyright because
   these data are not "original" in the constitutional sense. The same is true of all facts - scientific, historical,
   biographical, and news of the day. "They may not be copyrighted and are part of the public domain available
   to every person." n23
   Relying on Feist and its own opinion in BellSouth Advertising & Publishing Corp. v. Donnelley Information
   Publishing, Inc., n24 the Eleventh Circuit denied any copyright protection to the Factbook. In other words,
   Microdos was free under the Copyright Act to copy and sell all the information from the Warren Factbook
   without expending any of its own effort or cost. Needless to say, unless Warren can protect its underlying
   data through "non-negotiable" licenses, it has little ability to protect its tremendous yearly investment in
   producing the Factbook. This would be a harsh, and, one would hope, unintended consequence of the Nimmer
   proposal. n25
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   n23. Id. at 347-48 (alteration in original) (emphases added) (citations omitted).

   n24. 999 F.2d 1436 (11th Cir. 1993).

   n25. Some have argued that trademark would have been a substitute cause of action for Warren. For more on
   the weakness of this argument, see infra note 32.
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   Thus, the Nimmer proposal would threaten contractual protection for socially valuable products like those
   discussed in the cases above. And, as is clear from those cases, copyright does not currently protect these
   information services. Contract would seem to be the most flexible, narrowly tailored way to preserve economic
   incentives for providing information products, but that is precisely what would be foreclosed by the Nimmer

   It might be suggested that special federal statutory protections for certain kinds of uncopyrightable
   information sources might be the answer to this dilemma. Draft legislation is already pending in Congress
    [*88]  to protect databases. n26 But such sui generis protection schemes cannot obviate the need for
   contractual protections for two reasons. First, the scope of such legislative proposals is narrow. The database
   protection bill, for instance, is limited to the protection of only certain databases. The universe of
   uncopyrightable materials presently protected by contract is much broader, however. Examples include
   publishing and distribution agreements for written and film works that are uncopyrightable because the period
   of protection has passed or because they were improperly marked under United States law prior to 1978, and
   agreements protecting trade secrets and know-how. Even databases would not receive full protection,
   because the statutory database scheme would not eliminate the need to license those databases outside the
   United States. Second, as the authors themselves note, contracts normally work with, rather than in place of,
   federal statutory protections. Only the simplest transactions can be dealt with by statutory protection alone.
   Complex, interdependent licensing requires both contract and federal statutory protection.
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   n26. See infra note 86 and accompanying text.
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   B. The Importance of Licenses That Limit "Fair Use"
   The Nimmer proposal also seeks to invalidate "non-negotiated" licenses that "abrogate or restrict the
   limitations on exclusive rights specified in sections 107 through 114 and sections 117 and 118 of [the
   Copyright Act]." But it is easy to demonstrate that there are many forms of "fair use" that need to be
   restricted by contract to ensure the continuing availability of the information being copied.

   I begin with one of my employer's databases. The Nasdaq Stock Market, Inc., is the second largest stock
   market in the United States, and among the fastest growing markets in the world. Its reported daily share
   volume exceeds that of the New York Stock Exchange. The Nasdaq Stock Market lists about 5,983 companies'
   securities. n27 Nasdaq also offers a forum, the OTC Bulletin Board, where broker-dealers can enter bids to buy
   or sell the tens of thousands of publicly traded securities that fail to meet Nasdaq's listing requirements. All in
   all, up-to-date quotations of brokers, dealers, and customer limit orders, as well as information on actual
   trades of thousands of companies' securities - all of which amount to millions of bytes of information each day
   - are packaged by Nasdaq into a broadcast data feed called the Level 1/Last Sale feed. n28
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   n27. These statistics are drawn from <> (visited Sept. 17, 1998).

   n28. More detailed descriptions of Nasdaq, its markets, and data feeds can be found at
   <> (visited Sept. 17, 1998).
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    [*89]  Not only does Nasdaq compile this data, it decides which companies will be listed on its market, and
   therefore included in the Nasdaq Stock Market portion of the Level 1/Last Sale feed. Nasdaq offers an
   extensive hearing process to issuers who do not agree with Nasdaq's decision. An affiliate of Nasdaq, NASD
   Regulation, Inc. (NASDR), spends millions of dollars each year educating, testing, and disciplining the brokers
   and dealers and their thousands of associated persons who are allowed to enter the quotes and trades
   reflected in the Level 1/Last Sale feed. Moreover, Nasdaq has an extensive MarketWatch system that, in real
   time, based on a complex series of variables, triggers alerts to a roomful of human analysts about unusual
   activity in the price movement or trading of securities that might indicate an attempt to insider trade or
   otherwise illegally manipulate the price of a security. These analysts can call the issuer or broker to
   investigate whether a trading halt in the security needs to be declared by the Nasdaq Stock Market. The
   MarketWatch department can also refer the oddity to a huge off-line Market Surveillance department, which
   disciplines any broker or dealer found to have violated the securities laws, SEC regulations, or NASDR/Nasdaq
   rules and regulations.

   These services come at a cost. To offer this data involves creating the market, compiling the data, verifying
   the data, monitoring the market, and testing, certifying, and disciplining market participants. A large portion of
   these expenses are currently paid for by the revenue derived from the Level 1/Last Sale feed. Nasdaq provides
   its Level 1/Last Sale data to over 338,000 terminals in fifty-nine countries. n29 With such a large customer
   base, Nasdaq can afford to charge a relatively low fee to each user for its data. Market professionals (like
   brokers or dealers) pay $ 20.00 per month for unlimited access to real-time (less than fifteen-minute delayed)
   data. Non-professionals are charged just $ 4.00 per month for the same information. Professional and
   non-professional users who can wait fifteen minutes or more for the information receive it free of charge. n30
   Needless to say, Nasdaq must be able to carefully guard and restrict the use of its data in order to ensure
   that it can collect the millions of dollars required to fund its data collection efforts within those first fifteen
   minutes. Thus, the Nasdaq Subscriber Agreement generally prohibits re-transmission of the real-time data. n31

   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n29. See The Nasdaq Stock Market, Inc., The Nasdaq Stock Market Fact Book & Company Directory 32

   n30. See National Association of Securities Dealers, Inc., NASD Manual Rule 7010 (1998).

   n31. Of course, the Nasdaq agreement affirmatively grants subscribers the right "on a non-continuous basis,
   [to] furnish limited amounts of the Information to customers: in written advertisements, correspondence, or
   other literature; or during voice telephonic conversations not entailing computerized voice, automated
   information inquiry systems, or similar technologies." The Nasdaq Stock Market, Inc., Consolidated Subscriber
   Agreement at 1.
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

    [*90]  In the Internet age, such close control of real-time data is essential. Imagine that, out of data on, say
   10,000 companies, a subscriber were able, despite the restriction in the Nasdaq agreement, to retransmit on
   their web site the quotes and last sales of fifty companies, claiming fair use. Imagine that 200 such sites
   existed, each with a different set of fifty companies. In such a scenario, a vendor could simply continuously
   visit these 200 sites and thereby gather, in real time, the quotes and trades on all of Nasdaq's stocks, and
   thereafter redisseminate a complete feed without compensation to Nasdaq. Were that to happen, Nasdaq
   would not have the revenue feed to continue to collect, process, verify, police, and disseminate the data. n32

   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n32. Some have argued that there are trademark causes of action that would prevent such an occurrence.
   They argue that a competing vendor would, in order to attract users, indicate that its data came from the
   compiler, such as Nasdaq. The use of the Nasdaq trademark would leave the pirating vendor open to a
   trademark or anti-dilution suit from the compiler. This reasoning is flawed. In the case of Nasdaq, as in the
   case of many databases, the competing vendor would never have to use any of Nasdaq's trademarks in order
   to vend its product because it would be obvious to the users where the data must have came from and that
   its reliability can be trusted.

