ProCD vs. Zeidenberg
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
ProCD, INC.,
Plaintiff,
v.
MATTHEW ZEIDENBERG, and
SILKEN MOUNTAIN WEB SERVICES,
Defendants.
OPINION AND ORDER
95-C-0671-C
This is a civil action for injunctive and monetary relief brought pursuant
to the federal Copyright Act, 17 U.S.C. Secs. 101 - 1010, the Wisconsin
Computer Crimes Act, Wis. Stat. Sec. 943.70, and Wisconsin contract
and tort law. The facts are not in dispute. Defendants Matthew Zeidenberg
and Silken Mountain Web Services, Inc., a one-person corporation formed
by Zeidenberg, purchased copies of plaintiff's Select PhoneTm CD-ROM
software program, downloaded telephone listings stored on the CD-ROM
discs to Zeidenberg's computer and made the listings available to Internet
users by placing the data onto an Internet host computer. Plaintiff
contends that defendants' actions constitute copyright infringement,
breach of the express terms of the parties' software licensing agreement,
a violation of Wisconsin's Computer Crimes Act, misappropriation and
unfair competition. Defendants argue that the data they downloaded
from plaintiff's Select PhoneTm program were not protected by copyright,
that defendants did not use Select PhoneTm in a manner inconsistent
with plaintiff's copyright, that they are not bound by the software
licensing agreement and that plaintiff's state law claims are preempted
by federal copyright law.
The case is before the court on the parties' cross motions for
summary judgment. Jurisdiction is present under 28 U.S.C. Sec. 1331,
because plaintiff's copyright claim arises under federal law, and under
28 U.S.C. Sec. 1332, because there is complete diversity of citizenship
among the parties and more than $50,000 is at issue.
I conclude that defendants are entitled to summary judgment
in their favor. First, defendants did not infringe plaintiff's copyright.
Although the software plaintiff developed for its Select PhoneTm program
is protected by copyright, that protection does not extend to the telephone
listings included on the CD-ROM discs. Second, defendants used the
protected software for their own individual purposes, consistent with
plaintiff's copyright, and distributed only unprotected data. Defendants
never assented to the license agreement included in the Select PhoneTm
user guide and are not bound by it. Even if defendants had assented,
the license agreement is preempted by federal copyright law to the extent
plaintiff intended it to apply to uncopyrightable data. Finally, plaintiff's
remaining state law claims are preempted by the Copyright Act because
they are attempts to avoid federal copyright law.
From the facts proposed by the parties, I find that the following
facts are not in dispute.
UNDISPUTED FACTS
Plaintiff ProCD, Inc., is a Delaware corporation with its principal
place of business in Danvers, Massachusetts. Defendant Matthew Zeidenberg
is a Wisconsin citizen residing in Madison, Wisconsin, and working on
a Ph.D. in computer science. Defendant Silken Mountain Web Services,
Inc., is a Wisconsin corporation incorporated by defendant Zeidenberg
on April 27, 1995, with himself as president and sole shareholder.
Plaintiff spent millions of dollars creating a comprehensive,
national directory of residential and business listings. Plaintiff
compiled over 95,000,000 residential and commercial listings from approximately
3,000 publicly available telephone books. The listings include full
names, street addresses, telephone numbers, zip codes and industry or
"SIC" codes where appropriate. Plaintiff sells these listings on CD-ROM
discs under the trademark "Select PhoneTm ," as well as under other
trade names and trademarks.
Each of plaintiff's CD-ROM discs contains both telephone listings
and a software program used to access, retrieve and download the data.
Plaintiff sells Select PhoneTm in boxes containing a set of discs
and a user guide. The user guide includes a series of terms entitled,
"Single User License Agreement." The agreement states in its opening
paragraph:
Please read this license carefully before using the software or accessing
the listings contained on the discs. By using the discs and the listings
licensed to you, you agree to be bound by the terms of this License.
If you do not agree to the terms of this License, promptly return all
copies of the software, listings that may have been exported, the discs
and the User Guide to the place where you obtained it.
The license informs the user that plaintiff's software is copyrighted
and that copying the software is authorized only for particular purposes
and uses. Once the product is installed on the user's computer, the
computer screens remind users that use of the product and the data is
subject to the Single User License Agreement and that the products are
licensed for authorized use only. Before a user can access the listings
a field appears on the computer screen, stating:
The listings contained within this product are subject to a License
Agreement. Please refer to the Help menu or to the User Guide.
In addition, most screens contain the following warning:
The listings on this product are licensed for authorized users only.
The user agreement provides that copying of the software and the data
may be done only for individual or personal use and that distribution,
sublicense or lease of the software or the data is prohibited. The
agreement provides expressly that:
[Y]ou will not make the Software or the Listings in whole or in part
available to any other user in any networked or time-shared environment,
or transfer the Listings in whole or in part to any computer other than
the computer used to access the Listings.
The Select PhoneTm box mentions the agreement in one place
in small print. The box does not detail the specific terms of the license.
In late 1994, defendant Zeidenberg purchased a copy of Select PhoneTm
at a local retail store. In February or March 1995, defendant Zeidenberg
decided he could download data from Select PhoneTm and make it available
to third parties over the Internet for commercial purposes. Zeidenberg
purchased an updated version of Select PhoneTm in March 1995 and in
April 1995, incorporated Silken Mountain Web Services, Inc. for the
purpose of making a database of telephone listings available over the
Internet. In April and May 1995, after incorporation, Silken Mountain
Web Services, Inc., began assembling its own telephone listings database,
part of which contained data from Select PhoneTm and part of which
involved data from another company's product. Defendants were aware
of the computer screen warning message notifying them that Select PhoneTm
was subject to the agreement contained in the user guide. Defendants
disregarded the screen warnings because they did not believe the license
to be binding.
Defendant Zeidenberg is the sole shareholder, sole employee
and sole officer of defendant Silken Mountain Web Services, Inc. Defendants
compiled their database by installing Select PhoneTm on Zeidenberg's
personal computer, thereby making a copy of the software onto Zeidenberg's
computer's hard drive. Defendants used the software on this hard disk
copy to download data from the Select PhoneTm discs to contribute to
the corporation's own database. Every time defendants downloaded data
from the discs, an additional copy of Select PhoneTm software was copied
into the random access memory (RAM) of Zeidenberg's computer.
Defendant Silken Mountain Web Services, Inc., wrote its own
computer program to allow users to search its database. No person who
accessed the Silken Mountain Web Services, Inc. home page used or copied
plaintiff's Select PhoneTm software. The software that defendants
created permits searches based only on name or standard industrial code
while plaintiff's software can search a number of "fields," such as
name, address, telephone number, area code, zip code, or any combination
of the above.
In May 1995, defendants entered into a contract with Branch
Information Systems pursuant to which Branch provided defendants with
access to the Internet. Defendants uploaded their database onto Branch
Information Systems' computer and provided access to the database to
third parties via the Internet. Plaintiff discovered this activity
and demanded that defendants discontinue their actions immediately.
Zeidenberg wrote to plaintiff and admitted downloading listings from
Select PhoneTm and making some of those listings available over the
Internet but explained that he would continue his project.
After learning of plaintiff's displeasure, Branch Information
Services stopped doing business with defendants. In August 1995, defendants
entered into a contract with Ivory Tower Information Services for Internet
access. The parties contemplated that plaintiff would complain and
they provided in the contract that Ivory Tower Information Services
was required to continue providing defendants Internet access until
ordered by a court to stop.
Pursuant to this contract, defendants made their database available
over the Internet until this court issued a preliminary injunction on
September 22, 1995. Prior to entry of the preliminary injunction, defendants'
database was receiving approximately 20,000 "hits" per day on the Internet.
(A hit occurs each time a new screen is displayed on a user's computer
screen during a search of the database. Each search tends to generate
multiple hits.) For each search of defendants' database, users are
permitted to extract up to 1,000 listings. Because the public could
access defendants' database for free, plaintiff believed its ability
to sell Select PhoneTm was jeopardized.
OPINION
Plaintiff commenced this law suit in September 1995 and immediately
sought a preliminary injunction barring defendants from distributing
Select PhoneTm telephone listings over the Internet. At the hearing
on its motion for a preliminary injunction, plaintiff's arguments for
protection of its entrepreneurial effort were sufficiently compelling
to secure the injunction. Nonetheless, it was clear then, as it is
now, that plaintiff had no valid claim to federal copyright protection
for the raw data contained on its Select PhoneTm CD-ROM discs. Now,
after the parties have briefed the issues more fully, it has become
evident that plaintiff cannot prevail on its copyright claim even with
respect to its protected software and that its state law claims are
similarly unavailing. Plaintiff's arguments boil down to the proposition
that it is unfair and commercially destructive to allow defendants to
take the information pl
aintiff assembled with a significant investment of time, effort and
money and use it for commercial purposes without paying any compensation
to plaintiff. Although the proposition has substantial equitable appeal,
it is one that the United States Supreme Court rejected specifically
in a nearly identical context four years ago. In Feist Publications,
Inc., v. Rural Telephone Service Co., Inc., 499 U.S. 340 (1991), the
court held that telephone listings are not protected by copyright law
and denied the claim of a telephone company that sought to prevent competitors
from using the data it had compiled and published in its directories.
