ability of programs, made the decompilation privilege non-waivable by contract.62 Likewise, a European contract cannot waive the rights to take insubstantial parts of database.63

Article 2B takes a different approach. It would presumptively validate contractual overrides of default rules of intellectual property law. Insofar as contractual overrides occur in respect of mass-market licenses and there is either only one dominant provider or the same basic terms are used in virtually all mass-market licenses in that market, the license term moves beyond a contractual right and takes on the characteristics of a property right. As Professors J.H. Reichman and Jonathan Franklin explained, "when the restored power of the two-party deal in the digital universe is combined with the power to impose non-negotiated terms, it produces contracts (not ‘agreements') that are roughly equivalent to private legislation that is valid against the world." 64

The first U.S.-based attempt to insert public policy limitations into the text of Article 2B came from Professor Charles McManis. Professor McManis made a motion at an annual meeting of the ALI during a review of the Article 2B project that would treat any term inconsistent with certain federal copyright provisions, such as fair use, unenforcable. It would have required Article 2B to defer to fair use, archival and library rights, classroom performances, and other public policy limitations built into copyright law.65 According to McManis, unless public policy limitations are inserted into the proposed law, there could be disastrous consequences-in effect, the shrink-wrapping of American copyright law.66

A number of the drafters disagreed, lobbying against the motion on the basis that McManis's fears were unwarranted, since federal law and policy would trump contrary state law under the preemption doctrine.67 Despite these efforts, ALI approved the McManis motion in May 1997, though NCCUSL did not. The drafters attempted to resolve the dispute through the addition of a truism: in the August draft: section 2B-105 stated that federal law preempted state law.68 While this theoretically responded to the McManis motion, it simply restated the motion in the terms of the motion's critics.

Unsatisfied by the relatively insubstantial protections afforded by the August draft, Professor Harvey Perlman proposed several changes to section 2B-110, which would extend the unconscionability limitation to include making terms "clearly contrary to public policy" unenforceable.69 Professor Perlman would also have the courts consider "the extent to which the contract or term resulted from the actual informed affirmative negotiations of the parties." 70

Professor Perlman brought his ideas in the form of a motion before the July 1998 NCCUSL meeting. Again, the drafters voiced their strong opposition, but the commissioners passed the motion by a vote of 90 in favor to 60 opposed. Nonetheless, the motion allowed some leeway for the drafters to propose alternative language. The drafters responded with a proposed § 2B-105(b), which would read: "A contract term that violates a fundamental public policy is unenforceable to the extent that the term is invalid under that policy." In late September, Professor McManis moved for the drafters to adopt the text of the Perlman motion as originally proposed, and reject the newly proposed language.71

With pressure to resolve this issue from many corners, Professor Perlman and the drafers developed a compromise before the November meeting. The carefully reworded section would read:

62 Council Directive of 14 May 1991 on the legal protection of computer programs, Official Journal of the European Communities no. L 122 9 17/05/91 p. 42 [European Software Directive], Art. 6, § (1), Art. 9, § (1).

63 See Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases, Official Journal of the European Communities of 27/3/96 no. L 77 p. 20 [European Database Directive].

64 J. H. Reichman & Jonathan Franklin, supra note 31.

65 17 U.S.C. §§ 107, 108, 110, 117.

66 Charles McManis, The Privatization (or “Shrink-wrapping") of American Copyright Law, 87 CALIF. L. REV. 173 (Jan. 1999).

67 See e.g. Joel Wolfson, Contracts and Copyright are Not at War, 87 CALIF. L. REV. 79 (Jan. 1999).

68 U.C.C. art. 2B, § 2B-105 (Draft, August 1, 1998).

69 Harvey Perlman, UCC Commissioner for Nebraska, Amendment to Article 2B, Uniform Commercial Code, July 3, 1998 (§2B-110. Unconscionable), <http://www.2bguide.com/docs/2Bamend.html>.

70 Id.

71 Charles McManis, Proposed amendment and commentfor November 13-15 Article 2B Drafting Committee meeting, September 30, 1998, <http://www.2Bguide.com/docs/cm998.html>.

b) If a term of a contract violates a fundamental public policy, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the impermissible term, or it may so limit the application of any impermissible term as to avoid any result contrary to public policy, in each case, to the extent that the interest in enforcement is clearly outweighed by a public policy against enforcement of that term.

Despite the compromise, legitimate concerns remain regarding the high standard the proposal seems to require. The use of the term "fundamental" may provide too much deference to the freedom of contract doctrine.72 Some critics fear that the phrase 46violates a fundamental public policy" combined with "clearly outweighed" may cause courts to enforce contract terms that frustrate public policy objectives.73 The key to the Perlman compromise may lay not in the black letter law, but in the comments. To be sure, the black letter law was adapted to reflect a wider understanding than the previous unconscionability standard. However, the comments contain an explicit reference to three critical policies: “fundamental public policies such as those regarding innovation, competition, and free expression.' "74 These simple words invoke three sets of public polices which are both strong and necessary to the American tradition.

