Fordham Law School
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Must Licenses Be Contracts? Consent and Notice
in Intellectual Property
Mark R. Paerson
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MUST LICENSES BE CONTRACTS?
CONSENT AND NOTICE IN INTELLECTUAL PROPERTY
MARK R. PATTERSON
ABSTRACT
Intellectual property owners often seek to provide access to their patented or copyrighted
works while at the same time imposing restrictions on that access. One example of this
approach is “field-of-use” licensing in patent law, which permits licensees to use the patented
invention but only in certain ways. Another example is open-source licensing in copyright law,
where copyright owners typically require licensees that incorporate open-source software in
other products to license those other products on an open-source basis as well.
Surprisingly, though, the legal requirements for granting restricted access are unclear.
The source of this lack of clarity is the ill-defined nature of a “license,” which is the usual
means of granting access to intellectual property. Must a license be a contract? If so, then the
imposition of restrictions presumably must satisfy the rules of contract formation. Or could
a license be merely a unilateral commitment to allow limited access to intellectual property,
as many open-source advocates contend? If so, then an intellectual property owner could
grant access to its property while imposing restrictions to which a licensee has not
consented, and of which the licensee might not even be aware.
This Article argues that the weight of judicial authority and sound policy support a
contractual approach. A requirement that license restrictions be imposed only by contract
ensures that intellectual property owners obtain both the consent of licensees to the
restrictions and consideration sufficient to make the contract enforceable. As in contract law
more generally, these requirements facilitate certainty, predictability, and care in entering
productive relationships. Consent is especially important as intellectual property is passed
downstream through the distribution chain, because it ensures that downstream market
participants are aware of the limitations on their use of intellectual property. Simple notice,
which some have proposed as an alternative to contract, has shortcomings that make it a
poor criterion for the establishment of infringement liability.
This Article suggests, though, that in some circumstances notice of an upstream
violation of a contractual license should indeed be sufficient to establish liability.
Specifically, when a downstream user intentionally induces infringement by an upstream
supplier, the downstream user should be liable. In such circumstances, the intent element
serves as a substitute for the assent of contract law.
I.
I
NTRODUCTION.................................................................................................. 106
II. L
ICENSING WITH USE RESTRICTIONS ................................................................ 112
A. Patent Law “Label Licenses” ...................................................................... 113
B. Open-Source Software ................................................................................ 114
C. Consent, Notice, and Property ................................................................... 115
III. L
ICENSING IN DIFFERENT PROPERTY REGIMES ................................................ 117
A. Tangible Property ...................................................................................... 117
B. Patents ....................................................................................................... 121
1. Patent Licenses Must Be Contracts ..................................................... 121
2. Non-Contractual Restriction by Notice? .............................................. 126
C. Copyright Cases ......................................................................................... 129
1. Copyright Licenses as Contracts.......................................................... 129
2. Copyright “Bare Licenses” ................................................................... 134
Professor of Law, Fordham University School of Law. I am grateful for comments
received from Stacey Dogan, Jeanne Fromer, Ethan Leib, Mariateresa Maggiolini, Maria
Lillà Montagnani, Steve Thel, Alfred Yen, and participants at workshops at Fordham Law
School, at Bocconi University, and as part of the New England Intellectual Property
Colloquium. I am also grateful for the excellent research assistance of Benjamin Chynsky
and Tiffany Mahmood.
106 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
IV. WHY CONTRACTS SHOULD (USUALLY)BE REQUIRED FOR IP LICENSES............ 139
A. Interpretation and Enforcement ................................................................ 139
B. Information Costs ...................................................................................... 144
C. Consent and Notice .................................................................................... 147
D. Downstream Users and Secondary Infringement ...................................... 150
1. Intentional Inducement and Notice ..................................................... 152
2. Inducement and the Purposes of License Restrictions ......................... 157
a. Price Discrimination ..................................................................... 157
b. Restriction of Competition ............................................................. 160
V. C
ONCLUSION ..................................................................................................... 163
I. INTRODUCTION
Intellectual property owners often seek to provide access to their
patented or copyrighted works while at the same time imposing
restrictions on that access. One example of this approach is “field-of-
use” licensing in patent law, which permits licensees to use the
patented invention but only in certain ways.