If this result seems perverse, the remedy lies with Congress. See
Maureen A. O'Rourke, 41 Fed. B. News (1994) (rapidly expanding Internet
use will force Congress to address difficult question of appropriate
level of protection for on-line fact-based databases); Jane C. Ginsburg,
No "Sweat"? Copyright and Other Protection of Works of Informatio
n after Feist v. Rural Telephone, 92 Colum. L. Rev. 338 (suggesting
a federal misappropriation statute to prevent commercial copying of
non-copyrightable databases by other compilers if public access to information
were assured through collective licensing).
It is not surprising that the recent explosive growth of the Internet
would give rise to lawsuits concerning the ownership of the data available
through that system. See Jane C. Ginsburg, Putting Cars on the "Information
Superhighway": Authors, Exploiters, and Copyright in Cyberspace, 95
Colum. L. Rev. 1466 (1995). Defendant Zeidenberg is not the first computer
student to find himself involved in a legal dispute after downloading
information and offering it over the Internet. In United States v.
LaMacchia, 871 F. Supp. 535 (D. Mass. 1994), a Massachusetts Institute
of Technology student set up a computer bulletin board and encouraged
his correspondents to upload copyrighted software that other users could
download for free. The United States charged the student with criminal
copyright infringement under the federal wire fraud statute, 18 U.S.C.
Sec. 1343. The district court noted the impropriety of the defendant's
actions but held that his conduct was not punishable under the wir
e fraud statute; copyright law provided the full range of penalties
for criminal infringement actions and copyright law did not cover defendant's
noncommercial activities. Id. at 544-45. The LaMacchia decision appears
to have generated congressional interest. On August 4, 1995, Senator
Patrick Leahy introduced a bill (S. 1122) to ensure better copyright
protection for creative works available on line. Bill to Stiffen Criminal
Penalties for Copyright Infringement Introduced, 7 Journal of Proprietary
Rights 26 (1995). The executive branch is also well aware of these
problems. A presidential study group formed in 1993 recently released
a report entitled, "Intellectual Property and the National Information
Infrastructure." The report suggests that the Internet will not flourish
if significant protection against theft and copyright abuse is not offered.
Guy Alvarez, New Legal Issues on the Net, Am. Law. 28, 29 (Dec. Supp.
1995). Against this background, I will take up plaintiff's
federal copyright claim.
A. Copyright Infringement
Select PhoneTm is comprised of two elements: 1) the software that
allows users to access and retrieve the data contained on the CD-ROM
discs; and 2) the data itself. The difference between these two elements
is critical. Plaintiff contends that defendants infringed plaintiff's
copyright when they copied and used Select PhoneTm for purposes of
commercially distributing the listings on the Internet because copyright
protection extends to both the telephone listings and to its software.
Defendants argue that the Select PhoneTm data is not copyrightable
but acknowledge that plaintiff has a valid copyright in the Select PhoneTm
software. Nonetheless, defendants contend, copyright law permits them
to make a copy of the program as long as it is essential to their personal
use of the program and is not used in a manner inconsistent with plaintiff's
co
pyright.
1. Select PhoneTm data
In Feist Publications, Inc. v. Rural Telephone Service Co. Inc., 499
U.S. 340, the Supreme Court held that a telephone company's white pages
were not entitled to copyright protection because the raw data contained
in the listings were not arranged in an original manner and lacked the
minimal degree of creativity necessary to constitute a copyrightable
compilation of facts. Id. at 362. As the Court noted, Feist concerned
"the interaction of two well-established propositions. The first is
that facts are not copyrightable; the other, that compilations of facts
generally are." Id. at 344. Even a modicum of originality may suffice
to make a compilation of fact copyrightable, but the alphabetical listing
of telephone subscriber addresses and telephone numbers does not achieve
even this minimal degree of creativity. Id. at 345. To the argument
that it was unfair for the publishing company to use the fruits of the
telephone company's labor without compensating it, the Court gave short
shrift. "The primary objective of copyright is not to reward the labor
of authors, but '[t]o promote the Progress of Science and Useful Arts.'"
Id. at 349 (citing U.S. Const. art. I, Sec. 8, cl. 8). In reaching
this conclusion, the Court rejected a line of cases applying a "sweat
of the brow" theory that offered copyright protection to factual compilations
as a reward for the hard work that goes into compiling facts. Id. at
352. The Court explained that the 1976 Copyright Act overruled the
"sweat of the brow" cases. Id. at 354-55. The Court's overruling of
the "sweat of the brow" theory can be viewed as implementation of Congressional
intent with respect to federal copyright law.
Plaintiff does not suggest that the phone listings contained in Select
PhoneTm are any different from those in Feist for purposes of copyright
protection. As a collection of facts arranged in a commonplace, non-original
fashion, the Select PhoneTm listings themselves are not copyrightable.
Without originality, time and effort do not factor into the copyright
equation. Feist's result may well serve as a disincentive to companies
considering the compilation of factual databases, see Philip H. Miller,
Note, Life after Feist: Facts, the First Amendment and the Copyright
Status of Automated Databases , 60 Fordham L. Rev. 507, 521-23 (1991)
(Feist chills incentive to create databases), but Feist struck the "careful
balance" between fact and expression in copyright law by allowing facts
to be copied at will in order to advance the development of science
and art. That disincentives might result was not considered import
ant.
2. Select PhoneTm software
Although the Select PhoneTm data are not protected by federal
copyright law, the protection attaches to the software component, which
does represent original expression and creativity. The question is
whether defendants infringed this copyright by copying the Select PhoneTm
software to Zeidenberg's computer's hard drive for the purpose of offering
the telephone listings over the Internet. If, as defendants argue,
they copied the software only for personal use and never distributed
the software to third parties, they may be entitled to the exception
from infringement set out in 17 U.S.C. Sec. 117.
Section 501 of the Copyright Act, 17 U.S.C. Sec. 501, proscribes
any unauthorized copying of a copyrighted work. A claim for copyright
infringement requires proof of 1) plaintiff's ownership of a valid copyright;
and 2) defendant's copying of original elements of plaintiff's work.
Wildlife Express Corp. v. Carol Wright Sales, Inc. , 18 F.3d 502, 507
(7th Cir. 1994). Section 117 of the Copyright Act, 17 U.S.C. Sec. 117,
offers an important exception to restrictions on copying protected computer
software. It provides, in relevant part:
[I]t is not an infringement for the owner of a copy of a computer program
to make. . . another copy or adaptation of that computer program provided:
(1) that such new copy or adaptation is created as an essential
step in the utilization of the computer program in conjunction
with a machine and that it is used in no other manner. . .
Congress passed Sec. 117 in 1980 in recognition of the fact
that computer users might need to make copies of computer software in
order to utilize that software. Apple Computer, Inc. v. Formula Int'l,
Inc., 594 F. Supp. 617, 621 (C.D. Cal.). Although legislative history
surrounding the passage of Sec. 117 is sparse, it appears that Congress
sought to implement the recommendations of CONTU, the National Commission
on New Technological Uses of Copyright Works. Aymes v. Bonelli , 47
F.3d 23, 26 (2d Cir. 1995) (citing H.R. Rep. No. 1307, 96th Cong., 2d
Sess., Pt. I, at 23 (1980), reprinted in 1980 U.S.C.C.A.N. 6460, 6482).
CONTU suggested that:
The intent of that section [117] is to provide a legitimate holder of
a computer program with permission to do that copying of the program
which is necessary for him to be able to use it in his computer without
running afoul of possible infringement actions.
Apple Computer, 594 F. Supp. at 621 (citing CONTU Meeting No. 19 at
98-99 (Jan. 1978)).
The parties' dispute focuses on the scope and meaning of the term, "essential
step." Plaintiff would interpret it as not extending to the copying
of Select PhoneTm onto a computer's hard drive. Plaintiff contends
that making a copy of Select PhoneTm on a hard drive was not "essential"
to defendants' use of the program: they could have utilized the program
by booting it into RAM memory every time they desired to use it. According
to plaintiff, hard drive copies are not protected under Sec. 117.