   It should be noted that there is a tort available to Nasdaq called "misappropriation of hot news." This cause of
   action was first recognized by the Supreme Court in International News Service v. Associated Press, 248 U.S.
   215 (1918). The legislative history of the 1976 Copyright Act specifically noted that 301 was not intended to
   preempt this cause of action. See H.R. Rep. No. 94-1476, reprinted in 1976 U.S.C.C.A.N. 5659, 5748. Courts
   have recognized the continuing validity of the hot news tort. See National Basketball Ass'n v. Motorola, Inc.,
   105 F.3d 841 (2d Cir. 1997); see also Nash v. CBS, Inc., 704 F. Supp. 823, 833-35 (N.D. Ill. 1989); Mayer v.
   Josiah Wedgwood & Sons, Ltd., 601 F. Supp. 1523, 1531-35 (S.D.N.Y. 1985); P.I.T.S. Films v. Laconis, 588 F.
   Supp. 1383, 1385-86 (E.D. Mich. 1984) (each holding all misappropriation causes of action preempted, save for
   International News Service). This cause of action, however, does not exist overseas and is limited to
   protecting the information only while it is "hot news." This protection, therefore, does not adequately protect
   most non-copyrightable databases.
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   Nasdaq does permit numerous entities to freely redisseminate its data, but it does so under a different
   contractual structure - a vendor agreement. n33 Under this agreement, a vendor is given the authority to
   redisseminate data, as long as it agrees to obtain the Subscriber Agreement from its customers, and report
   and bill the number of customers it services to Nasdaq. In this way, Nasdaq is able to facilitate broad
   dissemination of its real-time data worldwide while guarding its vital revenue stream.
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n33. See The Nasdaq Stock Market, Inc., Vendor Agreement for Level 1[su'sm'] Service and Last Sale[su'sm']
   Service (on file with author).
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   Despite the legitimate need to prohibit the redissemination of real-time data by unauthorized vendors of
   Nasdaq, the contractual scheme used by Nasdaq would be illegal under the Nimmer proposal. Section (b) of
   the Nimmer proposal would declare unenforceable any clause that "abrogates or restricts" any fair use of the
   data, as that concept is defined under the Copyright Act. Thus, Nasdaq could not legally  [*91]  prevent the
   Internet recollation scheme outlined above with "non-negotiable" contracts, despite the commercially
   legitimate and socially desirable need to do so.

   The Nimmer proposal would permit Nasdaq to impose the restrictions on use in its current license only if the
   terms were "negotiable." It is not exactly clear what is meant by "negotiable" since Nimmer, Brown, and
   Frischling do not discuss the concept. But whatever it is intended to mean, this much must be clear: the
   Nimmer proposal contemplates that an attorney or another person with enough education to explain and
   understand the contract, as well as with enough authority to bind Nasdaq to any changes in the agreement,
   would be present or at least available to negotiate the terms with each customer. For customers who are now
   charged $ 4.00 per month, or nothing if they take delayed data, Nasdaq would not have enough revenue
   incentive to offer this expensive and labor-intensive negotiation service to these low-end customers.
   Moreover, if Nasdaq is required to affirmatively "negotiate" every contract with every user, it would have to
   create a system for administering custom - and likely contradictory - contractual obligations among its
   licensees. As a result, it seems likely that dissemination of Nasdaq real-time and delayed data would have to
   be restricted to the largest revenue-producing entities, for their use only. The hundreds of web sites that now
   disseminate Nasdaq data would dry up. The non-professional and delayed services would likely disappear.

   The irony is that although the Nimmer proposal is supposed to benefit small users and consumers, it will likely
   have just the opposite effect. The rule championed by the authors would force information vendors to license
   data only to the largest customers, for whom the cost of negotiation and administration of custom negotiated
   licenses could be justified by the revenue flow. Alternatively, information providers will have to raise the price
   of their data to the small user. This will, in turn, hurt small users, who are likely the most cost-sensitive.

   Nasdaq would not be a unique case. Dun and Bradstreet (D&B) (and the other credit reporting agencies around
   the world) produces and distributes credit information on millions of entities. Needless to say, private and
   sensitive information about a person's financial situation legitimately needs to be guarded and prevented from
   redissemination. Like other information providers, D&B uses "non-negotiable" licenses with small users to keep
   setup and administration costs and burdens low. Imagine that the D&B database contains 100,000 credit
   records. Under traditional fair use doctrine, if D&B provided five credit reports to a small user, a
   redissemination of those five credit reports would likely be a "fair use" of the database. Nonetheless, I would
   be aghast and angry if my credit report were one of the five reports that the user chose to  [*92]  post on
   the Internet. Today, D&B prohibits redissemination of its reports. D&B is able to protect the privacy of the
   subjects of its reports by strict contractual prohibitions that undoubtedly "abrogate or restrict" fair use rights.
   The Nimmer proposal would declare, as a matter of law, that D&B has no ability to protect privacy of credit
   reports where small users who obtain the information through "non-negotiable" licenses are involved. n34
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n34. To be sure, the Fair Credit Reporting Act, 15 U.S.C. 1681-1681(e), provides some statutory protection
   for certain kinds of "consumer reports" and "investigative consumer reports" (as defined by 15 U.S.C. 1681(a).
   However, like other forms of federal protection, it does not form an independent, freestanding scheme in the
   absence of contract. For example, most restrictions and regulations under the Fair Credit Reporting Act relate
   to "consumer reporting agencies," not to users or recipients of the information. See 15 U.S.C. 1681(b),
   1681(m) (1984). Thus, users of information who obtain the information legally under the Fair Credit Reporting
   Act, but then use the information for other purposes, may not be violating federal law. Moreover, the statute
   does not regulate credit reports of persons other than consumers. The Fair Credit Reporting Act also does not
   give the reporting agency a cause of action against users to prevent their unauthorized or illegal use of the
   data. And, as with other federal protection schemes, the Fair Credit Reporting Act does not cover
   unauthorized uses made outside the United States. Finally, some credit report providers (and others) fear that
   the Nimmer proposal, particularly as embodied in the Boucher Bill, see infra text accompanying note 86, could
   be read to override or conflict with even the limited protections currently provided by the Act.
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   Similarly, D&B is able to manage its defamation risk via contractual use restrictions. In many states, there is a
   qualified privilege against defamation where the information is exchanged in good faith between creditors.
   However, that privilege is unavailable where the data is shared with non-creditors. The D&B license restricts
   not only use and redissemination of the data, but also to whom the data may be shared. Since fair use under
   the Copyright Act does not explicitly regulate who can receive data, the D&B clause would likewise be
   declared unenforceable under the Nimmer proposal. The Nimmer proposal would destroy D&B and its
   creditor-clients' qualified privilege. It seems safe to say that the cost of D&B services, when fully subject to
   invasion of privacy and defamation claims, would be far higher than it is today. n35
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n35. See generally Letter from James R. Maxeiner, Vice President and Associate General Counsel, Dun and
   Bradstreet, Inc., to ALI (May 19, 1997) (discussing the McManis Motion). A copy of the letter can be found at
   <> (visited Sept. 24, 1998).
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   One more example should suffice. Most of the readers of this Comment are familiar with the WESTLAW or
   Lexis/Nexis limited-use services provided to law school students. WESTLAW and Lexis/Nexis are high-priced
   services, far beyond the means of most law students and law school libraries. Nonetheless, these (and similar
   information vendors) offer a "non-negotiable" educational license to students. The license permits them access
   to large areas of the databases, provided that the students do not make professional or commercial use of the
   discounted WESTLAW or Lexis/Nexis services. While the trade-off of  [*93]  restricted use for low price seems
   socially beneficial, the Nimmer proposal would declare the trade-off unenforceable since the students are
   making the same "fair use" of the few cases they read from the vast WESTLAW or Lexis/Nexis databases that
   is made by professional users, and thus leave these vendors with little choice but to withdraw the law student
   program. Similarly, the ProCD case involved a vendor who offered the same information to individual users at a
   far lower price than it offered the same information to professional users. n36
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n36. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (7th Cir. 1996).
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   The cases of harm from the Nimmer proposal for information services do not end here. Many trade secrets
   involve uncopyrightable information. Would the Nimmer proposal declare terms restricting use and
   redissemination of such trade secrets unenforceable since the information is "material that is uncopyrightable
   under section 102(b) [of the Copyright Act] or otherwise"? If so, how would one protect trade secrets? A
   license that relates to restrictions on use of a patent literally violates the Nimmer proposal since the license
   terms restrict some or all of the exclusive rights of "performance," "adaptation," or "display" of an invention,
   and certainly patent terms prohibit what would otherwise be "fair use" under the Copyright Act. Know-how
   licenses would likewise have their terms routinely declared unenforceable since they too often involve
   uncopyrightable material. n37
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   n37. Even after a lengthy discussion of the importance of trade secrets and the non-preemption of trade
   secret protection by 301 of the Copyright Act, neither the McManis motion nor the Nimmer proposal is worded
   to permit protection of non-copyrightable trade secrets, nor validate restrictions on use of trade secrets that
   would appear to "abrogate or limit" fair use of that information. This is more than a mere oversight; any
   proposal that validates trade secrets would have to validate reverse engineering restrictions. One of the
   authors' main hopes for their proposal is the voiding of all reverse engineering clauses. See infra Section II.D.
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   C. The Unintended International Consequences of the Nimmer Proposal
   One must also look at the effect of the Nimmer proposal on international transactions. The Nimmer proposal
   incorporates uniquely American notions of fair use and copyrightability into the commercial law of the United
   States. In international transactions involving a United States buyer, the United States could well be the
   contractual or default choice of law. n38 Although the subject matter of the license is  [*94]  copyrightable
   under the law of the producer, it may not be copyrightable under United States law (for example if the work
   predated the United States adoption of the Berne Treaty and was not properly marked). n39 The producer
   today can impose contractual restrictions on the work in the United States that mirror those of the Copyright
   Act and do not unfairly restrict fair use of the work. However, under the Nimmer proposal, the restrictions,
   perfectly legal in every country but the Unites States, are declared unenforceable ab initio in the United
   States, unless each individual license is negotiated. If the work is a mass-market work like a digital version of
   a sound recording or movie, the producer simply cannot afford to distribute the work in the United States
   since each license would have to be individually "negotiated." America is too often accused of trying to export
   its peculiar notions of copyright and fair use. To do so through the guise of a commercial law statute could
   well provoke criticism, and even retaliation, from the international community.
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n38. 2B-107 provides for contractual and default choices of law:

   (a) The parties in their agreement may choose the applicable law. However, in a consumer transaction, the
   choice is not enforceable to the extent it varies a rule that cannot be varied by agreement under the law of
   the jurisdiction whose law would apply in the absence of the agreement.

   (b) Except as otherwise provided by an enforceable choice-of-law term, the following rules apply:

   (1) An access contract or a contract providing for electronic delivery of a copy is governed by the law of the
   jurisdiction in which the licenser is located when the agreement is entered into between the parties.

   (2) A consumer transaction that requires delivery of a copy on a physical medium to the consumer is governed
   by the law of the jurisdiction in which the copy is delivered or, in the event of nondelivery, the jurisdiction in
   which delivery was to have occurred.

   (3) In all other cases, the contract is governed by the law of the jurisdiction with the most significant
   relationship to the contract.

   (c) If the jurisdiction whose law governs under subsection (b) is outside the United States, the laws of that
   jurisdiction govern only if they provide substantially similar protections and rights to a party not located in that
   jurisdiction as are provided under this article. Otherwise, the law of the jurisdiction in the United States which
   has the most significant relationship to the transaction governs.

   (d) A party is located at its place of business if it has one place of business, at its chief executive office if it
   has more than one place of business, or at its place of incorporation or primary registration if it does not have
   a physical place of business. Otherwise, a party is located at its primary residence.

   n39. Pursuant to 17 U.S.C. 405(a), works created before the effective date of the Berne Convention
   Implementation Act of 1988 would fall into the public domain if not properly marked with the statutorily
   prescribed copyright notice.
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   D. The Unmanageable "Non-Negotiable" Standard
   A key feature of the Nimmer proposal is that it applies only to "non-negotiable" terms. The problem is that the
   authors do not discuss what this term means. It either means almost nothing, or it can swallow up the
   universe of contracting practices. n40
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n40. Perhaps the reason for the authors' silence on the issue of "non-negotiable" licenses is that none of the
   case law discussed in the Article supports the distinction sought to be made - a distinction that must be
   drawn in order to support the Boucher Bill and the McManis motion, both of which make that distinction.
   Numerous cases cited by the authors discuss when a law or contract is preempted, but none makes
   preemption dependent on whether the contract is a standard form or was "negotiable." This flaw undermines
   the Article's entire analysis.
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

    [*95]  As corporate counsel for a large corporation, I can tell you that very few terms in a contract are truly
   "non-negotiable." If you represent a buyer with enough economic power, with almost no exceptions, the
   vendor will "negotiate" the clause with you. The vendor may demand that in order to change the clause, the
   buyer will have to pay a far greater price, agree to other restrictions that may be difficult for the buyer to
   accept as a quid pro quo, or the vendor may be willing to trade concessions on this clause for concessions on
   another clause that the buyer desires. The fact that the buyer chooses not to accept the vendor's price for
   the changes requested by the buyer does not make the clause "non-negotiable." Similarly, the vendor may not
   agree to the changes requested by the buyer, but might be willing to offer different changes in the term or
   changes in related terms. In either case, the term is not "non-negotiable."

   Even if you are a small user, few vendors declare terms truly "non-negotiable." That is, out of a duty of
   customer service, the vendor will diligently forward the user's request to its counsel for review. Again, most
   often the vendor will respond with a letter proposing some increased price, other quid pro quo, or other
   restriction in order to balance the added risks to the vendor of the proposed changes. Few customers are ever
   willing to accept such offers, but the term is nonetheless open to negotiation.

   If the term "non-negotiable" means "not typically negotiated," on the other hand, then the authors are asking
   that vendors (or buyers) who typically propose the terms keep an accurate track of who has asked for what
   changes, what the response was in each case, and what the outcome of the response was in order to show
   what terms are "typically negotiated." For a corporation like Microsoft or Nasdaq, a legal requirement of that
   kind would impose a huge paperwork burden. Moreover, I suspect, most buyers do not care to negotiate the
   kind of terms that concern the authors. For example, they appear to be most worried about software reverse
   engineering clauses, and clauses that limit the right of professors (and librarians) to use significant portions of
   copyrighted material in classroom, distance learning, and interlibrary loan situations. While this may not be the
   entire universe of clauses that are the real concern of the Nimmer proposal and the McManis motion, accept
   for a moment that these are among the concerns. Will the Nimmer proposal solve the problem? No. While
   Microsoft may sell tens of millions of copies of Windows 95, all but a handful of users would object to the
   anti-reverse engineering clause in the operating system's license. That is, the Microsoft database would likely
   show that there were few, perhaps twenty at most, requests in a given year to change the reverse
   engineering clause. Of that, Microsoft would likely show that most  [*96]  were from users who requested
   reverse engineering for their internal business purposes only and were licensed the source code (under strict
   confidentiality), became OEMs, n41 or were sold a modified object code version of the program; maybe two
   more were offered the right to reverse engineer in return for cross-licensing of the requester's major software
   patents, which the requesters declined; and two were perhaps from its major competitors who were offered
   the right to reverse engineer for $ 1 million per year. Was the clause therefore "non-negotiable"? Presumably,
   even this term was "typically negotiated," in which case the Nimmer proposal did not accomplish the result the
   authors intended - making reverse engineering clauses and clauses that restrict fair use illegal per se.
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n41. As defined by the Webopaedia web site, OEM

   stands for original equipment manufacturer, which is a misleading term for a company that has a special
   relationship with computer producers. OEMs buy computers in bulk and customize them for a particular
   application. They then sell the customized computer under their own name. The term is really a misnomer
   because OEMs are not the original manufacturers - they are the customizers. Another term for OEM is VAR
   (value-added reseller).

