CONTRACT CONFLICT Guy A
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COPYRIGHT © 2017 VIRGINIA LAW REVIEW ASSOCIATION COPYRIGHT SURVIVES: RETHINKING THE COPYRIGHT- CONTRACT CONFLICT Guy A. Rub* Twenty-one years ago, copyright died. More accurately, it was killed. In 1996, in ProCD v. Zeidenberg, Judge Easterbrook, writing for the Seventh Circuit, held that a contract that restricted the use of factual information was not preempted by the Copyright Act and therefore enforceable. The reaction among copyright scholars was swift and passionate. In dozens of articles and books, spreading over two decades, scholars cautioned that if the ProCD approach is broadly adopted, the results would be dire. Through contracts, the rights of copyright owners would run amok, expand, and in doing so they would invade, shrink, and possibly destroy the public domain. Contracts, we were repeatedly warned throughout the years, would kill copyright law. This Article challenges this scholarly consensus by studying the court opinions that have dealt with the copyright-contract conflict over the past four decades. This examination reveals surprising facts: notwithstanding the scholars’ warnings, ProCD’s approach won the day and was embraced by most federal circuit courts. The doomsday scenarios scholars warned against, however, did not materialize. The * Associate Professor, The Ohio State University Michael E. Moritz College of Law. I would like to thank Professors Clark Asay, Ian Ayres, Jonathan Baker, Scott Baker, Omri Ben-Shahar, Robert Brauneis, Wendy Gordon, David Hoffman, Robert Merges, Mark McKenna, Alan Michaels, Michael Madison, Lucas Osborn, Gideon Parchomovsky, Michael Risch, Rebecca Tushnet, Fred Von Lohmann, Chris Walker, and Stephen Yelderman, and the participants of the Copyright Scholars’ Roundtable at University of Pennsylvania Law School, Research Roundtable on the Law and Economics of Digital Markets at Northwestern University School of Law, the Junior Scholars in Intellectual Property (“JSIP”) Workshop at Michigan State University, the annual meeting of the American Law & Economics Association at Columbia Law School, the Faculty Colloquium at Notre Dame Law School, the IP Workshop at Brigham Young University Law School, the Work in Progress IP (“WIPIP”) Workshop at DePaul University, the Internet Law Works-in-Progress Workshop at Santa Clara University, the annual meeting of the Junior IP Scholars Association at The Ohio State University College of Law, the IP Speaker Series at George Washington Law School, and the Advance Topics in IP Seminar at Bar-Ilan University Faculty of Law for their valuable comments on various stages of this project, as well as Michael Koslen, Michael Mayer, Chris Stephens, and Joe Wheeler for outstanding research assistance, and the editors of the Virginia Law Review for their valuable suggestions and editorial work. All remaining errors are, of course, my own. 1141 COPYRIGHT © 2017 VIRGINIA LAW REVIEW ASSOCIATION 1142 Virginia Law Review [Vol. 103:1141 overall effect of contracts on the size and scope of the public domain, or over copyright law as a whole, seems minimal. The Article explains this discrepancy and shows that contracts are an ineffective tool to control information because they are too weak of a device to threaten or replace copyright law. Indeed, to paraphrase Mark Twain, the reports of the death of copyright were greatly exaggerated. The Article concludes by placing this analysis in context, as part of a broader ongoing discussion on the desirability and enforceability of standard-form agreements. INTRODUCTION .................................................................................... 1143 I. THE COPYRIGHT-CONTRACT CONFLICT ........................................ 1152 A. The Copyright-Contract Interaction ...................................... 1152 B. Copyright Preemption of Contracts ...................................... 1160 1. Copyright Express Preemption ....................................... 1160 2. Express Preemption’s Extra Element Test and Contractual Promises ...................................................... 1164 3. The No-Preemption Approach ........................................ 1165 4. The Facts-Specific Approach .......................................... 1168 II. THE FAILURE OF THE FACTS-SPECIFIC APPROACH ........................ 1170 A. The Broad Adoption of the No-Preemption Approach .......... 1171 1. Pre-ProCD Case Law ...................................................... 1171 2. The 1996 Case Law: ProCD and the Reactions Thereto ............................................................................ 1174 3. Post-ProCD Case Law: Courts Ignore the Scenarios of Doom ............................................................................... 