The Federal Arbitration Act (FAA) states a strong federal policy in favor of arbitration. It also bars state laws that discriminate against enforcing contractual arbitration clauses. The statute states:

A written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy … arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2.

Starting in the 1990’s, a number of licensors, banks, service providers, online providers, and hard goods manufacturers began to use arbitration clauses in their contracts for a number of reasons, including to eliminate risk of class action claims for small problems. Sometimes this latter effect was done with an express “no class action” term, while in others it was left to the idea that class action arbitration was not appropriate unless expressly agreed to by both parties. While courts in most jurisdictions enforced these terms, courts in some jurisdictions held that no-class-action arbitration clauses were unconscionable.

These decisions were uncontrolled judicial law-making of a type that has always been a risk under unconscionability doctrine: the judges invalidated the clauses because they personally believed that a class action was the preferred way to protect “consumer rights” and that a judicial rule preserving this remedy should override laws about enforcing contracts or federal law about arbitration. Remnants of this judicial activism (in the same jurisdictions with the same judges) remain for choice of judicial forum clauses. 

But, for arbitration clauses, the game of judicial activism ended with the Supreme Court ruling in AT&T Mobility Co. v. Concepcion, 131 S.Ct. 1740 (2011) when a majority held that California’s rule invalidating class action waivers in arbitration clauses as unconscionable was invalid. It was invalid because it conflicted with the purposes and policies of the FAA. In a prior case, Stolt-Nielson, SA v. Animalfeeds Int’l Corp., 130 S.Ct. 1758 (2010), the Court had concluded that a party could not be forced to engage in class action arbitration where the arbitration clause was silent on the issue, emphasizing the contractual nature of an agreement to arbitrate.

Concepcion held that policy conflict preemption existed: the unconscionability decisions were invalid because they conflicted with federal policy favoring arbitration and did so in a way that contradicted the basics of arbitration, which are grounded in tailored, contractual and streamlined dispute resolution. There are many other aspects inherent in arbitration, such as the lack of a jury, the selection of special arbitrators, expedited procedures, the lack of judicial review, and the like. The ruling in Concepcion is that these normal aspects of arbitration (including lack of class actions) are what Congress supported and that they cannot be undermined by the states in the guise of unconscionability or similar “general” rules.

So, now the choices presented to licensors and other companies in consumer space are to 1) present arbitration clauses on fair terms and avoid the risk of class action lawsuits, or 2) rely on ordinary remedy clauses and accept that class action claims might occur. 

For many companies, the choice will be option 1. But this works only if the terms enable the individual consumer to actually be able to pursue her claim in arbitration. Concepcion does not hold that arbitration clauses are immune from unconscionability challenges in all cases. Putting class action issues aside, there are cases where courts have held an arbitration clause to be unconscionable where the cost of filing arbitration exceeds the predictable claim. In Concepcion, the arbitration provision was very friendly to allowing the individual to bring non-frivolous claims.

For the consumer (or other small claims person), what is the best option?

For an individual consumer, a fair arbitration clause is always better because it gives the opportunity of recovering that consumer’s losses. For this to be true, the clause must fairly deal with questions about filing costs and attorney’s fees, but the point is that the procedure deals with remedies for the individual. Here is the Court’s description of the AT&T clause in Concepcion:

[C]ustomers may initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT & T's Web site. AT & T may then offer to settle the claim; if it does not, or if the dispute is not resolved within 30 days, the customer may invoke arbitration by filing a separate Demand for Arbitration, also available on AT & T's Web site. In the event the parties proceed to arbitration, … AT & T must pay all costs for nonfrivolous claims; … arbitration must take place in the county in which the customer is billed; … for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement, moreover, denies AT & T any ability to seek reimbursement of its attorney's fees, and, in the event that a customer receives an arbitration award greater than AT & T's last written settlement offer, requires AT & T to pay a $7,500 minimum recovery and twice the amount of the claimant's attorney's fees

Class action claims, on the other hand, seldom yield much for individual consumers but they may impose significant liability on companies. Frequently, the main beneficiaries of class action proceedings are the attorneys. Even if this is not true, the focus typically shifts from compensating individuals to dealing with more general issues.

If I were a consumer presented with a proposed term like the AT&T provision, I know which option I would prefer. The world of class action lawyer compensation may be ending.

So, for example, a fan of the Chicago White Sox (like me) creates a car decal, or a poster with the club’s name and mark without purporting them to be “official” White Sox products The fan (me) should not be held to be an infringer even if I sell or give copies to other fans. Right? I hope so.

            In the 1980’s, one concept that would protect me was encompassed in the idea of “functional” use of a mark. International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912 (9th Cir.1980). The court commented:

Trademark law does not prevent a person from copying so-called “functional” features of a product which constitute the actual benefit that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product. .... It is not uncommon for a name or emblem that serves in one context as a … trademark also to be merchandised for its own intrinsic utility to consumers. We commonly identify ourselves by displaying emblems expressing allegiances. Our jewelry, clothing, and cars are emblazoned with inscriptions showing the organizations we belong to, the schools we attend, the landmarks we have visited, the sports teams we support, the beverages we imbibe. Although these inscriptions frequently include names and emblems that are also used as … trademarks, it would be naive to conclude that the name or emblem is desired because consumers believe that the product somehow originated with or was sponsored by the organization the name or emblem signifies.

            My display of a White Sox insignia on my Hummer is not a trademark use, whether we call it functional or something else. In fact, however, the concept was not widely used in case law for several decades until the Ninth Circuit revived it in 2011, in Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 636 F.3d 1115 (9^th Cir. 2011) where the court held that the use of the “Betty Boop” image on dolls as well as t-shirts and handbags was not an infringement. The court held that the use was functional and not as a trademark:

Even a cursory examination … of “the articles themselves, the defendant's merchandising practices, and any evidence that consumers have actually inferred a connection between the defendant's product and the trademark owner,” reveal that A.V.E.L.A. is not using Betty Boop as a trademark, but instead as a functional product. … Betty Boop “w[as] a prominent feature of each item so as to be visible to others when worn....” A.V.E.L.A. “never designated the merchandise as ‘official’ [Fleischer] merchandise or otherwise affirmatively indicated sponsorship.” Fleischer “did not show a single instance in which a customer was misled about the origin, sponsorship, or endorsement of [A.V.E.L.A.'s products] … “The name and [Betty Boop image] were functional aesthetic components of the product, not trademarks. There could be, therefore, no infringement.”

           So, if this approach were to continue, a mark owner would have to distinguish between when its mark or name was being used as mere “functional aesthetic components of the product, [and] not trademarks”. The murky world of trademark law becomes even more murky.

            I have tried to parse through this idea of “functional use”. Apparently, it seeks to draw a line between display (“I am a White Sox fan”), and sponsorship (“Official hat of the Chicago White Sox”). If so, projected into the commercial marketplace (as compared to my home made car decal), the line seems almost impossible to draw, and unnecessary as well. The concept itself should be dropped.