   PC Webopaedia Definition and Links (visited November 24, 1998)

   Parenthetically, I should note that much of the authors' confusion stems from the incorrect paradigm
   suggested at the beginning of the Article. The authors suggest that an Article 2 transaction "typically
   involves...a negotiated contract between buyer and seller....The typical software transaction, by contrast,
   does not involve a direct sale between the software proprietor and the end-user; rather it involves a
   non-negotiated license (otherwise known as a "shrinkwrap" contract) ...." n42 In fact, as anyone who buys
   goods from a retail outlet is well aware, indirect sales involving non-negotiated contracts are very typical in
   Article 2 goods transactions. Similarly, as the Society of Information Managers demonstrated at a recent
   Article 2B Drafting Committee meeting, more than 50% of the software market involves customized software
   transactions with huge dollar values and extensive negotiations directly with the software provider or a
   developer. n43
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n42. Nimmer et al, supra note 1, at 21.

   n43. White Paper from the Society of Information Managers addressed to Carlyle C. Ring, Jr., Chair, Article 2B
   Drafting Committee (March 23, 1998). Page 1 of the White Paper notes:

   Typically, roughly half of the software purchased by large businesses is shrinkwrap, and it is usually acquired
   by simply issuing a purchase order to a reseller rather than by negotiating a license agreement with the

   Equally significant is the market for mainframe and midrange system software, which is used by business,
   government and institutions and is characterized by niche products at high prices (typically $ 100,000 to many
   millions per transaction), few transactions, direct negotiation with the licensor, little or no competition, and
   more often than not, a mission critical application such corporate payroll, tax accounting, claims payment, or
   safety, health and environmental systems.

   Id. (Emphasis added).
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

    [*97]  It is not clear why the law for information and software transactions should uniquely burden the use of
   standard forms when the law for goods or services does not. The problems of standard non-negotiable forms
   and of oppressive terms contained in them are equally present in the case of home mortgages, car sales
   agreements, car rental agreements, telephone service contracts, cable television contracts, airline tickets,
   parking lot signs that disclaim liability, and insurance policies. To clearly disadvantage one set of industries,
   namely, the Article 2B industries, against their competitors in neighboring businesses by imposing legal
   restrictions on standard forms is not just.

   Moreover, what the Nimmer proposal explicitly invites is state law interpretations of what is copyrightable and
   what is fair use under federal copyright law. This would be a disaster. Imagine a state court judge being asked
   whether a clause is unenforceable as a matter of state contract law, not because it violates some important
   public policy of his or her state, but because it merely "restricts" some federal policy articulated in a vague set
   of four factors, n44 the application of which even the Circuits disagree, under a statute whose interpretation
   is otherwise exclusively delegated to the jurisdiction of federal courts. n45 It is one thing to have the current
   situation where state courts unavoidably must decide questions like, "Is this cause of action for violation of
   the license one of contract (that can be litigated before me) or one of copyright law (that can only be
   brought in a federal court)?" It is another to advocate, as the authors do, a situation where a state statute
   propels state courts into the deepest, most controversial, aspects of federal copyright policy. Do the authors
   really want fifty jurisdictions (plus the District of Columbia and the U.S. Territories) determining what
   "abrogates or restricts" fair use and what is copyrightable? Or to put the question even more pointedly, do the
   authors want the Washington State Supreme Court deciding what is permissible reverse engineering and fair
   use of Microsoft's products?
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n44. Fair use is defined in 17 U.S.C. 107 by a set of factors:

   In determining whether the use made of a work in any particular case is a fair use the factors to be considered
   shall include -

   (1) the purpose and character of the use, including whether such use is of a commercial nature or is for
   nonprofit educational purposes;

   (2) the nature of the copyrighted work;

   (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

   (4) the effect of the use upon the potential market for or value of the copyrighted work.

   The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon
   consideration of all the above factors.

   17 U.S.C. 107 (1992).

   n45. See 28 U.S.C. 1338 (1984) (granting exclusive jurisdiction over copyright matters to the federal courts).
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -


   III Overreading ProCD: The Flawed Legal Analysis Underlying the Nimmer Proposal
   Not only does the authors' Article end up with a proposal that has many unintended consequences, but it
   relies on a flawed legal analysis to reach that result. In particular, the authors overstate the importance of the
   Seventh Circuit's opinion in ProCD v. Zeidenberg, authored by Judge Frank Easterbrook, and then use that
   case as an argument for a major restructuring of Article 2B and state contract law. But if one rejects the
   authors' reading of ProCD - as I do - there is no need for their solution. n46
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n46. As I stated in note 2 supra, the first half of the Article is vastly different from the second, result-oriented
   half. I wish to make only a couple brief comments on the first half of the Article. First, the authors spend
   considerable time arguing that

   at least for the modes of software distribution used today, copyright law provides all the teeth a publisher
   needs to control use and dissemination of her work. No ersatz shark via contractual promise is necessary to
   enforce these rights....


   [The discussion above] demonstrates that state contract law is not needed to protect the copyright interests
   of copyright proprietors. Those interests are safeguarded by the Copyright Act itself.

   Nimmer et al, supra note 1, at 33, 40. In other words, the authors argue that contracts are never needed to
   restrict the exclusive rights in software transactions. This may be true for the very simple examples the
   authors have chosen to use, but there are clear examples where complex use restrictions need to be spelled
   out in a contract, particularly where they involve bilateral and mutual obligations.

   For example, I was involved in such a transaction with a large software producer. The Nasdaq Stock Market
   needed a new feature added to an existing product. The producer was not in a position to develop the feature
   but was willing to allow Nasdaq royalty-free access to the source code and was willing to provide some of its
   development personnel and resources to help Nasdaq develop the feature, provided that Nasdaq gave the
   developer a perpetual royalty-free license to the Nasdaq-developed code and the right to incorporate a
   version of the code into its normal product in return for a couple of years of free maintenance. Nasdaq agreed
   not to sell its code to any third party. Clearly such complex interrelated and co-developed cross-licensing
   projects involve bilateral and mutually dependent rights, performances, and obligations. The Copyright Act
   simply cannot, independent of contract, adequately cover such situations, nor can unilateral notice of use
   restrictions fill the bill. Contracts, even in software transactions, are necessary.

   My second comment goes to the authors' discussion of Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908) and
   RCA Manufacturing Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940). Nimmer et al, supra note 1, at 44-45. The
   authors use these cases to conclude that long before ProCD "earlier actors throughout the twentieth century
   had similarly attempted to magnify their rights through use of contract," and that such contractual
   restrictions, when they violate the "delicate balance" of copyright law, are invalid. See id. at 45. Bobbs-Merrill
   and Whiteman are not contract cases like ProCD, since both involve mere notices (Whiteman involved a notice
   to a subsequent buyer). As the court in Bobbs-Merrill explicitly noted, "This is purely a question of statutory
   construction. There is no claim in this case of contract limitation, nor license agreement controlling the
   subsequent sales of the book." 210 U.S. at 350. Moreover, at least the Bobbs-Merrill Court was being asked to
   follow a series of patent cases, which at the time, permitted use restrictions on subsequent purchasers of
   patented goods by mere notice and without contract. The Court refused to follow the patent cases, and so
   refused to permit notices alone to control use, because patent law is too different from copyright law. See id.
   at 346 ("There are such wide differences between the right of multiplying and vending copies of a production
   protected by the copyright statute and the rights secured to an inventor under the patent statutes, that the
   cases which relate to the one subject are not altogether controlling as to the other.") Yet the authors then
   turn around and argue that patent cases like Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141
   (1989), control the interpretation of the scope of 301 and the right of authors to charge for uncopyrightable
   works and for copyrighted products after the expiration of the copyright term.
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

    [*99]  The Nimmer Article starts out with a very agreeable proposition:

   Both at gestation and throughout its life, a copyright is owned according to a complex scheme deriving in large
   part from state law....