1
Another example is
open-source licensing in copyright law, where copyright owners
typically require licensees that incorporate open-source software in
other products to license those other products on an open-source
basis as well.
2
In circumstances such as these, licensees that violate
the terms under which access is provided are typically viewed as
acting outside the scope of their license, which can make them liable
for patent or copyright infringement.
3
Surprisingly, though, the legal requirements for granting
restricted access are unclear. The source of the lack of clarity is the
ill-defined nature of a “license,” which is the usual means of granting
access to intellectual property.
4
Must a license, or a license that
imposes restrictions on a licensee, be a contract?
5
If so, then the
imposition of restrictions presumably must satisfy the rules of
1. See infra Part II.A.
2. See infra Part II.B.
3. See infra Part III.B-III.C.
4. Cf. Michael J. Madison, Reconstructing the Software License, 35 L
OY.U.CHI. L.J.
275, 306-08 (2003) (considering various property-law interpretations—lease, bailment, and
conditional gift—of a software “license”).
5. It is important that the focus here is on restrictive licenses. Licenses that do not
bind licensees to any restrictions do not pose the same problems. This Article takes no
position on whether every license, including licenses that do not impose restrictions on
licensees but simply grant them access to intellectual property, must also be formed by
contract. Cf. Christopher M. Newman, A License is Not a “Contract Not to Sue”: Disentangling
Property and Contract in the Law of Copyright Licenses, 98 I
OWA L. REV. (forthcoming March
2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2010853 (discussing
whether licenses must be contracts, but not addressing the requirements for imposing
restrictions on licensees). If the licensee is not bound by restrictions though, one
could argue (at least under contract law) that the licensor remains equally free. See id. at
*16 (“A ‘bare license’ is understood to consist of nothing more than a use privilege, which
remains liable to the licensor’s power of revocation at will.”); see also infra notes 63, 123-24
and accompanying text.
2012] MUST LICENSES BE CONTRACTS? 107
contract formation. Under that rule, only those who consent to the
restrictions could be guilty of infringement by violating them. Or
could a license be merely a unilateral commitment by the intellectual
property owner to allow limited access to its intellectual property? If
so, then the owner could grant access to its property while imposing
restrictions to which a licensee has not consented, and of which the
licensee might not even be aware.
These issues are not purely academic. In a well-publicized lawsuit,
the Software Freedom Law Center (SFLC) alleged copyright
infringement by Best Buy, Samsung, and other consumer-electronics
companies for selling products with embedded software that was
subject to an open-source license.
6
According to the complaint,
7
the
license required that products containing the software be distributed
“at no charge” and with any additional software also distributed in
an open-source manner.
8
The complaint did not allege—nor need it,
according to open-source advocates
9
—that the defendant stores
agreed to the license terms, or even that they were aware of the
presence of the software at issue, only that they were distributing
products that incorporated the software. If the intellectual property
rights at issue had involved patents rather than copyrights, the
SFLC could also have sued individual consumers who used the
allegedly infringing products.
10
Restrictive licenses lie at the intersection of property law and
contract law. The usual way in which a private party is bound to
restrictions on its conduct is by contract. But property law grants
property owners the right to exclude others from their property.
What, then, must an intellectual property owner do in order to grant
access to its property while at the same time binding “licensees” to
restrictions on the use of that property? Prominent advocates of open-
source copyright licensing vigorously contend that access to open-
source software is granted through property-law “bare licenses”
6. Best Buy, Samsung, Westinghouse, and Eleven Other Brands Named in
SFLC Lawsuit, S
OFTWARE FREEDOM LAW CENTER (Dec. 14, 2009),
http://www.softwarefreedom.org/news/2009/dec/14/busybox-gpl-lawsuit/. The case was
recently settled.
