Court Addresses Legality of Shrinkwrap Licenses

NullProg writes "This article here comments on a legal case where a shrink-wrap license may be binding. This a scary precedent for any developer who has added a feature to their software already present in a competitors version."

Comments

Why not?

[Kenja]

Why should shrink wrap licenses be any less binding then say the GPL? Should a closed source vendor be able to look over GPLd software code to see how something was done with the intention of using it in their products?

Re:Why not?

[Kenja]

However it seems to me that the "look and feel" of a program is covered by the GPL. Thus it is in much the same boat. The case in question is when a developer added features that where almost exactly like those found in another vendors products.

If I produce a Windows application that looks just like KMail, would I not be in violation of at least the spirt of the GPL?

Re:Why not?

[TheOnlyCoolTim]

His argument is valid - if he looks at GPL image manipulation code and then writes his own image manipulation code, there is no way to remove his knowledge of the GPL code even if he does not intentionally copy. So it could be claimed that he learned how to write his code from looking at the GPL code.

In a similar vein, television studios and computer game developers often have to trash idea submissions from fans without reading them, since if Person A sends an idea to Company B, and Company B had already independently thought of and was working on Person A's idea, Person A could then claim that Company B had stolen his idea.

Tim

Re:Why not?

[rgmoore]

This can't possibly be right, can it? What if I look at Apache code?

Nothing. Apache is released under a license similar to the original BSD license (i.e. free reuse without need to include the source code, but with an advertizing clause).

The programmer with the serious experience who would be most valuable on the project must avoid it, because they could be sued for copyright infringement.

Of course the flip situation is also quite likely. If you work on a Free Software program that's similar to the proprietary software you write at work, you're opening up that Free Software project to charges that they're stealing code from your employer. That's likely to be true no matter what license the Free Software uses. This is an inherent problem with our Copyright system, not something that's in any way restricted to Free Software.

Re:And?

[Anonymous Coward]

but I didnt agree to it. My underage daughter did and cince she is underage the EULA is null and void. and therefore falls under normal copyright laws.

Hey, if you cant fight them with their own laws then you need to either beat the tar out of them or blow up their buildings.

Me? I'm all for the mass killing of every lawyer in america... It will bring about an age of peace and increased knowlege.

Kids

[orbital3]

I've always wondered... couldn't you just have a kid come over and click "I Agree" on any EULA? As long as they're still children, they can't enter a legally binding contract with another party (at least in the US). So couldn't you get around the legalities of the EULA by having a minor click through? Surely not everyone who uses the software can be bound to the EULA if those people never were presented with a licensing agreement to agree to...

Re:Kids

[Dynedain]

Interesting idea. How many people have their children install software because the 12 year old is so much more profficient at the computer than the parent? At least in California, if the kid enters a legally binding contract ("I Agree") without their legal guardian also signing the contract, then it is null and void. Statutory Rape cases have used this to break up otherwise legal marraiges.....why wouldn't it be valid in a shrink-wrap case?

Re:Absurd Statement Re: Intellectual Property

[gilroy]

Blockquoth the poster:

To cut to the chase, I think any imagined economic structure that assumes people can't attempt to sell the product of their labors -- whether you are digging holes, teaching school, writing code or creating art that rivals Michelanglo -- is absurdly utopian and not worthy of serious consideration.

The issue is not whether you can attempt to sell me a copy of your program. However, in the absence of intellectual output laws, the attempt is likely to be met with laughter. Say you charge $500 for a copy of FrobozzWord. I might buy that copy from you and then, when anyone else came to buy from you, I'd offer it for $251. If I can make even two sales, I win. And you lose.

Is this wrong, if you wrote the program and I just bought it? For digital works, including software, the copy is identical and therefore exactly as usable. You hold no special position just for being first. Of course, in this sort of world, you wouldn't sell the program unless you could make enough on the first sale to justify developing it. It could be the end of mass-produced software and the beginning of a meteoric rise for mercenary programmers who freelance jobs.

