WIPIP part 3

William K. Ford, ProCD: Tidying Up After the Stranger on the Street

Epstein thinks the district court’s decision in ProCD was doctrinalist while Easterbrook’s court of appeals opinion was properly functionalist. Epstein argues that the doctrinal issues were a problem—the doctrine needed to be overcome.  Don’t “parrot the language of older cases rather than figuring out the functional considerations.”  Lawyers aren’t as good at functional/economic analysis. We want them to be attentive to policy considerations, but it’s hard for them to follow the rule “be efficient” and advise clients that way.  Better for rules to make sense to be able to predict cases.

Easterbrook was required to contradict several principles of black-letter contract law to reach his result in ProCD.  Problem of copyright preemption.  Strangers to the contract: to avoid preemption, he said that someone who found a copy of the database on the street wouldn’t be affected by the license (but that’s silly, since it’s shrinkwrap).

Orthodox way to look at the contract: defendant accepted P’s offer to sell.  Though P is not the retail store at which Zeidenberg bought the CD. He accepted the retailer’s offer, not P’s offer. Long line of cases (mainly involving exploding bottles) about how to think about offer and acceptance: when an item is sitting on a store shelf, it’s an offer made by the seller (not by ProCD), which can be accepted by going up to the cashier and paying the money.  Court here struggled to move up the acceptance if the bottle explodes before the cashier—picking it up off the shelf as acceptance, allowing warranty to apply.  At least you accept the offer when you pay the money.  Privity problems are well known in these cases.  Why is there a K between P and D if the offer was made by the store?  Zeidenberg was in a sense a stranger to ProCD.  If we accept Easterbrook’s functional analysis is sound—that people won’t make uncopyrightable databases if they can’t protect them by contract that extends to the purchaser—then we need an explanation for why the contract term is binding.

Many people interpret ProCD to be about clickwrap.  That’s not why Zeidenberg was bound, though.  Why would clickwrap bind him? Typical story: offer/acceptance, with consideration being the choice. ProCD will allow you access if you agree. Alternative: reject offer and find your way around the clickwrap if you’re technically savvy enough.

Easterbrook can’t say that, though, because that invites hacking so people just pull the data off the CD.  (RT: How do you know that’s reasonably possible?)

Could now rely on DMCA to avoid hacking around the clickwrap, though ProCD predates that. If you read the case broadly, Nimmer argues that any item—books, shovels—could have terms stamped on them running with the item.  No consideration in those cases, though.

District court says Z never assented to the modification of the original contract contained in the new terms presented later.

Final approach: heterodoxy.  Easterbrook says the vendor is the master of the offer, when usually it’s the offeror.  Z accepted the offer when he decided to use the software; ProCD proposed a contract accepted by use.  You might think “keeping” the software makes you bound.  He maybe wants to hint that strangers are bound—suppose Z’s father had bought it for him and given it to him.  Then Z loses it and someone finds it on the street.  Easterbrook says you can prevent formation by returning the package.

Easterbrook does say the stranger isn’t bound, but he probably intends the opposite—they’ll click on the box.  At that point you run into preemption problems.  So he says that there’s no problem because contract doesn’t cover strangers to the agreement (same as copyright doesn’t apply to people who don’t interact with the copyrighted work).  Aronson v. Quick Point—can be bound to pay even for an unpatented technology if you agree.  Here, though, there are no strangers to the contract, if clicking on the box is what binds you.

Now, we can say it without inconsistency with Feist because we can rely on the DMCA to forbid hacking.  (RT: Except for the exemptions.)  Can think of only a few examples outside software where people try to make the promises run, so it’s not very important to limit ProCD this way.

Me: DMCA exemptions make the problems pop back up—does the contract override the exemptions granted by Congress?  Also it’s not just software—securities offerings; Kindle books, audiovisual works—all sorts of copyrighted items

A: Congress may ultimately have to act.  But can still tidy up ProCD.

Eric Goldman: 9^th Circuit troika of cases—maybe there’s a difference in how we handle the contract for the chattel v. the contract for the intangible stored in the chattel. That may not really be supportable by the cases—God only knows what they really mean—but license-like language on a promo CD apparently didn’t bind the recipient.