The case was the U.S. Supreme Court ruling in Sorrell v. IMS Health Inc., 2011 WL 2472796 (U.S. 2011). The Court dealt with a conflict between a Vermont statute restricting disclosure or sale of data for commercial purposes and the First Amendment. The anti-sale and disclosure rules lost. The Vermont statute that precluded the sale, disclosure, and use of pharmacy records identifying doctors and what drugs they were prescribing for patients to data mining companies who would organize and resell it to “detailers” (pharmaceutical sales persons) to tailor their marketing to doctors.

The Court held that data and its sale, distribution and use was speech protected by the First Amendment and that “[s]peech in aid of marketing… is a form of expression protected by the Free Speech Clause of the First Amendment.” This decision is especially important with respect to the frenzy to impose restrictions on persons or businesses who have obtained the data. The state had tried to argue that regulating data was akin to regulating a commodity, but of course, it is not. First Amendment limits apply to those regulations.

The Court commented: “Vermont has imposed a restriction on access to information in private hands. … Here [we have] “a case in which the government is prohibiting a speaker from conveying information that the speaker already possesses.” … An individual's right to speak is implicated when information he or she possesses is subjected to “restraints on the way in which the information might be used” or disseminated.

Furthermore, the statute focused on content and particular speakers (and not others) and, thus, was subject to strict scrutiny. Even if it were not viewed under strict scrutiny, it would still be invalid under a First Amendment analysis requiring that content regulation serve a substantial purpose and be narrowly tailored to achieve that purpose with minimal burden on speech.

Vermont had argued that selling the data was not speech, but merely selling a commodity or, in the alternative, that the statute regulated conduct, rather than speech, since it precluded sale or licensing. The six-justice majority rejected both arguments.

This Court has held that the creation and dissemination of information are speech within the meaning of the First Amendment. Facts, after all, are the beginning point for much of the speech that is most essential to advance human knowledge and to conduct human affairs. There is thus a strong argument that prescriber-identifying information is speech for First Amendment purposes.

The Court agreed the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech, but this law imposed more than an incidental burden on protected expression and when that is the case, it doesn’t matter that the speech is commercial. To sustain the law, Vermont had to show at least that the statute directly advanced a substantial governmental interest and was drawn to achieve that interest. It failed to do so. Vermont argued that its law was (1) necessary to protect medical privacy, including physician confidentiality, avoidance of harassment of doctors by salespersons, and the integrity of the doctor-patient relationship, and (2) integral to the achieving the policy objectives of improved public health and reduced healthcare costs. The Court rejected both justifications.

As to the first, there was no confidentiality interest advanced because the law allowed too many people (other than pharmaceutical industry participants) to disclose the information. The Court also rejected the state’s justification that it was shielding doctors from harassment. Quoting Supreme Court precedent, the court said: “Personal privacy even in one's own home receives ‘ample protection’ from the ‘resident's unquestioned right to refuse to engage in conversation with unwelcome visitors’ …. A physician's office is no more private and is entitled to no greater protection.” Similarly, the Court did not accept Vermont’s argument that it was advancing the doctor-patient relationship: “The more benign and, many would say, beneficial speech of pharmaceutical marketing is also entitled to the protection of the First Amendment. If pharmaceutical marketing affects treatment decisions, it does so because doctors find it persuasive. Absent circumstances far from those presented here, the fear that speech might persuade provides no lawful basis for quieting it.” 

As to the second, the Court did not accept that the state’s policy objective was any reason to burden opposing speech: 

Vermont may be displeased that detailers who use prescriber-identifying information are effective in promoting brand-name drugs. The State can express that view through its own speech. … But a State's failure to persuade does not allow it to hamstring the opposition. The State may not burden the speech of others in order to tilt public debate in a preferred direction. “The commercial marketplace, like other spheres of our social and cultural life, provides a forum where ideas and information flourish. Some of the ideas and information are vital, some of slight worth. But the general rule is that the speaker and the audience, not the government, assess the value of the information presented.”

The Court’s recognition that the ability to use, sell or disclose data rightfully acquired is an element of speech is significant in modern law, since it places a limits on how far and in what manner purported interests in data protection and “privacy” can intrude. How those limits will evolve remains to be seen, of course, but the Sorrell decision leaves no doubt that they are present.

When the Uniform Computer Information Transactions Act (UCITA) was being debated nationally in the late 1990’s and early 2000’s, it became part of a wildly intense debate about the nature of contract law that ultimately led to the rejection of two misguided efforts to revise ancient UCC Article 2. UCITA barely survived vitriolic and often dishonest attacks. It was enacted in two commercially major states and the concepts it set out have become mainstream judicial analyses, referred to in a number of legal treatises. 

In my opinion, the true test of a contract law statute lies in how little litigation it creates. Under that standard, UCITA has been a true success in Maryland and Virginia. Ten years after enactment, it is only now that a small trickle of cases under UCITA have begun to appear.

One of the false arguments brought by opponents against UCITA was that it tipped the scale too strongly in favor of vendors and online providers wanting to impose terms. The Court of Appeals in Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002) refuted that claim, commenting the UCITA enacted contract formation rules consistent with common law, but placed them in a codified form. A similar observation was made by a neutral scholar, Bob Hillman. See Robert A. Hillman & Jeffrey J. Rachlinski, Standard-Form Contracting in the Electronic Age, 77 N.Y.U. L.Rev. 429, 491 (2002) (“[W]e contend that UCITA maintains the contextual, balanced approach to standard terms that can be found in the paper world.”).

So, the first time a court was asked in Virginia to apply UCITA to a contract formation issue, what happened? The court applied UCITA and reached the conclusion that the particular online provider did not do enough to create a contractual obligation with respect to users of its site.  

The case was Cvent v. Eventbrite, 2010 WL 3732183 (ED Va. 2010). The case involved scraping of data from the Cvent site by Eventbrite. The data concerned venues for events. There were a number of claims, including a claim for violation of computer crime law. But also a claim for breach of contract. The court said:

Cvent's breach of contract claim fails to state an entitlement to legal relief because Cvent has not alleged sufficient facts to support a plausible allegation that a contract existed between Cvent and Eventbrite. … Cvent relies exclusively on its “Terms of Use,” which are displayed on secondary pages of its website and can be accessed only through one of several dozen small links at the bottom of the first page. … Moreover, users of event's website are not required to click on that link, nor are they required to read or assent to the Terms of Use in order to use the website or access any of its content. This case is therefore not a “clickwrap” case, but rather falls into a category of alleged contracts that many courts have termed “browsewrap agreements.” … Most courts which have considered the issue … have held that in order to state a plausible claim for relief based upon a browsewrap agreement, the website user must have had actual or constructive knowledge of the site's terms and conditions, and have manifested assent to them. …

UCITA provides a breach of contract claim for violation of electronic Terms of Use, if a person (1) has an “opportunity to review” the terms and (2) engages in statements or conduct indicating, or leading one to infer, the person's “assent” to the terms. Individuals, however, are only deemed to have had an “opportunity to review” a term if the term is “available in a manner that ought to call it to the attention of a reasonable person,” or if the website “disclose[s] the availability of the standard terms in a prominent place on the site” and “does not take affirmative acts to prevent printing or storage of the standard terms for archival or review purposes.”