Either way, it certainly could lead to a slowdown in the development of software, with a concommitant impact on the economy and indeed the standard of living for many people. As such, the industrialized world has evolved laws for intellectual output. These laws artificially produce scarcity. Now, your copy and my copy -- although they are exact digital duplicates, indistinguishable by any test -- are no longer legally equivalent. Yours is acceptable; mine is "infringing" and therefore legally invalid. As such, I cannot claim the copy I made of your program is exactly as usable, since (in a legal sense) it cannot be used at all. This creates a market for your software (maybe) and allows you to sell multiple copies, since the marginal cost of procurement is not zero any longer.

So far, so good. But this "copyright" is not a natural right. It's created by the state to meet the legitimate ends of the public; to wit, to spur innovation and creativity by offering incentives for people to create. If the execution of intellectual "property" law begins to significantly impede this end -- if the law serves more often than not to choke off creativity and slow the growth of the public domain -- then the public is entirely within its rights to reconsider the bargain. Then we might get something interesting happenning...

As a total aside, I said earlier "You hold no special position just for being first." This is not strictly true, of course. It would be natural to assume that, because you wrote the program (whereas I only copied it), that you would be an expert in it. You could more easily solve tech problems, tweak settings for particular users, and upgrade the software's functionality. I would be playing catch-up. One could even imagine making your expertise the marketable item. If someone needs the program and tech support enough, one can even imagine making a business model of this. And it doesn't rest upon intellectual "property" laws at all.

Wake up dudes! This has been the law for a decade

[werdna]

This article here comments on a legal case where a shrink-wrap license may be binding.

The Bowers case is scary, indeed, but it hardly breaks ground on the proposition quoted above. The Federal Circuit Opinion relies on a longstanding string of case law (including the 1996 7th Circuit opinion in the ProCD case) finding a shrink-wrap agreement to be enforceable. While the enforceability of shrink-wraps will likely be heavily fact-dependent (and possibly jurisdiction-dependent), there has been enough guidance for years for a well-advised publisher to have little doubt that purchase and use of her software will be governed by the shrink-wrap. In other words, "Shrink wraps done right are enforceable. Duh."

The scary result in Bowers is not the enforceability of the shrink-wrap agreement, but the enforceability of a particular provision (the no-reverse-engineering provision), and a holding that the Copyright law that permits reverse engineering DOES NOT PREEMPT a state contract claim. This is actually quite a huge(ly bad) result, and it is hard to distinguish the analysis of the Federal Circuit case from a hypothetical book with the "no fair use" shrink-wrap provision.

This isn't a question of offer and acceptance -- its a question of federal law being circumvented by an activist court.

Doesn't Work

[Anonymous Coward]

This doesn't work legally for two reasons. First is that the current legal system has decided, for reasons that are unclear to any sane individual, that merely _running_ a computer program counts as _copying_ it, because the program is "copied" from disk into memory. This is much unlike a book; in the process of purchasing and reading a book you are at no point subject to copyright or licenses because you never copy the book. The effect of this weird theory with respect to software is that if you even use a piece of software without a valid license from the copyright holder, you are commiting a crime. Thus having a 12-year-old agree to the EULA doesn't help you any, because then you don't have the right to operate the software at all, as you have no license (never mind that it's already installed).

The other reason this doesn't work is simply that law is not a mathematical game and judges don't take kindly to this sort of thing.

Excerpt of the court's decision (long post!!)

[Jedi Paramedic]

Just wanted to post a couple of things so people could see a less-biased summary of the court's decision and the actual text of the discussion of the shrinkwrap license and what ACTUALLY went on...

The LEXIS headnotes:

HAROLD L. BOWERS (doing business as HLB Technology), Plaintiff-Cross Appellant, v. BAYSTATE TECHNOLOGIES, INC., Defendant-Appellant.
01-1108, 01-1109
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
2002 U.S. App. LEXIS 17184

August 20, 2002, Decided

PRIOR HISTORY: [*1] Appealed from: United States District Court for the District of Massachusetts. Judge Nathaniel M. Gorton.

Bowers v. Baystate Techs., 112 F. Supp. 2d 185 (D. Mass. 2000).