   But it is not solely the question of ownership over which state law governs. Copyright exploitation, too, can
   often turn on distinctions that equally derive from state laws....

   In sum, federal copyright doctrine leaves to state law the vast bulk of issues concerning contracts affecting
   copyright. It follows that state contract law, and cognate doctrines arising under state law, determines to a
   great extent the destiny of a copyrighted work and the physical object in which it is embodied. n47
   The authors then turn to the ProCD decision and a lengthy discussion of its preemption analysis. Needless to
   say, commentators have divided sharply on the reasoning in ProCD. n48 Nimmer, Brown, and Frischling are
   certainly welcome to add their slant to those who disagree with the court's reasoning. However, criticizing
   Judge Easterbrook's reading of some of the cases on which he relies does not get the authors where they
   want to be. They want to find a way to outlaw certain kinds of clauses in "non-negotiable" settings. In order
   to set the stage for this, the authors are forced to claim that:
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   n47. Nimmer et al, supra note 1, at 26.

   n48. In addition to the articles listed in the Nimmer Article, Nimmer et al, supra note 1, see, for example, M.A.
   O'Rourke, Copyright Preemption After the ProCD Case: A Market-Based Approach, 12 Berkeley Tech. L.J. 53
   (1997) and Stephen P. Tarolli, Comment, The Future of Information Commerce Under Contemporary Contract
   and Copyright Principles, 46 Am. U. L. Rev. 1639 (1997). See also Note, Contract Formation and Shrink Wrap
   License: A Case Comment on ProCD, Inc. v. Zeidenberg, 32 New Eng. L. Rev. 513 (1998); Note, ProCD, Inc. v.
   Zeidenberg and Article 2B: Finally, the Validation of Shrink-Wrap Licenses, 16 J. Marshall J. Computer & Info. L.
   439 (1998); Note, Contracting Beyond Copyright:ProCD, Inc. v. Zeidenberg, 10 Harv. J.L. & Tech. 353 (1997);
   cf. Robert W. Gomulkiewicz & Mary L. Williamson, A Brief Defense of Mass Market Software License
   Agreements, 19 Rutgers Computer & Tech. L.J. 335 (1996).
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   The contract at issue in ProCD, Inc. v. Zeidenberg differs from the foregoing examples in the one respect
   relevant to nonstatutory preemption: it contravenes one of the core policies of the Copyright Act by
   extending quasi-copyright protection to works that do not qualify as "original." It further fails the test of
   encouraging the dissemination of copyrightable works in an orderly fashion in that it seeks to bar the
   dissemination of uncopyrightable materials. It is, in short, nothing other than an  [*100]  attempt in effect to
   overrule by contract binding Supreme Court precedent.


   [The authors' example] proves that absolute freedom of contract under state law relating to copyrightable
   works is insupportable. n49
   But this is to overread ProCD. The authors must accuse Judge Easterbrook of advocating a position that every
   contract is free of any preemption under section 301 of the Copyright Act n50 in order to proceed to what is
   the heart of their Article - a justification for radically altering state law in order to construct a state law
   analogue to section 301 of the Copyright Act. That is, the authors argue that if ProCD is present law and
   Article 2B incorporates ProCD into a statutory enactment, and any contract is thus free of any preemption
   from the Copyright Act, then state contract law must have a provision, namely, the Nimmer proposal, that
   provides the same result under state law that section 301 would have provided.
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   n49. Nimmer et al, supra note 1, at 52-53, 54 (emphases added).

   n50. See, e.g., id. at 55 ("In Sony, the Supreme Court stated that "[copyright] protection has never accorded
   the copyright owner complete control over all possible uses of his work.' Yet, in a world governed by Judge
   Easterbrook's radical freedom to impose terms by shrinkwrap "contract,' there is no reason that such a
   conclusion should pertain. Instead, the imagination of shrinkwrap drafters can come close indeed to achieving
   the type of complete control that Sony expressly denied them."); id. at 49 ("Judge Easterbrook's reversal of
   the district court's holding in ProCD cites National Car Rental for the sweeping proposition that "rights created
   by contract' are not "equivalent to any of the exclusive rights within the general scope of copyright.' Although
   that latter case did hold that the specific contract there at issue was not preempted, it did not extend its
   holding to contracts in general."); id. at 52 ("It does not demonstrate the far greater proposition at which it
   [ProCD] hints: No contract relating to copyrightable goods is preempted under section 301(a).") (emphasis
   - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   This is the fundamental error in the authors' analysis. Nowhere does Judge Easterbrook claim that contract
   always preempts copyright. In fact, I suspect he believes just the opposite. Take the authors' examples. If
   the Copyright Act requires that transfers of copyright ownership be executed in writing or that a federal
   definition of "children" be used, the logic of ProCD would not lead to enforcing contractual provisions
   contradicting those requirements. ProCD simply stands for the proposition that contractual clauses are not
   automatically preempted by the Copyright Act. It does not stand for the negative pregnant of that
   proposition, which would be that contractual clauses can never be preempted by provisions of the Copyright

   At the end of the ProCD opinion, Judge Easterbrook specifically addresses the issue of preemption of
   contractual terms by the Copyright Act. To all appearances, he states that contractual clauses can be
   subject to preemption by section 301 on a case-by-case basis. He begins with a lead-in discussion about
   whether Congress could preempt any  [*101]  contractual provision that differs from the rights and obligations
   created by federal statute. He concludes that if Congress explicitly chooses to do so, it has that power.
   However, courts do not normally imply that Congress intended to prohibit private contractual clauses:

   Although Congress possesses power to preempt even the enforcement of contracts about intellectual
   property...courts usually read preemption clauses to leave private contracts unaffected. American Airlines,
   Inc. v. Wolens provides a nice illustration. A federal statute preempts any state "law, rule, regulation,
   standard, or other provision...relating to rates, routes, or services of any air carrier." 49 U.S.C.A. 1305(a)(1).
   Does such a law preempt the law of contracts - so that, for example, an air carrier need not honor a quoted
   price (or a contract to reduce the price by the value of frequent flyer miles)? The Court allowed that it is
   possible to read the statute that broadly but thought such an interpretation would make little sense. Terms
   and conditions offered by contract reflect private ordering, essential to the efficient functioning of markets.
   Although some principles that carry the name of contract law are designed to defeat rather than implement
   consensual transactions, the rules that respect private choice are not preempted by a clause such as
   1305(a)(1). n51
   Thus, Judge Easterbrook notes that Congress can intend to preempt any contract that performs an "end run"
   around its statutory scheme of rights and obligations of a buyer and seller. But, Judge Easterbrook implicitly
   asks whether Congress intended the preemption clause of the Copyright Act n52 to preempt all contractual
   terms that differed from the Copyright Act's set of rights and obligations. Judge Easterbrook finds that
   Congress did not intend that result:
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   n51. 86 F.3d 1447, 1454-55 (7th Cir. 1996) (citing American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995))
   (emphases added) (citations omitted).

   n52. 17 U.S.C. 301(1) provides:

   (a) On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights
   within the general scope of copyright as specified by section 106 [17 U.S.C. 106] in works of authorship that
   are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by
   sections 102 and 103 [17 U.S.C. 102 and 103], whether created before or after that date and whether
   published or unpublished, are governed exclusively by this title [17 U.S.C. 101-1101]. Thereafter, no person is
   entitled to any such right or equivalent right in any such work under the common law or statutes of any State.