RAM is an acronym for Random Access Memory and represents that part
of a computer's memory in which data and computer programs can be recorded
temporarily. When a computer is turned off, the information stored
in RAM is lost. See Apple Computer , 594 F. Supp. at 622. A number
of courts have determined that RAM copies of a computer program are
copies for the purposes of Sec. 117. See MAI Sys. Corp. v. Peak Computer,
Inc. , 991 F.2d 511, 518 (9th Cir. 1993), cert. denied , 114 S. Ct.
671 (1994); Advanced Computer Services of Michigan, Inc., v. MAI Sys.
Corp. , 845 F. Supp. 356, 363, 364 n.9 (E.D. Va. 1994) (collecting cases);
Apple Computer , 594 F. Supp. at 622. However, none of these courts
has held that hard drive copies made for an owner's individual use are
not equally "essential" under the rubric of Sec. 117. Plaintiff's logic
would lead to the conclusion that any copying of a computer program
onto the owner's hard drive would constitute copyright infringement
unless the pro
gram developer gave the owner specific authorization to make a hard
drive copy. This conclusion conflicts with both basic patterns of computer
use in the 1990s and the spirit of Sec. 117. The day has passed when
it was necessary to insert a floppy disk in a disk drive any time a
user wanted access to a particular program. Today, computer users store
many of their programs on hard drives and access them from that part
of the computer's permanent memory. Programs on CD-ROM can be used
more efficiently by installing the program software on a hard drive
and then using that hard drive copy in conjunction with a disc inserted
in the CD-ROM disc drive. Limiting those copies that are considered
"essential" under Sec. 117 to RAM copies would limit the use of computer
hard drive copies, flout the purposes of Sec. 117 and diminish the sales
appeal of any new program that took advantage of such protection. See
Robert A. Kreiss, Section 117 of the Copyright Act , 1991 B.Y.U. L.
Rev. 1497, 152
4-26 (1991) (contending that position that hard drive copies are not
"essential" for purposes of Sec. 117 would create incredible frustration
by requiring the continual swapping of floppy disks and should be rejected
as "rather ridiculous").
Section 117 is intended to allow persons in rightful possession
of copies of a program to use them freely without fear of exposure to
copyright liability. Aymes, 47 F.3d at 26 (citing CONTU Final Report
at 31 (1978)). If copyright law prevented computer users from making
hard drive copies, they would not be able to use their purchased programs
without fear of infringement. RAM copies may be essential copies of
a computer program but hard drive copies are just as essential for the
effective use of today's computer software.
Copies permitted by Sec. 117 must be made only for an owner's
personal use, Aymes, 47 F.3d at 26. Odd as it may seem, given defendants'
subsequent commercial use of the telephone data, the undisputed fact
is that defendants made no copies of plaintiff's software except for
their own personal use. Defendants did not use the software in an unauthorized
fashion as suggested by plaintiffs' citations to Pinkham v. Sara Lee
Corp. , 983 F.2d 824 (8th Cir. 1992) and Major League Baseball Promotion
Corp. v. Colour-Tex, Inc. , 729 F. Supp. 1035 (D. N.J. 1990). They
used the copyrightable software portion of the product only to access
and download the telephone listings data. Defendants did not offer
this software over the Internet. Instead, they created a new search
program to allow Internet users to access the data. In distributing
only the uncopyrightable data over the Internet, defendants did not
disqualify themselves from the infringement exception contained in Sec.
117.
In reaching the conclusion that defendants did not misuse the copyrightable
component of the Select PhoneTm program, it is not necessary to adopt
the broad proposition asserted by the defendant in Vault Corp. v. Quaid
Software Ltd. , 847 F.2d 255, 261 (5th Cir. 1988), that software purchasers
are free under Sec. 117 to make copies of copyrighted software for purposes
not intended by the copyright owner. In Vault, the defendant used the
plaintiff's software diskettes, designed to prevent the unauthorized
duplication of programs placed on them, for the express purpose of devising
a means to defeat the diskettes' protective function, rather than for
their intended protective purposes. Id. The plaintiff asserted that
the phrase "and that it is used in no other manner" in Sec. 117 means
that the statute's protection should not extend to copies made for purposes
other than those for which the program was intended. Id. The court
held that the defendan
t did not infringe the plaintiff's copyright, finding that Sec. 117
contains no language to suggest that the copy it permits must be put
to the use intended by the copyright owner and that no clear congressional
intent existed to the contrary. Id. Here, defendants used Select PhoneTm
exactly as plaintiff intended: to access and download data. There
is no obvious reason not to extend the Sec. 117 exception to parties
who copy a copyrighted software program for its intended purpose and
use it in that manner.
Although plaintiff acknowledges the distinction between the copyrighted
and non-copyrighted portions of Select PhoneTm , it disregards that
distinction to some extent. For example, plaintiff argues that defendants'
actions are tantamount to downloading all of Lexis's judicial opinions
and offering them for free over the Internet. Plaintiff fails to recognize
that although federal cases are not copyrightable, at least one court
has held that legal database companies like Lexis may arrange those
opinions in such a manner as to receive copyright protection. See West
Publication Co. v. Mead Data Central, Inc. , 799 F.2d 1219 (8th Cir.
1986), cert. denied, 479 U.S. 1070 (1987) (West's arrangement of legal
decisions entails enough intellectual labor and originality to receive
copyright protection); but see Craig Joyce and L. Ray Patterson, Monopolizing
the Law: The Scope of Copyright Protection for Law Reports and Statutory
Compilations , 36 UCLA L. Rev
. 719 (1989) (criticizing the West decision). Unlike West's arrangement
of judicial opinions, plaintiff's arrangement of telephone listings
lacks the minimal level of creativity necessary to garner copyright
protection. See Feist, 499 U.S. at 362. Although plaintiff's software
is protected by copyright law, its compiled data are not. Because defendants
used the software only to download and access the data and did not further
distribute this copyrightable information, their actions are protected
by Sec. 117.
Defendants contend that the fair use doctrine of 17 U.S.C. Sec.
107 provides them the right to make an intermediate copy of a protected
work in order to get at the uncopyrighted parts of a work. See Sega
Enterprises Ltd. v. Accolade, Inc. , 977 F.2d 1510, 1520 (9th Cir. 1992);
Atari Games Corp. v. Nintendo of America, Inc. , 975 F.2d 832, 843 (Fed.
Cir. 1992). The fair use doctrine establishes a defense to an otherwise
valid copyright infringement claim. Sega, 977 F.2d at 1521. Because
I have determined that defendants are protected from a copyright infringement
claim by Sec. 117, it is unnecessary to consider whether they should
receive Sec. 107 protection as well.
B. Software License Agreement
Before marketing Select PhoneTm , plaintiff recognized the potential
limitations of copyright law and included an agreement in the software
package that sought to impose limitations concerning the distribution
and use of the telephone listings. Plaintiff is not the first software
producer to seek to protect itself in this fashion. Software companies
have included such agreements, commonly known as "shrinkwrap licenses,"
with their products since the advent of mass market software. (The
term "shrinkwrap" refers to the transparent plastic in which mass market
software is encased. Mark A. Lemley, Intellectual Property and Shrinkwrap
Licenses, 68 S. Cal. L. Rev. 1239, 1241 (1995)). Shrinkwrap licenses
are intended to take the place of any bargains or agreements between
mass market software producers and users, because the typical software
transaction does not involve bargained agreements concerning use limitations,
but a purchase made by a computer u
ser at a retail store or through the mail, with little discussion or
bargaining between the producer and the user. In placing a shrinkwrap
license provision on its software product, the producer seeks to 1)
prohibit unauthorized copies; 2) prohibit software rental; 3) prohibit
reverse engineering and modifications to the software; 4) limit the
use of software to one central processing unit; 5) disclaim warranties;
and 6) limit liability. Lloyd L. Rich, Mass Market Software and the
Shrinkwrap License, 23 Colo. Law. 1321 (1994).
The widespread use of shrinkwrap licenses has generated intense
interest in academic and intellectual property fields, but surprisingly
little litigation. See Step-Saver Data Sys., Inc. v. Wyse Technology,
939 F.2d 91 (3d Cir. 1991); Vault Corp. v. Quaid Software Ltd., 847
F.2d 255; Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F. Supp.
759 (D. Ariz. 1993). Most commentators view shrinkwrap licenses as being
of questionable validity, primarily because software users do not have
an opportunity to bargain over their terms. See Lemley, supra, 68 S.
Cal. L. Rev. at 1263 n. 107 (citing articles). In addition to raising
issues of enforceability, shrinkwrap licenses also pose important questions
about the extent to which individual contract provisions can supplement
or expand federal copyright protection. It is important to analyze
these licenses carefully, not only to determine their validity but also
to ascertain whether they are preempted by the Copyright Act.
