-

The licensing of rights for the creation of multimedia works whose creators may wish to include dozens of preexisting works (or portions thereof) can be difficult. Because registration and copyright notices are not required for copyrighted works, identification of copyright owners alone can be complicated. Furthermore, the relative newness of the multimedia industry can result in an uncertainty on the part of copyright owners and multimedia creators with regard to appropriate terms and conditions for such uses.

With limited exceptions, intellectual property law leaves the licensing of rights to the marketplace. In certain circumstances, particularly where transaction costs are believed to dwarf per-transaction royalties, Congress has found it necessary to provide for compulsory licenses.153 The Working Group finds that, under current conditions, additional compulsory licensing of intellectual property rights is neither necessary nor desirable. Compulsory licensing disregards marketplace forces. Such licensing schemes treat all works alike, even though their value in a competitive marketplace would likely vary dramatically. It also treats all users alike. It alters the free market relationship between buyers and sellers. Moreover, transaction costs and the attendant savings from compulsory licensing can be minimized in a digital

environment.

Technology will facilitate individual licensing schemes. 154 Many projects and studies have been initiated to explore ways in which technology can be used to enhance a user's ability to identify the rightsholder of a work and

153

See, e.g., 17 U.S.C. § 111 (1988 & Supp. V 1993). The cable compulsory license was enacted to reduce the need for negotiations among thousands of program copyright owners and hundreds of cable systems for the right to retransmit the copyrighted programs that are included in the broadcast signals retransmitted by cable systems.

154

See discussion of on-line transactions infra pp. 53-59.

license its use. The inclusion of copyright management information in copies of works will also facilitate licensing. 155

The marketplace should be allowed to develop whatever legal licensing systems may be appropriate for the NII. However, the Working Group encourages copyright owners to explore with libraries and schools special, institutional licenses. These licenses would enable the costs to be borne, for instance, by the library so that its patrons might access and use works without direct costs, as they generally do in the print domain.1% The Working Group also endorses increased funding for libraries and educational institutions to assist their ability to purchase and license works in digital form.

c. ON-LINE TRANSACTIONS

The NII will be a conduit for many types of commercial transactions.157 Electronic purchasing of goods facilitates the ordering, shipment, and tracking of inventory for nearly any manufactured product. Consumers increasingly will have access to on-line banking, catalogues, video tours of homes, and countless other services. Payment for these goods and services may be made through conventional methods, such as checks or credit cards, or through "digital cash" on-line funds transfers between a consumer's bank and an on-line provider.158 In addition,

155

156

See discussion infra pp. 191-92, 235-36.

Library subscription costs for print journals have for many years been two or more times those for individual subscriptions. This additional cost has been assumed by some to permit use of the material by the library's patrons. Licenses would serve to convert this assumption to explicit terms that could be negotiated, avoiding misunderstandings and litigation.

157 See generally Information Infrastructure Task Force, Committee on Applications and Technology, Putting the Information Infrastructure to Work, 2540 (May 1994).

158

See discussion infra pp. 192-94; see generally Uniform Commercial Code,

certain NII uses of protected works will be regulated through electronic licenses.

The law dealing with electronic commerce is not clear -- especially for totally paperless transactions. 159 Online contracting and licensing raise a number of concerns about the validity and enforceability of such transactions. The NII will not be used to its fullest commercial potential if providers and consumers cannot be confident that their electronic agreements are valid and enforceable.

Considering a number of different transactions that may take place on the NII helps identify where contract law is strained and the impact of this strain on NII users. Although some of the transactions identified may not involve the license or transfer of rights in a copyrighted work, examination of the principles involved in, for example, the on-line sale of copies of copyrighted works in the NII environment may provide useful background and understanding of the overall legal atmosphere for on-line transactions.

ON-LINE CONTRACTS NOT INVOLVING

THE SALE OF GOODS

At common law, a contract is formed when the contracting parties manifest mutual, voluntary assent to be bound by a set of terms -- typically through an offer and acceptance. 160 In addition, under the "mirror image rule," the parties must agree to identical terms before a contract is formed the so-called "meeting of the minds." threshold question is whether an electronic message of offer or acceptance or the simple use of the "accept" or "return"

The

Art. 4A (1990); K. Epper, Money Creators: Point of Sale Pioneer Setting Sail on the Internet, The American Banker 14 (Feb. 10, 1995).