In its complaint, plaintiff makes bare assertions that its Terms of Use were prominently displayed on its website, that defendants had an “opportunity to review” the Terms of Use pursuant to and that defendants manifested assent to those terms merely by accessing Cvent's venue location database. However, those conclusory allegations are flatly contradicted by the screenshots of Cvent's website and are plainly insufficient …

The statute fits smoothly with the common law and the result underscores, once again, the basic premise that if a contract is desired, the process must be on that ensures that reasonable notice and reasonable opportunity for assent exist.

The problems lie in the details. A Working Paper produced by a Free Software European Legal Network underscores how difficult it is to decide when a line is crossed and copyrighted code has been copied, triggering copyleft license obligations.  

Let’s take a “simple” question: if developer of program B replicates all or part of a copyleft program’s api or header files (e.g., of the core Linux kernel), do the copyleft rules e.g., of GPL v.2) apply to program B and, possibly, to programs based on it, requiring disclosure of source code and other limitations on licensing? The reality is that no one can give a viable general legal opinion on this. There is wild uncertainty in both the views of the community and in law. That defines a huge risk for companies engaged in this space.

To start with, the term “api” has different meanings that affect the legal issues.

A free software Working Paper states: “The term “API” or programming interface is used in two manners, being two sides of the same concept. On the one hand, an API is an abstraction, being a set of conventions or definitions to which a developer should develop his/her program … [On] the other hand, the term is used to describe the actual code or part of a program that receives/handles the input from the other programs …” 

Wikipedia states: “the scope of meaning is usually determined by the context of usage.”

Are api’s or header files copyrighted? If we are talking only about concepts, the answer may be no, depending on how general these are. If we are talking about details, then the answer is maybe. 

Header names are not copyrighted, but that is like saying that each individual word in this paragraph is not copyrighted. True, but that says nothing about the copyrightability of the paragraph. Complex programs and header file structures are generally copyrightable because they involve numerous choices by the designer and because the way in which these choices organize the terms and code constitutes expression. The Linux core header files, for example, involve large amounts of text and code, they are almost certainly copyrighted. Indeed, one U.S. court held that taken as a whole, a table of nine variables used to predict the performance of pitchers in baseball games was copyrighted. In contrast, another court held that a short piece of code (25 bytes) used to lock out use of a printer cartridge was not copyrightable - it was entirely caught up in the process it served. A European Directive states that computer “interfaces” are not protected by copyright, but does not indicate what “interface” means. Numerous U.S. courts hold that user interfaces taken as a whole are copyrighted.

When is use of particular copyrighted header files or api’s infringement?In U.S. law, this asks whether what is copied or caused to be copied involves copyrightable elements of the first program, or whether the second program is a “derivative work” of the first. Each case stands on its own. 

For example, Google, in creating its Android program based in part on the Linux kernel, uses script to “cleanse” Linux core header files, removing comments and some code. It asserts that the result contains no copyrighted material from Linux and distributes Android generally under an Apache license which is less demanding as a copyleft matter on Google and on resellers than GPL v.2.  For there to be no expression remaining, however, what must have been removed is not only the human readable text, but also the expressive features involved in the structure of the header files. This seems difficult to achieve since the goal was to borrow the effectiveness of the Linux system at least in part. Not having examined the facts, I don’t know the actual truth of the matter. Investigating the truth, however, is important for any Android developer because the method is relatively unique. It is a good illustration of the problem for our Program B developer in any context – i.e., the open question about when a software system is “based on” another program.

The U.S. Copyright Act uses that term. It defines a “derivative work” as any “work “based upon” one or more preexisting works [in any] form in which a work may be recast, transformed, or adapted.” “Based upon” is a concept not yet tested in reference to computer code. One meaning might be merely that the second program takes code from the other work. Another, supported by cases outside of those involving code is that a derivative must contain or cause the copying of expression of the infringed work. When this might occur is open to question. For example, some instances of dynamic linking would qualify, while others may not. Some replications of api capture expression, while others will not.

So, I return to the basic premise, that this is an uncertain world both technologically and legally. In addition, it is overlaid with numerous conflicting license terms, most of which have never been litigated. GPL v.2 is still the most used copyleft license. Its terms remain a legal mystery to many, including experts. It applies copyleft (e.g., disclosure rules) to the transfer and the re-transfer of any program that in whole or in part “contains” or is “derived” from the first program or any part of it, It does not apply to distribution of independent programs or of programs merely aggregated on a single medium.

I will let the reader ponder the meaning of those and other GPL terms as a matter of contract. I have written about the GPL v.2 before in this blog.

The point here is the legal uncertainty and risk in an environment in which lawsuits about intellectual property are increasingly common. For entities that do not desire to disclose code or force their customers to do so, or otherwise conform to copyleft obligations, working with copyleft platforms and programs presents a very significant and uncertain, risk-reward equation.

Chamberlain was and remains bad law and invokes bad policy. While followed within the Federal Circuit, it is not widely followed elsewhere. It was explicitly rejected by the Ninth Circuit in MDY Industries, LLC v. Blizzard Entertainment. Inc., 2010 WL 5141269 (9^th Cir. 2010). The statute itself could scarcely be clearer. It proscribes circumventing a device that effectively controls access to a copyrighted work (17 USC 1201(a)(1) and, in separate sections proscribes trafficking in deices that enable such circumvention and trafficking in devices that enable circumvention of devices that protect rights created under copyright law. It is this last section that deals with a link between protecting the technology and a risk of infringement, not the first two, as Chamberlain would have us believe.

            MDY involved a DMCA trafficking claim against a company that sold software bots that enabled users to play a popular online game automatically, without being present. Unlike the court in Chamberlain, the MDY court recognized the importance of the statutory distinction between access control and rights protection technology, specifically Chamberlain. The ability to assert legal rights to enforce controls on access comprises a new, independent form of protection (the right to prevent circumvention of access controls) given to a copyright owner to encourage distribution and offer protection for works distributed in digital form. Given the statutory framework, this is clearly the only way properly to interpret Section 1201 – as an additional form of protection not connected to copyright infringement.

The court cited four statutory textual differences between the access provision and the rights protection provision that compelled this result. The most telling is that § 1201(a)(2) prohibits the circumvention of a measure that “effectively controls access to a work protected under this title,” whereas § 1201(b)(1) concerns a measure that “effectively protects a right of a copyright owner under this title in a work or portion thereof.” The court read § 1201(b)(1) to reinforce copyright owners' traditional exclusive rights under § 106 by granting them an additional cause of action. Sections 1201(a)(1) and (a)(2), however, use the term “work protected under this title”, the subsection creates a new right distinct from the exclusive rights established under traditional copyright law.