1. The user agreement
In addressing shrinkwrap licenses, the starting point is how to treat
a sale of software: as a sale of goods under Article II of the Uniform
Commercial Code or as a "license" to the user. Most courts have chosen
the first route and have applied the U.C.C. to mass market software
transactions. Lemley, supra, 68 S. Cal. L. Rev. at 1244 n.23 (citing
numerous federal and state law cases); but see Microsoft Corp. v. Harmony
Computers nics, Inc., 846 F. Supp. 208 (E.D. N.Y. 1994). Commentators
agree that the U.C.C. should apply to computer software transactions.
See Bonna Lynn Horovitz, Note, Computer Software as a Good Under the
Uniform Commercial Code: Taking a Byte out of the Intangibility Myth,
65 B.U. L. Rev. 129 (1985); Lemley, supra, 68 S. Cal. L. Rev. at 1244
n.23. I will not address this issue in detail but note only that there
are sound reasons for treating a software transaction as a sale of goods
under the U.C.C. rather than as a license: purchasers of mass market
software do not make periodic payments but instead pay a single purchase
price, the software company does not retain title for the purpose of
a security interest and no set expiration date exists for the "licensed"
right. See Gary W. Hamilton C. Hood, The Shrink-Wrap License - Is
It Really Necessary?, 10 Computer Law 16 (1993). Plaintiff cites only
Microsoft Corp., 846 F. Supp. 208, in support of its characterization
of the transaction as a license. The opinion is not persuasive. The
court did not address the applicability of the U.C.C. in holding that
Microsoft licenses rather than sells its products. Id. at 213. Plaintiff
is no more convincing when it argues that the courts have applied the
U.C.C. to software transactions only when a sale of hardware is involved.
See, e.g., Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 676 (3d
Cir. 1991) (". . . we hold that software is a "good" within the definition
in the Code). In analyzing the parties' transaction, I will app
ly the U.C.C., as adopted by Wisconsin. (For ease of uniform reference,
I will cite the relevant U.C.C. provisions, pointing out the specific
Wisconsin statutory provisions where necessary.)
Before examining the application of the U.C.C. to plaintiff's user
agreement, I note two cases that plaintiff cites in support of its argument
that its user agreement is binding on defendants. Barazzotto v. Intelligent
Sys., Inc., 40 Ohio App. 3d 117, 532 N.E.2d 148 (1987); McCrimmon v.
Tandy Corp., 202 Ga. App. 233, 414 S.E.2d 15 (1991), cert. denied, 1992
Ga. LEXIS 88 (Feb. 4, 1992). Barazzotto and McCrimmon deserve only
passing mention because neither addresses the issues of this case directly.
In Barazzotto, the court held that a manufacturer's disclaimer of liability
appearing on software packaging was not binding as to the retail seller.
Id. at 120, 532 N.E.2d at 151. The court did not address whether that
disclaimer was valid as to the software manufacturer. In McCrimmon,
the court enforced a limited warranty included by a retail seller on
the back of a sales receipt when the warranty was available for customer
inspection prior to purchase, noting that it was the customer
's responsibility to read the receipt when it was tendered to him at
the time of purchase. Id. at 236, 414 S.E.2d at 18.
Defendants did not have the opportunity to inspect the user
agreement before purchasing Select PhoneTm because it was inside the
packaging box and accordingly, they cannot be held to the same standards
as those applied in McCrimmon. Plaintiff's argument that defendants
had the opportunity to inspect the Select PhoneTm user agreement after
their first purchase and thus should be held to their knowledge of the
agreement on their second and third purchases will be addressed later.
The parties dispute how their transaction should be analyzed
under Article II of the U.C.C. and suggest three possibilities. The
agreement could be considered an offer subject to the right of inspection
under Sec. 2-206, a written confirmation of a previously established
contract under Sec. 2-207, or a proposed modification of a contract
under Sec. 2-209. Plaintiff argues that Sec. 2-206 should apply, contending
that acceptance did not occur at the moment of payment but was subject
to defendants' right of inspection and revocation that they did not
exercise. In defendants' view, the contract for the sale of Select
PhoneTm was completed at the time of sale and the license represents
additional terms to which they cannot be bound under either Sec. 2-207
or Sec. 2-209.
a. Section 2-206
Section 2-206, Wis. Stat. Sec. 402.206, sets forth basic notions of
offer and acceptance. Under Sec. 2-206, the placement of a product
such as Select PhoneTm on a store shelf constitutes an offer. See,
e.g., Barker v. Allied Supermarket, 596 P.2d 870 (Okla. 1979). Acceptance
occurs in any manner reasonable under the circumstances. Sec. 2-206(1)(a).
Defendants accepted plaintiff's offer to sell Select PhoneTm in a
reasonable manner at the moment they purchased the product by exchanging
money for the program. Peeters v. State, 154 Wis. 111, 142 N.W. 181
(1913) (sales contract results when customer pays purchase price and
departs with item). Paying for a software program is a reasonable manner
of accepting the offer implicit in the program's display on a store
shelf. Defendants' payment for the program constitutes conduct sufficient
to create a contract under Sec. 2-204, Wis. Stat. Sec. 402.204, the
U.C.C. pr
ovision governing initial contract formation, which states that:
A contract for the sale of goods may be made in any manner sufficient
to show agreement, including conduct by both parties which recognizes
the existence of such a contract.
Plaintiff cannot reasonably expect that further action from defendants
would be required to make that sales contract binding. The purchase
of the product was sufficient to show agreement between the parties.
Plaintiff argues that defendants' acceptance of the software was contingent
upon their rights of inspection, rejection or revocation, but Secs.
2-204 and 2-206 do not mention any such rights. Sections 2-602 and
2-608, Wis. Stat. Secs. 402.602 and 402.608, offer such rights, yet
these sections do not apply in this context. Section 2-602 grants buyers
receiving a tender or delivery of goods an opportunity to inspect the
goods before accepting. It guarantees that buyers will not be saddled
with goods that have been damaged or are otherwise unsatisfactory upon
arrival, but it does not create a right to inspect additional written
contractual terms. Inspection of new contractual terms is covered under
other sections of the U.C.C. See U.C.C. Secs. 2-207 and 2-209. Section
2-608 allows a purchaser to revoke his acceptance when the goods' nonconformity
with the contract substantially impairs their value. H.B. Fuller Co.
v. Kinetic Sys., Inc., 932 F.2d 681 (7th Cir. 1991). Again, the p
rovision exists to offer buyers some form of protection when purchased
items do not serve their intended purpose.
Defendants do not contend that the Select PhoneTm product failed
to work as they thought it would. Rather, their dispute concerns the
manner in which the contract limits their use of the product and, as
such, is more appropriately viewed under Sec. 2-207 or Sec. 2-209.
Plaintiff cites one case in support of its argument that Sec. 2-206
should apply, Sherkate Sahami Khass Rapol v. Henry R. Jahn c., 531 F.
Supp. 1048, 1054-155 (S.D. N.Y. 1982), rev'd on other grounds, 701 F.2d
1049 (2d Cir. 1983), but the case does not bolster its argument. Sherkate
only reiterates the language of the U.C.C. as it applies to shipments
of goods and does not suggest that these provisions should apply to
the inspection of contractual terms.
b. Sections 2-207 and 2-209
The application of sections 2-207 and 2-209, Wis. Stat. Secs.
402.207 and 402.209, is best analyzed by examining Step-Saver Data Sys.,
Inc., 939 F.2d 91, and Arizona Retail Sys., Inc., 831 F. Supp. 759,
the two leading cases on the enforceability of shrinkwrap licenses.
Neither case involved the type of transaction between a computer user
and a software producer that took place in this case when defendants
purchased mass market software at a retail outlet. Nonetheless, in
both cases, the courts reached the conclusion that the shrinkwrap licenses
at issue should be invalidated. The cases provide insight into the
application of the U.C.C. to the Select PhoneTm user agreement.
The facts of Step-Saver and Arizona Retail are quite similar.
Each case involved a series of transactions between retail computer
stores and a software company named The Software Link, Inc. In Step-Saver,
939 F.2d 91, the retail store telephoned The Software Link and offered
to purchase a specific software program. The Software Link accepted
the offers over the telephone and agreed to ship copies of the program.
During these discussions, The Software Link never mentioned any additional
terms of the sales contract beyond the agreement to ship the software
in exchange for monetary consideration. Id. at 96. However, when the
software packages arrived they were wrapped in shrinkwrap plastic upon
which was affixed a box-top license setting out a number of terms purporting
to disclaim warranties and limit remedies. Problems arose with the
program and Step-Saver sued to recover damages.