DISPOSITION: Affirmed, in-part, reversed, in-part.
CASE SUMMARY

PROCEDURAL POSTURE: Plaintiff, patent holder, appealed from an order of the United States District Court for the District of Massachusetts denying him copyright damages following a jury verdict in his favor on patent and copyright infringement, and breach of contract claims related to United States Patent No. 4,933,514 ('514 patent). The defendant cross-appealed the district court's denial of its motions for Judgment as a Matter of Law or a new trial.

OVERVIEW: At trial, the defendant contended, inter alia, that the Copyright Act, 17 U.S.C.S. 301(a), preempted the prohibition of reverse engineering embodied in the patent holder's shrink-wrap license agreements. The shrink-wrap license agreement prohibited all reverse engineering of the plaintiff's software, protection encompassing but more extensive than copyright protection, which prohibited only copying. The plaintiff's copyright and contract claims both rested on the defendant's copying of the software. Following the district court's instructions, the jury considered and awarded damages on each separately. The court of appeals found that this was entirely appropriate because the breach of contract damages arose from the same copying and included the same lost sales that formed the basis for the copyright damages. However, the court of appeals perceived no basis upon which a reasonable jury could find that defendant's accused "Draft-Pak" templates infringed claim 1 of the '514 patent and reversed the district court's denial of defendant's motion for JMOL of non-infringement.

OUTCOME: The jury's verdict on the breach of contract claim was affirmed, and the district court did not abuse its discretion in omitting as duplicative copyright damages from the damage award. However, because no reasonable jury could find that the defendant infringed properly construed claim 1, the jury's verdict on the patent infringement claim was reversed.

The portion of the decision in which they mention ProCD and the shrinkwrap license claims:

Baystate contends that the Copyright Act preempts the prohibition of reverse engineering embodied in Mr. Bowers' shrink-wrap license agreements. Swayed by this argument, the district court considered Mr. Bowers' contract and copyright claims coextensive. The district court instructed the jury that "reverse engineering violates the license agreement only if Baystate's product that resulted from reverse engineering infringes Bowers' copyright because it copies protectable expression." Mr. Bowers lodged a timely objection to this instruction. This court holds that, under First Circuit law, the Copyright Act does not preempt or narrow the scope of Mr. Bowers' contract claim.

Courts respect freedom of contract and do not lightly set aside freely-entered agreements. Beacon Hill Civic Ass'n v. Ristorante Toscano, 422 Mass. 318, 662 N.E.2d 1015, 1017 (Mass. 1996). Nevertheless, at times, federal regulation[*10] may preempt private contract. Cf. Nebbia v. New York, 291 U.S. 502, 523, 78 L. Ed. 940, 54 S. Ct. 505 (1934) ("Equally fundamental with the private right is [the right] of the public to regulate [the private right] in the common interest."). The Copyright Act provides that "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright . . . are governed exclusively by this title." 17 U.S.C. 301(a) (2000). The First Circuit does not interpret this language to require preemption as long as "a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display." Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164, 32 USPQ2d 1385, 1397 (1st Cir. 1994) (quoting Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 847, 28 USPQ2d 1503, 1520 (10th Cir. 1993)); see also Computer Assoc. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992) ("But if an 'extra element' is 'required instead of or in addition to the acts of reproduction, performance, distribution [*11] or display, in order to constitute a state-created cause of action, then the right does not lie "within the general scope of copyright," and there is no preemption.'") (quoting 1 Nimmer on Copyright 1.01[B] at 1-15). Nevertheless, "not every 'extra element' of a state law claim will establish a qualitative variance between the rights protected by federal copyright law and those protected by state law." Id.

In Data General, Data General alleged that Grumman misappropriated its trade secret software. 36 F.3d at 1155. Grumman obtained that software from Data General's customers and former employees who were bound by confidentiality agreements to refrain from disclosing the software. Id. at 1154-55. In defense, Grumman argued that the Copyright Act preempted Data General's trade secret claim. Id. at 1158, 1165. The First Circuit held that the Copyright Act did not preempt the state law trade secret claim. Id. at 1165. Beyond mere copying, that state law claim required proof of a trade secret and breach of a duty of confidentiality. Id. These additional elements of proof, according to the First Circuit, made[*12] the trade secret claim qualitatively different from a copyright claim. Id. In contrast, the First Circuit noted that claims might be preempted whose extra elements are illusory, being "mere labels attached to the same odious business conduct." Id. at 1165 (quoting Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F. Supp. 1523, 1535, 225 USPQ 776, 784 (S.D.N.Y. 1985)). For example, the First Circuit observed that "a state law misappropriation claim will not escape preemption . . . simply because a plaintiff must prove that copying was not only unauthorized but also commercially immoral." Id.

