Imagine this scenario:
You are the owner of a company. You have an office with 7 computers and 3
computers in your shop. The computers in the shop run windows NT and
specialized software for machining. The office computers all have windows
installed and various other software, CAD to financial to database
management.
Now your business is successful and doing well. All the sudden you have the
need to move out of state due to a family emergency and you would like to
sell your shop. By letting these EULA's stand the way that they are you may
have a very difficult time selling your business. Some of the software
vendors could simply refuse to transfer a license if they were called and
asked to do it or put an unreasonable price on such a transfer of ownership.
Now the judges have said many times in these cases and similar ones that the
copyright holder was never intended to have such power. Clearly the position
you would be in would almost definitely be seen as "unfair" by any
reasonable jury or judge. There is no guarantee though.
Now there is a case, Bowers vs. Baystate, where Baystate lost 5.75 millions
dollars for clicking on a license agreement. The Supreme Court refused to
hear the case. It is possible that they may hear another similar one and
rule against the "click" as being a valid contract, but in this case we will
accept the license is valid for certain circumstances. This situation was
different because Baystate was found to have reverse engineered Bower's CAD
software which was in direct violation of the license agreement. Note that
at the time of the case, there was no reverse engineering clause allowed in
the copyright law, but there is now. So there was nothing in the copyright
law to give them an excuse to do what they did. Reverse engineering has been
since allowed in other cases.
The reselling of what you own is very different. There is a clause of
limitation in the copyright law on this. This situation has several
different things going on. First, and most important, there does not seem to
be one case that was heard at the federal level concerning this issue
exactly, so we really have no precedent to go by. Second, the 9th court's
ruling did mention contracts and copyright law and they did not throw out
contract all together. Well, I think they made a big mistake on this one. It
was too generic to be of help to us.. Third is the copyright law itself,
it's intention and preemption status. Congress was given the power to make
the law in the Constitution. It basically says that it's purpose to promote
the arts and sciences. There can never be the perfect law in this area. It
is designed to create a balance. If too much power is given to the copyright
holder then the promotion of creativity is lost. It's intention is
specifically give and then limit this power. Being able to sell the software
you have purchased gives you money to buy new and possibly better software.
Restricting this is clearly not the intention of the law, as it says that it
wants the owner to be able to resell.
Next is the situation of this case:
http://cyber.law.harvard.edu/property00/alternatives/vaultsumm.html
In this case, contract law was thrown out because of the preemption status
of the copyright law.
"With regards to the shrinkwrap license, the court found that it was
unenforceable as a contract of adhesion unless the Louisiana Software
License Enforcement Act, which purported to validate such licenses, was
enforceable. In this regard, the Fifth Circuit held that the Louisiana
statue directly conflicted with the rights of purchasers of copyrighted
works set out in section 117 of the Copyright Act, and thus was pre-empted
by federal copyright law. As such, the shrinkwrap license was deemed to be
invalid."
Granted, we are talking about a shrinkwrap license here, but the general
reasons shown was that there was a situation that directly conflicted with
the rights of purchasers and in this situation the copyright law was upheld
first and the states contact law was thrown out.
Please note that I am not contesting the validity of a click on contract,
just the situation where it conflicts with intentions of balance in federal
copyright law. The 7th court upheld this in general here:
http://cyber.law.harvard.edu/property00/alternatives/grusd.html
"In ProCD, Inc., v. Zeidenberg, the United States Court of Appeals or the
Seventh Circuit held that shrinkwrap licensing agreements included with
software products sold off the shelf are valid contracts under Article 2 of
the Uniform Commercial Code",
This attorney here agrees with me that this has become absolutely
ridiculous:
http://cyber.law.harvard.edu/property99/alternative/Elkin-Koren.html
"Users are arguably always subject to restrictions when they use a
copyrighted work. But restrictions imposed by copyright law are limited and
reflect the balance between the need to induce creation and the need to
guarantee public access to information. If copyright owners are free to use
contractual arrangements to restrict use, and are then able to use copyright
to prevent any use that is not subject to these restrictions, owners are
gaining absolute monopoly over their works.72 "
"Today, more than ever before, we need a theory that defines the boundaries
of the freedom of contract in the context of copyright law. In the past,
copyright law was limited to contexts in which contracting was impossible or
was prohibitively expensive; in fact, copyright law arose to address the
inability of contractual means of exclusion. On-line dissemination and other
technological methods of licensing allow the replacement of copyright law by
a contractual regime, which suggests that copyright may no longer play a
central role in protecting owners' rights.80 However, copyright may now
become crucial for defining the balance between owners and users. Just as
legal intervention in the market for information was originally necessary to
allow the exclusion of non-payers, legal intervention in the market is now
necessary to allow the inclusion of non-payers. The need to secure general
access to information will require maintaining copyright schemes in
contractual regimes."
In the ProCD case above the two courts disagreed. The first court upheld the
notion that the copyright law preemption was important, but the appeals
court had a view that it just was not a big enough of a deal. The
information was already freely available, so there was no monopoly of the
software data and that the buyer could have gone somewhere else and viewed
this ability of the buyer to be the main economic concern.
Understanding the full case is important, because the appeals court may have
found differently if it was a simple economic case of just reselling a full
seat of software that you bought. They were trying to protect to company
that compiled the freely available list from basically being stolen. The
case of reselling your software, an investment, may have been seen quite
differently. The economic realities for the owner are disastrous if they
cannot resell what they have bought.
