• Fears About Baystate are Justified
  • May 30, 2003 | Author: Robert E. Lyon
  • Law Firm: Holland & Knight LLP - Los Angeles Office
  • The Bowers v. Baystate Technologies, Inca decision was sent back to the Court of Appeals for reconsideration at the behest of some professors who sought clarification of the previous ruling. In its first ruling, the U.S. Court of Appeals for the Federal Circuit considered whether contract rights, which arise by virtue of a shrink-wrap license, were preempted by the Federal Copyright Act. In their request for clarification, professors and other educators joined to express their concerns that the provisions of a shrink-wrap license could preclude privileges under the Copyright Act. Central to their concerns was fair use, a privilege extended under Section 107 of the Copyright Act, which particularly favors college professors and research entities.

    In its new decision published January 29, 2003, the Court maintained its position with respect to preemption, stating that state contract law is not preempted by the Copyright Act. The Court found that contract rights are qualitatively different than rights provided under the Federal Copyright Act and therefore are not preempted. Going a step further, the Court reasoned that parties are free to contract away or waive their rights provided under federal laws, including the copyright law.

    This case involved a provision in a shrink-wrap license agreement that prohibited reverse engineering. The Court distinguished reverse engineering with a legitimate interest in determining unprotectable ideas contained in a particular computer program (considered fair use). In Baystate, however, applying the "no reverse engineering" contract clause, the Court found the breach so extensive that it went way beyond any reasonable interpretation of a fair-use concept. Baystate had not just examined the object code to discern what were unprotectable ideas, but had used the reverse-engineered program to create new and competing programs sold in competition with the plaintiff's product. There also was significant evidence of extensive and unusual similarities between the programs produced by Baystate and those of the plaintiff. The Court expressly found the shrink-wrap agreement to be far broader in the protection it provided than what is available under copyright law. Having found there to be a copyright violation, in addition to a breach of the agreement, the Court found that the breach was of much greater and significant scope than the copyright violations. The Court concluded that the breach of contract decision must stand, overriding any fair-use privileges.

    This calls into focus the importance of carefully reviewing the terms of a "shrink-wrap" or a "click-through" license before scrolling down to the bottom of the page and pushing the "AGREE" button, as we are all accustomed to doing. You may very well be contracting away rights granted everyone under the Copyright Act.

    In a dissent, one Judge opined that while a state can permit parties to contract away their fair-use rights or to agree not to engage in a use of copyrighted material that might be permitted under copyright law, it can only do so if the contract is freely negotiated. The Judge characterized the shrink-wrap license as a contract of adhesion similar to the contractual limitations you get on the back of the parking ticket when you park your car, which, if enforceable at all, is construed against the party who prepared or offered it.

    In this regard, caution must be given because courts have ruled that a shrink-wrap license is not a contract of adhesion and is fully enforceable. The caveat then is this: Read your contract carefully before you unwrap it or click on it or, better yet, consult legal counsel. Those contract terms will prevail over copyright privileges.