Notice and remedies in copyright licensing.

• Author: Ard, B.J.
• Position: Introduction into III. Substantive Reform Proposals A. The Ninth Circuit's Nexus, p. 313-347

Copyright owners claim the power to designate practically any term of a copyright license as a "condition" enforceable in copyright. In doing so, these licensors purport to translate breach of the most trivial or idiosyncratic term into the basis for a copyright infringement suit. This Article argues that these licenses are most problematic when licensors provide inadequate notice of unexpected terms. License conditions are typically buried in boilerplate that no reasonable consumer reads, and licensors have few incentives to make them more salient. These circumstances not only threaten unwitting users with copyright liability, but also impede copyright's own goals by casting doubt on the legitimacy of the copyright regime and discouraging the public's engagement with creative works. Copyright law nonetheless offers courts no effective tools to inquire into the adequacy of notice.

Because these agreements arise at a unique intersection of copyright and contract, however, contract law supplies a normative and doctrinal framework that allows courts to demand more effective notice. Contract law is skeptical of supracompensatory remedies--like those that would follow from enforcement of a license condition--and awards them only where understanding and assent are clear. Courts therefore ought to require a heightened standard of notice as a prerequisite to the enforcement of license terms in copyright. This approach would check against licensors ' overreaching. At the same time, it would leave room for parties to experiment with unusual but potentially beneficial licensing arrangements like those championed by the free culture and free software movements. By bringing novel licensing arrangements to light, moreover, this approach subjects licenses to public scrutiny and to discipline through market and political forces.

TABLE OF CONTENTS INTRODUCTION I. CONDITIONS IN COPYRIGHT A. Conditions Defined 1. Limitations, Conditions, and Covenants 2. Use Restrictions B. Copyright's Boilerplate 1. Information Costs 2. Behavioral Constraints 3. Consequences for Consumers and Copyright II. COPYRIGHT AND UNWITTING INFRINGEMENT A. Statutory Damages and the Innocent Infringement Defense B. Fair Use C. Preemption and Misuse 1. Preemption 2. Misuse D. Reputational Constraints III. SUBSTANTIVE REFORM PROPOSALS A. The Ninth Circuit's Nexus 1. Unclear Guidance 2. Problems for License Innovation B. Alternative Substantive Reforms 1. The Purposive Nexus 2. Standardization C. The Laissez Faire Approach IV. PROPORTIONALITY AND NOTICE IN CONTRACT A. Proportionality in Damages B. Expectations and Disclosure C. Presumption Against Conditions 1. Term Standardization 2. Materiality V. HEIGHTENED SCRUTINY FOR COPYRIGHT CONDITIONS A. Terms at Issue B. Enhanced Notice 1. Clarity 2. Salience C. Termination and Prospective Relief D. Secondary Liability E. Progress Through Process CONCLUSION INTRODUCTION

Copyright owners now claim the power to designate practically any term in a copyright license as a "condition" enforceable on pain of a copyright infringement suit. If they are correct, then they can effectively supplement the six statutory grounds for infringement enumerated at Section 106 of the Copyright Act with protections of their own choosing. (1) This move increases copyright owners' enforcement power significantly: rather than simply sue those who violated the license for breach of contract, they could sue for infringement and claim copyright's statutory damages, easier access to injunctive relief, and a host of other litigation advantages. (2) Even the most trivial or idiosyncratic breach under this regime would yield mandatory statutory damages starting at $750. (3)

The power to define one's own conditions might sometimes be put to socially beneficial uses. Free culture and free software advocates, for example, rely on the enforceability of conditions to make their attribution and share-alike terms effective. (4) It is nonetheless easy to imagine how copyright owners might abuse this power by extending copyright enforcement to arbitrary and unexpected terms. These concerns came to a head in MDY Industries, L.L.C. v. Blizzard Entertainment, Inc., where a videogame developer sued in copyright to enforce license terms that prohibited cheating. (5) To avert an outcome that would pave the way to enforcement of practically any license term in contract, the Ninth Circuit rejected the claim and held that, to be valid, a condition must bear some "nexus" to the "exclusive rights of copyright." (6) Commentators have roundly criticized this opinion for its questionable adherence to the Ninth Circuit's own copyright doctrine and for the complications it raises for novel but socially beneficial licenses like those championed by the free culture and free software movements. (7) Yet rejection of the MDY approach leaves us to ask how courts might guard against licensors' overreaching without falling into the same traps.

