Misappropriation Clickwraps I Intro to IP

Misappropriation & Clickwraps I Intro to IP – Prof Merges 4. 12. 2012

Logistics • Sample Exam + answer on b. Space; slides now up to date • Exam: limited open book: Casebook, outline & Notes (no class slides, no commercial outlines, no online resources, Westlaw etc. ) • Remaining classes: Next week, Mon/Tues/Thurs – as scheduled; Next Friday 4/20, 1‐ 2: 30, room 140: material for Mon 4/24; material for Tues 4/25 covered Mon 4/24; Review session Tues 4/25; no Thu. 4/26

Agenda • Overview: state protection, preemption • INS v. AP • Updating misappropriation doctrine • Intro to Clickwrap contracts

Misappropriation: Overview • State protection as remnant • As leading edge • As gap‐filler

INS v AP • Historical Background • Facts – the heydey of competing newspapers • Doctrine and developments

History • Cast of characters • Supreme Court and the progressive era

Justice Mahlon Pitney (1858‐ 1924)

Oliver Wendell Holmes, Jr. (1841‐ 1935)

OWD, Sr. ; civil war experience

Louis D. Brandeis (1856‐ 1941)

Brandeis’ career: Corporate law to reform • Warren and Brandeis, Boston: the high‐ powered boutique of its era • Progressive reform movement: “the People’s lawyer”

• Nominated by President Wilson in 1916; four‐month confirmation battle, in which conservative forces within American industry and the bar fought furiously to defeat the nomination. Wilson stood by Brandeis, and reform groups of all varieties also backed the nomination, which the Senate finally approved in June.

Progressive reform and the loaded term “property” • Gilded age (roughly 1865‐ 1901): “property” as unquestionable entitlement; suggested private ordering, resistance to regulation • Progressive era (roughly 1890 s – 1920 s): dawn of the modern “administrative state”

“Prophets of Regulation”

INS v AP • Facts – AP: Cooperative newsgathering agency/organization – Centralized news dissemination source

Majority – IPNTA 5 th p. 967 • [I]t seems to us the case must turn upon the question of unfair competition in business. And, in our opinion, this does not depend upon any general right of property analogous to the common‐law right of the proprietor of an unpublished work to prevent its publication without his consent; nor is it foreclosed by showing that the benefits of the copyright act have been waived.

• “Not only do the acquisition and transmission of news require elaborate organization and a large expenditure of money, skill, and effort; not only has it an exchange value to the gatherer, dependent chiefly upon its novelty and freshness, the regularity of the service, its reputed reliability and thoroughness, and its adaptability to the public needs; but also, as is evident, the news has an exchange value to one who can misappropriate it. ”

“The fault in the reasoning lies in applying as a test the right of the complainant as against the public, instead of considering the rights of complainant and defendant, competitors in business, as between themselves. . . [I]t is taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and that defendant in appropriating it and selling it as its own is endeavoring to reap where it has not sown, and is appropriating to itself the harvest of those who have sown. ”

Holmes, concurring If the plaintiff produces the news at the same time that the defendant does, the defendant's presentation impliedly denies to the plaintiff the credit of collecting the facts and assumes that credit to the defendant. If the plaintiff is later in Western cities it naturally will be supposed to have obtained its information from the defendant. The falsehood is a little more subtle, the injury, a little more indirect, than in ordinary cases of unfair trade, but I think that the principle that condemns the one condemns the other.

Brandeis, dissenting “If the property is private, the right of exclusion may be absolute; if the property is affected with a public interest, the right of exclusion is qualified. But the fact that a product of the mind has cost its producer money and labor, and has a value for which others are willing to pay, is not sufficient to ensure to it this legal attribute of property. ”

“The general rule of law is, that the noblest of human productions‐knowledge, truths ascertained, conceptions, and ideas‐become, after voluntary communication to others, free as the air to common use. Upon these incorporeal productions the attribute of property is continued after such communication only in certain classes of cases where public policy has seemed to demand it. These exceptions are confined. . . ”

Updating INS: Online “Hot News” Barclays Capital Inc. v. Theflyonthewall. com, , 3/18/10), 2010 WL 1005160 (SDNY No. 06‐ 4908, March 18, 2010) An online financial news service that collected and redistributed portions of major financial firms' investment reports misappropriated the firms' “hot news”

Facts • Equity Research Reports and Recommendations – prepared by plaintiffs at considerable expense • Efforts to keep confidential: ”research reports contain standard prohibitions, such as “[t]his report or any portion hereof may not be reprinted, sold or redistributed without the written consent of [the Firm]” • Defendant gets copies, posts

• Fly posts the Recommendations by sixty‐five investment firms' research analysts, including the three plaintiff Firms. A typical Fly headline from 2009 reflecting a Recommendation by one of the Firms is “EQIX: Equinox initiated with a Buy at Bof. A/Merrill. Target $110. ”

Associated Press v. All Headline News Corp. , 89 USPQ 2 d 2020 (S. D. N. Y. 2009) 89 USPQ 2 d 2020 Associated Press v. All Headline News Corp. U. S. District Court Southern District of New York No. 08 Civ. 323 (PKC) Decided February 17, 2009