The First Circuit has not addressed expressly whether the Copyright Act preempts a state law contract claim that restrains copying. This court perceives, however, that Data General's rationale would lead to a judgment that the Copyright Act does not preempt the state contract action in this case. Indeed, most courts to examine this issue have found that the Copyright Act does not preempt contractual constraints on copyrighted articles. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 39 USPQ2d 1161 (7th Cir. 1996) (holding that a [*13] shrink-wrap license was not preempted by federal copyright law); Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 457, 59 USPQ2d 1434, 1441-42 (6th Cir. 2001) (holding a state law contract claim not preempted by federal copyright law); Nat'l Car Rental Sys., Inc. v. Computer Assocs. Int'l, Inc., 991 F.2d 426, 433, 26 USPQ2d 1370, 1376 (8th Cir. 1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990); Acorn Structures v. Swantz, 846 F.2d 923, 926, 6 USPQ2d 1810, 1812 (4th Cir. 1988); but see Lipscher v. LRP Publs., Inc., 266 F.3d 1305, 1312, 60 USPQ2d 1468, 1473 (11th Cir. 2001).

In ProCD, for example, the court found that the mutual assent and consideration required by a contract claim render that claim qualitatively different from copyright infringement. 86 F.3d at 1454. Consistent with Data General's reliance on a contract element, the court in ProCD reasoned: "A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create 'exclusive rights.'" Id. This [*14] court believes that the First Circuit would follow the reasoning of ProCD and the majority of other courts to consider this issue. This court, therefore, holds that the Copyright Act does not preempt Mr. Bowers' contract claims.

This court now considers the scope of Mr. Bowers' contract protection. Without objection to the choice of law, the district court applied Massachusetts contract law. Accordingly, contract terms receive "the sense and meaning of the words which the parties have used; and if clear and free from ambiguity the words are to be taken and understood in their natural, usual and ordinary sense." Farber v. Mutual Life Ins. Co., 250 Mass. 250, 253, 145 N.E. 535 (Mass. 1924); see also Kelly v. Marx, 428 Mass. 877, 881, 705 N.E.2d 1114 (Mass. 1999) ("The proper course is to enforce contracts according to their plain meaning and not to undertake to be wiser than the parties.") (quoting Guerin v. Stacy, 175 Mass. 595, 597, 56 N.E. 892 (1900) (Holmes, C.J.)).

In this case, the contract unambiguously prohibits "reverse engineering." That term means ordinarily "to study or analyze (a device, as a microchip for computers) [*15] in order to learn details of design, construction, and operation, perhaps to produce a copy or an improved version." Random House Unabridged Dictionary (1993); see also The Free On-Line Dictionary of Computing (2001), at http://wombat.doc.ic.ac.uk/foldoc /foldoc.cgi?reverse+engineering (last visited Jul. 17, 2002). Thus, the contract in this case broadly prohibits any "reverse engineering" of the subject matter covered by the shrink-wrap agreement.

The record amply supports the jury's finding of a breach of that agreement. As discussed above, the district court erred in instructing the jury that copyright law limited the scope of Mr. Bowers' contract protection. Notwithstanding that error, this court may affirm the jury's breach of contract verdict if substantial record evidence would permit a reasonable jury to find in favor of Mr. Bowers based on a correct understanding of the law. Larch v. Mansfield Mun. Elec. Dep't, 272 F.3d 63, 69 (1st Cir. 2001). The shrink-wrap agreements in this case are far broader than the protection afforded by copyright law. Even setting aside copyright violations, the record supports a finding of breach of the agreement between [*16] the parties. In view of the breadth of Mr. Bowers' contracts, this court perceives that substantial evidence supports the jury's breach of contract verdict relating to both the DOS and Windows versions of Draft-Pak.

