Nature of A License; Contract Formation Issues

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What Law Applies

Much of intellectual property is a creation of Federal law. Contract law is governed by state law. (There is no federal contract common law -- see Erie Railroad v. Tompkins, 304 US 64 (1938).)

However, federal law preempts state law where federal law is applicable.

This produces interesting questions of what rule applies.

Clearly a state law essentially equivalent to a federal law (but with contradictory requirements) cannot work.

Is it possible for a contract to be enforceable where it conflicts with a federal rule? What if it "supplements" it.

A key case involving these issue is ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). FYI here are the UCC Sections referenced in ProCD (Sections 2-204, 2-206 and 2-207) (these are the Massachusetts analogs, rather than the actual sections, but they should be substantially similar)

See also S.O.S. v. Payday, 886 F.2d 1081 (9th Cir. 1989) (federal preemption discussed in context of licensing case)

UCC vs. not UCC

Gilmer v. Buena Vista, pp. 38-40 in text.

Advent Systems v. Unisys, pp. 40-44 in text.

See also Microsoft v. AT&T, pp. 47-55 in text.

Contract Formation Issues

In general, contracts (including license agreements) are negotiated and signed by the parties. However, some very popular types of licenses are not signed by parties (at least in ink) for practical reasons.

Shrink-wrap Licenses

A "Shrink-wrap" license is a special kind of license because it purports to be enforceable without being signed by the buyer. Shrink-wrap licenses are given that name because the enforceable obligation is undertaken by an "act", which is the opening of a shrink-wrapped package containing the product. It is in the nature of a shrink-wrap license that it is not negotiated.

It is not entirely clear that a shrink-wrap license is enforceable in every jurisdiction for all terms.

I.Lan Systems, Inc. v. Netscout Service Level Corp., 183 F.Supp.2d 328 (D. Mass. Jan. 2, 2002) (Massachusetts shrink-wrap case)

Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997), cert. denied, 118 S. Ct. 47 (1997), referred to in p. 92 in text in Mortenson case.

Sprecht v. Netscape Communication Corp., 206 F. 3d 17 (2d Cir. 2002), pp. 97-106 in text.

M.A. Mortenson Company v. Timberline Software, 998 P.2d 305 (Wash. 2000), pp 88-93 in text.

Some shrink-wrap or shrink-wrap-like licenses have practical problems associated with them. See the Dell experience

Electronic Signature

Certain legislation has made the exact mechanism of "shrink-wrap" or similar agreements less uncertain by authorizing electronic signatures.

See Electronic Signatures in Global and National Commerce Act (“E-Sign”), 15 U.S.C. § 7001-7031.

See also Uniform Electronic Transactions Act (“UETA”), enacted in Massachusetts as M.G.L. ch 110G (Section 3 of Ch 133 of the Acts of 2003)

Content of Shrink-Wrap License

Despite the average consumer's disregard for the contents of a shrink-wrap or click-wrap license agreement, the contents of the license agreement do matter.

On the one hand, it is important that the licensor correctly set the limits on the use of the technology. Use of "standard" agreements which does not address interesting new technological situations can have strange consequences. For an interesting manner in which the technology and licensing do not seem to have connected correctly, see: Apple's OS X Upgrade Fiasco

On the other hand, many licenses can take what may seem to be an extreme position in their contents, committing users past what would normally be expected. See for example, the Gator license.

Elliot Spitzer, when Attorney General of New York, sued McAfee regarding a clause in the standard agreement limiting users ability to comment on the performance of the software: Spitzer-McAfee Case.

Discussion of Trade Secrets and "NDA"s

What is an NDA (see Short NDA)

Reason for NDA

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