In Defense of Private Orderings: Comments on Julie Cohenπs ≥Copyright and the Jurisprudence of Self-Help≤

By David Friedman ›

Abstract

It is becoming possible for owners of intellectual property in digital form to use technological protection instead of, or in addition to, copyright to control the use of their property. Professor Cohen argues against legal changes designed to facilitate this development; I argue in favor of them.

Her argument depends in part on conventional attacks on the legitimacy, hence the enforceability, of mass market contracts, in part on the claim that such technologies threaten individual privacy and autonomy, in part on the claim that copyright preempts alternative forms of protectionãand should, since it produces more desirable outcomes.

Economic theory suggests no reason why mass market contracts should be less enforceable than individually negotiated contractsãand computer technology, in the form of ≥click-wrap≤ contracts, makes it easier than in the past to create a legally adequate contract in a mass market context. With the exception of technologies that monitor software use and report it, and ought, therefore, to be accompanied by suitable warnings, technological protection of software poses no more threat to privacy or autonomy than traditional forms of producer control over the characteristics of their products. A private ordering of the market for intellectual property, based on contract and technological protection, can be expected to produce both more intellectual property and greater use of existing intellectual property than the current ≥one size fits all≤ public ordering of copyright law. Current developments in this direction ought to be encouraged, not discouraged, by the law.

Table of Contents

I. Introduction......................................................................................... 2

II. The Technologies................................................................................... 2

A. Monitoring Use.................................................................................. 3

B. Restricting Use.................................................................................. 3

C. Contract Formation............................................................................. 4

III. Cohenπs Arguments................................................................................ 5

A. The Efficiency of Form Contracts.......................................................... 6

B. Is Freedom of Contract Inconsistent with Copyright Law?......................... 8

IV. What Cohen Leaves Out....................................................................... 10

A. Public Access Rights......................................................................... 10

B. Temptations to Repossess.................................................................. 12

C. Enterprise Repo, Inc.......................................................................... 13

V. Is The Shift to Private Ordering a Good Thing?.................................... 13

A. Does Private Ordering Threaten Individual Privacy?................................ 14

B. Does private ordering provide adequate notice?....................................... 17

C. Is copyright more efficient than private ordering?.................................... 18

VI. Conclusion.......................................................................................... 21

I. Introduction

Professor Cohenπs subject is the legal implications of technologies for controlling the use of intellectual property in digital form. Most of these technologies are unfamiliar to the majority of us; some do not yet exist. One consequence, here as elsewhere in computer law, is that issues and arguments tend to vanish into a fog of abstractions and (often misleading) metaphors. In the hope of reducing that problem, I start with a brief sketch of the technologies being discussed. I then go on to discuss parts of Professor Cohenπs argument that I think are mistaken and conclude with my own views on the proper legal response to these technologies. Since the draft of Article 2B[1] which Cohen attacks is now history, I will ignore the question of whether she has correctly interpreted its terms and concentrate instead on the more important issue of what the law ought to be.

II. The Technologies

I license software from you and fail, in your view, to meet the terms of our agreementãperhaps I have fallen behind on my monthly payments. Your attempts to persuade me to correct my failure are unsuccessful. You resolve the problem by sending a message over the Internet to your software on my machine, instructing it to cease operationãpermanently.

This form of electronic self-help is somewhat misleadingly described, by both Professor Cohen and the authors of the proposed revision to Article 2B, as ≥repossession.≤[2] In practice, there is no need to repossess the software, since you can produce another copy at negligible cost. And, because you have no need to repossess the software, this form of electronic self-help poses much less threat of either violence or breach of privacy than does the repossession of physical goods.

A. Monitoring Use

There is a second form of technological enforcement to which Professor Cohenπs privacy concerns are more relevant. Imagine that I am a computer programmer who happens to be an orthodox Jew, with strong views on the subject of working on the Sabbath. Not only am I unwilling to violate the biblical injunction myself, I am unwilling to permit anyone else to use the product of my labors to violate it. I accordingly include in the licensing agreement for my software a term forbidding the licensee from running the software between sunset Friday and sunset Saturday.

In order to enforce the restriction, I design my softwareãwhich functions onlineãto occasionally check date and time; if it discovers that it is being run on the Sabbath, it sends me a message notifying me of that fact and identifying the licensee. I respondãSunday morningãwith a message to the software disabling it and a message to the licensee rebuking him for violating my contract and Godπs law.

One can imagine many more conventional reasons why a licensor might wish to limit the licenseeπs use of the licensed software and use technological monitoring of one sort or another to enforce the restriction. Someone licensing a compilation of information, for example, might specify in the contract that the information is to be used only by the licensee and not made available to third parties. Providing the compilation embedded in a program that monitored usage and reported on it to the licensor would be one way of checking that the restriction was being obeyed. It would also be a way of acquiring information about the licenseeπs activities that he might prefer to keep secret, hence a potential violation of the licenseeπs privacy.