The factual background of Arizona Retail, 831 F. Supp. 759, differs
only in the initial transaction between the retail store, Arizona Retail,
and The Software Link. After Arizona Retail first telephoned to inquire
about a specific software program, The Software Link sent two copies
of the software, an evaluative copy and a "live" copy. Arizona Retail
spent two hours using the evaluative copy, determined it wanted to purchase
the program, and then opened the live copy upon which was attached the
box-top license. Id. at 761. Subsequently, Arizona Retail purchased
additional copies of the software through telephone transactions virtually
identical to those in Step Saver. The court considered the initial
transaction separately from the subsequent transactions, explaining
that the initial offer took place when The Software Link sent a live
copy of the software with the evaluation diskette. Id. at 764. The
live copy was sealed in an envelope upon which was added the statement
that a
user acknowledges "acceptance of this product, and [consents] to all
the provisions [of] the Limited Use License Agreement" by opening the
envelope. The court held that Arizona Retail had accepted The Software
Link's offer and a contract was formed when it opened the envelope.
Id. The terms of the box-top license were incorporated into that contract
because they were visible on the outside of the envelope and Arizona
Retail had been exposed to them before the contract was formed. Id.
at 763.
The court distinguished this situation from the subsequent transactions
in that case and from the transactions in Step-Saver, 939 F.2d 91, in
all of which a contract was formed and complete at the moment the parties
agreed to order and ship goods. In the subsequent transactions, the
agreement was formed before Arizona Retail became aware of The Software
Link's insistence on the terms of the box-top license and thus those
terms could not be considered part of the initial offer. Id. at 763-66.
Even though Arizona Retail knew that The Software Link had imposed
box-top license provisions in the first sale, the court held that the
store did not know that The Software Link would impose box-top license
provisions when it placed subsequent orders because The Software Link
did not mention any such terms in the parties' telephone conversations.
Id. at 764. The court's holding accorded with the holding of the Court
of Appeals for the Third Circuit in Step-Saver, 939 F.2d at 105-06,
that the
box- top license terms could not be considered part of The Software
Link's initial offer because Step-Saver was not apprised of those terms
before the agreement to order and ship software.
Because the box-top licenses were not part of the agreements
to order and ship software, both the Arizona Retail and Step-Saver
courts considered other methods of analyzing the application of the
licenses' terms to the parties' contracts. In Step-Saver, the court
analyzed the terms under Sec. 2-207, id. at 98; in Arizona Retail, 831
F. Supp. 759, the court determined that Sec. 2-209 was a better fit.
Id. at 765.
Step-Saver and Arizona Retail suggest two possibilities for analyzing
the alleged contract between plaintiff and defendants. One view is
that the terms of the user agreement were incorporated into plaintiff's
sales offer by the reference on the outside of the Select PhoneTm
package. If this is the case, then defendants are bound to the terms
of the agreement because they opened and used the product, just as Arizona
Retail was bound initially to the terms of The Software Link's box-top
license. The other view is that the user agreement was not included
in plaintiff's sales offer and represents either a proposed modification
to the sales agreement under Sec. 2-209 or a written confirmation of
a previously established contract under Sec. 2-207. Section 2-207 governs
situations in which parties have reached a general agreement but have
yet to agree on specific terms desired by one of the parties. Arizona
Retail, 831 F. Supp. at 763. Section 2-209
controls the modification of contracts after their formation. Id.
In Arizona Retail, 831 F. Supp. 759, the court considered the
terms of the box-top license binding on Arizona Retail in the initial
transaction because those terms were visible to Arizona Retail before
it opened the software envelope. It is evident from the court's citation
to McCrimmon v. Tandy Corporation, 202 Ga. App. 223, 414 S.E.2d 15,
in which a purchaser was held to a warranty disclaimer he had the opportunity
to read before making his purchase, that the court believed that the
terms must be made apparent before contract formation. Id. at 764,
765 n.3 (warranty disclaimers in McCrimmon made apparent to buyer at
time of acceptance rather than afterwards). In Step-Saver, 939 F.2d
91, the court acknowledged the importance of exposure to specific terms
when it noted the "well-established distinction between conspicuous
disclaimers made available before the contract is formed and disclaimers
made available only after the contract is formed." Id. at 104-105,
n. 45.
The terms of the Select PhoneTm user agreement were not presented
to defendants at the time of sale. The sole reference to the user agreement
was a disclosure in small print at the bottom of the package, stating
that defendants were subject to the terms and conditions of the enclosed
license agreement. Defendants did not receive the opportunity to inspect
or consider those terms. Mere reference to the terms at the time of
initial contract formation does not present buyers an adequate opportunity
to decide whether they are acceptable. They must be able to read and
consider the terms in their entirety. The potential incorporation of
the terms can occur only after the purchaser opens the package and has
a reasonable opportunity to inspect the user agreement. Sections 2-207
or 2-209 control that incorporation.
Plaintiff argues that even if the user agreement was not incorporated
into its initial sales offer, defendants should have known about the
user agreement after the initial purchase and should be subject to
its terms in subsequent purchases. In Step-Saver, 939 F.2d at 104,
the court rejected this argument, recognizing that exposure to proposed
terms in previous transactions did not change the fact that these terms
were not agreed to at the time of subsequent contract formations. The
court explained that it would be unjust to allow a seller that failed
in its attempt to incorporate certain terms into an initial contract
to hold the buyer to the same terms in subsequent transactions without
first receiving the buyer's express assent. The court held that it
was reasonable for Step-Saver to believe from The Software Link's shipment
of the software without any mention of terms that the manufacturer had
agreed to do business without the box-top license terms. Id. Surprisingly,
in Arizo
na Retail, 831 F. Supp. 759, the court did not confront the significance
of Arizona Retail's knowledge of the box-top license terms as applied
to the subsequent software transactions although it had drawn a distinction
between the initial and subsequent transactions. Nonetheless, the court's
opinion makes apparent its belief that express assent is required to
terms that are not specifically made part of an agreement. Id. at 766.
The decision on this issue is a close call. Defendants may have known
the exact terms of the user agreement at the time of their second and
third purchases of Select PhoneTm . In that case, I would not find
it inherently "unjust," as did the court in Step-Saver, to hold a party
to the terms a seller incorporates into a standard form contract. However,
I would agree with that court that it is unwise to hold a buyer to those
terms when software companies are free to change the terms of their
shrinkwrap licenses between initial and later versions of their products.
Like any other parties to a contract, computer users should be given
the opportunity to review the terms to which they will be bound each
and every time they contract. Although not all users will read the
terms anew each time under such circumstances, it does not follow that
they should not be given this opportunity. Defendants cannot be held
to the user agreement included with the seco
nd and third copies of Select PhoneTm they purchased merely because
they were aware of the terms included with the initial version. Each
software purchase creates a new contract. Computer users should be
given a fresh opportunity to review any terms to which those contracts
will bind them.
It is unnecessary to consider in detail the distinctions between Secs.
2-207 and 2-209 because the terms of the user agreement are not binding
on defendants regardless which section is applied. See Arizona Retail,
831 F. Supp. at 766 (Arizona Retail not bound by license agreement under
either Sec. 2-207 or Sec. 2-209). The court determined that the license
agreement was best seen as a proposed modification of the parties' sales
contract under Sec. 2-209 and ruled that the terms of that agreement
were not effective because Arizona Retail had never assented to them.
Id. at 765. Section 2-209 requires the express assent of a party to
any proposed contractual modifications. Assent cannot be inferred from
a party's conduct in continuing with an agreement. Id. at 759; Step-Saver,
939 F.2d at 98-99. In this case, defendants did not assent expressly
to the terms of the user agreement. Their continued use of the Select
PhoneTm product has no bearing o
n whether they accepted the user agreement. Under these circumstances,
Sec. 2-209 does not warrant the incorporation of the user agreement
into the parties' initial sales agreement.
In Step-Saver, 939 F.2d 91, the court discussed at length the application
of Sec. 2-207 to the software transactions between Step-Saver and The
Software Link, noting that Sec. 2-207 was intended to end a "battle
of forms" between merchants that took place under common law because
a party was bound to the terms of the last sent form if it proceeded
to perform the contract after receiving that form. Id. at 99. Under
Sec. 2-207(2), the terms proposed in such forms are to be considered
proposals for addition to the contract. These terms become binding
on merchants unless certain important conditions are met. Section 2-207
is silent on how additional terms should be construed in a transaction
between a merchant and a consumer. Keeping in mind the legislative
goal behind Sec. 2-207, it is improbable to think that the drafters
wanted consumers to be held to additional proposed terms in situations
in which merchants were given protection. Because Sec. 2-207 is concerned
primarily with
contract wars between merchants, it is preferable to analyze the Select
PhoneTm user agreement under Sec. 2-209. Nonetheless, applying Sec.
2-207 to the consumer transaction in this case still leads to the conclusion
that the user agreement was not binding on defendants because they never
agreed to it expressly and it never became part of the agreement between
the parties.