The court also referenced the legislative history of DMCA, including the following comments by the Senate Judiciary Report:

[I]f an effective technological protection measure does nothing to prevent access to the plain text of the work, but is designed to prevent that work from being copied, then a potential cause of action against the manufacturer of a device designed to circumvent the measure lies under § 1201(b)(1), but not under § 1201(a)(2). Conversely, if an effective technological protection measure limits access to the plain text of a work only to those with authorized access, but provides no additional protection against copying, displaying, performing or distributing the work, then a potential cause of action against the manufacturer of a device designed to circumvent the measure lies under § 1201(a)(2), but not under § 1201(b).

The court discussed Chamberlain extensively, rejecting its reinterpretation of the statute. As to the Chamberlain analysis, the court commented:

While we appreciate the policy considerations expressed by the Federal Circuit in Chamberlain, we are unable to follow its approach because it is contrary to the plain language of the statute. In addition, … its approach is based on policy concerns that are best directed to Congress in the first instance, or for which there appear to be other reasons that do not require such a convoluted construction of the statute's language.

MDY set out the right standard for when an access device is circumvented in separating 1201(a) from any relationship to the risk or actuality of infringement. 

The Chamberlain court reasoned that if § 1201(a) creates liability for access without regard to the remainder of the Copyright Act, it “would clearly affect rights and limitations, if not remedies and defenses.”. This perceived tension is relieved by our recognition that § 1201(a) creates a new anti-circumvention right distinct from the traditional exclusive rights of a copyright owner. It follows that § 1201 (a) does not limit the traditional framework of exclusive rights created by § 106, or defenses to those rights such as fair use. We are thus unpersuaded by Chamberlain's reading of the DMCA's text and structure.

Hopefully, this will set the matter straight.

            The District Court held that the single payment perpetual license terms controlled and that the first transfer was a sale.  The Ninth Circuit reversed.  It adopted an integrated approach reconciling its prior opinions and properly focused on the overall terms of the license and whether the license gave rights equivalent to the owner of a copy.  The issue is not ownership of the plastic, but ownership of the copy, which includes rights in the work. The Ninth Circuit set out a more structured approach to distinguishing between when a license does and does not transfer ownership than did the Federal Circuit in DSC.  But the ruling was simple and correct:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

The court’s analysis did not conclude that these three elements were the only elements that make a license transaction not a sale of a copy, but the three elements clearly indicate a license, rather than a transfer of copy ownership.

            In the particular case, the court held that there was no transfer of copy ownership:

Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk's written consent, and the software could not be transferred outside the Western Hemisphere. The [license agreement] also imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software, removing any proprietary marks from the software or documentation, or defeating any copy protection device. Furthermore, the [license agreement] provided for termination of the license upon the licensee's unauthorized copying or failure to comply with other license restrictions.

The focus is not simply on ownership of the plastic, but whether the transaction gave rights in the work that is part of the copy and that are consistent with copy ownership.  This is consistent with the congressional judgment in both of the first sale exemptions (§§ 109; 117) and creates a setting in which, if it chooses to do so and can obtain acceptance of the relevant contractual terms in the market, the rights owner can use its property rights to manage how the copies are used and redistributed.

            This allows the copyright owner to contractually shape commercialization of its work.  Whether in fact a choice to license rather than sell copies results in higher economic return depends on the quality of the work and the reception of the marketing choice.  But the rule places the choice in the proper hands - the copyright owner.

            The primary contrary position argues that copyright owners’ rights should be narrow and not allowed to be expanded through the use of contract terms.  This is the rights-restrictors argument that I have discussed.  At its core is the premise that only the minimum rights necessary should be allowed to creators of copyrighted works.  One variation is the argument that contracts should not be allowed to “over-ride” the policy in first sale doctrine.  That alleged statutory policy is one that frees up distribution and use of copies after a first distribution.  But this is not the policy that Congress adopted.  Instead, the statute limits the first-sale privilege to persons who become owners of a particular copy.  So the statutory policy decision actually makes the property rights in this respect specifically subject to the terms of the contract.

            Vernor was part of a trilogy of case dealing with first sale in the Ninth Circuit.  The second, involving a license of gaming software, applied the standards laid out in Vernor and concluded that the licensee was not an owner of the gaming program.  MDY Industries, LLC v. Blizzard Entertainment. Inc., 2010 WL 5141269 (9^th Cir. 2010) (licensee under a EULA not an owner under Section 117). 

            Both Vernor and MDY involved contractual relationships.  The third case did not.  In UMG Recordings, Inc. v. Augusto, 2011 WL 9399 (9^th Cir. 2011) the copyright owner distributed unsolicited CD’s of new music to a large list of recipients.  The lawsuit was against a person who obtained some of the free copies and resold them.  The CD’s contained labels that purported to restrict their use.  As the court described:

The sparest promotional statement, “Promotional Use Only—Not for Sale,” does not even purport to create a license. But even the more detailed statement is flawed … [It] provides: “This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed …”  It is one thing to say … that “acceptance” of the CD constitutes an agreement to a license and its restrictions, but it is quite another to maintain that “acceptance” may be assumed when the recipient makes no response at all.

There was no evidence as to whether the recipients of the free CD’s accepted the terms of the license or used the CD’s, only that they received the CD’s and did not object or make any other response.  This brings into play traditional contract law doctrine that while behavior, writing or words can manifest acceptance of terms, mere silence is not enough to form a contract.

            UMG also faced a federal law dealing with unsolicited deliveries of product.  In relevant part, federal law allows the recipient of an unsolicited product to treat it is a gift and to transfer, use or otherwise deal with it as the recipient’s own.  As the court commented: “This provision is utterly inconsistent with the terms of the license that UMG sought to impose on the recipients.”

So a gift with no contract terms transferred ownership under first sale doctrine.

The Ninth Circuit may have got it right three times.  But one wonders what is the effect of Augusto on the free software community, some members of which argue that their licenses are not contracts?

Millions of dollars and thousands of hours have been spent during the last decade worrying about how to deal with free and open source software licenses. This leads me to ask ‘what makes these licenses different in a way that attracts all of this attention, both negative and positive?’

The difference does not lie in the fact that the FOSS licenses are less restrictive than a typical “commercial” license. Some are less restrictive, but especially as you move toward the GPL model, other FOSS licenses are more restrictive on the licensee than are most commercial licenses.  True, the restrictions often lead in different directions and have different goals. But the scope of risk in incorporating a restrictive license into a product are similar whether the license is an ordinary commercial license or a FOSS license.

The difference does not lie in that the FOSS licenses are more ambiguous than other licenses.  Many of them in fact are very ambiguous.  Many early licenses were written without legal advice and were poorly drafted; many current licenses contain terms that have not been tested in court and are susceptible to multiple interpretations. But a realistic assessment of current commercial licenses would also reveal many untested and ambiguous terms.

The difference does not lie in that FOSS licenses are more widespread.

