Shrinkwrap and clickwrap agreements: 2B or Not 2B?

• Author: Founds, Garry L.
• Position: Uniform Commercial Code

1. INTRODUCTION

   According to a survey conducted in 1997 for the National Science

   Foundation, over forty percent of Americans own personal computers. Although nearly every one of these computer owners at some point will purchase and install software, most of them likely will never take the time to read the agreements that accompany the software.(2) Humorist Dave Barry provides insight into the reason for such apathy in his satirical take on the typical software agreement:

   By breaking this seal, the user hereinafter agrees to abide by all the terms and conditions of the following agreement that nobody ever reads, as well as the Geneva Convention and the U.N. Charter and the Secret Membership Oath of the Benevolent Protective Order of the Elks[,] and such other terms and conditions, real and imaginary, as the Software Company shall deem necessary and appropriate, including the right to come to the user's home and examine the user's hard drive, as well as the user's underwear drawer if we feel like it, take it or leave it, until death do us part, one nation indivisible, by the dawn's early light, in the name of the Father, the Son, and the Holy Ghost, finders keepers, losers weepers, thanks you've been a great crowd, and don't forget to tip your servers.(3) This "contract" inadvertently highlights two key problems inherent in the typical mass-market software licensing agreement: (1) the public is powerless to negotiate; and (2) the terms often are perceived as exceedingly broad and restrictive. The Uniform Computer Information Transactions Act (UCITA) purports to resolve these issues by establishing the general enforceability of such agreements, with certain qualifications related to unconscionability, assent, and other caveats.(4)

   UCITA, however, does not resolve, or even purport to resolve, another important issue: the tension between federal copyright law and state contract law. Computer software falls within the purview of the Copyright Act of 1976.(5) Under the Act, software users are entitled to rights that often exceed those granted by software agreements. For example, under the Act and federal case law interpreting the Act, users are entitled to make a copy of the software for archival purposes or as necessary to use the software; to reverse engineer software within certain limits; and to have at least limited rights to transfer the software.(6) Yet, software agreements often attempt to place more narrow limits on these rights. Thus, a tension between the federal Copyright Act and state contract law frequently arises. The question then becomes which law, state or federal, should prevail, or more specifically, should federal law preempt state law? UCITA suggests that in general, state contract law should prevail, but it also concedes that federal preemption remains a possibility.

   This Note addresses UCITA's attempt to resolve the enforceability issue; argues for an approach to preemption that promotes clarity and preserves the objectives of Congress established by the Copyright Act; discusses whether UCITA remains relevant in light of the preemptive power of copyright law; and proposes that additional federal legislation is a more appropriate solution to the problems surrounding computer software reproduction and use. Part II discusses briefly the enforceability of shrinkwrap and clickwrap agreements, particularly in light of UCITA. Part III outlines the two approaches to federal copyright law preemption of state contract law and argues that section 301 of the Copyright Act is not the appropriate vehicle for preemption.(7) Part IV explores the preemption of such agreements under general principles derived from the Supremacy Clause. Part V addresses the relevance of UCITA in light of the preemption issue and widespread criticism of UCITA.

2. ENFORCEABILITY OF SHRINKWRAP AND CLICKWRAP AGREEMENTS UNDER UCITA.

   There are at least four potential arguments against the enforcement of shrinkwrap and clickwrap agreements: (1) the contract is unenforceable due to a lack of assent (depending on the location of the license within the packaging); (2) the agreement is an unenforceable contract of adhesion; (3) particular terms are unconscionable; or (4) for expensive software, the contract is unenforceable under the statute of frauds. For a while, it appeared that courts generally would refuse to enforce shrinkwrap and clickwrap agreements, based on one or more of these arguments.(8) However, courts appear increasingly willing to find such agreements enforceable.(9)