I conclude that because defendants did not have the opportunity
to bargain or object to the proposed user agreement or even review it
before purchase and they did not assent to the terms explicitly after
they learned of them, they are not bound by the user agreement.
c. Draft section 2-2203
The American Law Institute, drafters of proposed new U.C.C.
provisions, has suggested a provision, Sec. 2-2203, that would make
standard form licenses enforceable if:
(a) . . . prior to or within a reasonable time after beginning to use
the intangible pursuant to an agreement, the party
(1) signs or otherwise by its behavior manifests assent to a standard
form license; and
(2) had an opportunity to review the terms of the license before
manifesting assent, whether or not it actually reviewed the terms.
Lemley, supra, 68 S. Cal. L. Rev. at 1293. This proposal is evidence
that the American Law Institute views current law as insufficient to
guarantee the enforcement of standard form contracts such as shrinkwrap
licenses. The draft provision appears to introduce a Sec. 2-206 type
of inspection, rejection and revocation element into shrinkwrap contracts
and thereby place significant responsibility on buyers to actively reject
those terms by returning the goods if they find the terms unacceptable.
Louisiana and Illinois enacted similar legislative schemes in the 1980s
but they are no longer in effect. David A. Rice, Public Goods, Private
Contract and Public Policy: Federal Preemption of Software License Prohibitions
Against Reverse Engineering, 53 U. Pitt. L. Rev. 543, 565 (1992). The
Louisiana statute was partially invalidated by the Court of Appeals
for the Fifth Circuit on federal preemption grounds, Vault Corp., 847
F.2d at 270, and Illinois repealed its law. Id. If the draft
provision gains substantial acceptance among the states, the application
of the U.C.C. to shrinkwrap licenses may no longer require detailed
consideration. In that event, federal preemption concerns will become
even more prominent. I turn next to that issue.
C. Preemption of State Law Claims
Section 301 governs preemption of state law claims that conflict
with the federal copyright policies embedded in the federal Copyright
Act. 17 U.S.C. Sec. 301. It comes into play only if both of two conditions
are satisfied: 1) the work in which the state law right is asserted
comes within the "subject matter" of copyright, as specified in 17 U.S.C.
Secs. 102 or 103; and 2) the state law right asserted is equivalent
to any of the rights specified in 17 U.S.C. Sec. 106. Baltimore Orioles
v. Major League Baseball Players, 805 F.2d 663, 674 (7th Cir. 1986).
1. Subject matter of copyright
Plaintiff begins with the proposition that if defendants are
correct in arguing that the Select PhoneTm data compilation cannot
be copyrighted, it follows as a matter of course that the data are outside
the subject matter of the federal copyright law. The line is not so
clear as plaintiff would draw it. Section 102 of the Copyright Act,
17 U.S.C. Sec. 102, extends copyright protection to original works of
authorship including literary, musical, dramatic and a number of other
types of works. Factual compilations are included within the subject
matter of copyright by 17 U.S.C. Sec. 103 and are defined elsewhere
in the act as a collection of data or materials arranged in such a way
as to constitute an original work of authorship. 17 U.S.C. Sec. 101.
The law in this circuit is that the "subject matter of copyright" includes
works that fit within the general subject matter of Secs. 102 and 103,
whether or not the works qualify for actual protection. See Baltimore
Orioles v. Major League Baseball Players. 805 F.2d 663. The question
in the Baltimore Orioles case was whether major league baseball clubs
owned exclusive rights to the televised performances of the players
during major league baseball games. Id. at 665. The players argued
that they had a state law right of publicity in their performances;
the clubs contended that federal copyright law preempted this state
law right. The court rejected the players' argument that because their
performances lacked sufficient creativity and were not copyrightable,
they fell outside the subject matter of copyright. In concluding that
a work can fall within the subject matter of copyright even if it lacks
any creativity or originality, the court relied on a House of Representatives
repo
rt: "As long as a work fits within one of the general subject matter
categories of section 102 and 103, . . . [section 301(a)] prevents the
States from protecting it even if it fails to achieve Federal copyright
because it is too minimal or lacking in originality to qualify." Id.
at 676 (citing H.R.Rep. No. 1476, 94th Cong., 2d Sess. 51 (1976), reprinted
in 1976 U.S.C.C.A.N. 5659, 5747).
Other courts have ruled similarly. See Harper lishers, Inc. v. Nation
Enterprises, 723 F.2d 195, 201 (2d Cir. 1983), rev'd on other grounds,
471 U.S. 539 (1985) (accepting opposite position would allow states
to "expand the perimeters of copyright protection to their own liking"
and would "run directly afoul of one of the Copyright Act's central
purposes, to 'avoid the development of any vague borderline areas between
State and Federal protection.'" (citing H.R. Rep. No. 1476, 1976 U.S.C.C.A.N.
at 5746)); Ehat v. Tanner, 780 F.2d 876, 877 (10th Cir. 1985), cert.
denied 479 U.S. 820 (1986) (Congress stated expressly that Sec. 301
is intended to prevent "the States from protecting . . . [a work] even
if it fails to achieve Federal statutory copyright because it is too
minimal or lacking in originality to qualify") (citing H.R. Rep. No.
1476, 1976 U.S.C.C.A.N. at 5747). See also Nash v. CBS, Inc., 704 F.
Supp. 823, 832 (N.D. Ill. 1989) (state law claims do not avoid preemptio
n simply because they are based upon improper use of uncopyrightable
material contained in works properly subject to copyright).
The Court of Appeals for the Seventh Circuit touched on this
issue in United States Trotting Ass'n v. Chicago Downs Ass'n, Inc.,
665 F.2d 781 (7th Cir. 1981). The court held that a misappropriation
claim was not preempted because it did not fall within the realm of
federal copyright law. Id. at 786 n.6. Although the Court of Appeals
for the Seventh Circuit did not mention United States Trotting Ass'n
in Baltimore Orioles, its decision in the latter case seems to overrule
any suggestion in United States Trotting Ass'n that uncopyrightable
material cannot fall within the subject matter of copyright law.
In Baltimore Orioles, 805 F.2d 663, the court muted the full impact
of its holding by noting that regardless of the originality of the players'
performances, the recordings of the games were original enough to come
within the scope of copyright law because of the creative contributions
of the announcers. Id. at 676. Plaintiff would like this court to
believe that by hedging its decision in this manner, the court left
open the question whether uncopyrightable material can fall within the
subject matter of copyright. Its argument is unpersuasive in light
of the court's reliance on explicit congressional intent and the holdings
of the other circuits.
Plaintiff notes that the Nimmer treatise criticizes the court's holding
in Baltimore Orioles on this issue, proposing that it was confused over
which works fall within the subject matter of copyright. David Nimmer
e B. Nimmer, Nimmer on Copyright, Sec. 1.01[B] at 1-24, n.101 (1995).
The Nimmers' views notwithstanding, Balti
more Orioles is still good case law in this circuit and I am bound to
apply it.
The telephone listings on the Select PhoneTm CD-ROM discs are
a compilation of facts that would qualify for copyright protection
under Sec. 103 if they were sufficiently original; that they lack the
necessary originality does not affect their status as coming within
the subject matter of copyright. Baltimore Orioles compels the conclusion
that plaintiff's uncopyrightable compilation of telephone data satisfies
the first prong of the preemption test.
2. Equivalency of asserted rights to rights specified in Sec. 106
A right is equivalent to one of the rights set forth in Sec.
106 if it "is infringed by the mere act of reproduction, performance,
distribution or display." Baltimore Orioles, 805 F.2d at 677 (citing
Nimmer, supra, Sec. 1.01[B][1]). To avoid preemption, a cause of action
defined by state law must incorporate an "extra element" beyond those
necessary to prove copyright infringement. Trandes Corp. v. Guy F.
Atkinson Co., 996 F.2d 655, 659 (4th Cir.), cert. denied, 114 S. Ct.
443 (1993). Section 106 of the Copyright Act, 17 U.S.C. Sec. 106, grants
the owner of a copyright exclusive rights of reproduction and distribution.
The causes of action on which plaintiff's state law claims are based
are designed to protect these same reproduction and distribution rights.
As such, plaintiff's asserted state law rights are equivalent to rights
provided by Sec. 106 and its state law claims are preempted under Sec.
301.
a. Contract claim
Several federal courts have held that breach of contract claims are
not preempted by Sec. 301 of the Copyright Act because breach of contract
is not a cause of action "equivalent" to a copyright infringement claim.
National Car Rental Sys., Inc. v. Computer Associates Int'l Inc., 991
F.2d 426, 433 (8th Cir.), cert. denied, 114 S. Ct. 176 (1993); Taquino
v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990); Acorn
Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir. 1988); Trenton
v. Infinity Broadcasting Corp., 865 F. Supp. 1416, 1429 (C.D. Cal. 1994).