The comments go on to explain: "Innovation policy recognizes the need for a balance between conferring property interests in information in order to create incentives for creation and the importance of a rich public domain upon which most innovation ultimately depends. Competition policy prevents unreasonable restraints on publicly available information in order to protect competition. Rights of free expression may include the right of persons to comment, whether positively or negatively, on the character or quality of information in the marketplace." 75 In the following section, this article will review these three policies, to illustrate the sort of interests that might override the freedom of contract in the American system.

A. Innovation

The idea that intellectual property law is part of innovation policy derives from the Untied States Constitution. It confers upon Congress the power to secure "for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries" in order to "promote the Progress of Science and the useful Arts." 76 This power has long been understood as an important means to promote the larger public interest by creating incentives for authors and inventors to write and discover."

Over years, the U.S. Supreme Court has acknowledged and advanced innovation policy through its decisions. As the Court explained, "[this] limited grant is a means by which an important public purpose may be achieved. It is intended to motivate the creative activity of authors and inventors by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired." 78

The Constitutional language has inspired and required public policy limitations designed to achieve the delicate balance between incentives and the public interest. An excellent example is the U.S. Supreme Court's decision to strike down a Florida state "plug mold" statute, partly because of constitutional conflicts with patent policy.79 By providing unlimited duration to a boat hull design that had already been sold to the public, the statute conflicted with the American notion that intellectual property protection serves to incent new works for enlargement of the public do

72 The apparent source of the fundamental' term is the phrase "clearly outweighed" in THE RESTATEMENT (SECOND) OF CONTRACTS SECTION 178 (1981). Under the Restatement, a term is not enforceable if the interest in its enforcement is clearly outweighed in the circumstances by a public policy against enforcement of such terms. Some commentators, however, find this interpretation strained at best.

73 See e.g., American Committee for Interoperable Systems letter to Carlyle Ring, Nov. 30, 1998, <http://www.2Bguide.com/docs/1198acis.html>.

74 U.C.C. art. 2B, § 2B-105 (Draft, Feb. 1999), Reporter's Notes § 1.

75 Id. at Reporter's Notes §3.

76 U.S. Const., Art. 1, see. 8, cl. 8.

77 See, e.g., Trademark Cases, 100 U.S. 82 (1879) (striking down a federal trademark statute claimed to be authorized under this clause); Graham v. John Deere, 383 U.S. 1 (1966) (suggesting that invention standard for patent law has constitutional foundations); Feist Publications v. Rural Tel. Service Co., 499 U.S. 340 (199 1). (suggesting that Congress does not have the constitutional power to confer copyright protection on Unoriginal compilations of data).

78 Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984). 79 Bonito Boats v. Thunder Craft Boats 489 U.S. 141 (1989).

main.80 The patent-like protection was available without regard to the novelty of the design, and was enacted six years after Bonito's design was first sold to the public. This, the Court found, endangered the balance between incentives to create new works and ability to make follow-on innovation from vast repository of literary, artistic, and technological works that are in the public domain.

Economists concur with the view that an optimal production of new and innovative ideas will occur when the right balance is achieved.81 This is why the American intellectual property system allows for certain exceptions to the property rights_accorded inventors and authors, so as to not frustrate opportunities for future development. Unlimited enforcement of contractual terms can endanger this careful balancing. For example, a mass-market contractual clause might purport to prohibit the copying of some information in the public domain. At first glance, it might seem unfair to copy that which has been created through the efforts of another. However, allowing copying of another's unprotectable work is "not 'some unforeseen byproduct It is, rather, the essence of copyright' and a constitutional requirement. It is the means by which copyright advances the progress of science and art." 82 Under American innovation policy, a clause restricting that right should be unenforceable.

B. Competition

The American antitrust laws seek to protect the public interest in competition by prohibiting acts that exclude competitors from the marketplace or restrict output and raise prices so as to harm consumer welfare. The edict is simple: contracts that unreasonably restrain trade are illegal.83 Over the years, the courts have clarified this rule. For example, actions like price fixing are considered per se violations, while others are subject to the 'rule of reason'-that is, they are violations if they have the intent or effect of harming competition. Companies are forbidden from monopolization, attempted monopolization, and conspiracy to monopolize,84 and tying arrangements and exclusive dealing are illegal if they substantially lessen competition.85 In this respect, Article 2B now more closely resembles some European Union policies that limit contractual freedom to promote competition and innovation.86