7. Complaint, Software Freedom Conservancy, Inc. v. Best Buy Co.,
783 F. Supp. 2d 648 (S.D.N.Y. 2011) (No. 09 Civ. 10155), available at
http://www.softwarefreedom.org/resources/2009/busybox-complaint-2009-12-14.pdf.
8. Id. ¶¶ 23-24. The license at issue was the GNU General Public License, version
2. See GNU General Public License, version 2, GNU
O
PERATING SYS. (June 1991),
http://www.gnu.org/licenses/gpl-2.0.html.
9. See infra Part III.C.2.
10. Patent law gives patentees the exclusive rights to use their inventions, see
35 U.S.C. § 271(a) (2006), while copyright law, broadly speaking, gives copyright owners
the exclusive rights to copy and distribute their works. 17 U.S.C. § 106 (2006). So use of a
patented product sold without authorization is infringement, but mere use of an
unauthorized copyrighted product arguably is not (in the absence of an agreement making
it so).
108 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
whose terms are binding on licensees even without their consent.
11
In
contrast, under patent law the Court of Appeals for the Federal
Circuit has held that license restrictions are enforceable only if they
are contractual.
12
This nominal contractual rule is applied by the
Federal Circuit and lower courts so creatively, however, that they in
fact allow restrictive licenses founded only on constructive notice of
the owner’s desired restrictions.
13
These three possibilities—“bare
license” as a property concept, license as contract, and license derived
from notice—have very different practical implications, and the
question of which is applicable creates considerable uncertainty.
14
The relationship between intellectual property licensing and
contract has received significant attention in recent years in the
copyright context of shrink-wrap, click-wrap, and browse-wrap
licensing.
15
The commentary in that context, however, has not focused
on whether a contract is necessary to create a license—the necessity
of a contract is generally assumed—but on two other issues: whether
a contract has really been formed and whether allowing copyright
owners to impose any restrictions by contract is consistent with
copyright law.
16
In contrast to the cases discussed in this Article, the
11. See, e.g.,FADI P. DEEK &JAMES A. M. MCHUGH,OPEN SOURCE:TECHNOLOGY AND
POLICY 233 (2008) (“[O]pen software requires a license for its distribution. The GPL
licenses its copyrights . . . through what is called a bare license. A bare license is not
considered a contract, because among other reasons it does not require an explicit
manifestation of assent, which is one of the requirements for a valid contract.”); Groklaw,
The GPL is a License, Not a Contract, Which is Why the Sky Isn’t Falling, G
ROKLAW.NET
(Dec. 14, 2003, 9:06 PM), http://www.groklaw.net/article.php?story=20031214210634851
[hereinafter The GPL is a License, Not a Contract] (“So when you read people say that the
GPL is perhaps not enforceable because you don’t sign it or click on a form, or because of a
lack of privity, or because there is a lack of consideration, or some such, you'll understand
that the person misunderstood and thought in terms of contract law.”).
12. See infra text accompanying notes 75-80.
13. See infra text accompanying notes 87-107.
14. See infra note 31.
15. See, e.g., Mark A. Lemley, Beyond Preemption: The Law and Policy of Intellectual
Property Licensing, 87 C
ALIF.L.REV. 111 (1999); Mark A. Lemley, Intellectual Property
and Shrinkwrap Licenses, 68 S. C
AL.L.REV. 1239 (1995); Mark A. Lemley, Terms of Use,
91 M
INN.L.REV. 459 (2006) [hereinafter Lemley, Terms of Use]; Michael J. Madison,
Legal-Ware: Contract and Copyright in the Digital Age, 67 F
ORDHAM L. REV. 1025 (1998)
[hereinafter Legal-Ware]; Madison, supra note 4; Robert P. Merges, Intellectual Property
and the Costs of Commercial Exchange: A Review Essay, 93 M
ICH.L.REV. 1570 (1995);
Maureen A. O’Rourke, Drawing the Boundary Between Copyright and Contract: Copyright
Preemption of Software License Terms, 45 D
UKE L.J. 479 (1995); David A. Rice, Public
Goods, Private Contract and Public Policy: Federal Preemption of Software License
Prohibitions Against Reverse Engineering, 53 U.