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   Section 301(a) plays a role similar to 1301(a)(1): it prevents states from substituting their own regulatory
   systems for those of the national government. Just as 301(a) does not itself interfere with private
   transactions in intellectual property, so it does not prevent states from respecting those transactions. n53
    [*102]  Finally, Judge Easterbrook makes clear that he does not intend to make the reverse finding - that no
   contractual term is ever subject to preemption by 301(a) of the Copyright Act:
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   n53. 86 F.3d at 1455 (emphasis added).
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   Like the Supreme Court in Wolens, we think it prudent to refrain from adopting a rule that anything with the
   label "contract" is necessarily outside the preemption clause: the variations and possibilities are too numerous
   to foresee. National Car Rental likewise recognizes the possibility that some applications of the law of contract
   could interfere with the attainment of national objectives and therefore come within the domain of 301(a). But
   general enforcement of shrinkwrap licenses of the kind before us does not create such interference. n54
   Yet the authors accuse Judge Easterbrook of making just the opposite finding. They assert that he believes in
   "absolute freedom of contract under state law relating to copyrightable works," n55 that in "Judge
   Easterbrook's radical freedom to impose terms by shrinkwrap "contract,'" n56 "the copyright owner [gains]
   complete control over all possible uses of his work," n57 and that Judge Easterbrook makes "the sweeping
   proposition that "rights created by contract' are not "equivalent to any of the exclusive rights within the
   general scope of copyright.'" n58 The fundamental assumption of the Article is that ProCD stands for freedom
   of contract unfettered by any strong public policies embodied in the Copyright Act. The authors then argue
   that Article 2B has adopted this same radical approach, n59 and that therefore some provision needs to be
   added to Article 2B to provide that contractual terms can be preempted by strong federal policy.
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   n54. Id. (citing American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995), National Car Rental Sys., Inc. v.
   Computer Assoc. Int'l, Inc., 991 F.2d 426 (8th Cir. 1993)) (emphasis added).

   n55. Nimmer et al, supra note 1, at 54.

   n56. Id. at 55.

   n57. Id.

   n58. Id. at 49.

   n59. See, e.g., id. at 23 (Article 2B makes "provisions of software licenses presumptively enforceable while
   providing no limitations on overreaching contract terms that proprietors may unilaterally decide to impose.");
   id. at 71 ("By taking no position on preemption other than that "it preempts,' the draft ratifies the status quo
   and makes every imaginable shrinkwrap encroachment on users' rights presumptively enforceable.").
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   The reason why Judge Easterbrook and Article 2B do not hold radical views of contract preemption, and why
   Article 2B does not need the Nimmer proposal (particularly given its many unintended consequences), is that
   courts have never needed explicit statutory permission to void contractual terms that violate public policy.
   Courts constantly read complementary and even conflicting pronouncements from federal and state
   legislatures, and from other courts and, in light of the particularized facts before them, attempt to divine what
   public policy requires.

    [*103]  Consider an analogy. Article 2 of the U.C.C. governs and permits contracts of all sorts. In fact,
   nothing in Article 2 declares unenforceable a contract for the sale of gambling equipment, the sale of federally
   prohibited drugs, or the production of a nuclear device. Article 2 does not do so and does not have to. If a
   contract seeks to cause a party to agree to violate federal law or a strongly held federal policy, courts have
   no trouble declaring that part of the contract unenforceable. No explicit statutory pronouncement, beyond the
   Supremacy Clause of the Constitution, which already exists and is well understood by courts, is needed.
   Courts are constantly reconciling and harmonizing the policies behind various laws, both state and federal. In
   other words, statutes are not written as if they had merger clauses. One is not expected to look only to the
   four corners of a particular statutory scheme for resolution of all issues related to that scheme. The beauty of
   the common law system is that judges are free to look at the entire body of law and find solutions and
   balances - within the confines of precedence and specific legislative pronouncements - to fit the facts of the
   particular case before them. Judges are free to create judicial glosses and exceptions to statutory strictures.
   After all, the doctrine that the authors are so wedded to - fair use - is an example of a judicially created
   exception to the explicit, seemingly contrary, pronouncements of the Copyright Act. Eventually, in 1976,
   Congress saw the wisdom of the exception and decided to incorporate it permanently into the statutory
   scheme itself. Technology and business practices develop more quickly than the law. We should not argue
   that courts and parties must be hamstrung by what will quickly become aging law. We should certainly not
   declare, as the Nimmer proposal does, that certain contracts are completely illegal no matter what their social
   value or purpose; rather, we should permit judges to interpret and apply law as they always have.

   Often commentators see their job as criticizing a court decision and then proposing a hard and fast statutory
   rule to overcome what they see as a bad decision. Obviously, I do not see the ProCD decision as a bad result.
   Uncopyrightable materials, in my view, should not be stripped of all legal protection simply because they are
   not protected by the Copyright Act. The authors read the Feist decision as saying that if material is not
   protectable by copyright or other federal law or a recognized exception to federal law (such as trade secrets
   or "hot news misappropriation" n60), then it cannot be protected at all. n61 The authors forget  [*104]  their
   own opening hypothesis, that contract and copyright are meant to work together to define the limits of
   protection. The authors and I disagree on whether protection of uncopyrightable materials by a contract is
   violative of a strongly held federal public policy. I do not believe it is; the authors do believe it is. As I will
   argue below, the authors' real remedy is to get the federal government to clarify who is right. The answer is
   not to change state law in order to resolve a debate about the proper interpretation of federal copyright law.
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   n60. See supra text accompanying note 32.

   n61. In fact, the authors are forced to overread Feist in much the same way they are forced to overread
   ProCD. The authors conclude that Feist stands for the proposition that not only does copyright law not
   protect unoriginal compilations of facts but also that, as a result, contract cannot protect unoriginal
   compilations of facts, since to permit contracts to protect such compilations would "constitute an
   impermissible end-run around Feist." Nimmer et al, supra note 1, at 43; see also, e.g., id. at 46 ("As already
   noted, the district court concluded that a ruling in favor of [the plaintiff] would subvert Feist; indeed, there
   can be little doubt that plaintiff crafted its shrinkwrap with the precise goal in mind."); id. at 51 ("The
   shrinkwrap license at issue in ProCD undid the right of the public that Feist conferred - the ability to copy
   telephone listings without liability.").

   However, a fair reading of Feist can only lead to the conclusion that the Supreme Court was holding that
   unoriginal factual databases are unprotected by copyright. Nowhere does the Court imply that contractual
   protections over these uncopyrightable databases are illegitimate.
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   The authors posit a number of hypotheticals that they claim are truly unconscionable and yet permitted under
   their reading of ProCD, ignoring a series of escape valves built into the U.C.C. and common law that permit
   courts to adequately police flawed terms. Such escape valves include unconscionability, n62 duress and
   economic duress, n63 the First Amendment, antitrust law (in particular, the essential facilities doctrine), n64
   and unfair competition. n65 Most importantly, there is the Supremacy Clause of the Constitution, which
   resolves any conflict between federal and state law in favor of federal law. n66 I suspect that any "bizarre
   and oppressive" clause will violate one or more of these doctrines. Moreover, in many circumstances one can
   sue on an independent claim of tortious conduct, regardless of whether one is in contractual privity with the
   tortfeasor. n67 These doctrines impose a tremendous restraint on "bizarre and oppressive" business practices.
   - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n62. Section 2B-110 addresses unconscionability. It is drawn from U.C.C. 2-302.

   n63. A finding that a contract was formed by illegal means such as duress or fraud gives the aggrieved party
   an option to ratify or disaffirm the contract. See 1A Arthur L. Corbin, Corbin on Contracts 538-39 (1963 &
   Supp. 1994). For particular focus in the area on restraints of trade, see 6A Arthur L. Corbin, Corbin on
   Contracts 1405 (1962 & Supp. 1994).