Article 2B has the potential to upset the efficient allocation of resources with which antitrust law is concerned. For example, both U.S. and European competition policies favor interoperability of computer systems. In the United States, the copyright concept of fair use permits end users to decompile a copyrighted computer program to achieve interoperability.87 The interest in allowing and encouraging compatible products outweighs the copyright interest in preventing the temporary copies necessary to achieve interoperability. A mass-market contractual provision, however, could attempt to override this pro-competitive right. Without public policy interests in the statute, a court might uphold provisions which frustrate the policies supporting interoperability. In the European Union, the right of interoperability explicitly outweighs the freedom of contract.88

Similarly, there are times when competition law principles are invoke to require a dominant firm to license its intellectual property to other firms on competitive terms. The European Court of Justice has affirmed a ruling by the European Commission, based on competition policy concerns, that required three television broadcasters to license their respective weekly listings on a non-discriminatory basis.89

80 The law would have prevented both ;he making and selling of the boat hull design, with a perpetual term. Fla. Stat. §559.94 (1987).

81 See, e.g., Frederick Waffen-Bolton, Kenneth C. Baseman, & Glenn A. Woroch, POINT: Copyright Protection of Software Can Make Economic Sense, 12 COMPUTER LAW 10 (Feb. 1995); Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 997-998 & n.32 (1997); William Landes & Richard Posner, An Economic Analysis of Copyright Law, 28 J. OF LEGAL STUD. 325, 326 (1989).

82 Feist, 499 U.S. at 349.

83 Sherman Act § 1. 84 Sherman Act §2.

85 Clayton Act § 3.

86 See e.g. Council Directive of 14 May 1991 on the legal protection of computer programs, Official Journal of the European Communities no. L 122, 17/05/91 p. 42 [European Software Directive], Art. 6, §(1), Art. 9, §(1); Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases, Official Journal of the European Communities of 27/3/96 no. L 77 p. 20 [European Database Directive].

87 Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992). See also Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832 (Fed. Cir. 1992).

88 European Software Directive, Art. 6, § (1), Art. 9, §(1).

89 Radio Telefis Eireann and Independent Television Publications Ltd. v. Commission of the European Communities, Court of Justice of the European Communities, 1995 ECJ Celex Lexis 3670, (April 6, 1995).

The Commission determined that the broadcasters were abusing their dominant position in the Irish market by refusing to license the listings to a comprehensive weekly TV guide. This too recognizes the importance of competition policy as a basis for overriding some contractual terms.

C. Free Expression

Like many nations, the U.S. Constitution finds freedom of expression to be a fundamental right.90 Yet, freedom of contract, as expressed in Article 2B, raises the specter of conflicting with free speech concerns embodied in the American Bill of Rights.

Despite the high regard the American tradition has held for free speech rights, it is not without limitations. Some contractual restrictions on freedom of speech have been upheld. For example, the U.S. Supreme Court found the government's interest in a speech limiting contract signed by an American intelligence agent outweighed the agent's interest.91 Likewise, the U.S. Supreme Court has upheld a damage award when a newspaper violated an agreement to keep secret the name of a "leak" about a political figure.92

While it may be reasonable to uphold a contract that is limited to two parties, a mass-market contract raises more compelling concerns. When a term is non-negotiated and distributed with every instance of the license, what was compelling becomes almost overwhelming. For example, Network Associates, an American developer of anti-virus utilities, licenses software on the basis that "the customer will not publish reviews of the product without prior consent." 93 If this term was enforced, no criticism of the product could be effectively voiced.

CONCLUSION

Article 2B of the UCC is the latest salvo in the continuing struggle between the freedom of contract and public policy. Initially it proposed to allow for a freedom to contract in all transactions of information, limited only by unconscionability. The sweeping scope and unfettered freedom of the proposed model law, however, raised questions and concerns from a host of critics. Numerous industries sought to be removed from the scope of the article, and commentators pointed to legal and policy problems with the proposed rules.

These pressing questions ultimately led to a sharp reduction in the scope of the article, and the introduction of explicit public policy overrides into the model law. The drafters and their critics compromised on the model law, and allowed the statute to recognizing and promote innovation, competition and free expression.

These principles are the bedrock upon which much of the modern information economy is based. For any nation to endorse supremacy of freedom of contract without the limitations of public policy, the stability of this bedrock could be threatened. Unfettered contractual provisions may be used to overprotect intellectual property, reduce competition and frustrate free expression. Without these policies, investment in innovation and the growth of commerce may be inhibited, causing investment to go elsewhere.

New rules inevitably raise issues that need to be examined closely, including the proper relationship between freedom of contract and public policy. The global nature of the information economy needs a stable and widely accepted set of predictable, fair contract rules. This article aims to provide intellectual property and commercial law specialists from around the world with useful information about a U.S. initiative that may be offered as a model law for the global information economy. It is important for an international conversation to be had on its main contours.