1179 a. Five Appellate Courts Adopted the No-Preemption Approach ................................................................... 1179 b. The Sixth Circuit Adopts the Facts-Specific Approach ................................................................... 1181 c. Courts That Did Not Choose Which Approach to Adopt ......................................................................... 1182 B. Explaining the Failure of the Facts-Specific Approach ........ 1185 1. Randomness and Overnarrowness .................................. 1187 2. Overbreadth .................................................................... 1190 C. Modifying the Facts-Specific Approach ................................ 1192 III. COMING TO TERMS WITH THE NO-PREEMPTION APPROACH .......... 1196 A. Introducing Conflict Preemption ........................................... 1196 COPYRIGHT © 2017 VIRGINIA LAW REVIEW ASSOCIATION 2017] Rethinking the Copyright-Contract Conflict 1143 B. The Discrepancy Between the Scholarly Predictions and Litigated Contracts ................................................................ 1199 C. Limitations and Caveats ........................................................ 1207 D. Explaining the Discrepancy ................................................... 1211 1. Contractual Privity and Control over Information ......... 1211 2. Remedies for Breach of Contract and Secondary Liability ........................................................................... 1216 3. Encryption ....................................................................... 1217 4. Other Legal and Nonlegal Restrictions ........................... 1219 IV. NORMATIVE IMPLICATIONS ........................................................... 1221 A. Copyright Preemption of Contracts over Information Goods ..................................................................................... 1221 B. The Enforceability of Standard-Form Agreements ............... 1223 CONCLUSION ....................................................................................... 1226 THE PREEMPTION DECISIONS, THEIR IDENTIFICATION, AND LIMITATIONS: A METHODOLOGICAL APPENDIX ............................ 1228 A. Identifying the Preemption Decisions .................................... 1228 B. Methodological Limitations ................................................... 1231 C. Implications ........................................................................... 1232 INTRODUCTION HERE is a built-in tension between copyright law and contract law. T Ruth buys an eBook. Copyright law governs Ruth’s rights in the eBook. Certain actions, such as commercial copying and public performance, are prohibited by copyright law.1 Other actions, such as reading the eBook, writing a review thereof, and copying the ideas expressed therein, are permitted by copyright law.2 Enter contract law. What if, as part of the purchasing process of the eBook, Ruth agrees to a standard-form agreement that limits her rights in the eBook? For example, what if the standard-form agreement states that the buyer promises not to copy the ideas expressed in the work? Can Ruth be liable if she copies these ideas? Under copyright law, the answer is, of 1 17 U.S.C. § 106 (2012). 2 Id. § 102(b) (“In no case does copyright protection for an original work of authorship extend to any idea . .”); id. § 107 (providing fair use protection to certain usages including minimal copying); Arnstein v. Porter, 154 F.2d 464, 472 (2d Cir. 1946) (“[T]here can be permissible copying, copying which is not illicit.” (citation and internal quotation marks omitted)). COPYRIGHT © 2017 VIRGINIA LAW REVIEW ASSOCIATION 1144 Virginia Law Review [Vol. 103:1141 course, no. But can Ruth be liable for a breach of the contract? More generally, is contract law free to set legal norms over information goods? This possibility, and the tension it creates between copyright and contracts, has been troubling many scholars.3 The copyright-contract tension is typically discussed under the auspice of copyright preemption doctrine. It is frequently argued that because copyright law is part of federal law and contract law is mostly a creation of the states, contracts over certain information goods, such as software, books, and sound recordings, might be preempted by the Copyright Act. Part I of this Article presents this issue. Since the passage of the Copyright Act of 1976, such a preemption argument has been discussed in at least 279 court opinions.4 A review of those opinions reveals a broad consensus among judges regarding certain aspects of the preemption analysis but also a broad disagreement regarding other aspects. With minor exceptions,5 courts approach the possible conflict between contracts and copyright law by using copyright express preemption doctrine, set forth in Section 301(a)