DFC Letter to C. Ring - UCC2B

September 12, 1997

Carlyle C. Ring, Jr.
UCC Article 2B Drafting Committee
Atlantic Research Corporation
5945 Wellington Road
Gainesville, VA 20155-1699

Re: The McManis Motion

Dear Mr. Ring:

When the American Law Institute adopted Professor McManis' motion this past Spring, we were pleased because it squarely put on the table a critical issue which needed to be addressed: the impact of the UCC2B proposals on fair use and other copyright exceptions in the digital age. Several of us had raised this issue on previous occasions with Professor Nimmer, but the ALI vote elevated the issue's visibility and gained it the attention it deserved.

We have read with great interest the many letters sent to NCCUSL in response to McManis motion, including Professor McManis' letter; we have studied the proposed Section 2B-104A; and we have met with Professor Nimmer and representatives of the Information Industry Association. We are now prepared to offer three observations which we hope will focus the discussion of this issue at the next meeting of the drafting committee in Minneapolis -- a meeting which many of us plan to attend.

First, the addition of Section 2B-104A is a significant improvement. As a formal matter, of course, it has little effect; federal law preempts state law by operation of the Constitution, and thus a state statute acknowledging this preemption technically is unnecessary. As a practical matter, however, the provision has great utility because it will remind state trial court judges in clear and unambiguous terms that they must consider federal preemption when applying UCC 2B.

Second, notwithstanding its utility, Section 2B-104A does not alleviate all our concerns about the possible erosion of the fair use privilege and other copyright exceptions and limitations. The contours of the preemption of contract terms by the copyright law are murky, and they have been made even more so by the Seventh Circuit's recent decision in ProCD v. Zeidenberg. By focusing on Section 301 preemption while completely ignoring the doctrine of Constitutional preemption, the decision implicitly calls into question the viability of the Constitutional preemption doctrine. This problem is compounded by the plain fact that Article 2B significantly expands the domain of enforceable contracts. As Professor McManis correctly notes, by rendering shrink-wrap and click-on licenses enforceable, Article 2B eliminates an important existing basis for challenging "contracts" which diminish copyright privileges -- that the purchaser never agreed to the contract's terms to begin with. Because it eliminates this basis, Article 2B in its present form could hardly be called "neutral" with respect to its impact on copyright.

Third, and perhaps most important, the concerns raised about the deleterious impact the McManis motion would have on the dissemination of financial information demonstrates a flaw not in the McManis motion, but in the definition of a mass market license. From Professor McManis' comments, it is clear that he intended that the limits contained in his motion apply only to non-negotiated licenses (e.g., shrink-wrap and click-on licenses) for works distributed to the public. We doubt that Professor McManis wants to inhibit the licensing of trade secrets, for example, between two commercial entities. In other words, the McManis motion is aimed at "mass market licenses" in the common meaning of that phrase. Unfortunately, it seems that mass market licenses within the meaning of Section 2B-308 include far more. Professor Nimmer, in his Issues Paper, indicates that some provisions of Article 2B concern consumers, while others concern a broader mass market. This distinction recognized by Professor Nimmer suggests an obvious resolution of this controversy: the principles expressed in the McManis motion should apply only when the licensees are consumers. Limiting the McManis motion in this manner would simultaneously prevent the erosion of fair use and other copyright exceptions while permitting commercial transactions concerning information to continue undisturbed.

In this connection, we are heartened by the indication in Professor Nimmer's Discussion Memo for the September 1997 meeting that the issue of the definition of the mass market license under Section 208 will be on the agenda. We would urge that this issue be considered in connection with the issue of "Interface with Federal Law," rather than separately from it. We look forward to discussing these points in greater detail in Minneapolis.

Very truly yours,

Peter Jaszi
for the Digital Future Coalition


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