90 U.S. Const., Amend. I. This right is respected in a number of national and international conventions. See, e.g., Article 10 of the European Convention for the Protection of Human Rights and Article 19 of the International Covenant on Civil and Political Rights. The European Parliament's guidelines for the directive on copyright in the information society have also suggested that these rights be considered. See Lucie Guibault, Preemption Issues in the Digital Environment: Can Copyright Limitations Be Overridden By Contractual Agreements under European Law?, 1998 MOLENGRAFICA § 1.1.1.

91 Snepp v. United States, 444 U.S. 507 (1980).

92 Cohen v. Cowles Media, 501 U.S. 663 (1991).

93 James Glieck, It's Your Problem Not Theirs, <http://www.around.com/agree.html> (discussing subscribing to Microsoft's Slate on-line magazine). Another example cited is the Microsoft Agent software license, which contains a clause forbidding use of the program to disparage

Microsoft.

PREPARED STATEMENT OF PHYLLIS SCHLAFLY, PRESIDENT OF EAGLE FORUM Thank you for accepting my statement regarding H.R. 354, the Collections of Information Antipiracy Act, on behalf of Eagle Forum, a national policy organization. As a national membership organization of some 80,000, Eagle Forum is well aware of the importance and usefulness of collections of information in computer databases. Computer databases make it possible for us to communicate easily with our members and carry out our activities. As the author of 16 books, I am well aware of the importance and usefulness of legal protections of intellectual property, particularly through the copyright protection established in the United States Constitution.

We urge you to reject H.R. 354 as misguided and dangerous legislation. It would lay the groundwork for corporations to control, manipulate, and market our most intimate medical records.

H.R. 354 would grant a new federal right to corporations that build databases of patients' medical records. It would protect the corporations' control of these databases by threatening to prosecute anyone who interferes with this new right. It would impose draconian penalties of a $250,000 fine and five years in jail for the first infringement, and twice that for the second.

By creating new federal crimes, H.R. 3 54 would significantly expand the jurisdiction of the already activist federal judiciary. H.R. 354 would give federal judges the power to seize assets without a finding of guilt, and impose huge fines and prison sentences, for the mere copying of a part of a corporation's database.

We oppose creating these new rights for all databases, but this bill is particularly offensive because of its effect on personal medical records, which are now being massively collected in databases. The provisions of H.R. 354 certainly are not what we had in mind when we heard Members of Congress talk about "health care reform" or a "patient protection act." We had hoped that the 106th Congress would address the health care and HMO issue by giving more power to patients, but H.R. 354 takes away power from patients and gives vast new powers to corporations collecting databases containing their personal medical information. Corporations should not have the power to control data about individuals' doctor visits, diagnoses, prescriptions, etc.

We all know that the right of writers to get legal protection, called a copyright, is a precious constitutional right. But we also know that this right is available only to authors of original writings; it is not available to those who collect information or data. The Supreme Court correctly and unanimously ruled in Feist Pub. Inc. v. Rural Telephone Service Co. (499 U.S. 340, 1991) that, under the U.S. Constitution, copyright protection is granted only to authors who create new works, not to corporations that merely collect data and, therefore, the phone companies do not own their listings of phone numbers just because they spent money collecting them. The Court rejected the so-called "sweat of the brow" argument that corporations are entitled to legal protection of their collections of telephone numbers just because they expended funds and resources to compile them.

H.R. 354 does not assert copyright protection for databases, or ownership by the corporations that compile them, because that language would probably not be constitutional. Instead, H.R. 354 would create a brand new federal right in "collections of information," and make it a powerful right supported by federal police and judicial power to prosecute for crimes that carry, extraordinary penalties.

Cui bono? It appears that the primary push for this bill comes from the American Medical Association (AMA), which has built very profitable databases, such as its database of the Medicare codes that all health providers are required to use, and its database of all doctors, both members and nonmembers, stored with all sorts of information. The marketing of databases is a very profitable part of the AMA's annual $230 million budget, since only a fourth of physicians are full dues-paying members and they provide less than a third of the AMA's revenue.

In August 1997, the AMA lost a court case (Practice Management Information Corp. v. AMA, 121 F.3d 516) in which the issue was whether the AMA could control and charge fees for the sale of materials containing the Medicare codes that all providers are required to use. The court held that the AMA had "misused" its rights in the Medicare code database. The AMA then looked to Congress to arrange a legislative fix.

The Collections of Information Antipiracy Act was introduced on October 9, 1997. Appearing as a key witness on February 12, 1998, the AMA testified in enthusiastic support of this bill, stating that the purpose of the Collections of Information Antipiracy bill is "to protect collections of information, including databases such as ours." The AMA testimony makes clear that the Collections of Information bill would create new rights not constitutionally available under copyright laws.