This Article argues that the problems of overreach are greatest where licensors seek copyright enforcement of unexpected terms. To counter these problems, courts ought to award copyright remedies only where the licensor has made its terms clear and salient to the licensee. License conditions are typically buried in dense boilerplate that reasonable consumers refuse to read (8): the opportunity costs of reading are substantial and can hardly be justified relative to the low value of most consumer transactions. (9) This arrangement sets consumers down the path to unwitting infringement and to hundreds, if not thousands, of dollars in copyright damages no matter how trivial or unexpected the breached term. (10) The award of copyright remedies in these circumstances is not only excessive from the perspective of consumer law, but also problematic for copyright itself due to its corrosive effect on the legitimacy of the regime and the chill it casts over users' engagement with creative works."

One immediate concern with directing courts to scrutinize the adequacy of notice is that copyright law, as it stands, lacks the doctrinal tools to account for notice defects. (12) But this concern dissipates if we take seriously the contractual aspects of the license. The question of whether a license term can be construed as a condition begins as an interpretive question for contract. (13) Contract law, moreover, is normatively and doctrinally responsive to the licensee's expectations in ways copyright law is not. (14) Contract law is loath to impose damages beyond those a party could expect as a result of breach, and it is all the more reluctant to enforce a term that would award supracompensatory damages in the absence of unequivocal assent. (15) The disproportionately large statutory damages that would result from licensors' enforcement of conditions therefore ought to trigger significant concerns regarding the adequacy of notice. Courts could accordingly require these licensors, who seek to invoke remedies greater than what contract typically offers, to provide notice greater than what contract law ordinarily requires.

This Article proceeds in five parts. Part I begins by outlining the features of copyright law that allow copyright owners to designate practically any license term as a condition. It then explains how the high information costs posed by boilerplate license conditions create problems for both consumer law and copyright policy. Part II shows why copyright law lacks the tools to guard against these risks: copyright's mandatory damages foreclose judges from tailoring damage awards to the breaching party's actual culpability following the breach of a trivial and poorly disclosed term, and conventional copyright defenses like fair use, preemption, and misuse do not speak to failures of notice. This Part also considers the mitigating effect of reputational constraints and finds them to be only a partial solution.

Part III situates my approach against other proposals for the regulation of conditions. It begins with a discussion of the MDY opinion, explaining why the Ninth Circuit's nexus provides unclear guidance while also impeding innovations in licensing. This Part then considers other substantive reforms, particularly the possibility of developing standardized terms. (16) Standardization would have the benefit of protecting against runaway information costs by restricting the universe of possible terms. And it is likely that smart new substantive limits could advance the goals of copyright by prohibiting those terms that would be problematic even when properly disclosed. But insofar as the discussion pertains to how courts should approach conditions, it is doubtful that courts are in the best institutional position to identify the terms in need of substantive regulation or to update their holdings to keep pace with innovative developments in the practice of licensing. (17) The Part concludes by considering proposals that would allow licensors to designate the terms of their choice as conditions. While these approaches leave more room for innovations in licensing, they require some mechanism for addressing the high information costs posed by idiosyncratic license terms. These scholars have attempted to locate such protections within copyright law, though they face difficulties due to copyright's limited concern with notice. (18) My own proposal avoids these problems by identifying contract law itself as the doctrinal foundation for the notice inquiry.

Part IV shows how contract law would allow courts to inquire into the adequacy of notice in licensing cases even without changes to copyright law. In particular, contract law's existing presumption against conditions provides a roadmap for courts to follow in requiring heightened notice as a prerequisite to awarding the sorts of supracompensatory remedies that would follow from recognizing license terms as conditions. Part V applies this approach to contemporary copyright...