Plaintiff argues that the contractual restriction imposed in its user
agreement established an "extra element" that makes its breach of contract
claim different from its copyright infringement claim but, in reality,
its breach of contract claim is nothing more than an effort to prevent
defendants from copying and distributing its data, exactly what it sought
to bar defendants from doing under copyright law. See Ehat, 780
F.2d at 878. The "extra element" test used to determine whether a
state law right is equivalent to a right protected by copyright law
requires more than the mere existence of an extra element in the state
law claim. It requires an extra element that makes the state law claim
qualitatively different from the underlying copyright claim. See Data
General Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164 (1st
Cir. 1994) ("Not every 'extra element' of a state claim will establish
a qualitative variance between the rights protected by federal copyright
law and those protected by state law"); Harper lishers, 723 F.2d at
201 (additional elements did not establish a fundamental nonequivalence
between state and federal rights implicated); Rice, supra, 53 U. Pitt.
L. Rev. at 616 (Section 301 concerned with effects, not form).
Each of the breach of contract cases plaintiff cites involved the assertion
of rights significantly different from the reproduction and distribution
rights protected under copyright law. In National Car Rental, 991 F.2d
426, the plaintiff licensed the defendant to use its software for internal
operations and for the processing of the defendant's data. When the
defendant used the software to process the data of a third party, the
plaintiff sued, contending that the defendant used the software in a
manner outside the bounds of the contract. Id. at 428. The court found
that the agreement created a right that did not exist under copyright
law, an "extra element" that made the breach of contract claim qualitatively
different from a copyright infringement claim. Id. at 433. The plaintiff
did not claim that the defendant had improperly reproduced, distributed
or displayed the software, all of which would be claims that would have
to brought under federal copyright law. Taquino, 893 F.
2d 1488, and Trenton, 865 F. Supp. 1416, contain reasoning similar to
that in National Car Rental. In Taquino, the court held that the provisions
in a covenant not to compete were valid and that the rights the plaintiff
sought to protect by enforcing the contract were sufficiently distinct
from reproduction and distribution rights as not to be preempted by
the federal Copyright Act. 893 F.2d at 1501. In Trenton, the court
found a breach of contract claim not preempted by federal copyright
law because "the contract-based causes of action do allege more than
the unauthorized use of a copyrighted work. They also claim that there
has been a breach of an underlying contract . . ." Trenton, 865 F.
Supp. at 1429. The court did not elaborate further on its reasoning.
In Acorn, 846 F.2d 923, a suit brought by an architect against a prospective
customer who used the architect's plans to build his house without fulfilling
his obligation to pay for them, the court viewed the architect's con
tract claim as a separate and distinct cause of action that did not
arise out of the subject matter of copyright. Id. at 926.
To the extent that National Car Rental, Taquino, Trenton and
Acorn support the proposition that a copyright infringement claim is
not equivalent to a contract claim merely because the contract claim
requires a plaintiff to show the additional element of breach, I disagree
respectfully with their conclusions. Contracts that seek to protect
reproduction and distribution rights step into territory already covered
by copyright law. It would alter the "delicate balance" of copyright
law to allow parties to avoid copyright law by contracting around it.
National Car Rental, Taquino, Trenton, and Acorn do show that contract
claims are not preempted automatically by federal copyright law. Contracts
that are consistent with the copyright law's goals of self-protection
should be upheld. Rightful owners should be able to define the limits
of permissible copying or modification of their works. Thomas Lee Hazen,
Contract Principles as a Guide for Protecting Intellectual Property
Rights in Computer Software: The Limits of Copyright Protection, the
Evolving Concept of Derivative Works, and the Proper Limits of Licensing
Arrangements, 20 U.C. Davis. L. Rev. 105, 142 (1986). It is only when
a contract erects a barrier on access to information that under copyright
law should be accessible that Sec. 301 operates to protect copyright
law from individually crafted evasions of that law. See Rice, supra,
53 U. Pitt. L. Rev. at 614 ("The far-reaching public policy Section
301 implements clearly requires preemption of contract-based protection
o
f expression as expression where the effect is to secure rights in that
expression which are greater than, equal to, or supplemental of those
which Section 106 secures); Hazen, supra, 20 U.C. Davis L. Rev. at 129
("[C]ourts should invalidate contracts attempting to expand the intellectual
property's protection too far beyond the parameters of copyright law
on the grounds of statutory preemption, or as against public policy");
Christopher Celentino et al., Vault Corp. v. Quaid Software Ltd.: Invalidating
Shrink-Wrap Licenses?, 2 J.L. 51, 162 (1987) (Vault opinion has merit
if it means that contracts providing rights greater than or equivalent
to those under copyright law are preempted).
Plaintiff's license agreement is an attempt to avoid the confines of
copyright law and of Feist, 499 U.S. 340. Its prohibition on the distribution
of public information cannot be squared with the purposes of copyright
law or with plaintiff's own compilation of data. Had each of the compilers
of the 3,000 directories that plaintiff used to put together its database
attached a set of terms prohibiting further distribution of the information
included in its directories, plaintiff would not have been able to create
Select PhoneTm without negotiating with and compensating each compiler
for use of its data. The Supreme Court's decision in Feist allowed
plaintiff to avoid these problems and create its database without any
fear of copyright infringement. It is ironic that after plaintiff has
attained the benefits of copyright law, it wants to prevent others from
receiving that same protection. Unfortunately for plaintiff, the rules
of the game have no
t changed. Just as plaintiff had public access to the telephone listings,
so do defendants. Plaintiff cannot use a standard form contract to
make an end run around copyright law. Its contract claim is preempted
by Sec. 301.
b. Misappropriation claim
I note first that plaintiff set forth an unfair competition
claim in its complaint but did not develop the claim in its summary
judgment briefs. Because of the close relationship between the torts
of unfair competition and misappropriation, I will treat plaintiff's
unfair competition claim as part and parcel of its misappropriation
claim.
At an early stage, the House of Representatives bill that eventually
became Sec. 301 included misappropriation in a list of torts that were
considered not equivalent to copyright infringement. Baltimore Orioles,
805 F.2d at 676-77 n.25. That list was deleted from the bill shortly
before passage. As enacted, 301 of the Copyright Act does not provide
any explicit guidance on the preemption of misappropriation claims by
copyright law. Plaintiff cites extensive language from the House Report
detailing why misappropriation is not necessarily synonymous with copyright
infringement:
". . . [A] cause of action labeled as 'misappropriation' is not
preempted if it is in fact based neither on a right within the
general scope of copyright as specified by Section 106 nor on a right
equivalent thereto. For example, state law should have the flexibility
to afford a remedy (under traditional principles of equity) against
a consistent pattern of unauthorized appropriation by a competitor
of the facts (i.e., not the literary expression) constituting
'hot' news, whether in the traditional mold of International News
Serv. v. Associated Press, 248 U.S. 215 (1918), or in the newer
form of updates from scientific, business or other financial databases.
Likewise, a person having no trust or other relationship with the
proprietor of a computerized database should not be immunized from
sanctions against electronically or
cryptographically breaching the proprietor's security arrangements
and accessing the
proprietor's data . . ."
H.R. Rep. No. 1476, 1976 U.S.C.C.A.N. at 5748. I hesitate to place
too much weight on these statements because the Court of Appeals for
the Seventh Circuit has determined that the deletion of the list from
the bill should be given little weight in determining whether a particular
right is equivalent to copyright, stating, "almost any interpretation
of the concept of equivalent rights can be inferred from the legislative
history." Baltimore Orioles, 805 F.2d at 676-77 n.25; see also Nimmer,
supra, Sec. 1.01[B] at 1-30 (in view of ambiguous legislative history,
it is best to ignore the significance of the earlier explicit mention
and later deletion of the word "misappropriation"). In addition, the
discussion of misappropriation in the House Report seems to run counter
to the discussion elsewhere in the report that "in the clearest and
most unequivocal language possible . . ." Sec. 301 is intended to "avoid
the development of any vague borderline areas between State and Federal
Protect
ion." H.R. Rep. No. 1476, 1976 U.S.C.C.A.N. at 5746.
The majority of federal courts addressing this issue have found
misappropriation claims preempted. See Nimmer, supra, Sec. 1.01[B]
at 1-35 n. 156 ("misappropriation is but another label for reproduction
and as such, is a preempted right 'within the general scope of copyright'
under Section 301(a)") (collecting approximately twenty appellate and
district court cases holding misappropriation claims preempted); Universal
City Studios v. T-Shirt Gallery, Ltd., 634 F. Supp. 1468, 1476 (S.D.N.Y.
1986) (New York's misappropriation tort preempted); Mayer v. Josiah
Wedgwood td., 601 F. Supp. 1523, 1535 (S.D.N.Y. 1985) (New York's misappropriation
tort preempted); Videotronics, Inc. v. Bend Elecs., 564 F. Supp. 1471
(D. Nev. 1983) (where intellectual property subject to copyright law,
applying state doctrine of misappropriation to protect it would create
an unacceptable conflict with federal policy).