   Continuing this trend of enforcement is the National Conference of Commissioners on Uniform State Laws (NCCUSL), the organization responsible for the promulgation of UCITA. In 1994, the NCCUSL, in conjunction with the American Law Institute (ALI), began work on an addition to the Uniform Commercial Code (UCC), Article 2B, that would address the enforceability of shrinkwrap and clickwrap licenses.(10) During the drafting process, however, Article 2B came under heavy criticism from consumer groups, writer and artist organizations, industry groups, academics, and even members of the drafting committee itself.(11) Thus, in April 1999, the ALI withdrew its support for the fledgling legislation. Without support from ALI, the legislation could not be proposed to state legislatures as an addition to the UCC; nevertheless, the NCCUSL continues to advocate the legislation's adoption. The NCCUSL changed the name from Article 2B to UCITA and has retained the text of Article 2B almost verbatim.(12) UCITA is complete, and the NCCUSL expects to present the final version to state legislatures by the new millennium.(13)

   Although UCITA renders shrinkwrap and clickwrap agreements generally enforceable, it also explicitly recognizes the potential for federal preemption while remaining neutral on the policy debates inherent in preemption analysis. For example, although section 105 states that "[a] provision of this [Act] which is preempted by federal law is unenforceable to the extent of such preemption,"(14) it provides no further guidance on the issue. Instead, the Prefatory Note states that UCITA will not choose sides in the debate over the extent to which copyright law should preempt state contract law and that the issue is "ultimately one of federal policy.(15)

3. FEDERAL COPYRIGHT LAW VS. STATE CONTRACT LAW.

   1. The Differing Approaches to the Preemption Question

      How should the courts and Congress resolve the preemption issue? The Supremacy Clause of the Constitution states: "This Constitution, and the [l]aws of the United States which shall be made in [p]ursuance thereof. shall be the supreme [l]aw of the [l]and ... any [t]hing in the Constitution or [l]aws of any [s]tate to the [c]ontrary notwithstanding."(16) This language makes clear that, under certain circumstances, federal law may preempt state law. However, the various circumstances under which preemption may occur has been described in a number of different ways, resulting in little agreement regarding the appropriate categorization of the various approaches to federal law preemption of state law.(17) For example, the U.S. Supreme Court has articulated as few as two and as many as four general categories.(18) Commentators likewise have found anywhere from two to six categories.(19) Nevertheless, there seems to be at least some agreement that preemption may be divided into two broad categories, express and implied, with anywhere from two to four subcategories for the latter. This Note groups preemption analysis into three general categories: (1) express preemption, which occurs when the statute in question expresses congressional intent to preempt state law in a specified field; (2) implied preemption through federal law's exclusive occupation of a given field; and (3) implied preemption through state law's conflict with the objectives of federal law.(20)

      With respect to copyright law, there are two potential avenues to the preemption of state law: express preemption under section 301 of the Copyright Act and preemption due to state law's interference with the objectives of and policy decisions underlying the Copyright Act. This Note refers to the latter form of preemption as Supremacy Clause preemption.(21) Under section 301 of the Copyright Act, federal copyright law preempts all state "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.(22) Under a general Supremacy Clause analysis, state law is preempted if it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."(23) Stated differently, "the federal policy `may not be set at naught, or its benefits denied by the state law."(24) The difference between these two approaches is clear. Supremacy Clause analysis would compel an inquiry into the policy decisions underlying the Copyright Act, while section 301 would require one to ask simply whether the state rights sought to be enforced are equivalent to rights established by the Copyright Act.

      As an initial matter, some argue that section 301 obviates the use of Supremacy Clause analysis as an approach to copyright preemption.(25) Such an assertion, however, is not the most reasonable reading of section 301. Clearly this section does not assert that it provides the only avenue to copyright preemption of state law; instead, it attempts to make clear that states may not pass laws intended to regulate rights identical to those protected by the Copyright Act. Indeed, to remove the possibility of Supremacy Clause analysis with respect to the Copyright Act would be implausible, since either Congress would have to make clear that the policies underlying the Act are subordinate to state policy choices in this realm, or the Supreme Court would have to overturn the fundamental tenet of implied preemption of state law. In fact, under analogous circumstances, the Supreme Court recently found untenable...