On this page there is an interesting discussion about adding tracing
software to a sold software to track it's use and then a lawyer responds
stating this:
http://www.cni.org/Hforums/cni-copyright/1996-02/0755.html
"As it happens, it also provides a nifty means for copyright owners to
price discriminate -- charging per use, for example, even though "use"
is not one of the exclusive rights reserved to the copyright owner.
Mark Lemley
Assistant Professor, University of Texas School of Law
Of Counsel, Fish & Richardson, P.C.
Clearly he feels that rights not granted to the copyright holder should not
be allowed to circumvented by any means and that it should preempt.
Here is more from him:
http://www.cni.org/Hforums/cni-copyright/1995-01/0780.html
"The courts are unanimous that shrinkwrap licenses are
ineffective to alter or avoid the federal intellectual property laws.
Whether bargained licenses can change federal intellectual property rules
is subject to more debate, but there is certainly a strong (and I think
ultimately persuasive) argument that federal policy regarding reverse
engineering should prevail. David Rice wrote an excellent article making
this argument in the University of Pittsburgh Law Review 3 or 4 years ago.
So, while most licenses certainly claim to prevent reverse engineering, it
is not at all clear that they succeed in doing so."
His comments above are huge. He is a specialized attorney in this area and
he is saying that the courts will not uphold a contract that takes away
rights granted in the copyright law.. The first part concerns not actually
clicking okay to a license, but the last part, the licenses that you
acknowledge, he says is open to debate, but he does agree with me that the
rights the copyright law grants to the owner of software should prevail
above the contract.
Here is another good one from Mark:
http://www2.tltc.ttu.edu/Cochran/Cases%20&%20Readings/Copyright-UNT/mark_a_lemley.htm
"
2. The Validity of Particular Terms
..... Contract law offers three circumstances in which license provisions in
an otherwise valid contract will not be enforced.
First, the contract term may be "unconscionable." Unconscionability is
governed by U.C.C. section 2-302.55 (http://www.law.cornell.edu/ucc/) Under
this provision, unconscionability has two components: the absence of
meaningful choice or bargaining power on the part of one party (procedural
unconscionability) and contract terms which are unreasonably favorable to
the other party (substantive unconscionability).56 The procedural element is
satisfied if the contract was not negotiated, and the party claiming
unconscionability lacked meaningful choice in entering into the contract.57
The substantive element is satisfied by proof of "harsh" or "one-sided"
results that unreasonably place contract risks on the party lacking
bargaining power.58 While unconscionability generally arises in form
contracts that unfairly bind individual consumers, it has sometimes been
applied to protect small businesses as well.59"
It is just like I was saying. It is unfair for a software company to add a
contract that prohibits reselling it.
I see it as absolutely and positively unconscionable. Thus making that
provision non-binding.
Now here we are getting into what is contract law and how far it reaches. It
has been decided by several courts that contract law at the state level, and
that is what we are talking about here in the contracts of software, are
unenforceable if they attempt to circumvent copyright law.
http://www2.tltc.ttu.edu/Cochran/Cases%20&%20Readings/Copyright-UNT/mark_a_lemley.htm
"the court in SQL Solutions, Inc. v. Oracle Corp.74 limited the effect of a
choice of law provision, holding that "federalism principles dictate that
state rules of contractual construction cannot interfere with federal law or
policy. In particular, state law must be applied in a manner that does not
conflict with federal copyright law and policy."75"
Now we are getting down to the nitty-gritty.
Supreme Court's decision in Goldstein v. California79 (
http://www.law.cornell.edu/copyright/cases/412_US_546.htm):
The Supreme Court stated:
Just as a State cannot encroach upon the federal patent laws directly, it
cannot, under some other law, such as that forbidding unfair competition,
give protection of a kind that clashes with the objectives of the federal
patent laws.
The States cannot separately make effectual provision for either of the
cases, and most of them have anticipated the decision of this point, by laws
passed at the instance of Congress.[n1]
Congress has decided that free competition should be the general rule
until it is convinced that the failure to provide copyright or patent
protection is hindering "the Progress of Science and useful Arts."
In such cases, a conflict would develop if a State attempted to protect
that which Congress intended to be free from restraint or to free that which
Congress had protected.
This is exactly what we are talking about here. The Supreme Court has said
that State's cannot create contractural laws that add or take away what the
copyright law has granted. A software company that relies on contractural
law based in their state, that is what the software companies are using, are
prohibited from doing an end-around of the expressed rights granted to the
owner of software in the copyright law. One of these rights is to use it and
another is to resell it.
It is my opinion that the EULA is a valid contract, but a provision that
says you cannot resell what you bought is invalid for two reasons.
1. The act is unconscienceable and therefore not binding.
2. The Supreme Court has said, (note that all the Justices, even the ones
that dissented, agreed in this area) a state law cannot attempted to
protect that which Congress intended to be free from restraint or to free
that which Congress had protected.
Clearly Congress has intended the buyer of software the right the sell or
dispose of his copy any way he wants.
These are my opinions of what I have read.
Thank you for your continued intelligent feedback. It has been most
enlightening and educational for me.
--
David Wishengrad
President & CTO
MillLister, Inc.
Software for measuring and stretching multiple 3D solids.
Http://Construction3D.com
--
David Wishengrad
President & CTO
MillLister, Inc.
Software for measuring and stretching multiple 3D solids.
Http://Construction3D.com
