Publication Title

University of Pennsylvania Law Review

Keywords

adhesion contracts, Article 2B, Uniform Commercial Code

Document Type

Article

Abstract

In an age of omnipresent clickwrap licenses, we acknowledge the need for a uniform set of default rules that would validate non-negotiable licenses as a mechanism for minimizing transaction costs likely to hinder economic development in a networked environment. However, we contend that any model of contract formation not driven by the traditional norms of mutual assent requires specially formulated doctrinal tools to avoid undermining long-established public good uses of information for such purposes as education and research, technical innovation, free speech, and the preservation of free competition.

With the convergence of digital and telecommunications technologies, creators and innovators who distribute computerized information goods online can increasingly combat the causes of market failure directly-even in the absence of statutory intellectual property rights-by recourse to standard form contractual agreements that allow access to electronically stored information only on the licensor's terms and conditions. In the networked environment, however, routine validation of mass-market access contracts and of non-negotiable constraints on users would tend to convert standard form licenses of digitized information goods into functional equivalents of privately legislated intellectual property rights. Firms possessing any degree of market power could thereby control access to, and use of, digitized information by means of adhesion contracts that alter or ignore the balance between incentives to create and free competition that the Framers recognized in the Constitution and that Congress has progressively codified in statutory intellectual property laws.

Because existing legal doctrines appear insufficient to control the likely costs of such a radical social experiment, the main thrust of this Article is to formulate and develop minimalist doctrinal tools to limit the misuse of adhesion contracts that might otherwise adversely affect the preexisting balance of public and private interests. We believe such tools ought to figure prominently in any set of uniform state laws governing computerized information transactions, whether or not they emerge from the current debate surrounding a proposed Article 2B of the Uniform Commercial Code ("U.C.C." or "the Code").

In Part I of this Article, we begin by identifying key misconceptions concerning the interface between federal intellectual property rights and state contract laws that have marred the drafters' own notes and comments in the various iterations of Article 2B. We then explain how digital technologies, when combined with mass-market contracts, enable information providers to alter the existing legislative balance between public and private interests in unexpected and socially harmful ways. We further demonstrate that the uniform state laws proposed to validate these private rights have been crafted without balancing the social costs of legal incentives to innovate against the benefits of free competition, and without regard for the constitutional mandate to "promote the [p]rogress of [s]cience and useful [a]rts.'' On the contrary, the drafters of Article 2B empower purveyors of digitized information goods to undermine, by contract, long-standing policies and practices that directly promote cumulative and sequential innovation as well as the public interest in education, science, research, competition, and freedom of expression.

In Part II, we discuss the new doctrinal tools with which we would empower courts to apply public-interest checks on standardized access contracts and on non-negotiable terms and conditions affecting users of computerized information goods. In so doing, we take pains to preserve the maximum degree of freedom of contract, not just with respect to negotiated terms generally, but even with respect to non-negotiable terms lacking any socially harmful or demonstrably anticompetitive impact over time. We also compare the costs and benefits of Article 2B, as refined by the addition of our proposed safeguards, with those likely to ensue if Article 2B were adopted in its present form. Here, we focus particularly on issues affecting the legal protection of computer software, on the role that the "fair use" exception of copyright law might play in information transactions generally, and on issues affecting bundles of factual information that cannot be copyrighted under existing laws.

In Part III, we explore the deeper implications of a shift from the traditional, assent-driven model of contract formation to a model that validates non-negotiable contracts of adhesion containing socially acceptable terms and conditions. We show that a minimalist regulatory tool along the lines of our proposed "public-interest unconscionability doctrine" yields positive social benefits, despite the transaction costs and enforcement problems it logically engenders. We also explore the connection between the kind of "non-negotiable middle ground" we deem indispensable to a paradigm shift in contract formation and the need for a broader information policy. We conclude with a prediction that if Article 2B were to incorporate the safeguards we propose, it might better yield sound empirical data for devising the long-term information policies that elude us in our present state of ignorance and uncertainty.

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