ProCD, Inc. v. Zeidenberg is a 1996 decision of the United States Court of Appeals for the Seventh Circuit on whether buyers of packaged software are bound by licence terms that are inside the box rather than printed on it. Writing for the court, Judge Frank Easterbrook held that “shrinkwrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general”, and that enforcing such a licence is not preempted by § 301(a) of the Copyright Act. The court reversed a district court ruling for the defendants and remanded with instructions to enter judgment for ProCD.[1]
No software publisher covered by this wiki was a party. The case is included because it is an appellate decision on how end user licence terms delivered with software become binding.
Background
ProCD compiled information from more than 3,000 telephone directories into a database and sold it on CD-ROM as SelectPhone, together with an application program, which was copyrighted, for searching the data.[1] The court assumed, without deciding, that the database itself could not be copyrighted under the Supreme Court’s decision in Feist Publications v. Rural Telephone Service.[1]
ProCD sold a consumer version for personal use at about $150 and charged commercial users more. Every consumer box stated that the software came with restrictions in an enclosed licence. The licence was encoded on the discs, printed in the manual, and shown on screen each time the software ran, and it limited use of the program and listings to non-commercial purposes.[1]
According to the opinion, Matthew Zeidenberg bought a consumer package in 1994 in Madison, Wisconsin, formed Silken Mountain Web Services, Inc., and made the database available on the internet for a fee. He later bought two updated packages and made the newer data available the same way.[1]
The dispute
ProCD sued in the Western District of Wisconsin under the Copyright Act, the Wisconsin Computer Crimes Act, and state contract and tort law, seeking an injunction against further dissemination that exceeded the rights in the licence.[2][1] ProCD claimed copyright infringement, breach of the express terms of the licence, violation of the Computer Crimes Act, misappropriation and unfair competition.[2]
The defendants argued that the telephone listings were not protected by copyright, that they had not used the program inconsistently with ProCD’s copyright, that they were not bound by the licence, and that the state-law claims were preempted by federal copyright law.[2] A separate defendant, Ivory Tower Information Systems, Inc., settled and was subject to a permanent injunction entered in October 1995.[2]
On cross-motions for summary judgment, Chief Judge Barbara Crabb ruled for the defendants on 4 January 1996. She held that the defendants had not infringed ProCD’s copyright because the listings were not protected, that the defendants had never assented to the licence in the user guide and were not bound by it, and that even if they had assented, the licence was preempted by federal copyright law to the extent it was meant to apply to uncopyrightable data. The court dissolved its preliminary injunction.[2] ProCD appealed.[1]
Decision or outcome
A panel of Judges Coffey, Flaum and Easterbrook decided the appeal on 20 June 1996. The court identified two issues that mattered: whether the licences were contracts although their terms were inside the box, and whether federal law forbade enforcing them. It disagreed with the district court on both.[1]
Contract formation
The court treated the licences as ordinary contracts accompanying the sale of products, governed by the common law of contracts and the Uniform Commercial Code as enacted in Wisconsin. It expressly left for another day whether there are legal differences between “contracts” and “licenses” that may matter under the first sale doctrine.[1]
Relying on UCC § 2-204(1), which allows a contract to be made in any manner sufficient to show agreement, the court reasoned that a vendor, as master of the offer, may invite acceptance by conduct. ProCD proposed a contract that a buyer would accept by using the software after having an opportunity to read the licence, and Zeidenberg did so: the software displayed the licence on screen and would not let him proceed without indicating acceptance.[1] The court pointed to the buyer’s right to return the software for a refund if the terms were unacceptable, which ProCD’s licence expressly extended, and drew comparisons with insurance policies, airline tickets and product warranties delivered after payment.[1] It observed that, on Zeidenberg’s arguments, software ordered by telephone or over the internet, or delivered “by wire” with no box, would be “unfettered by terms”.[1]
The court distinguished Step-Saver Data Systems v. Wyse Technology (3d Cir. 1991) as a battle-of-the-forms case under UCC § 2-207, whereas this case involved only one form.[1]
Copyright preemption
The court held that rights created by contract are generally not “equivalent to any of the exclusive rights within the general scope of copyright” under 17 U.S.C. § 301(a). A copyright is a right against the world, whereas contracts generally affect only their parties: someone who found a copy of SelectPhone on the street would not be bound by the licence.[1] It agreed with the Fourth, Fifth and Eighth Circuits on this point, while declining to adopt a rule that anything labelled a contract is necessarily outside the preemption clause. It concluded that “general enforcement of shrinkwrap licenses of the kind before us” does not interfere with the aims of federal copyright law.[1]
Because no one argued that the particular terms of ProCD’s licence were objectionable, the court reversed and remanded with instructions to enter judgment for ProCD.[1]
Significance for software licensing and SAM practice
ProCD is binding precedent in the Seventh Circuit and has been discussed by courts elsewhere. In SoftMan Products Co. v. Adobe Systems Inc. (C.D. Cal. 2001), for example, the district court listed ProCD among decisions finding shrinkwrap licences valid, contrasted it with decisions that had not enforced them, and found it unnecessary to decide the general question because the reseller there had never installed the software and so had never assented.[3]
The decision bears on several aspects of licence management:
- Terms delivered with the software. Under ProCD, terms presented inside the package or on screen, accepted by using the software after an opportunity to review and reject them, can bind the user.[1]
- Use restrictions tied to price tiers. The licence in ProCD restricted a lower-priced consumer product to non-commercial use, and the court upheld that restriction as a matter of contract.[1]
- Contract and copyright are separate. The court held that a contract binds only its parties and that ProCD’s contract claim did not depend on the data being copyrightable.[1] In a later district court case, Attachmate Corp. v. Health Net, Inc. (W.D. Wash. 2010), the court applied Ninth Circuit law to decide which EULA terms survived preemption, allowing contract claims only for terms that included a promise to pay.[4]
- Limits. The court said that shrinkwrap terms remain subject to objections applicable to contracts generally, such as unconscionability or conflict with positive law, and it did not decide whether the transaction was a sale or a licence for first sale purposes.[1]
Lessons learned
- Accepted terms bind. Under ProCD, terms presented inside the package or on screen, accepted by using the software after an opportunity to review and reject them, can bind the user.[1] Click-through and in-product terms should be captured and reviewed, not only signed agreements.
- Edition restrictions count. The licence restricted a lower-priced consumer product to non-commercial use, and the court upheld that restriction as a matter of contract.[1] Consumer or personal editions found in a business estate may be outside their licence terms.
- Contract and copyright are separate. The court held that ProCD’s contract claim did not depend on the data being copyrightable.[1] Later courts have still examined which EULA terms survive preemption, as in Attachmate v. Health Net.[4]
- Limits apply. The court said shrinkwrap terms remain subject to objections applicable to contracts generally, such as unconscionability or conflict with positive law.[1]