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Volume 45, Number 2

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"License" or "Sale"? New Regulations May Affect Libraries

By Sarah K. Wiant


A proposed revision to the Uniform Commercial Code (UCC) which addresses licensing could drastically change the manner in which libraries operate in today's information age. The controversy surrounding licensing has centered on computer software, both content with valuable information and utility, including word processing and spreadsheets. However, as the methods of information delivery multiply, the overlap between books and digital media expands.

Currently, it is unclear whether shrinkwrap licenses associated with software which limit users' rights granted under copyright law are legally enforceable. The disparity in judicial treatment of shrinkwrap licenses and questions of federal preemption of state software license terms have resulted in the recent efforts to revise the Uniform Commercial Code (UCC).

Generally, shrinkwrap licenses permit the user to access software programs or information provided on discs. Similar to the shrinkwrap license are the "click-on" license and the "active click wrap" license which accompany vast amounts of information online. Unlike shrinkwrap licenses, which physically accompany a disc or package, click-on and active click wrap licenses are usually transmitted electronically and usually do not require any explicit agreement to adhere to the terms of a license. They are typically activated the instant the user installs software. Many users may agree to the terms sight unseen in order to continue with the software installation.

UCC Revisions

The UCC is drafted by two groups: the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL), and generally reflects the state of contract law. Once provisions of the UCC are approved by both the ALI and NCCUSL, they are submitted to the state governments. A state's legislature must adopt the UCC before it becomes law in that state.

Currently, the ALI and NCCUSL are working to amend Article 2 of the UCC to reflect today's changing economy. Article 2 addresses transactions in goods, primarily sales. Article 2A concerns personal property (goods) leasing transactions. The new section would be Article 2B, which would cover licensing of information. According to the draft, a license is a contract which grants permission to access or use information subject to conditions set forth in the license. A license is neither a sale nor a lease, because those terms refer to goods. The focus is not on the physical disc but on the information or application on the disc. The passage of article 2B and its potential adoption into state law would authorize most types of shrinkwrap licenses.

Software Licenses and Intellectual Property Law

The legitimacy of shrinkwrap licenses has produced continuing debate in the intellectual property field. In the Copyright Act, Congress struck a careful balance for the use of writing, reserving exclusive rights to the work's author, while preserving some uses for the public. Shrinkwrap licenses are contracts separate from the provisions of the Copyright Act. Frequently, these contracts are more restrictive than Copyright law. For example, shrinkwrap licenses that prevent the resale of the user's copy of the software expressly conflict with the first sale provision of the Copyright Act. Under the first sale provision, an owner of an object is allowed to treat it as his own. An owner, for example, can use, resell or lend the object as she pleases. By terming the transaction a "license" rather than a "sale," vendors make clear that they are permitting the user to use a copy of the software while the vendor retains ownership of the underlying program. The most important shrinkwrap provisions in terms of intellectual property are those limiting users' rights—rights which users would otherwise enjoy under federal Copyright law. The potential for copyright law preemption of a new UCC section has been discussed throughout the drafting process.

Enforceability of Shrinkwrap Licenses

There have been many questions about whether shrinkwrap agreements can be enforced under contract law or whether they may be preempted by copyright law. In Vault Corp. v. Quaid Software Ltd., a federal court invalidated a shrinkwrap license term which was permitted under state law. Courts have been reluctant to enforce shrinkwrap licenses where the consumer was not aware of the terms when the contract was formed (e.g., at the time of purchase) or where the consumer occupies a significantly weaker bargaining position than the vendor. Some courts have enforced shrinkwrap licenses under existing laws. In Pro-CD Inc. v. Zeidenberg, the Seventh Circuit held that generally, a shrinkwrap license is enforceable unless its terms violate ordinary contract law.

Shrinkwrap Implications for Libraries

Currently, a book is personal property and in exchange for the purchase price, the reader obtains title, or ownership of a copy of the book. Title to software, on the other hand, does not change hands when the consumer purchases a disc containing a copy of the software program. The user is merely "licensed" to use the software and the vendor retains the title.

While a free reign on the Internet facilitates the research process and encourages independent study, users who inadvertently enter into license agreements when they take advantage of on-line systems available on the Internet could open libraries to potential liability and responsibility. Information on the web upon which the general public increasingly depends upon might be restricted and/or closely monitored if the current draft of article 2B is codified into state law.

While shrinkwrap licenses seem unduly restrictive when applied to software, they seem downright outrageous when applied to books. Presently, article 2B does not address the commercial distribution of books because it applies to licensing, and books currently are sold, not licensed. If publishers could replace the sale of a book with a shrinkwrap-type license, however, article 2B might have restricted the lending of books. However, as supplements to books are issued on CD-Rom, a library may own the book which may be lent and may not lend the supplement because of licensing restrictions.Similarly, if publishers could include the terms of a shrinkwrap license which contract away the fair use allowances contained in the Copyright Act, then libraries and their users might lose the rights to make copies of limited sections of copyrighted materials.

In response to opposition from the Digital Future Coalition, a collaboration of non-profit educational, scholarly and library groups, and criticism from the Federal Trade Commission among others, in December 1998 the American Law Institute decided that the draft is not ready to submit to its membership for approval at its May 1999 meeting.

In spite of the fact that the scope of the provision has been restricted to cover only software and information that is electronically disseminated, the draft is still not as clear as it needs to be. Although the two sponsoring groups are in disagreement, the drafting committee met February 26-28, 1999 to further revise the draft.

When this article was originally written, it was to be hoped that the drafters of Article 2B would recognize the potential problems the current draft of article 2B will cause for in libraries, and should amend the revision accordingly. Unfortunately, is issue is even more confusing now. The joint drafting organization, the American Law Institute (ALI) found the draft to be fatally flawed and did not send it forward to its membership for a vote this May. The National Commissioners on Uniform State Laws does intend to go forward with its vote. The draft now is represented as a model statute instead of a uniform law and no longer will need the support of the ALI. If adopted by the commissioners it would then be offered to states to enact as state legislation. According to Mark Lemey, a professor at the University of Texas Law School, the draft as it is going forward under only NCCUSL is called the Uniform Communications Information Transactions Act and will be separate from the UCC. NCCUSL announced that it will promulgate the same draft law as a separate uniform act (the Uniform Communications Information Transactions Act), and that it will finalize it this summer and send it to the states this fall.

Sally Wiant is Director of the Law Library and Professor of Law at Washington and Lee University.

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