'Shrink-wrap' licenses don't shrink access to data

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Published in the Chicago Daily Law Bulletin, February 8, 1996, at page 5.

'Shrink-wrap' licenses don't shrink access to data.

Copyright 1996 by David Loundy

If you spend time with the people in the right computer users' circles, you are bound to encounter the rallying cry "information wants to be free." Well, Mathew Zeidenberg just successfully liberated some information, much to the chagrin of the company that spent millions of dollars compiling the information for use in its commercial product.

ProCD, Inc. sells a CD-ROM containing national business and residential telephone listings. The listings are compiled from approximately 3,000 telephone directories. The CD-ROM is sold under the name "Select Phone (tm)" (and the database will be available on America On-Line). The CD-ROM contains over 95 million phone listings, as well as software to access these listings. The software package also contains a user guide which includes the license agreement, but the license agreement is not accessible to the user until the box has been opened (a situation referred to as a "shrink-wrap license"). The ProCD license limits the use of the product to a single individual and states that the telephone data may only be copied and used for personal use, and that the data may not be further distributed or made accessible over a computer network.

Mathew Zeidenberg is a Ph.D. student in computer science, and he is a purchaser of ProCD's Select Phone products. He has also formed a corporation, installed the Select Phone software on his computer, extracted the telephone data, written his own search software, and put his software and the telephone data on a web site on the Internet for anyone to access for free.

ProCD sued Zeidenberg, alleging that its copyrights were violated, its licensing agreement was breached, and a variety of other claims. The District Judge, Barbara Crabb, US. District Court for the Western District of Wisconsin, recently ruled in favor of Mr. Zeidenberg (ProCD v. Zeidenberg, No. 95-C-067 1 C, 1996 WL 10068 (D.WIS.). Jan. 4, 1996 and available on the Internet at http://wyp.net/Trial-By-Internet/).

The first issue addressed in the Zeidenberg case was the use of the telephone data contained on the CD-ROM. Deciding this issue was easy, because the facts make this case almost identical to that of Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340 (1991).

The Feist case concerned one publisher copying data from another publisher's phone book. The Supreme Court in Feist addressed the issue that the Copyright Act does not protect facts, but rather only "original works of authorship" (17 U.S.C. 102). A compilation of facts is protectable (17 U.S.C. 103), but to receive protection under the Copyright Act, the compilation must show some modicum of creativity, and alphabetical telephone listings do not show the minimum "authorship" needed to deserve protection (499 U.S. at 345).

While the Zeidenberg court points out that it seems inequitable that the defendant should be able to benefit from the costly efforts of the plaintiff, the court also points out that it is precisely these same actions that allowed ProCD to compile its data by taking the listings from other people's phone books in the first place (Slip Op at p. 41). Zeidenberg's use of ProCD's compilation is no different than ProCD's use of the compilations of 3,000 directory publishers from which it derived its product.

The next issue addressed was the use of the Select Phone software. The Court held that although the Select Phone data was not protected under the Copyright Act, the Select Phone software is protected (Slip Op. at 11).

The court found no infringement of the software as a result of the service provided over the world wide web because Zeidenberg used his own software, and not ProCD's-- the Internet site's users never had access to the Select Phone software (Slip Op. at 15).

The court then examined whether Zeidenberg's use of the software on his personal computer constituted an infringement. Section 117 of the Copyright Act allows the owner of a copy of a computer program to make an additional copy if it is necessary as an "essential step in the utilization of the computer program" (17 U.S.C. Section 117 (1)). ProCD claims that Zeidenberg's installation of the software onto his computer's hard drive constituted the making of a copy, as did the loading of the software into his computer's random-access memory. ProCD argued that, while the copy in RAM is an essential step in the utilization of the computer program, the copy made on the computer hard drive is not-- the software could have been read off of the CD-ROM instead.

The district court's response was that "[t]his conclusion conflicts with both basic patterns of computer use in the 1990s and the spirit of 117" (Slip Op. at p.13). The court expanded previous interpretations of section 117 by holding that:

Section 117 is intended to allow persons in rightful possession of copies of a program to use them freely without fear of exposure to copyright liability. . . If copyright law prevented computer users from making hard drive copies, they would not be able to use their purchased programs without fear of infringement. RAM copies may be essential copies of a computer program, but hard drive copies are just as essential for the effective use of today's computer software. (Slip Op. at p. 14).

Once the copies were made, they were used only by Zeidenberg, and in the manner in which they were designed-- for a single person to access the Select Phone data. Thus the court found that there was no infringement of any of ProCD's copyrights.

Perhaps the most important aspect of this case is the court's refusal to enforce the Select Phone licensing agreement. The reason, the court argued, was because there was, in fact, no agreement at all.

Treating the software purchase as a purchase of goods controlled by the Uniform Commercial Code, the court held that placing the software on a store's shelf was an offer under U.C.C. 2-206. Acceptance of the offer, controlled by 2-204, occurred when the software was paid for by the purchaser. At this point a contract was formed. However, at this point the purchaser had not seen the license agreement contained in the box. The only contract term the purchaser may have seen was a small-print reference stating that use of the software is subject to the terms of the enclosed licensing agreement.

The court held that this notice is not adequate. Because Zeidenberg was not able to examine the terms of the license prior to his purchase, those terms could not be enforced against him (Slip Op. at p. 28). Furthermore, the court refused to imply notice of the contract terms based on past purchases of ProCD products, due to the possibility that the shrink-wrap license terms could have been changed between product releases (Slip Op. at 29). Because the terms of the license could not be enforced against Zeidenberg, the license could not contractually restrict his use of the uncopyrightable telephone data.

Lastly, the court examined ProCD's state law unfair competition claims by declaring that they are preempted by Section 301 of the Copyright Act (17 U.S.C. 301). ProCD argued that it was unfair competition for Zeidenberg to copy the data that ProCD had compiled. While individual facts may not be within the province of the Copyright Act, and thus may be protectable by state laws, compilations of facts are within the scope of the Copyright Act. However, if the compilation does not represent enough creativity, then that compilation is denied protection under the Copyright Act (Slip Op. at p.36).

"It is" Crabb wrote, "only when a contract erects a barrier on access to information that under the copyright law should be accessible that [Section] 301 operates to protect copyright law from individually crafted evasions of that law." (Slip Op. at 40).

This case has a number of strong implications. First, as computerization allows the compilation of enormous amounts of information into potentially valuable collections, it also allows others easily to compile the same information. Furthermore, if the information compiled is not protectable under the Copyright Act, others can easily produce their own compilations by using the fruits of other compilers' efforts. Also, with powerful search engines, there is less of a need for a compiler to impose a "structure" on the arrangement of the compiled data-- users can impose their own structures with use of the search engines. However, without this creative structure, there is nothing for the Copyright Act to protect.

The case also reinforces a problem that is leading to attempts to draft modifications to the Uniform Commercial Code. Under current law, purchasers of software (or users of on-line services) must be given a reasonable chance to evaluate the terms of a license before they will be bound to that license-- an opportunity not provided by current software mass-marketing practices.