   n64. There are a host of illegal activities undertaken by those with market power or among persons who agree
   with others to unfairly restrain trade. See generally 2 Earl W. Kintner, Federal Antitrust Law 10.19-10.38
   (1980) (analyzing various theories that prohibit refusals to deal under 1 and 2 of the Sherman Act).

   n65. See generally 3 Joseph D. Zamore, Business Torts 1.03 (1998).

   n66. See Ronald D. Rotunda & John E. Nowak, Treatise on Constitutional Law 62-63 (2d ed. 1992).

   n67. See generally Zamore, supra note 65, at 23.03.
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   Let us focus this approach on some of the hypotheticals raised in the Article. The hypotheticals can be divided
   into two classes: (1) those that violate strongly held public policies; and (2) those where small factual
   differences distinguish situations where the same restriction should be upheld or declared unenforceable. I
   start with the  [*105]  hypotheticals violative of fundamental public policy. The preamble to the Nimmer,
   Brown, and Frischling Article begins with a contract by a sole source monopolist, where access can only be
   granted to vital information through the monopolist. Moreover, the contract apparently attempts to authorize
   the licenser to impose criminal sanctions without resort to a judicial forum and to conduct unannounced
   searches and seizures of private homes, and it prohibits printouts of the licensed texts. n68 It is hard to see
   how a court would not strike down these provisions under any number of doctrines. First, any consent by
   users to acts illegal under state law would quickly be declared ineffective. The effect of consent to a criminal
   act, such as trespass, unlawful entry, burglary, or assault is a complex subject. However, it is clear that since
   crimes are a public wrong, consent from a private party obtained by duress or mistake, or where against public
   policy, is routinely declared ineffective. n69 Second, the "essential facilities doctrine" of antitrust law would
   likely invalidate unreasonable access limitations. n70 Further, the clauses in the authors' example appear to be
   unconscionable, forced under duress, and contrary to the First Amendment (and analogous state policies
   favoring free speech).
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   n68. Nimmer et al, supra note 1, at 20-21.

   n69. See generally P.H. Robinson, Criminal Law Defenses 66, 101(b) (1984 & Supp. 1996) (discussing when
   consent is effective and ineffective in property offenses); Model Penal Code 2.11(3) (1985) (discussing
   "Ineffective Consent").

   n70. See generally Kintner, supra note 64, at 10.25 (analyzing various theories that prohibit unilateral refusals
   to deal by a monopolist, including Sherman Act section 2 violations); Thomas V. Vakerics, Antitrust Basics
   5.06[5] (1997). But cf. Phillip Areeda & Donald F. Turner, Antitrust Law 736e(6) (1978 & Supp. 1996)
   (proposing a variety of theories that could impose liability on a monopolist for a refusal to deal, but cautioning
   that, "all in all, we conclude that relief for arbitrary refusals to deal should be left to common law remedies or
   to new legislation.... State and Federal legislatures have been demonstrably able and willing to pass regulatory
   statutes in situations deemed important and at times to create administrative machinery to carry them out.")
   (citations omitted) (emphasis added). Is there any doubt that Congress would create a Federal Agency that
   would oversee and regulate the terms and conditions of an industry as monopolistic and overreaching as the
   one posited by the authors?
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   Similarly, the authors posit a "state law that validates all oral contracts solemnly adjured before a panel of
   three clergymen," including a transfer of ownership in a copyright. n71 Is there any doubt that, under section
   301(a) of the Copyright Act, where a state law or a contractual clause violates a clearly articulated exclusive
   contractual limitation in the Copyright Act itself, the law or clause would be struck down? (Even the  [*106]
   authors' discussion of the hypothetical does not appear to raise a question that courts would make quick work
   of such clauses or laws.) Or take the case of a contractual clause that awards treble damages of attorney's
   fees. n72 It is settled contractual policy that a contractual remedy that amounts to a penalty or punitive
   damage award will not be enforced. n73 Article 2B does not need to restate that well-settled rule of contract
   law for the same conclusion to result.
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   n71. Nimmer et al, supra note 1, at 54. As the authors admit, this particular application of the hypothetical
   state law would be preempted by the Federal Copyright Act 903(b). See id. ("The owner of the exclusive
   rights in a mask work may transfer all of those rights, or license all or less than all of those rights, by any
   written instrument signed by such owner or a duly authorized agent of the owner."). There would be no
   reason, however, to completely invalidate the state law since it has a rational application in cases of
   non-exclusive licenses, and in cases that do not involve copyright contracts.

   n72. See Nimmer et al, supra note 1, at 56.

   n73. See, e.g., Restatement (Second) of Contracts 356 cmt. a. (1981) ("The parties to a contract are not
   free to provide a penalty for its breach."); 3 E.A. Farnsworth, Contracts 282 (1990) ("The most important
   restriction is the one denying them the power to stipulate in their contract a sum of money payable as
   damages that is so large as to be characterized as a "penalty'.").
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   The authors even pose the situation where a book requires "the reader not to skip chapters, not to read any
   paragraphs more than three times, not to reveal the surprise plot twists to family or acquaintances, and
   certainly not to quote in a book review the few paragraphs that the fair use doctrine would otherwise permit."
   n74 In general, a contractual term that unreasonably prohibits disclosure, criticism, or a review of a book
   would be struck down either as violative of the First Amendment or unconscionable under a strong state-law
   policy of freedom of expression. Do the authors doubt that courts will not allow themselves to be used as
   instruments of clauses that are so repugnant to a clearly articulated federal or state policy? Judge
   Easterbrook's analysis, discussed at length above, suggests that he has no such doubt, and Article 2B by its
   silence has no such doubts. Judges do not need the Nimmer proposal to know how to do their job in such
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   n74. Nimmer et al, supra note 1, at 56 (citations omitted). Forbidding the quotation of a few paragraphs in a
   public review can serve a legitimate need where the book is a listing of vital trade secrets.
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   Thus, I move to the hypotheticals where small differences in the facts should make a difference in outcome. If
   a small change in the facts should cause the same clause to be declared legitimate in one case and illegitimate
   in another, one is encountering a situation tailor-made for a court determination of legality rather than a
   statutory "one-size-fits-all" solution. I argue that the authors' examples fall in the best-left-to-a-court

   I start with the authors' examples of a shrink-wrap license on a video that states "may be viewed by no more
   than three people at one sitting," n75 or a clause that prohibits "private home taping" of a television program.
   n76 While these clauses may appear absurd in the situations  [*107]  posed by the authors, the same
   restrictions would appear quite reasonable: (1) where the licensed video was a presentation of top secret or
   trade secret information where the licensee agreed that only three named persons could view the video and
   no taping of the material would be permitted; (2) where the license was for a paid theater presentation of a
   pay-per-view prize fight and the theater owner only paid for one viewing by no more than three persons; (3)
   where the video was a free evaluation copy sent to a movie theater owner for its review prior to contract; or
   (4) where the contract was between a publisher and a team of three editors or article referees hired to review
   manuscripts for a publisher where the material is intended for eventual future publication and where the
   restriction is limited in time to pre-publication only (in which case, the publisher is seeking to protect itself
   against scooping of its-and its authors'-future publication by its own editors or referees).
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   n75. Id. at 54.

   n76. Id. at 55. Similarly, it might well be legitimate where the television program involved a video presentation
   incorporating trade secrets, where the information was "top secret," or did not involve a video, but a data
   stream for a database that one paid little for, but was for one-time access only.
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   Similarly, one could take the clause prohibiting reimportation of software in a "non-negotiable" form contract. If
   that form contract were between the manufacturer and its multiple distributors where exclusive geographic
   territories are granted to each distributor, then the clause seems quite reasonable to protect the reasonable
   expectations of the distributors.