B. Restricting Use

There is, however, a third form of technological enforcement that provides a simpler solution to the problem faced by the Orthodox programmerãor the database licensor. Instead of monitoring usage, control it. Every time the program boots up, it checks date and timeãand shuts down again if it is being used on the Sabbath. Program the database to permit only a fixed number of queries per day. Instead of using technology to monitor and report on usage so that the information may be used to enforce the contract, use the technology to enforce the contract directly.

Technological enforcement is not a new idea; early examples include copy protection of floppy disks and the practice of printing documents in color schemes difficult to photocopy. What is new is the degree of detailed control over use that such technologies, as envisioned by companies such as IBM[3] and InterTrust,[4] promise to make possible. Ideally, such software could make it possible for creators of intellectual property to give away their product in encrypted form, enclosed in a digital container. The container would provide information about its contents, possibly including free samples, and a price listãso many cents per minute to watch a multimedia presentation or per query to access a database. Charges might be conditioned on the form of use as well as the amountãmore to print out images than to view them, a higher price for creating a freely accessible user database out of a subset of the information in the encrypted database. Payment would be online using digital cash.

Copy protection was for the most part unsuccessful, in part because it significantly restricted legitimate uses, and in part because of technological difficulties in preventing copying.[5] More sophisticated forms of technological enforcement will face similar problems. If those problems can be overcome, the technology has the potential to provide, for at least some forms of intellectual property, self-protection greatly superior in effectiveness and flexibility to the protection now provided by copyright lawãand considerably less costly to enforce.

C. Contract Formation

In addition to technologies associated with enforcement of contractsãshutting down software from off site, monitoring usage, and controlling usageãthere is one more online technology important to the background of this discussionãthe technology of contract formation. Sellers wish to license their intellectual property under terms of their own devising; doing so requires a contract with the buyer. For mass market software, individual negotiation of terms is prohibitively costly. That problem is solved by form contractsãbut there remains the problem of obtaining legally adequate consent without a lengthy face-to-face transaction.[6]

One possible solution is a shrinkwrap contractãa set of terms to which the buyer is held to have assented by opening the container.[7] The legal validity of such ≥assent≤ is uncertainãas reflected in the reluctance of some courts to enforce such contracts.[8] Even if enforceable, shrinkwrap provides an undesirably inflexible set of terms. Both buyer and seller could be better off by customizing the terms to that particular buyerπs requirementsãif it could be done without unreasonably high transaction costs.

The solution is to move the transaction to the computer, converting shrinkwrap to clickwrap. The sellerπs software provides termsãif desired, a menu of options with prices. The contracting softwareãunlike a sticker on a cellophane wrapperãcan require explicit consent for the transaction to proceed. It can even require the customer to spend a certain number of seconds with the relevant terms on his computer screen before his assent will be accepted. Hence, clickwrap provides a form of contract formation more flexible and less legally dubious than shrinkwrap.

III. Cohenπs Arguments

Cohenπs argument against permitting a shift in the mechanism for enforcing rights over intellectual property from the public law of copyright to the private alternatives of contract and technological protection depends on three claims:

1. The case for freedom of contract is problematic in the context of mass market form contracts.

2. In any case, freedom of contract is limited in this context because it is preempted by copyright law, and

3. Whether or not it is preempted, it ought to be, because copyright law produces a more attractive result than freedom of contract.

I believe that all three are mistaken.

A. The Efficiency of Form Contracts

Professor Cohen writes, ≥In the mass market context, however, the argument from consent is far too simple. The market system established by the U.C.C. bears little resemblance to the atomistic market of the neoclassical, libertarian paradigm ä.≤[9] Later she writes, ≥In the mass market, consumers are contract takers; they can refuse to buy, or hold out for a lower price, but they generally cannot demand a particular package of contract terms or product characteristics.≤[10]

Cohen here resurrects the ancient error associated with the term ≥contract of adhesion≤ãthe idea that the argument for freedom of contract depends on contracts being bargained and thus does not apply to the form contracts common in mass market transactions.

To see why this is an error, consider the situation from the standpoint of a firm drawing up a form contract under a legal regime recognizing freedom of contract. It can specify any terms it likesãbut those terms only apply if the other party chooses to sign the contract. The characteristics of what the consumer is buying include the terms of the contract under which he is buying it; the less favorable those terms are to himãthe more easily, for example, they permit the seller to repossess the purchased goodãthe less he will be willing to pay for the bundle consisting of the good and terms of sale.

Suppose that, with a particular draft of the sales contract, the value of the product to the buyer, and hence the highest price he will be willing to pay for it, is $100. The seller[11] considers modifying the draft in his favor by adding a termãperhaps an easy right of repossessionãthat makes him better off by ten dollars and the consumer worse off by fifteen. Since the value of the product is fifteen dollars less under the modified contract, so is the maximum price the consumer will pay. Adding the term gives the seller a ten dollar gain (lower legal costs if the sales terms are violate