A: in a Vernor situation, you can be an infringer if you don’t have permission to install the software. Z probably doesn’t have to install the software to get the unprotectable data file.

Goldman: CD was just a delivery mechanism for an otherwise unprotected (no additional software required to play) music file.

Liza Vertinsky, Universities as Managers of Innovation

Looking to see if there are unique characteristics of universities which, if properly harnessed, could make better choices about post-discovery paths of development than markets or firms. May need changes in underlying legal/regulatory structure. Not arguing that development should move in-house, but focusing on dual-use (commercial/research) discoveries. Literature on the constructed commons or academic science as a semi-commons or constructed cultural commons. Also draws on theories of the firm, which ask where decisionmaking should be located given asymmetry and uncertainty; challenges of incentivizing team production especially in early post-discovery stages.

Blurred commercia/noncommercial line is inevitable, but it increases tech transfer failures. If you have too little money to develop your application, that raises hurdles of uncertainty, keeping inventor engage—but if discovery has immediate commercial application and research uses, the costs of restricting it go up.

How to put universities in the drivers’ seat? Multiple user/consumer stakeholders, and semiautonomous governance structures that can influence outcomes.

Vetter: often in a big bureaucratic institution the tech transfer department/legal is the “sales prevention department.” What about eliminating the tech transfer office?  Can we do case studies? Carnegie Mellon doesn’t have a very powerful tech transfer office—even primary investigators have more agency to go after commercialization.

A: Emory has a drug discovery institute; case studies where people try to get around these gaps.  Most successful models: Wisconsin, MIT. What makes them good?  Is there something transmissible? Have very strong tech transfer offices.

Christina M. Mulligan, A Numerus Clausus Principle for Intellectual Property

The number is closed: real property can only be conveyed in a certain limited number of forms: fee simple, easement, servitudes. This principle is almost entirely absent from IP.  We should consider incorporating it into at least a few aspects of IP.

Compare how law treats contract and property. Contracts can be highly idiosyncratic; default rules are highly alterable. When cts encounter off-menu property rights, typically decree that the legally recognized interest is actually on the menu even if the parties agree they wanted something different and the language is clear. Frustrating the interests of the agreeing parties. So why? Benefits: facilitates the alienation of property and prevents creation of anticommons. Merrill & Smith: lowers the measurement costs of property conveyance—trying to figure out what the property is that you are getting. Externalities: if you want a fee simple, you have to expend extra effort to find out whether the seller sold something weird.  Also, helps people figure out the scope of rights/understand what the conveyance means—internal costs.  Without numerus clausus, greater difficulty alienating property/greater transaction costs/greater confusion over the scope of rights.

In copyright: someone who wants to buy a copyright that’s several decades old and has changed hands several times. Person has to locate all the previous sale documents to make sure nothing’s been peeled off and given to others. This is expensive and even sophisticated entities can make mistakes. AVELA: Betty Boop copyrights had five separate owners. Turned out that conveyance from 2d to 3d owners sold movie rights but kept copyright in Betty Boop character and then sold the character to someone else. Ct said Fleischer didn’t own the character. This isn’t quite the same since there was always a separate copyright in the Betty Boop character (I don’t know that this is true or has to be true—character copyright separate from specific works seems like a classic violation of the principle.) Could have been about right to make sequel, right to make comic book.

End-user license agreements. iTunes: you can make 5 playlists and copy each of them 8 times, and so on. Impossible for people to read all the licensing agreements they agree to in any given year—average person would need to read 42 min/day to read all the privacy agreements that govern their transactions. People make rough guesses based on what they think the norms are. And of course end-user restrictions limit alienability.

Justifications for numerus clausus may be even stronger in IP because the notice system is so much worse in IP than in real property. So what forms would we impose on IP if we were to do so? Merrill & Smith say there’s an optimal number balancing ability to do what owner wants with overwhelming numbers. Also IP owners have gotten used to customizing, so they’d be frustrated with change in industry practices. So wholesale change might not be feasible, but adopting aspects might be.