The record indicates, for example, that Baystate scheduled two weeks in Draft-Pak's development schedule to analyze the Designer's Toolkit. Indeed, Robert Bean, Baystate's president and CEO, testified that Baystate generally analyzed competitor's products to duplicate their functionality.

The record also contains evidence of extensive and unusual similarities between Geodraft and the accused Draft-Pak-further evidence of reverse engineering. James Spencer, head of mechanical engineering and integration at the Space and Naval Warfare Systems Center, testified that he examined the relevant software programs to determine "the overall structure of the operating program" such as "how the operating programs actually executed the task of walking a user through creating a [GD&T] symbol." Mr. Spencer concluded: "In the process of taking the [ANSI Y14.5M] standard and breaking it down into its component parts to actually create a step-by-step process for a user using the [*17] software, both Geodraft and Draft-Pak [for DOS] use almost the identical process of breaking down that task into its individual pieces, and it's organized essentially identically." This evidence supports the jury's verdict of a contract breach based on reverse engineering.

Mr. Ford also testified that he had compared Geodraft and Draft-Pak. When asked to describe the Draft-Pak interface, Mr. Ford responded: "It looked like I was looking at my own program [i.e., Geodraft]." Both Mr. Spencer and Mr. Ford explained in detail similarities between Geodraft and the accused Draft-Pak. Those similarities included the interrelationships between program screens, the manner in which parameter selection causes program branching, and the manner in which the GD&T symbols are drawn.

Both witnesses also testified that those similarities extended beyond structure and design to include many idiosyncratic design choices and inadvertent design flaws. For example, both Geodraft and Draft-Pak offer "straightness tolerance" menu choices of "flat" and "cylindric," unusual in view of the use by ANSI Y14.5M of the terms "linear" and "circular," respectively. As another example, neither program requires [*18] the user to provide "angularity tolerance" secondary datum to create a feature control frame--a technical oversight that causes creation of an incomplete symbol. In sum, Mr. Spencer testified: "Based on my summary analysis of how the programs function, their errors from the standard and their similar nomenclatures reflecting nonstandard items, I would say that the Draft-Pak [for DOS] is a derivative copy of a Geodraft product."

Mr. Ford and others also demonstrated to the jury the operation of Geodraft and both the DOS and Windows versions of the accused Draft-Pak. Those software demonstrations undoubtedly conveyed information to the jury that the paper record on appeal cannot easily replicate. This court, therefore, is especially reluctant to substitute its judgment for that of the jury on the sufficiency and interpretation of that evidence. In any event, the record fully supports the jury's verdict that Baystate breached its contract with Mr. Bowers.

Baystate does not contest the contract damages amount on appeal. Thus, this court sustains the district court's award of contract damages. Mr. Bowers, however, argues that the district court abused its discretion by dropping copyright [*19] damages from the combined damage award. To the contrary, this court perceives no abuse of discretion.

The shrink-wrap license agreement prohibited, inter alia, all reverse engineering of Mr. Bowers' software, protection encompassing but more extensive than copyright protection, which prohibits only certain copying. Mr. Bowers' copyright and contract claims both rest on Baystate's copying of Mr. Bowers' software. Following the district court's instructions, the jury considered and awarded damages on each separately. This was entirely appropriate. The law is clear that the jury may award separate damages for each claim, "leaving it to the judge to make appropriate adjustments to avoid double recovery." Britton v. Maloney, 196 F.3d 24, 32 (1st Cir. 1999) (citing Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 451 n.3, 122 L. Ed. 2d 247, 113 S. Ct. 884 (1993)); see also Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 346 (D. Mass. 1993) ("So long as a plaintiff is not twice compensated for a single injury, a judgment may be comprised of elements drawn from separate . . . remedies."), aff'd in relevant part, [*20] 36 F.3d 1147 (1st Cir. 1994). In this case, the breach of contract damages arose from the same copying and included the same lost sales that form the basis for the copyright damages. The district court, therefore, did not abuse its discretion by omitting from the final damage award the duplicative copyright damages. Because this court affirms the district court's omission of the copyright damages, this court need not reach the merits of Mr. Bowers' copyright infringement claim.