Courts reaching the opposite conclusion have analyzed misappropriation
claims different in nature from the one at hand and have looked more
to the "extra element" that must be proven under the state law claims
in finding that Congress did not intend to preempt the cause of action
at issue. The cases plaintiff cites make this apparent. Data General
Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147; Princess Fabrics,
Inc. v. CHF, Inc., 922 F.2d 99 (2d Cir. 1990); Wilson v. Mr. Tee's,
855 F. Supp. 679 (D. N.J. 1994); CSM Investors Inc. v. Everest Development,
Ltd., 840 F. Supp. 1304 (D. Minn. 1994); Rubin v. Brooks/Cole Pub. Co.,
836 F. Supp. 909 (D. Mass. 1993). None of these cases involved a misappropriation
claim based solely on improper copying and distribution. Rather, the
cases involved trade secrets claims requiring plaintiff to show a breach
of confidentiality, Data General, 36 F.3d at 1165, or "palming off"
claims necessitating a showing that the public is misled about the o
rigin of the product. Princess Fabrics, 922 F.2d at 104 (misappropriation
claim is preempted but states may still prohibit palming off); Wilson,
855 F. Supp. at 684 (palming off claims not preempted); CSM Investors,
840 F. Supp. at 1314 (neither unfair competition involving palming off
nor unjust enrichment claims involving illegal benefit from another
are preempted); Rubin, 836 F. Supp. at 924 (extra elements of misrepresentation
and deceit qualitatively different from reproduction).
The Court of Appeals for the Seventh Circuit has not addressed
the preemption issue as it relates to misappropriation claims, although
it affirmed a district court holding to that effect. See Nash v. CBS,
Inc., 899 F.2d 1357 (7th Cir. 1990), aff'g on other grounds 704 F. Supp.
823, 835 (N.D. Ill. 1989). In Nash, 704 F. Supp. at 834, the district
court noted that, "The goal underlying copyright law is the same as
that driving the tort of misappropriation: balancing the need to provide
economic incentives for authorship against the preservation of the freedom
to imitate." However, the district court did not go so far as to hold
that Sec. 301 always preempts the tort of misappropriation. It found
that the statements in the House Judiciary Committee Report on the 1976
Amendments to the Copyright Act reflected a legislative intent to keep
available certain misappropriation claims. Id.
The elements of the tort of misappropriation in Wisconsin are "(1)
time, labor and money expended in the creation of the thing misappropriated;
(2) competition; and (3) commercial damage to the plaintiff." Mercury
Record Productions, Inc., v. Economic Consultants, Inc., 64 Wis. 2d
163, 174, 218 N.W.2d 705, 709 (1974), cert. denied, 420 U.S. 914 (1975).
At first blush, the second and third factors of the Mercury Record
test appear to constitute extra elements that would exempt Wisconsin's
misappropriation tort from preemption. However, as discussed above,
the mere presence of extra elements does not indicate that the underlying
right is not equivalent to rights protected under Sec. 106 of the Copyright
Act. When the purposes of copyright and misappropriation law are compared
with respect to plaintiff's claim, it is evident that misappropriation
does not serve any qualitatively different purposes from copyright law.
Copyright law seeks to encourage individuals to create new works b
y offering them the security that those works will be rewarded with
a limited monopoly. Baltimore Orioles, 805 F.2d at 678. Thus it protects
authors from those who seek to usurp the copyright owner's creative
efforts by copying. The tort of misappropriation offers the same type
of protection. Adding competition and commercial damage does not differentiate
the underlying protected right. In fact, these elements are subsumed
in a party's decision to bring a copyright infringement claim. Without
some form of competition and commercial damage, a party would not have
the financial incentive to sue for copyright infringement. I conclude
that because plaintiff's misappropriation claim is not qualitatively
different from a copyright infringement claim, the underlying rights
plaintiff seeks to vindicate are equivalent to federal rights and are
preempted by the Copyright Act.
c. Wisconsin Computer Crimes Act claim
The Wisconsin Computer Crimes Act makes it unlawful to modify,
destroy, access, take, or copy computer data willfully, knowingly and
without authorization. Wis. Stat. Sec. 943.70(2)(a). Under the statute,
"data" are property and include representations of information, knowledge
or facts prepared in formalized manners and intended to be processed
in a computer system. Wis. Stat. Sec. 943.70(1)(f). Under the act,
the Select PhoneTm telephone listings qualify as data and defendants'
distribution of that data is made unlawful.
Again, the question is whether federal copyright law preempts the statute
as it applies to defendants' actions. Plaintiff points to a recent
Wisconsin appellate court decision in which the court held that the
law was not preempted by the Copyright Act. In State v. Corcoran, 186
Wis. 2d 616, 522 N.W.2d 226 (Ct. App.), review denied, 527 N.W.2d 335
(1994), the Wisconsin Court of Appeals upheld a conviction under the
Wisconsin Computer Crimes Act of a computer software programmer who
destroyed data stored on the computer of his former employer by inserting
"booby traps" into programs he had written for the employer. Id. at
620, 522 N.W.2d at 228. The court explained that it did not need to
consider the defendant's argument that federal copyright law preempted
the Wisconsin act because the data the defendant was accused of destroying
could not be protected by copyright. Id. at 628, 522 N.W.2d at 231
("Therefore, we need not decide if the federal Copyrights [sic] Act
preempts the enf
orcement of the WCCA; Corcoran was properly convicted of destroying
facts that cannot be protected by copyright."). The court said that
"If [it] were to address the question of . . . preempt[ion]," it would
apply the "extra element" test. Id. at 628 n.11, 522 N.W.2d at 231
n.11.
Plaintiff argues that the court reached its holding in Corcoran because
the destroyed data were not copyrightable and therefore did not meet
the first requirement of the preemption test, that the material fall
within the subject matter of copyright. This is a reasonable interpretation
of the court's holding, but not the only one. The court of appeals
did not hold explicitly that such data does not "fall within the subject
matter" of copyright for purposes of preemption analysis. In fact,
the court's footnote seems to indicate that the court's understanding
of the preemption test focused solely on the second, or "extra element"
prong of the analysis. See 186 Wis. 2d at 628 n.11, 522 N.W.2d at 231
n.11 ("The analysis applied by the federal courts requires a determination
if the state-created cause of action contains an 'extra element' in
addition to the acts of reproduction or distribution"). The court's
discussion of the issue lacks specific mention of the subject matter
test. A
s seen in Baltimore Orioles, 805 F.2d 663, an inquiry into the subject
matter of copyright requires more than just determining whether given
material is a proper recipient of copyright protection. It is unlikely
that the court's single sentence mention of subject matter in Corcoran
was meant to foreclose future application of a more comprehensive subject
matter test.
Applying the preemption test to plaintiff's claim that defendants violated
the Wisconsin Computer Crimes Act, it becomes evident that the claim
should be preempted for the same reasons as plaintiff's breach of contract
and misappropriation claims. The first prong is satisfied because the
telephone listings fall within the subject matter of copyright and the
second is met because plaintiff seeks merely to prohibit the copying
and distribution that it could not prevent under federal copyright law.
In reaching this conclusion that federal law preempts plaintiff's claim
under the Wisconsin Computer Crimes Act, I do not hold or intend to
imply that the Wisconsin Computer Crimes Act is preempted in all instances.
Preemption would not occur in a Corcoran-like situation when an individual
destroys another's data purposefully. In those situations, the right
sought to be enforced differs greatly from the copying and distribution
rights covered by copyright law. What this conclusion does me
an is that plaintiff cannot succeed on its underlying copyright claim
by dressing it in other clothing. Plaintiff's efforts to establish
a right under the Wisconsin Computer Crimes Act conflicts directly with
the federal copyright law's directive to keep unoriginal factual compilations
in the public domain. It would undermine the public access to facts
and ideas if states could block such access with their own legislation.
ORDER
IT IS ORDERED that the motion for summary judgment of defendants
Matthew Zeidenberg and Silken Mountain Web Services, Inc., is GRANTED
and that the motion for summary judgment of plaintiff ProCD, Inc. is
DENIED. FURTHER, IT IS ORDERED that the preliminary injunction entered
herein on September 22, 1995, is DISSOLVED. This order does not affect
the permanent injunction entered against Ivory Tower Information Systems,
Inc., pursuant to a settlement agreement on October 19, 1995. The clerk
of court is directed to enter judgment for defendants Matthew Zeidenberg
and Silken Mountain Web Services, Inc., and close this case.
Entered this _(4th)_ day of January, 1996.
BY THE COURT:
BARBARA B. CRABB
District Judge
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