Creating a digital first sale doctrine for copies of digital works: realign average person’s expectations with actual rights. Users would rather click a random box and get access to the work; we don’t really know what they really wanted to do, as compared to the real property situation where both parties truly agree. A first sale rule does prevent third-degree price discrimination. But IP isn’t a perfect monopoly anyway. Most price discrimination models assume fixed number of buyers with fixed value for the work, but that’s not really true because of network effects—popular works generate demand. Also, robust first sale doctrine in physical world seems to be working fine; doing the same thing with an ebook isn’t troubling.

Derivative works: When a song is included in a larger work and then the larger work can’t be released in new formats because the soundtracks couldn’t be cleared. Daria and WKRP in Cincinnati: both only released on DVD with elevator music in place of original music, which distorts some of the plots/jokes. Perhaps an exhaustion rule. That would change the expectations, but if we want higher-valued uses we may need to do it.

Most obvious place: eliminate divisibility of copyright, though she doesn’t think this is necessarily a good idea. You don’t have to divide copyright along the statutory right lines—can give performance rights in Idaho.

Vetter: preemption against the states helps keep the forms limited to some degree.  If copyright preemption were more potent, certain licensing practices wouldn’t be exploding the number of forms.

Lemley: divisibility is somewhat of a problem—why it took so long to get legally available digital online music, because owners had already split the rights into groups who each claimed it was a reproduction and a public performance.  More generally, some but not all of these problems are numerus clausus-solvable. If the problem is that there are 20 different inputs into a thing, that’s a separate problem even if each has only one legal right to assert, and that’s not the usual numerus clausus problem.

A: but the work was created because someone managed to license those 20 inputs once.

Lemley: we normally think of limitations on contract as preserving the property interest, but we don’t want a property doctrine that makes unification via contract harder.

Q: if you don’t sell a piece of property, you can do all sorts of idiosyncratic things. Can we move this to IP?  Are we interested in chattels (where first sale comes in) or revenue streams coming from something you’ve created?  If it’s the revenue stream, it’s harder to map numerus clausus.

A: Need to decide how you think about licensed copies: are they more like tangible copies or like a lease, though note that leases too are subject to numerus clausus.  Only looks like a contract because there are prohibitions on alienation. When you die it’s still on your computer; has in rem characteristics/qualities.

T.J. Chiang: We have three forms of getting legal rights—patent, copyright, trade secrets (RT: what’s TM, chopped liver?). That’s numerus clausus. But that broad level of division doesn’t help because you can dice the rights inefficiently in a real economy. But as a conceptual matter you can do that with real property too—multiple overlapping easements. Nobody does them because it’s dumb, whereas there are incentives to do it in IP. But the economic problem doesn’t map to the common law conceptual categories.

A: real property can get very messy—one criticism is that even with n.c. you can make things that are very messy. But it’s harder, and there are some things you just can’t do.  But that’s not enough—saying there’s copyright is like saying there’s a class of things called land.  That’s just a label for the whole property interest, but doesn’t explain how it can be divided, which n.c. does.

Me: like Mark I thought about music.  Statutory licenses/collective rights organizations as standardizing agents.

Q: what about n.c. in personal property? It’s not so much what the forms are but how you get to them—almost a process issue.  Statutory/preemption—and maybe personal property has some lessons.

Peter K. Yu, Region Codes and Territorial Mess

Clear pattern in how Hollywood movies move across the globe: US first, then Europe, then non-China East Asia, then Latin America, then Africa/Russia/China.  Plan promotional campaigns/send stars on tours based on that schedule, etc.  Region codes enable price discrimination, market segmentation (Chinese New Year is later than Western New Year so you can premiere for both), and licensing.

Does this make sense as a matter of culture or geography? China is region 6 and Hong Kong is region 3. Australia is region 4, as are Argentina and Brazil, but costs are very different.  Russia and India are region 5, but so is Africa except for South Africa and Egypt.  Hollywood lumps all region 5 countries together because they’re not really targeting them.  Region 1-3 are the ones that are prioritized.  Region 7 reserved for future use, Region 8 for aircraft/cruises; Region 0 for all regions.