Cause of action for misappropriation of hot news is viable under New York law and is not preempted by federal law, and such claim arises if plaintiff generates or gathers information at cost, information is time‐ sensitive, defendant's use of information constitutes “free riding” on plaintiff's efforts, defendant is in direct competition with product or service offered by plaintiff, and ability of other parties to free‐ride on efforts of plaintiff or others would so reduce incentive to produce product or service that its existence or quality would be threatened

From misappropriation to Contract • Both provide opportunities to expand the coverage of IP law beyond the statutory basis • Both therefore implicate questions of federal coordination, i. e. , statutory preemption

Justice Sonia Sotomayor

Ancillary Issues • Agreement to arbitrate • UCC vs. common law of contracts • Sale vs license – crucial distinction – UCC vs. IP licensing law – 1 st sale/exhaustion doctrine

Netscape: assent issues • Communicator (browser): required assent before downloading • “Smart. Download” (plug‐in) did not

Specht v. Netscape Communications Corp. , 306 F. 3 d 17 (2 d Cir. 2002). We rule against Netscape and in favor of the users of its software because the users would not have seen the terms Netscape exacted without scrolling down their computer screens, and there was no reason for them to do so. The evidence did not demonstrate that one who had downloaded Netscape's software had necessarily seen the terms of its offer.

Online Assent We recognize that contract offers on the Internet often require the offeree to click on an “I agree” icon. And no doubt, in many circumstances, such a statement of agreement by the offeree is essential to the formation of a contract. . .

Hill v. Gateway “Terms inside Gateway’s box stand or fall together. If they constitute the parties’ contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced. ”

“Pro. CD is about the law of contract, not the law of software. Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products. ”

The question in Pro. CD was not whether terms were added to a contract after its formation, but how and when the contract was formed —in particular, whether a vendor may propose that a contract of sale be formed, not in the store (or over the phone) with the payment of money or a general “send me the product, ” but after the customer has had a chance to inspect both the item and the terms. Pro. CD answers “yes, ” for merchants and consumers alike

Notice of terms? Gateway’s ads state that their products come with limited warranties and lifetime support. How limited was the warranty— 30 days, with service contingent on shipping the computer back, or five years, with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things [ask, request K terms, or wait for the product to arrive]. ”

Netscape holding “We hold that a reasonably prudent offeree in plaintoffs’ position would not have known or learned, prior to acting on the invitation to download, of the reference to Smart. Download’s license terms hidden below the “Download” button on the next screen. ” – IPNTA 5 th ed. at p. 985

Pro. CD v. Zeidenberg

Judge Frank Easterbrook

SELECT PHONE is on 5 CDs, contains 90 million listings from both White and Yellow Pages of 77. 8 million residential and 13. 8 million businesses. You can search for listings on any field: name, address, city, state, ZIP, area code, business heading and SIC code. It offers reverse search capability, matches addresses or phone numbers with names and provides counts by business heading or SIC code. And its fast ‐ just a second or two to search for the listing you want. In addition you have unlimited downloading of listings into a database, word processor, spreadsheet or contact management program. The value and utility of this should be apparent to any salespeople, fundraisers, research and market testing firms, . . .

SMALL FRY GO ONLINE – 11/1995 Technology lets even tiny businesses outmarket the giants Pro CD Inc. , Database America, Cole Publications (a unit of Metro. Mail), and Dun & Bradstreet all sell nationwide telephone listings on compact disks, including names and addresses, for as little as $175. The CDs let you search by name, zip code, and, in some, by income or business type

Matthew Zeidenberg

District court holding • Was there a K? • What were its terms?

What term is at issue in Pro. CD?

What term is at issue in Pro. CD? • “No commercial use”

7 th Circuit Holding • When is K formed? • Who is offeror? What is mode of acceptance?

Easterbrook: why is this good policy? • Business motive • “Freedom of K” • Consumer benefits

Price Discrimination Price $5 $3 Total Revenue D 100 170 Quantity Demanded (000 s)

Price Discrimination Price Softcover $5 $3 Hardcover D 100 170 Quantity Demanded (000 s)

Total Revenue Without Price Discrimination With Price Discrimination $510 $710

Price Discrimination Price Non‐ commercial Users $5 $3 Commer‐ cial Users D 100 170 Quantity Demanded (000 s)

Price Discrimination Price Arbitrage! $5 $3 Commer‐ cial Users D 100 170 Quantity Demanded (000 s)

“Perfect Arbitrage” Price Arbitrageurs’ profits $5 $3 Total Revenue D 100 170 Quantity Demanded (000 s)

Freedom of Contract in Pro. CD • What happens if we prohibit “rolling K formation”?

Freedom of Contract in Pro. CD • What happens if we prohibit “rolling K formation”? All sorts of beneficial K’s will be prohibited; inconvenience for many buyers will result

K Analysis • UCC 2‐ 204 policy: K may be formed in any manner. . . • 2‐ 606: acceptance of goods (shows that terms in form Ks may not be the final step in acceptance) • UCITA draft – not persuasive for Easterbrook

Preemption analysis • K involves only 2 parties. . . • Not “good against the world”