   The difference that a fact or two can make in analyzing the reasonableness of clauses is quite evident in
   reacting to the hypotheticals in series (i)-(v). Series (i), n77 the authors claim, are all examples of clauses
   valid under the Copyright Act, and so I need not address them.
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   n77. Id. at 64.
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   Series (ii) n78 involves three situations that the authors claim are clear cases of copyright misuse or antitrust
   violations, but the situations may not be so clear. The first hypothetical involves an agreement by C to pay G
   a six percent royalty to permit C to engage in distribution of videotapes for 100 years (the same rate during
   and after the copyright has expired). If one imagines that the six percent royalty agreement relates solely to
   compensation for G's contractually mandated multi-million dollar advertising campaign of the videotapes for the
   entire 100-year period, the clause would seem reasonable. In the second hypothetical, H requires a theater
   owner to show and pay a single royalty rate for Gone With the Wind and Night of the Lepus. In the third
   hypothetical, there is an agreement by viewers to pay "$ 5 for each 37-minute segment" n79 of Gone With the
   Wind and every other motion picture. This situation might be an illegal tying or might amount to copyright
   abuse, but would seem permissible if the royalty for the films involved a substantial volume rate discount over
   the royalty for Gone with the Wind  [*108]  plus the royalty for Night of the Lepus and the other films when
   licensed alone, if there is a market at those higher rates for the individual films, and if G (or the viewers) has
   the free choice to license the films one at a time or in the package.
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   n78. Id.

   n79. Id.
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   Imagine similar slight changes in the facts of series (iii). n80 In the first situation, the theoretical agreement is
   for royalties related to home copying of public-domain films. The authors assert that as "such devices would
   render the "limited times' provision of the Constitution a nullity, they cannot stand." n81 That conclusion would
   not be so obvious where the purveyor seeks only a minimal flat amount for home taping of any work (with the
   rate blending the rates for copyrighted and other works) at a rate that merely compensates it for the cost of
   transmission and overhead. Would such an arrangement seem so outrageous? Would it be better if the law,
   under the Nimmer proposal, effectively prohibited any compensation from viewers for films when the copyright
   had expired?
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   n80. Id. at 64-65.

   n81. Id. at 66.
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   The second hypothetical in series (iii) involves a license for a computer program menu structure and a
   "surcharge" if the menu structure is incorporated into other products. Although the authors think the law on
   the legality of this situation is clear, they note that when the issue came before the Supreme Court, the case
   below was affirmed by an equally divided court. Moreover, if the license and surcharge involved a reciprocal
   agreement by the licenser to consult with the licensees on proposed changes to the interface, and for support
   services to facilitate the interaction of these other programs and the licenser's programs, the licensing
   arrangement would not appear oppressive or unconstitutional.

   Series (iv) n82 has similarly fact-specific outcomes. The first two hypotheticals involve licenses for a still
   frame of a picture for an obituary and for ten seconds of a film for use in a film class. Rather than this exact
   factual situation, imagine that it is not a single frame of a movie, but a copyrighted and famous photograph of
   the actor that is under license and that the seminar is one being broadcast over network television. Such
   licenses are common and quite legal. Finally, the authors pose a third situation where 5000 copies of a video
   forbid "any and all uses in Nevada, even if such qualify as "fair uses.'" n83 Imagine that this film is a
   videotaped advertisement for a product that a court has already declared illegal in Nevada, and that the
   licensee offers a separate, no-cost license for the use of parts of the advertisement by news and other
   public-interest organizations, but forbids any use that the court would  [*109]  declare to be in contempt of
   its injunction against use of the film. In all these cases, are not photographers permitted to charge for use of
   their photographs; studios, for commercial exploitation of their works; providers, for the prevention of illegal
   use of their materials?
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   n82. Id. at 65.

   n83. Id.
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   In sum, we must trust that courts will restrain absurd results. To legislate against a whole class of vital
   contracts and to police against the possibility that one court will someday enforce one absurd contract is
   folly. The Nimmer proposal may well declare illegal the absurd contracts, but it also outlaws thousands of
   reasonable business practices.

   Perhaps the best answer to the authors' fears are the words of Professor Corbin, who once stated:

   Theoretically, at least, people are free to contract as they choose, limiting their rights and duties in ways that
   are unusual or absurd or unprofitable. Their language is subject to judicial interpretation; and in this process of
   interpretation the tendency away from the absurd and the unreasonable is so strong as to amount to a
   practical limitation upon our freedom of contract. n84
   The real answer for the authors, as I have noted above, is to get a clarification of, or a change in, federal
   law. Reading between the lines, I suspect that three issues primarily drive the Nimmer proposal. First, it
   bothers the authors that one can "contract around Feist." The second issue is that big software producers
   contractually prohibit reverse engineering of their software, which the authors believe harms the growth of
   competition in the software industry. Finally, the authors see the future of contracts as prohibiting even the
   fairest of uses. The issue of whether parties can contract around Feist or what kind of clauses violate section
   107 of the Copyright Act are really federal questions and should be addressed as such.
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   n84. 3A Arthur L. Corbin, Corbin on Contracts 314 (1960 & Supp. 1994) (emphasis added).
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   A bill, H.R. 3048, "The Digital Era Copyright Enhancement Act," was introduced by Congressman Rick Boucher
   (D-Va.) in the First Session of the 105th Congress. Section 7 of that bill mirrors the Nimmer proposal:

   When a work is distributed to the public subject to non-negotiable license terms, such terms shall not be
   enforceable under the common law or statutes of any state to the extent that they -

   (1) limit the reproduction, adaptation, distribution, performance, or display, by means of transmission or
   otherwise, of material that is uncopyrightable under section 102(b) or otherwise; or

    [*110]  (2) abrogate or restrict the limitations on exclusive rights specified in sections 107 through 114 and
   sections 117 and 118 of this title. n85
   We should await action on that bill for clarification about whether federal policy prohibits the types of clauses
   sought to be declared unenforceable by the Nimmer proposal.
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   n85. The Digital Era Copyright Enhancement Act, H.R. 3048, 105th Cong. (1998).
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   Parenthetically, I note that Representative Boucher introduced H.R. 3048 as a substitute amendment to H.R.
   2281, the WIPO Copyright Treaties Implementation Act. The Committee overwhelmingly rejected the Boucher
   amendment. Moreover, the House passed by voice vote first H.R. 2652, and then H.R. 2281, both containing
   the Collections of Information Antipiracy Act, which would explicitly provide federal protection to
   uncopyrightable materials. n86 Interestingly, section 1205(a) of H.R. 2652 and section 1305(a) of H.R. 2281,
   specifically reserve a role for contract, stating that "nothing in this chapter shall affect...the law of contract."
   In any event, at least the right issue is before the right body. Rather than attempting a backdoor fix to a
   federal problem by changes to the U.C.C., the authors should address their concerns to a federal forum.
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   n86. See Juliana Gruenwald, House-Passed Measure Would Punish Misuses of Data Collections, 1998 Cong. Q.
   1392 (May 23, 1998); Juliana Gruenwald, House Passes Protections Against Digital and On-Line Theft;
   Conference Faces New Issues, 1998 Cong. Q. 2182 (Aug. 8, 1998).
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   The Copyright Act and contract law are not at war with each other, nor should we manufacture a war
   between the two. If contract terms, negotiated or "non-negotiable," violate strongly held federal or state
   public policy, courts will not uphold them. The real problem for the Article's authors is their conviction that
   reverse engineering and fair use restrictions fall within the category of strongly held federal or state public
   policy, despite their failure to persuade Congress or the federal courts to so hold. What they fail to realize is
   that others just as firmly believe that no such strong federal policy exists. Mr. Nimmer and his co-authors need
   to join the issue in federal court or in Congress and let the chips fall where they may. Harming industries
   through the unintended consequences of the authors' proposed amendment to Article 2B in an attempt to
   short-circuit the proper federal approach is not the answer.