Tension between copyright and convenience. Yu spends 3 months in Asia and the balance in the US. Shopping: has to decide when he’s going to watch a DVD, even though the DVDs are lawfully acquired. A region 1 Hong Kong movie: have to decide between including Cantonese and Mandarin; many customers will be out of luck. Many people turn to region-free DVD players. This has an impact on consumption patterns.

Competition: Australia encourages the development of region-free players. Australia & New Zealand would like to get products from Hollywood or from Europe—would like to be able to pick the cheaper one. Harry Potter example: books have different titles in different countries.  In HK, Australia, NZ you find both on sale for different prices, sometimes because of exchange rate.

Culture: DVDs encourage/assist learning about other cultures and provide access to the language. Not easy for many Asians to get a DVD that includes German as an option—Region 1 usually offers only English, Spanish, French.  Exception: classical operas.  Need Region 2 for German in many instances.

Censorship: region codes are excellent ways to work closely with governments to censor.  Eyes Wide Shut has deleted scenes from Region 1 that are in Region 2 because European audiences are believed more tolerant.

Solutions? On Atlantis space station, what happens if they bring region-coded DVD players?  Obama gave 25 unplayable region 1 DVDs to Gordon Brown.  Sane solution: rethink global strategy in marketing.  Some people—including law professors—pay My Expat Telly to see BBC shows that BBC America won’t show.  BBC should consider serving this market itself.  Consumer side: We need DVD region coding circumvention as a right.  Human rights reasons to do so: teaching, censorship. 

Meanwhile, the industry is trying tech that bars Region 1 DVDs from playing on region-free players.  YouTube discriminates by country—leading to circumvention efforts and resort to pirate sites.  Future of cyberlockers/cloud computing: should they replicate this failed region separation strategy?

Q: would the human rights answer change if DVD sellers were doing region coding better so that poorer countries had one region and wealthier countries had another?  Blu-Ray: Europe and Africa are together in 1 region and North & South America in another.

A: Hollywood doesn’t care a lot about certain regions.  They aren’t making decisions based on affordability in those countries. Price discrimination done correctly makes sense, but that’s always a problem of the minority wealthy population in some places—for example, pharmaceuticals in South Africa. The minority can pay the high price; who will be targeted?  Minority affluent population is considered more reliable and worth basically as much. Human rights issues don’t go away.  Learning language, for example: Region 1 requires English, French, or Spanish.  To learn other languages, you have to watch movies from your home country, in different regions.  There are enough people interested, but not enough people to be worth marketing to (deadweight loss).  Japanese anime: Yu is willing to purchase, but can’t get support for distribution in the US.  With YouTube, he can see the old anime (presumably put up by some other fans).

Yvette Liebsman: which human rights?

A: thinks IP is a human right, but also communication of information/promotion of learning.

Q: First sale doctrine—cases holding that first sale doesn’t apply to products manufactured outside the US. Will companies start producing overseas and thus be able to use Region 0 coding?

A: may work ok for some things, but not for cloud services. Also, US is doing national exhaustion. Internationally, debate is over national/international exhaustion.  Australia, Singapore, Hong Kong are interested in international exhaustion because they prioritize getting US and European access.

Q: note that game industry has moved over the past 20 years to a Region 0 model allowing everyone to play the same things. Maybe comparing the industries would help identify characteristics that allow forward movement.

A: One-stop shopping is supremely important. Money is not the only concern. Convenience.  Product placement along with ads can change the way creation is funded.

Eric Priest, Acupressure: The Role of Market Forces in China's Emerging Copyright Enforcement Environment

Stakeholders do exist in China with an interest in IP enforcement.  Suggestion: self-interest will change so that levels of protection and effectiveness of enforcement pick up, as Peter Yu and various industry members have suggested.  No doubt that there are now industries in China that have a lot invested in IP, like China’s film market.  456 domestically produced in 2009, 3d largest film producer in the world. $1.5 billion total revenue in 2010, 40% increase from 2008 (though still 15% of US).  $900 million box office, $400 million export sales. Virtually no aftermarket, thus meaning that the industry relies on physical exclusion/export rather than copyright. 6200 screens in mainland China compared to 40,000 in US.

