LAWS 1031 Information Technology Law (Aka Cyberspace Law )

ICTLINTELL – 2007

Lecture on contract law and copyright

(26thSeptember 2007)

Jon Bing / Lee Bygrave

1.Disposition

Traditional role of contract law in relation to copyright.
Major issues with respect to licensing in online environment.
New role of contract law – and possible problems this raises.

2.Traditional role of contract

Most national ©-laws permit authors (and other ©-holders) to license their economic rights. Licensing is done by contract. Licensing does not involve transfer of ownership to one or more rights but permission to make use of works as specified by the license.
Some national laws permit ©-holders to assign/transfer ownership of their economic rights. Cf. German and Austrian laws, which do not allow assignment.
Usually not possible to assign or license moral rights.
Usually not possible to abandon one’s © fully. Cf. Indian law which permits this.
International ©-agreements rarely regulate directly licensing/contractual relations, but note exceptions:
TRIPS Agreement Art. 40 (control of anti-competitive practices in contractual licences).
Satellite Broadcasting and Cable Retransmission Directive (93/83/EC) Art. 9 (mandating role of collecting societies in management of cable retransmission rights).
Database Directive Art. 6(1) (contract cannot prevent database user from normal usage of database), Art. 8 (contract cannot prevent right to re-utilise non-substantial parts of database), Art. 15 (voiding contractual provisions contrary to Arts. 6(1) and 8).
Software Directive Art. 5(2) (contract cannot prevent software user from making back-up copy), Arts. 9(1) and 5(3) (contract cannot restrict observation, analysis or testing of software), Arts. 9(1) and 6 (contract cannot override decompilation right).

National ©-laws rarely regulate directly the contracts between ©-holders and assignees/licensees, but again some notable exceptions: e.g. …
German and French laws – revocation of licence when exclusive licensee fails to adequately exercise rights under licence; licence purporting to grant rights with respect to unknown means of usage, will be null and void.
UK (and French) law – assignment/licensing of rights must be in writing.

Role of collecting societies

They are either assigned rights of author or given licence to administer these.
Main tasks:issue licences; collect payment; enforce rights; represent and lobby on behalf of authors/members.
Under threat in Europe – Commission sceptical of their role, particularly with respect to digital distribution etc. See, e.g., Commission Recommendation of 18th May 2005 on collective cross-border management of copyright and related rights for legitimate online music services (OJ L 276, 21.10.2005, p. 54–57).

3.Major issues with respect to online environment

Legal status of publishing ©-works on Internet:
Does author waive ©? Unlikely.
Does author give implied licence to copy? More likely, but …
What is extent of implied licence?

Validity of open source licensing (i.e., availability of software conditioned by proviso that source code – and improvements thereto – are not “propertised”; potentially a “viral” licensing contract – i.e., contract attaches to software and purports to regulate its use no matter who is using it):
Uncertain status – how do we best characterise agreement? (as full contract or mere grant of defeasible property right (i.e., one can use software on condition that openness is respected; property right is defeasible if that condition not met)?)
Courts may void contract for lack of certainty (number of potential users/licensees remains undetermined when “contract” entered into).
See further Guadamuz 2004. For briefer treatment, see also M.J. Radin, “Incomplete Commodification in the Computerized World”, in N. Elkin-Koren & N.W. Netanel (eds.), The Commodification of Information (Hague: Kluwer Law International, 2002), pp. 3, 12–16.
Recent German court decision upholds validity of GNU General Public Licence with respect to German Civil Code: see description of case by Wiebe in Computer Law Review International (“CRi”), 5/2004, pp. 156–158.This is purportedly the only reported judicial decision in Europeto have truly “tested” or analyzed the GNU GPL license. It is from the Munich DistrictCourt and was based on an application to uphold a preliminaryinjunction.