P
ITT.L.REV. 543 (1992).
16. Michael Madison made this observation in his exploration of software licensing as
a private governance regime:
Within contract law itself, courts, scholars, and lawyers now mostly concern
themselves not with whether these are contracts at all, but rather with the
circumstances under which the act of “clicking” or “browsing” or “opening” or
“using” will be deemed to constitute effective assent, despite the clicker’s,
browser’s, opener’s, or user’s usually credible argument that no assent was
intended or could be inferred reasonably. Second, assuming that mutual assent
2012] MUST LICENSES BE CONTRACTS? 109
shrink-wrap, click-wrap, and browse-wrap cases generally involve,
and rely on, some act by the licensee that can be deemed to constitute
assent to the contract.
17
Some of the commentary has also touched on
the property-contract issue that is central to the discussion here,
18
but that issue has not been the primary focus.
This Article argues that the weight of judicial authority and sound
policy support a contractual approach to license formation.
19
In the
courts, despite the uncertainty just described, no case has enforced a
clearly noncontractual intellectual property license restriction.
20
From a policy perspective, a requirement that license restrictions be
of some sort is identified, the next stage of the analysis focuses on whether
contractual enforcement of the obligation thus undertaken is or should be
preempted by federal law.
Madison, supra note 4, at 296.
17. Where that is not true, as in some browse-wrap cases, the courts have been more
cautious in their acceptance of the licenses as contracts. See Lemley, Terms of Use, supra
note 15, at 472-77.
18. See id. at 470-73; Madison, supra note 4, at 279-80.
19. The focus here is license formation, not enforcement. That is, the argument is that
restrictive licenses must be formed with contractual formalities. Once formed, however, the
breach of a license could give rise not only to contractual remedies, but also to property
remedies provided by patent and copyright law. This Article does not enter into the debate
over which set of remedies is more appropriate for intellectual property. Cf., e.g., Mark A.
Lemley, Contracting Around Liability Rules, 100 C
ALIF.L.REV. 463 (2012); Mark A.
Lemley & Philip J. Weiser, Should Property or Liability Rules Govern Information?, 85
T
EX.L.REV. 783 (2007); David McGowan, The Tory Anarchism of F/OSS Licensing, 78 U.
C
HI.L.REV. 207 (2011); Robert P. Merges, Contracting into Liability Rules: Intellectual
Property Rights and Collective Rights Organizations, 84 C
ALIF.L.REV. 1293 (1996).
20. Even where courts have enforced license restrictions without explicitly requiring
the existence of a contract, they have pointed to contract-like considerations, suggesting
that they believed the existence of a contract was important. See infra text accompanying
notes 139-43.
In a recent trademark case, the Supreme Court described a unilateral “Covenant
Not to Sue” as “unconditional and irrevocable.” Already, LLC v. Nike, Inc., No. 11-982, slip
op. at 1-2, 6 (U.S. Jan. 9, 2013). The Court did not make clear, though, how such a
covenant becomes binding. The Court simply cited a case involving judicial estoppel in
stating that Nike, “having taken the position in court that there is no prospect of such [an
infringing product], would be hard pressed to assert the contrary down the road.” Id. at 7
(citing New Hampshire v. Maine, 532 U.S. 742, 749 (2001)). Judicial estoppel might indeed
have such an effect in the courtroom, but the Court went further, saying that “[b]eyond
simply prohibiting Nike from filing suit, [the covenant] prohibits Nike from making any
claim or any demand.” Id. at 6. Despite this observation, it is not at all clear how, or indeed
whether, any such extra-judicial effect is created by a unilateral covenant. Cf. Already,
LLC v. Nike, Inc., No. 11-982, slip op. at 4 (U.S. Jan. 9, 2013) (Kennedy, J., concurring)
(referring to the future effect of the covenant, but only in the context of “any future
trademark proceeding”).