In China, saw video pirate sites—300 million views/month.  In last 18 months, almost 180 degree shift in terms of allowing unauthorized content.  What’s going on?  If you’re already at the top of a massive market and not paying for content, why would you start to pay—in fact, pay inflated prices?  Started licensing Western content, screening pretty carefully for user-uploaded unlicensed content.  Also licensed local/Taiwanese/Korean films.  Youku even sued competitor Tudou alleging infringement of exclusive video content licenses.

What accounts for this change? Government crackdown is one explanation.  But that’s happened before—quick campaigns with little difference in the long term, often in advance of the USTR’s arrival, and then things go back to normal after the headlines go away.  Another theory: both companies have been hemorrhaging money, as YouTube did—bandwidth costs are significant, along with licensing fees, so the more users you have the more you pay. So both did emergency IPOs in the US, and maybe to impress American investors and allay fears about legal liability they cleaned up. 

Priest met with executives at both companies and analysts.  Both government and investment were in the background; both had been sued a lot by local content companies, but that was really more of an annoyance than a requirement to change behavior because damages were so low and because business model was so dependent on user-uploaded unauthorized content.  IPO explanation is not quite adequate either because Baidu, largest search engine, has been publicly listed for 8-9 years and has never done much to clean up its notorious mp3 search even after being sued a number of times; Baidu wins every time, even when sued by local record companies. Baidu is experimenting with a licensed service.

With the video services, all the content is free though Youku is experimenting with some cheap PPV. They felt like they needed a “healthy” copyright environment to attract big advertisers, because that was how they could make money; advertisers willing to pay on pirate sites don’t pay enough. Disney & Sony are advertisers/content owners. Multinational brands are driving this change.

Licensing bubble: soaring prices in licensing frenzy have led to financial losses for most domestic video sites, according to one analyst. This market simply didn’t exist a few years ago. Popular TV show, HK Palace, now costs $300k per episode, which was $1500 per episode in 2009. Inflated prices due to consumer expectations of seeing first-run content (still in theaters/on TV or immediately thereafter), an expectation created in piracy days. Video sites are now licensing exclusive rights to others at inflated prices—becoming licensing platforms themselves.

So it’s not threats of litigation, but business models—pressure derived from market/business partners.

Analogous story? What Microsoft is doing to attempt to get Chinese companies to purchase licensed software. Still 90% piracy rate for software.  Microsoft has decided that lawsuits and gov’t pressure aren’t working: leverage US law into China. Lobbied in 2 states so far, Washington and Louisiana, for unfair competition laws making it a violation to manufacture a product while using stolen or misappropriated info tech in its business operations after notice and opportunity to cure, anywhere in the supply chain.  Seller in the US is liable to competitors. (Not clear to me that that the seller in many cases will have the incentive—if they’re also making products overseas—or the information necessary to provide the requisite notice.)  The AG can also bring an action against the manufacturer.

Two categories face potential liability: manufacturers of products sold in the state, or retailers of $50+ million annual revenue who sell products in the state that were manufactured using stolen IT. The idea is to get Wal-Mart, Target, Cuisinart etc. to put pressure on their suppliers in China to buy legitimate software.  Washington statute is inapplicable to copyrightable end products, trying to avoid preemption; same with patent.  There’s also a 90-day cure period after notice.  Remedies include injunction, actual or statutory damages.

Louisiana version makes it explicit that “stolen or misappropriated property” is included but not limited to computer software that doesn’t have the necessary copyright licenses.  (Also a problem with calling this stolen or misappropriated, since the precedent is hostile to calling infringement either—again seems to be a preemption workaround but I’m not sure how successful it would be: they are targeting foreign infringement, however indirectly.  The extra element just limits who’s liable.)

Washington AG and NC AG sent letter to FTC in late 2011 claiming that it was unfair competition for Mexican manufacturers to use pirated software to lower their costs—want to bring FTC to bear at the federal level.

Implications? A new Wal-Mart effect of private supply chain requirements being more effective than lax national or international regulation.  Evidence of the crossover point for IP enforcement, or just a bubble?  Youku/Todou story could help domestic/regional content producers, but the Microsoft strategy not so much (unless I suppose it drives a switch to local producers).  China is connected to the global IP system through trade.