The difference does not lie in that FOSS licenses are more diverse in their terms.

Where lies the difference? In three things, I think.

First, FOSS licenses often creep in without a commercial party as a licensor. Doing business with a company whose product or service uses a FOSS license is no more or less difficult than dealing with any licensor. The licensor has terms on which it insists and, unless it can be bargained away from those terms, the licensee either accepts the terms or finds another business solution. This leaves the licensee with an understandable deal and with a counterparty that has a commercial stake in the deal and with whom small lapses in performance can be negotiated. 

But many FOSS-based transactions are not commercial in the foregoing sense. Instead, software subject to a FOSS license may come into a product without the producer knowing that this has happened or, in any realistic way, assenting to the terms. Also, the software often comes from a non-commercial party. An engineer downloads software from an academic’s site and uses part or all of it in the company’s newest product. This is fine if one of the truly free, non-restrictive licenses is involved, but it creates potential havoc where one of the falsely labeled free but more restrictive licenses purportedly governs.

Second, especially at the “open source” end of the spectrum, the restrictive terms of many FOSS licenses aim toward eliminating valuable assets of the company by mandating disclosure of source code associated with the FOSS-licensed software. This is the so-called viral effect of FOSS licenses, especially the GPL, and has been widely discussed. I will not reprise that discussion here. FOSS adherents have an almost religious belief that the exact terms of their restrictive licenses will be enforced exactly as written. Knowing both contract and copyright law, I doubt that this will be true, but that is a topic for another day. No company wants to unknowingly put itself into a position of risking valuable assets on the costly roll of the dice that is modern litigation, especially not when the third factor or difference is considered.

Third, in addition to many of the FOSS-based “transactions” not involving a commercial deal or commercial licensor, the supposedly philosophical theory underlying the license is backed by a zealous and very vocal “community”. The group of individuals who make up the open source community resemble a religious cult, except of course that there is no focus on a god-like figure. What this means, however, is that in dealing with a FOSS license, the licensee must not only regard the reactions and goals of an often non-commercial party, but also the reactions of this vocal community. Recently, the Los Angeles sheriff’s department made a huge number more copies of a Wall Data software package than authorized by its license. Hauled into court, it properly lost. But there was no hue and cry brought down against it for violating the terms of the license.  If this had been an open source license and one of its core terms was being breached, there would have been a hue and cry throughout the Internet.

This characteristic of open source licenses, of course, increases the cost and risks of one inadvertently becoming part of a product package. Not only must the licensee often worry about a licensor who has no commercial stake in a commercial deal, but it must consider the reactions of a community that also has no stake in the deal.

So, those are at least some of the major differences between FOSS licenses and commercial licenses.

A while ago, I commented about the misreading that courts were doing with respect to fair use, especially with respect to so-called “transformative use.” Maybe they heard, but at least they have begun to figure it out. The worm may have begun to turn.

“Fair use” is a defense to a claim of copyright infringement. Its origins lay in the notion that there should be some flexibility in enforcement of the rights of a copyright owner to enable limited use of copyright expression (e.g., I quote a paragraph of your article in my book). The doctrine does go past that occasionally, but the concept should treat the copyright owner’s rights as dominant, providing merely an equitable basis to permit some copying of the owner’s expression that are not harmful to the copyright owner. This loosens up the world of expression to enable productive use of ideas and words of prior creative people, but makes sure that we will still have creative people who make and distribute new works.

So, the Supreme Court in the Acuff-Rose said that fair use applies when the use of part of a work involves a “transformative” use. The court said: “The central purpose … is to see … whether the new work merely “supersede[s] the … original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is “transformative.”” In other words, add something change the original into part of your new work, but do not supersede uses that might be exploited by the copyright owner itself.

Somehow, that simple idea got “transformed”. Some cases began to protect what are best described as “new purpose” uses.  They stretch the boundaries of fair use doctrine beyond a breaking point because they suggest that verbatim use of a work is fair if the infringer uses the work for a purpose that the rights owner does not currently engage even if the “new purpose” affects a market that has been or might reasonably be explored by the copyright owner. 

Hopefully, that theme will be discarded in the future. A better analysis was in U.S. v. ASCAP, 599 F.Supp.2d 415 (SD NY 2009), where the issue what whether ASCAP licensing extends to commercial use of ringtone “previews”. These are brief, illustrative examples of cell phone ringtones available for a phone user to determine what ringtone he or she desires. The previews are up to 30 seconds long excerpts. ASCAP licensing does not apply if the previews are fair use. The court held that the “previews” were not transformative fair use. The court distinguished the “new purpose” cases and concluded that the use of previews to advertise products (the ringtones) was an infringing, commercial use that did not entail a purpose different from the entertainment purpose for which the works (the musical works) were originally intended. Additionally, ASCAP was already licensing various types of short segments of works for third party use.

The court concluded that adverse market impact should be measured in reference to reasonable or likely to be developed markets. Here, there existed a realistic market for use in short segment licensing and, thus, this type of usage indicated that the previews had a significant, adverse market impact.

Similarly, the Federal Circuit in Gaylord v. U.S., 2010 WL ---- (Fed. Cir. 2010) held that the use of images of sculptural work in a postage stamp was not a transformative fair use. The stamp did not transform the character of the artist's work.   In analyzing the four statutory fair use factors, the Federal Circuit disagreed with the lower court on the "purpose and character of use" factor, concluding that the use did not reflect any "further purpose" than the sculptural work. Moreover, the stamp clearly had a commercial purpose. Thus, the factor of "purpose and character" weighed strongly against fair use, according to the appeals court. The factors relating to the "nature of the copyrighted work" and the "amount and substantiality of portion used" weighed against fair use.  Because the stamp did not use the sculptural work in a transformative manner, there was no reason to discount the expressive and creative nature of the sculptural work.  Even though the stamp did not harm the market, allowing the government to commercially exploit a creative expressive work would not advance the purposes of copyright.

    So, perhaps courts are heading back to a proper construct – a use is not transformative or fair simply because the copyright owner has not licensed or used the work in that particular market. Fair use does not give infringers a license to take over markets that they get to first without paying the copyright owner an appropriate fee.

Online aggregators, site operators and search engines are in a seemingly endless conflict with content providers and rights owners. This extends to trademark law. The confrontation relates to deciding what obligations aggregators (and others) have to police and prevent advertising and sale of counterfeit products or services through their systems. A recent Second Circuit case leaves one pondering the answer where at least some of the advertised products or services from third parties are counterfeits.

As with copyright and patent, indirect liability exists under trademark law, although there are very few reported cases dealing with it. The Supreme Court described the concept as follows:

if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done.

Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982).

This formulation facially refers to supplying products and does not specifically address whether access and service providers (such as Google, Bing, eBay) also have potential liability. Generally, however, the concept has been extended to service providers, at least where the service provider has sufficient control and can monitor the instrumentality or conduct involved in the infringement.