159 B. WRIGHT, THE LAW OF ELECTRONIC COMMERCE 235 (1991 & Supp. 1994) (hereinafter WRIGHT).

160 See J. CALAMARI & J. PERILLO, THE LAW OF CONTRACTS 25 (3d ed. 1987) (hereinafter CALAMARI & PERILLO).

key in response to a provider's offer or consumer's request is assent.

161

A second issue is whether an electronic manifestation of assent meets the mirror image rule12 that is, whether there was a meeting of the minds. If the seller provides an on-line contract form with terms that are essentially nonnegotiable, then, like the "shrink wrap" licenses used by software publishers, 163 the purchaser can only accept or reject the terms. If the purchaser accepts, the mirror image rule is met. However, when a consumer assents to such a "standard form" contract, and there is no alternative source for a similar service, the result may be a contract of adhesion. 164

Assent in contracts of adhesion has been considered in the context of on-line services and shrink wrap licenses.165 While there is no clear "rule," a traditional analysis looks to the reasonableness of terms and the applicability of the agreement's terms to similarly situated parties. The

166

161

In Corinthian Pharmaceutical v. Lederle Laboratories, the court found that the "automated, ministerial act" of a seller issuing an electronic order tracking number to a purchaser's on-line purchase order did not constitute assent or acceptance by the seller. See 724 F. Supp. 605, 610 (S.D. Ind. 1989); see also WRIGHT, supra note 159, at 236 (1991); Electronic Messaging Task Force, The Commercial Use of Electronic Data Interchange -- A Report and Model Trading Partner Agreement, A.B.A. Sec. Bus. Law, reprinted from 45 BUS. LAW 1647 (1990) (hereinafter A.B.A. Report or A.B.A. Model Agreement).

162 See Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir.

1991).

164

165

See Standard Oil Co. v. Perkins, 347 F.2d 379, 385 n.5 (9th Cir. 1965).

Compare D. Johnson & K. Marks, Mapping Electronic Data Communications onto Existing Legal Metaphors: Should We Let Our Conscience (and Our Contracts) be Our Guide?, 38 VILL. L. REV. 487, 488-89 (1993) with Note, Offers Users Can't Refuse: Shrink-Wrap License Agreements as Enforceable Adhesion Contracts, 10 CARDOZO L. REV. 2105, 2120 (1989).

166

See RESTATEMENT (SECOND) OF CONTRACTS § 211 (1981).

167

status of shrink wrap licenses for software provides some guidance; however, shrink wrap licenses have not been treated consistently. In some cases, the U.C.C. has been applied, thus avoiding the question of adhesion by inferring formation.168 In addition, Illinois and Louisiana have both attempted to statutorily "validate" such shrink wrap licenses. 169

A third issue involves writing and signature requirements for certain contracts. 170 In the NII, where transactions may be entirely paperless, it may be unclear whether electronic messages are written and what will be considered an adequate signature.

171

ON-LINE SALE OF GOODS WITH

CONVENTIONAL DELIVERY

For the sale of goods, the U.C.C. alleviates many of these common law concerns. 172 With regard to assent, the U.C.C. states that, "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the

167 Compare Step-Saver, supra note 162, at 99 with Arizona Retail Systems v. Software Link, 831 F. Supp. 759 (D. Ariz. 1993).

168

See Step-Saver, supra note 162, at 99; see also J. Peys, Comment, Commercial Law -- The Enforceability of Computer "Box-Top" License Agreements Under the U.C.C., 7 WHITTIER L. REV. 881, 885-92 (1985).

169 See ILL. REV. STAT. ch. 29, para. 801-08 (1986); LA. REV. STAT. §§ 51:1961-66 (1987). The Louisiana statute was declared partially invalid in a controversial decision in Vault Corp. v. Quaid Software, Ltd. because the court found that it impinged on "rights" under the U.S. copyright laws, and was therefore preempted. See 847 F.2d 255, 270 (5th Cir. 1988).

170

See RESTATEMENT (SECOND) OF CONTRACTS § 131 (1981). Signed writings are also required for exclusive licenses and assignments under the Copyright Act. See 17 U.S.C. § 204 (1988).