Validity of online licensing modes:
Distinguish between “shrink-wrap” licensing, “click-wrap” licensing, “browse-wrap” licensing.
US case law generally affirmative to validity of online contracting if conditions on notice etc met: see especially ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) – licence agreement valid b/c “[the] software splashed the license on the screen and would not let the [user] proceed without indicating acceptance”. See also, e.g., Caspi v.Microsoft Network, LLC, 732 A.2d 528 (NJ Super Ct. App. Div. 1999) – holding that choice of forum clause valid when user could not proceed without clicking “I agree” icon placed adjacent to scrollable window containing usage terms.
Cf. validity of “browse-wrap” licenses: see Specht v. Netscape Communications Corp., decision of 1st October 2002 (US 2nd Cir. Ct. of Appeals), reported in CRi, 4/2003, pp. 121ff – licence terms placed on submerged screen held invalid.
Uniform Computer Information Transaction Act (UCITA) 1999, < model law so far transposed by Maryland and Virginia: § 112 – must be manifestation of assent;§113 – must be opportunity to review proposed contractual terms, plus right of return if user required to pay before seeing contract terms; § 114 – applies above provisions specifically to Internet environment; § 209 – must be return and reimbursement rights with respect to “mass market” licences.
See further Johnson 2003.
EC Directive on e-commerce (2000/31/EC), Art. 5(1) (general notification requirements for ISS providers), Art. 9(1) (validity of electronic contracts), Art. 10 (notification of steps for concluding electronic contract).
EC Directive on distant selling (97/7/EC), Arts. 4 & 5 (extensive notification and confirmation requirements), Art. 6(3) (withdrawal permitted; but note exception for audio/video recordings and computer programs once seal broken), Art. 12 (non-waiver of consumer rights).
EC Directive on unfair terms in consumer contracts (93/13/EEC), especially Art. 3 (limits use of “pre-formulated standard contracts”).

4.New (and problematic?) role of contract law

Contract is fast displacing copyright law as means of controlling information, at least in online environment: see further Hugenholtz 1999.
Online environment (Internet) highly conducive to regulation by licensing.
Contract is being applied in conjunction with ©-tech (DRMS): see further Hugenholtz 1999.
Consequences?
Lack of checks and balances – important issue here is extent to which contract can override copyright law: see further Guibault 2002.
Diminishment of “public domain”.
Diminishment of end-user freedoms – “freedom for the pike is death for the minnow” (Tawney).
Diminishment of end-user privacy – DRMS potentially as virtual Panopticon (see further, e.g., L.A. Bygrave, “The Technologisation of Copyright – Implications for Privacy and Related Interests”, European Intellectual Property Review, 2002, vol. 24, pp. 51–57). The privacy issues are dealt with more fully next semester.

Contract also supplemented by legal doctrines on, inter alia, undue enrichment and trespass to chattels (refer to the previous lecture on database protection).
But note possible limitations on freedom to contract:
Rules on duress etc.
Rules in ©-laws – but these only touch lightly on contractual freedom (see above).
Competition rules – abuse of dominant position under EC Treaty Art. 82 (see especially Magill case – Joined Cases C-241/91 and C-142/91 RTE and ITP v Commission of the European Communities [1995] ECR I-743; see further Sterling 2003, §§ 26.19et seq.; see also Pitell 2004).
Freedom of expression (ECHR Art. 10).
Right to privacy (ECHR Art. 8).

5.Recommended reading

J.A.L. Sterling, World Copyright Law (London: Sweet & Maxwell, 2003, 2nd ed.), §§ 12.01–12.06, 12.13–12.18., 12.21–12.28, 26.19–26.20) – required reading.

P.B. Hugenholtz, “Code as code, or the end of intellectual property as we know it”, Maastricht Journal of European and Comparative Law, 1999, vol. 6, pp. 308–318, available at:

A. Guadamuz, “Viral Contracts or Unenforceable Documents? Contractual Validity of Copyleft Licences”, European Intellectual Property Review, 2004, vol. 26, pp. 331–339.

L.M.C.R. Guibault & P.B. Hugenholtz, Study on the Conditions Applicable to Contracts relating to Intellectual Property in the European Union (2002), especially Chapts. 1–3, 5–7, available at:

L.M.C.R. Guibault, Copyright Limitations and Contracts: An Analysis of the Contractual Overridability of Limitations on Copyright(Hague: Kluwer Law International, 2002).

N. Elkin-Koren & N.W. Netanel (eds.), The Commodification of Information (Hague: Kluwer Law International, 2002).

P. Johnson, “All Wrapped Up? A Review of the Enforceability of “Shrink-wrap” and “Click-wrap” Licences in the United Kingdom and the United States”, European Intellectual Property Review, 2003, vol. 25, pp. 98–102.

L.R. Pitell, “Non-transferability of Software Licences in the European Union”, European Intellectual Property Review, 2004, vol. 26, pp. 390–401.