      The Second Circuit in Tiffany (NJ) Inc. v. eBay, Inc., 2010 WL 1236315 (2^nd Cir. 2010), assumed without deciding that the concept applied to eBay’s auction services, but concluded that eBay was not indirectly liable for what is apparently a very large amount of sales of counterfeit Tiffany products by auction sellers. The issue turned on whether eBay’s generalized knowledge that numerous counterfeit sales under the Tiffany occurred on its site was sufficient for liability. The court held that, while the applicable standard involved knowledge or reason to know of the infringing conduct, mere generalized knowledge did not suffice. Instead, for “contributory trademark infringement liability to lie, a service provider must have more than a general knowledge or reason to know that its service is being used to sell counterfeit goods. Some contemporary knowledge of which particular listings are infringing or will infringe in the future is necessary.” This, of course, is a win for the aggregators et. al. In practice, eBay maintained an active program of responding to notices of claimed infringement as to specific products or sellers. Thus, there was no pattern of eBay continuing to provide its site or services to persons it had reason to know were infringing the Tiffany mark.

      Tiffany sets out a narrow interpretation of contributory liability, giving broad freedom for aggregators and enhancing the difficulty of enforcing a mark online. The court did, however, provide two important grounds for caution applicable to access and service providers. 

First, it emphasized that its concept would not allow a provider to adopt a policy of “willful blindness.” Exactly what that means remains to be seen, but it suggests that some policing obligation arises if the environment involves widespread (albeit not universal) trademark infringement. eBay had a very active program of responding to infringements. The court commented:

[We] agree with the district court that if eBay had reason to suspect that counterfeit Tiffany goods were being sold through its website, and intentionally shielded itself from discovering the offending listings or the identity of the sellers behind them, eBay might very well have been charged with knowledge of those sales sufficient [for liability]. A service provider is not, we think, permitted willful blindness. When it has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way.

      A second caution for service providers came in the court’s treatment of a claim that eBay engaged in false advertising under the Lanham Act when it advertised that Tiffany products were available for purchase on its site. Liability here can come either because of literal misrepresentation or because the advertising, “while not literally false, is nevertheless likely to mislead or confuse consumers.” While there was no proof of literally false advertising (some products sold on the site as Tiffany products were in fact Tiffany products), the court believed that the advertisements might be deceptive and confuse consumers by suggesting that all of the products sold as Tiffany products were genuine. It remanded the case for consideration of this issue. On the policy question of whether creating this liability risk would place too heavy of a burden on online commerce, the court commented:

eBay and its amici warn of the deterrent effect that will grip online advertisers who are unable to confirm the authenticity of all of the goods they advertise for sale. We rather doubt that the consequences will be so dire. An online advertiser such as eBay need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant's website are genuine when in fact, as here, a sizeable proportion of them are not.

Online advertisers and aggregators live in a world where intellectual property is important, and their conduct should reflect that. Simply being an online service does not absolve one from respecting and protecting another person’s property rights.

           There are many illustrations of this failure to adjust terms to reflect mandatory law in a standard form.  We can see it in standard form disclaimers of warranty in local transactions in states that ban broad disclaimers in the relevant transactions.  It also occurs in drafts of guaranty and indemnity provisions, which are seldom updated.

            But the most important context in which this problem occurs today involves adjusting forms to reflect modern (and ubiquitous) provisions of privacy and e-commerce laws.  The issues here are addressed in an important article by Holly Towle, a partner at KL & Gates and a leading expert in both privacy and e-commercial law. 

           Her article and the general issue of keeping forms updated to reflect modern law and terminology need to be addressed.

An owner of a genuine and unmodified item purchased at an authorized sale may resell the item, describing it appropriately, even if doing so requires use of the trademark. Thus, if I own a Dell Laptop computer, I have the right to sell it describing it as a “Dell” computer. The right to accurately describe the resold property comes from first sale doctrine and from concepts of nominative fair use.  

            Issues about first sale or fair use almost never arise where the reseller sells only one item. They arise when the reseller resells multiple items. In this setting, where the items resold are unused, the reseller may become the direct competitor of the mark owner and its authorized dealers. The question is under what conditions trademark law permits this. Viewed from the mark owner’s perspective, this involves its ability to control marketing channels for its product, including the online marketplace, and to protect its trademark.

            Not all resale activity is allowed even if the reseller owns the item. 

Trademark owners’ protected interests that continue to apply relate to maintaining the trademark as identifying the source of the goods or services involved, which is the bedrock of trademark law. The balance then is between allowing the reseller to deal with its property while preventing confusion as to its immediate source or denigrating of the value of the mark. 

The most commonly litigated limitation centers on whether the reseller creates the appearance of a relationship between it and the mark owner. Basically, while the reseller can use the mark to describe the product it resells, the reseller cannot create the impression that it acts with the sponsorship or authorization of the mark owner (unless, of course, that is true). Thus, while a used car seller can sell and advertise that it sells Mercedes cars, it cannot falsely convey the impression that it is a Mercedes authorized dealership. 

Some settings make clear that no sponsorship is present. For example, in Tiffany (NJ), Inc. v. Ebay, Inc., 576 F.Supp.2d 463 (SD NY 2008) the court held that Ebay and its auction resellers of genuine Tiffany products were protected by first sale concepts even though the sellers referred to their products as Tiffany and Ebay advertised the availability of Tiffany products on its auction website. In context, there was no reasonable inference that Tiffany sponsored, authorized, or was in control of the sales of Tiffany products in this environment. 

            Lines are drawn based on language and context. Thus, in another online case, text on a site reselling diet supplements from various manufacturers originally commented as to one manufacturer that “we” are engaged in various steps. This would have established a claim that affiliation was being suggested, but the text was removed.

            Small words often make big differences.

            The cases also present issues associated with the mark owner’s obligation to monitor the quality of goods or services offered under its mark. This translates into the rule that the first sale doctrine does not apply to resale where material changes have occurred in the product. An unlicensed difference between two products bearing the same trademark is material if it “confuses consumers and impinges on the trademark holder's goodwill.”

The material changes that vitiate the first sale defense vary. They often relate directly to changes in the product (e.g., reprogramming an aspect of software), but can apply to other elements related to it, such as warranty terms. The mark owner has a continuing interest in controlling changes that on resale diminish or, even, simply alter the product in a manner relevant to the customer, while still using the trademark. Changes, when not clearly made known to the customer or the public as not coming from the mark owner or with its endorsement, threaten the goodwill built up by the manufacturer and diminish the ability of the mark to identify the source of goods and the predictable quality.

The limited right to use a mark without implying affiliation or sponsorship by the mark owner extends into all marketing systems, online and otherwise. Thus, keyword advertisements or metatags may fall within the protective scope of the first sale and related fair use protection, unless circumstances create the appearance of an affiliation between the reseller and the mark owner or what is being sold is a materially altered product. Needless to say, however, this does not give the online vendor the right to a site that is named Dell Computers and sells Dell along with Toshiba etc.

