Contracts: Clickwraps and Idea Submissions Intro to IP – Prof Merges 4.16.09.

Contracts: Clickwraps and Idea Submissions

Intro to IP – Prof Merges

4.16.09

Agenda

• Shrinkwrap/clickwrap contracts

– K law– Preemption

• Idea submission cases: implied K and preemption issues

ProCD v. Zeidenberg

Judge Frank Easterbrook

SELECT PHONE is on 5 CDs, contains 90 million listings from both White and Yellow Pages of 77.8 million residential and 13.8 million businesses. You can search for listings on any field: name, address, city, state, ZIP, area code, business heading and SIC code. It offers reverse search capability, matches addresses or phone numbers with names and provides counts by business heading or SIC code. And its fast - just a second or two to search for the listing you want. In addition you have unlimited downloading of listings into a database, word processor, spreadsheet or contact management program. The value and utility of this should be apparent to any salespeople, fundraisers, research and market testing firms, . . .

SMALL FRY GO ONLINE – 11/1995Technology lets even tiny businesses outmarket the

giants

Pro CD Inc., Database America, Cole Publications (a unit of MetroMail), and Dun & Bradstreet all sell nationwide telephone listings on compact disks, including names and addresses, for as little as $175. The CDs let you search by name, zip code, and, in some, by income or business type

Matthew Zeidenberg

District court holding

• Was there a K?

• What were its terms?

What term is at issue in ProCD?

What term is at issue in ProCD?

• “No commercial use”

7th Circuit Holding

• When is K formed?

• Who is offeror? What is mode of acceptance?

Easterbrook: why is this good policy?

• Business motive

• “Freedom of K”

• Consumer benefits

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

Price Discrimination

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Hardcover

Softcover

Total Revenue

Without Price Discrimination

With Price Discrimination

$510 $710

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Commer-cial Users

Non-commercial Users

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Price Discrimination

Commer-cial Users

Arbitrage!

Price

Quantity Demanded (000s)

D

$5

100

$3

170

Total Revenue

“Perfect Arbitrage”

Arbitrageurs’ profits

Freedom of Contract in ProCD

• What happens if we prohibit “rolling K formation”?

Freedom of Contract in ProCD

• What happens if we prohibit “rolling K formation”?

All sorts of beneficial K’s will be prohibited; inconvenience for many buyers will result

K Analysis

• UCC 2-204 policy: K may be formed in any manner . . .

• 2-606: acceptance of goods (shows that terms in form Ks may not be the final step in acceptance)

• UCITA draft – not persuasive for Easterbrook

Preemption analysis

• K involves only 2 parties . . .

• Not “good against the world”

Judge Sonia Sotomayor

Ancillary Issues

• Agreement to arbitrate

• UCC vs. common law of contracts

• Sale vs license – crucial distinction– UCC vs. IP licensing law– 1st sale/exhaustion doctrine

Netscape: assent issues

• Communicator (browser): required assent before downloading

• “SmartDownload” (plug-in) did not

Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir.2002).

We rule against Netscape and in favor of the users of its software because the users would not have seen the terms Netscape exacted without scrolling down their computer screens, and there was no reason for them to do so. The evidence did not demonstrate that one who had downloaded Netscape's software had necessarily seen the terms of its offer.

Online Assent

We recognize that contract offers on the Internet often require the offeree to click on an “I agree” icon. And no doubt, in many circumstances, such a statement of agreement by the offeree is essential to the formation of a contract . . .

“Terms inside Gateway’s box stand or fall together. If they constitute the parties’ contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced.”

Hill v. Gateway

“ProCD is about the law of contract, not the law of software. Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products.”

The question in ProCD was not whether terms were added to a contract after its formation, but how and when the contract was formed—in particular, whether a vendor may propose that a contract of sale be formed, not in the store (or over the phone) with the payment of money or a general “send me the product,” but after the customer has had a chance to inspect both the item and the terms. ProCD answers “yes,” for merchants and consumers alike

Notice of terms?

Gateway’s ads state that their products come with limited warranties and lifetime support. How limited was the warranty—30 days, with service contingent on shipping the computer back, or five years, with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things [ask, request K terms, or wait for the product to arrive].”

Netscape holding

“We hold that a reasonably prudent offeree in plaintoffs’ position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload’s license terms hidden below the “Download” button on the next screen.” – p. 881

Nadel v. Play-by-Play

• Facts

– Toy industry structure

• Causes of action here

– Breach of K; quasi-K; “unfair competition”

The toy industry is a 30 billion dollar-a-year business. It's also the last frontier for aspiring independent inventors, with an annual new product turnover of 60 percent and plenty of opportunities for the creative mind. Here, one of the most recognized and successful toy and game inventors in the business teams up with the former head of research and development at Hasbro to bring clear, comprehensive information to aspiring toy and game inventors...who just might bring us the next hula hoop!

Facts

• Nadel meets with Wasserman

• Nadel sends prototype

• The secretary’s testimony – killer for Wasserman!

Doctrine

• Specific to NY State law: the role of novelty in “theft of idea” cases

• General (vs. specific) novelty: applied by District Court to bar Nadel’s claims

• District Court: true for (1) misappropriation and (2) breach of K causes of action

Apfel (NY Case)

• Distinguished “novelty to the buyer” from “originality”

• Consideration argument rejected

Property vs contract

• Cases on “property-based” vs.

• “Contract-based” causes of action

Held

• Reversed and remanded

• Question of novelty to be determined below