So the message for online and other vendors is the same here as in patent and copyright law. Merely “owning” a product or a copy does not give unlimited rights in it when intellectual property interests are involved. The IP rights remain dominant.

Merely posting a work online does not relinquish all rights. As in other environments, merely placing property in public does not release property rights. The Internet context, however, may indicate that some actions with respect to the work are implicitly permitted. 

The proper answer to what is permitted with reference to a work posted by its author in any case depends in part on what harm the third party conduct causes for the copyright owner and on the circumstances of the posting. A copyright owner that posts a work but says – “don’t make permanent copies” and “don’t send it to others” has a right to do so.

This is a circumstance that in law that juxtaposes the copyright owner’s property interests and supposed social interests. In this case, the relevant social interest lies in reasonable expectations in the media. But the copyright interest should not be sacrificed to accommodate competing commercial systems in which another desires to exploit the person’s copyright without permission. Simply put, placing a work into a digital environment may be a reason in law for implying limited permission (license) to use that work, but only in narrow, non-commercial ways.

            Consider an author who places her copyrighted poem online on the first page of a site that requires neither password, nor express permission to view that page. A user who comes across the site, views the poem (thus making a brief copy of it) and then leaves. This user did not infringe the copyright. Where and how the work was placed implies permission to do what the user did. Does the posting imply permission to make a permanent copy of the poem in the user’s computer – no. Does it imply a license to make and distribute multiple copies to third parties – no.   Does it imply the right to commercially exploit the work – no.

            Implied licenses in law arise only in narrow circumstances and, then, only within narrow limitations. When created, they are typically subject to being revoked at will. Having posted works online does not preclude the copyright owner from rescinding that permission, in which case, subsequent use is infringing.

            Especially online, there is often a close connection between an implied license analysis and an analysis grounded in the express terms of an online license. See Raymond T. Nimmer & Jeff Dodd, Modern Licensing Law ch. 10 (2009).  Implied licenses (permissions) cannot supersede express terms. If I say one thing, a court should not permit you to act as if I meant a different thing.

            The policy tension here entails a conflict between rights owners who desire to retain control of their works, while still enjoying the benefits of online systems, and those who desire an Internet environment in which information is free, interrupted only in clearly stated rights-based limitations. Inevitably, law and practice will reach some balance between these. But some courts push too far favoring an environment in which property rights are not effectively maintained.

            The court in Parker v. Yahoo!, Inc., 88 USPQ2d 1779 (ED Pa. 2008) approached this point in considering the copyright implications of the ordinary practice by search engines in making and displaying cached copies of online pages or works. Parker argued that, in the absence of an express license, this was infringement, but the court held that there was an “implied license”. The source of this implied license apparently was in the mere act of placing copyrighted material online and not taking technological or other steps to prevent the search engines from making the copies. The court’s explanation:

Parker acknowledges in his complaint that the defendants honor “electronic protocols” that would prevent the search engines from displaying a “cached” copy of his works … He also acknowledges that the defendants remove offending content upon request. … Parker contends that he has provided constructive notice to the defendants that he has not granted a license because he registered his works and included a copyright notice on his website. The Court is persuaded that Parker's complaint conclusively establishes the affirmative defense of implied license. At the very least, [it] suggests that Parker knew that as a result of his failure to abide by the search engines' procedures, the search engines would display a copy of his works. From Parker's silence and lack of earlier objection, the defendants could properly infer that Parker knew of and encouraged the search engines' activity, and, as did the defendants in Field, they could reasonably interpret Parker's conduct to be a grant of a license for that use.

Flip this into an affirmative statement and you will see the problem. This ruling requires that a copyright owner affirmatively give notice or use technological controls to prevent copying or lose the right to preclude at least this type of copying. But the source of the obligation to take affirmative steps lies in the court’s view that search engines are a structural part of the Internet and that rights owner’s must modify their conduct to accommodate the commercially profitable business that runs the search engines. That is wrong.

It is a tradition in U.S. contract law that mere silence does not generally constitute acceptance. So also in copyright law. But silence and inaction here was found to establish a quasi-contractual license. Parker inverts the meaning of property rights. It reduces the need for the search engines to negotiate permission from rights owners, but at the cost of control that otherwise would be vested in the property rights owner.

            This should not be the law, nor is it likely to be. In any event, not all copies can be treated as being within the scope of an arguable, implied license, since this license must have some limits to it. Defining those limits should place close attention on protecting the interests of the copyright owners.

The Google Book Settlement (GBS) would give Google unprecedented power over hundreds of thousands of copyright owners and control of an asset that may become essential to 1) book publishers, 2) book authors, and 3) any entity that desires to operate a search or archive function regarding published books. The Settlement should not be approved unless it ensures all competitors and others access and fairly protects the copyright owners who were not represented at the “settlement” discussions and whose property is being stolen.

Over-arching any support for the Google “Settlement” is the view that this deal may create a cool and valuable “public” resource and that, without the settlement, the resource may be impossible to create. But the impossibility issue relates to the fact that the asset cannot economically be created without trampling on the property rights of hundreds of thousands of copyright owners. How to negotiate a license with the hundreds of thousands of copyright owners that exist and the many that would say no? The GBS solves this by answering – “no need to do so, Google is doing a good (and profitable) thing, and the property owners should be happy.” The fact that in the end there may be a valuable asset available to some of the public should not distract us from the reality that this asset will be under the control of a private, large and profitable corporation. And no one else will be realistically able to replicate it. Ever.

Google is not altruistic, nor should it be. Making a profit is a good thing, for Google. It is doing what it proposes to do in the “Settlement” for profit. 

What source of profit does Google expect? That is simple. If the settlement is approved and the project completed, Google will have a perpetual lock on the digitized services involved in reference to the books, to archiving books in digital form, and to provide search services with respect to that archive. The advertising and subscription income from this monopoly will be immense. Monopolies are not illegal. But monopolies created by joint arrangements imposed on other parties should be. As much as the cost of creating the copies is huge, the profit from having created them and the market power it will give Google are far greater.  And the market control will not end. All new authors and new copyright owners, though not expressly covered by the “Settlement” are likely to find irresistible the need to allow their works to be posted in the only game in town. If your book is not there, where is it and how do I find it?

In a recent decision, the Court of Appeals for the Federal Circuit observed that a patent pool, created by agreement in order to implement a jointly developed standard, might be engaged in patent misuse to the extent that the pooling arrangement contained provisions that limited use of affected patented technology to develop a potential competing technology. I am no fan of intellectual property misuse doctrines. But this use of the “pooled” copyrights (voluntarily or forcibly pooled) to prevent development of competing technologies is an inherent feature of the Google Settlement.

Is the GBS fair to copyright owners? Certainly not:

• For copyright owners of works that have been infringed already, the GBS proposes to pay between $5 and $60. But statutory damages for infringement are $750 per work and can go much higher. A settlement making this much of a reduction in statutory damages suggests that the claim itself was invalid and the copyright owners are receiving no more than nominal compensation for a claim that seems to me to be a valid one.
• The nominal payment contemplated by GBS makes no distinction among the different works in terms of their market value, a factor that would very likely be important in any ordinary litigation or ordinary license. Clearly, copying the latest Harry Potter volume is worth more that copying the obscure book that was my first publication. Yet, Harry Potter gets $5-$60, as do I. Even I think that the $60 to me is too low.
• The GBS would impose these nominal payment “settlements” on thousands of copyright owners of out of print books without adequate notice or opportunity for the property owners to object. This is the “orphan work myth.” Simply because a work is out of print does not mean that the copyright owner is unavailable or, even, hard to find. I, for example, recently purchased from E-bay a copy of my second book – which has been out of print for many years. It is not fair to give people like me no notice or realistic chance to object based on the claim that we are hard to find.
• The copyright owners whose works have not yet been copied are treated even more unfairly. They lose the ability to prevent someone else from taking an aspect of their property. They lost it under circumstances in which they probably could not have yet brought a federal lawsuit and through representatives who do not represent them.

The GBS should be rejected. 

If it is not rejected, the possessor of an essential asset that dominates a market and that was created by joint conduct (the agreement) should be required to provide low cost, non-discriminatory access to all others and its profit from this anti-competitive agreement and the asset it created should be closely regulated.

If it is not rejected, has the court not created a private entity that wields eminent domain powers with respect to copyright?   Google would possess an asset dominating a market, created by joint conduct (the agreement), and vested with the public power to take the copyright interests by judicial order. In such circumstances, why should it not be treated like a utility, common carrier, or essential facility that should be required to provide low cost, non-discriminatory access to all others and its profit from this anti-competitive agreement and the asset created with the power and sanction of the court should be closely regulated.

This is not a settlement of a judicial dispute, it is an attempt to reorganize and concentrate an industry into the hands of one company and its co-venture partners (former plaintiffs) without the participation of most of those affected by it. It is also legislation conducted in a courtroom.

The Google Settlement is a bad deal for everyone except for Google. For Google, it eliminates the cumbersome need to contact copyright owners for permission to copy their works, and the need to worry about their suing if Google acts without permission. For all companies who want to compete with Google, those needs remain. Google obtains a huge market advantage. It may be cumbersome to deal with property rights, but that is no cause to trample on them. If carried out, the deal will create a repository of digital books but do so by wildly restricting the rights of copyright owners to control their own property, and by creating a new monopoly – Google.

The settlement terms are over one hundred pages long. Indeed, very few people have actually read the “settlement”. No legislature has approved or drafted it, and none will be asked to do so.

It is drafted as a complex commercial transaction. That, of course, is what it is. But those who are copyright owners: did you authorize Google and the narrow organizations that sued it to represent you in a commercial deal transforming your rights? For most, the answer is no.

There are so many, obvious public policy objections that it is almost not necessary to mention them, but let me start with two concerns. 

First, the “settlement” purports to bind copyright owners who, by the parties’ own admission cannot be found or identified. This is not an issue of how many of them there are, but supposedly about the difficulty of establishing proper provenance through analysis of transfers, inheritance, and the like. But if Google cannot find them as part of a billion dollar project, how are they expected to identify their interests, hire a lawyer, and do so before the date set for withdrawing from the “settlement”? 

Second, the “settlement” purports to resolve claims that do not yet exist. This is not a case where bad acts have occurred, but damages are not yet manifest, such as in some mass tort litigation. This settlement covers future conduct that, if it occurs, would infringe a property right. Even Google (a huge company with massive assets) has not yet copied more than a small fraction of all books protected by copyright law. If the settlement were approved, it would cover all copyright owners in all books registered in the U.S. Copyright Office, including those that have not yet been copied by Google. This reaches too far. In my opinion, these uninjured owners could not even file a lawsuit against Google if they wanted to do so since no infringement has occurred in reference to their works. But they purportedly are bound by the result of a lawsuit they never authorized. Do not let advocates of the settlement claim that this is like class action litigation in mass torts – in those cases the class only covered people that had been affected by wrongful acts at or before the time of the lawsuit.

Consider this: You own a house in a large subdivision. Big Company (Google) plans to build towers on each property in the subdivision to create a commercial product for its use. There is no government action or regulation involved. Big Company is sued by three landowners on the north side of the subdivision whose property has already been wrongfully invaded (you are on the south side and live in pristine ignorance of the plan). The plaintiffs and the Big Company transform the case into a class action covering all owners in the subdivision and “settle” it, giving Big Company the right to invade every lot in the subdivision, if it pays a small standard fee and a royalty for some of its future profits   One year later, the crew shows up on your property and builds a tower authorized by the “settlement.”

Do you have a right to prevent them from digging up your yard and building their tower? Do you have a right to complain that the damage to your property value was far greater than to others because your lot was expensively landscaped (e.g., more valuable)? 

Not under the Google Settlement. The settlement purports to authorize future and past infringing acts, rather than simply to settle claims arising out of prior infringement. It gives Google the right to “go forth and infringe.” This not only perverts the idea of class action, it is unfair to the millions of copyright owners who were not consulted and cannot truly participate. The unfairness lies in taking my property without consulting me and paying for it without distinguishing my loss from the loss suffered by others

Google was prepared to defend the lawsuit by claiming that copying books was fair use because it was not selling the copies, but only access to them as a commercial indexing tool to support a lucrative advertising and search engine business. There might be reasonable debate on this in law, but the settlement gives Google that right without the contest and effectively excludes any ability of copyright owners to contest the issue because of the economics involved. It also gives Google the right to copy and distribute some books - clearly not a fair use. I think it is unfair (and against the law) to take my property and to place me in a position where realistically I cannot effectively complain.

But Google might argue – the settlement gives you the right to withdraw the work if you choose. The settlement does not actually do so, but this is a form of an argument Google has made for years in all contexts: “we have the right to do what we want with your property unless or until you complain about our conduct.” This argument turns property rights upside down. Clearly, property rights grant a right to exclude others, but recognition of a property right in law also assumes the willingness of those in society to respect and avoid trampling on that right. The Google Settlement takes that away: my rights become your privilege.

Consider this: I see your car parked on a public street and decide to drive it. I enter the car, start it, and drive off, leaving you a note that, if you find me and object to my use of your car, I will return it. You find me and I return the car. Have I done anything wrong? Of course.

The Google Settlement adopts the view that property rights are merely a right to object and not a right to expect that people should respect them. This is a terrible change of perspective that is unfair to the millions of property rights owners involved.

It also effectively strips away the property right. Why? Consider what you as a copyright owner will do as Google marches on with its system. If you “withdraw” and sue (assuming that you can), what is the effect of being removed from Google’s all encompassing index system? One commentator observed that an “orphan work” removed from Google’s massive system is truly gone. Would you elect to do that for your work?  Most will not.  The settlement gives Google effective control over other persons' property.

There is more to say, but that is for another blog.