In any event, the covenant in Already v. Nike, even if unilateral, was an
undertaking by Nike, the party whose conduct was purportedly restricted by it. The focus
of this Article is on claims that intellectual property owners’ unilateral acts have binding
effects on others. Treating a non-contractual commitment as binding on the one who makes
it, through estoppel or a similar theory, is quite different from allowing one party’s
unilateral acts to bind others. See infra text accompanying notes 128-29 (describing
revocability of non-contractual copyright licenses).
110 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
imposed only by contract ensures that intellectual property owners
obtain both the consent of licensees to the restrictions and
consideration sufficient to make the contract enforceable. As in
contract law more generally, these requirements facilitate certainty,
predictability, and care in entering productive relationships.
21
In
contrast, the recognition of a new kind of “bare license” for
intellectual property would run afoul of Thomas Merrill and Henry
Smith’s admonition that “the adoption of novel forms of property has
implications not only for the immediate parties to the transaction but
also for third parties, who must incur additional costs of gathering
information in order to avoid violating novel property rights . . . .”
22
Additional considerations come into play for parties that acquire
intellectual property not from the original owner but from another
licensee. It is obviously more difficult for intellectual property owners
to ensure that contracts are formed with such downstream licensees.
Here notice seems like a more appropriate solution.
23
However,
although notice is a relevant criterion for finding violations of a
license restriction, it is problematic as an exclusive one. Not all
notices accurately represent a licensee’s rights, as the Supreme
Court’s recent decision in Quanta illustrates,
24
and the costs of a
notice scheme are likely to be considerable, especially given that
potential infringers could try to avoid receiving notice.
25
The problem
appears somewhat simpler though, in light of the fact that many of
the cases that have been brought against downstream transferees for
violating license restrictions have involved large-scale violations, like
those of Best Buy and the other defendants discussed in this Article.
21. See Robert A. Hillman & Ibrahim Barakat, Warranties and Disclaimers in the
Electronic Age, 11 Y
ALE J.L. & TECH. 1, 3 (2009) (“An important goal of contract law is to
enforce a party's manifestation of assent to a contract made with full access to all pertinent
information and with time to contemplate the terms. In so doing, contract law facilitates
exchange and encourages reliance on contracts, which in turn maximizes resources and
supports individual autonomy.”).
22. Thomas W. Merrill & Henry E. Smith, The Property/Contract Interface, 101
C
OLUM.L.REV. 773, 777 (2001). Although the creation of a “bare license” would not,
strictly speaking, create a new form of property, a new technique for enforcing property
rights raises the same issues. Note that, apropos of Merrill and Smith’s point, the “bare
license” referred to by open-source advocates is not the same as the “bare license” of patent
law. See Intell. Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1345 (Fed.
Cir. 2001) (defining “a nonexclusive license or ‘bare’ license” as “a covenant by the patent
owner not to sue the licensee for making, using, or selling the patented invention and
under which the patent owner reserves the right to grant similar licenses to other
entities”). Without a contract, it is not clear what would make a covenant, or promise, not
to sue enforceable. Cf. infra Part IV.A.
23. See infra Part IV.C.
24. See infra text accompanying notes 208-10.
25. See infra Part IV.D.1.
2012] MUST LICENSES BE CONTRACTS? 111
For that reason, this Article argues that secondary infringement
theories, which require some degree of intent combined with notice or
willful blindness, provide an alternative test for downstream parties.
26
It is important to note that this Article does not take a position on
the desirability of restrictive licenses. Some such restrictions are no
doubt desirable; others probably are not. The focus here is not on the
costs and benefits of the restrictions themselves, but on the
requirements for making them enforceable.
27
Put another way, the
focus here is whether achieving the benefits of restrictions really
requires that they be enforceable even where there is no contractual
relationship between the intellectual property owner and the party
whose conduct is restricted. Some previous work in this area seems
to take the view that if restrictive licenses or post-sale restrictions
are desirable, then it follows that allowing enforcement of them
through in rem property rules, without any requirement of assent, is
also desirable.
28
This Article argues that the case for the sufficiency
of a pure property approach has not been made.
To be sure, a contract requirement makes it more difficult for
intellectual property owners to enforce license restrictions.
29
One
might be concerned that this would make the owners less inclined to
license, but there is no evidence that this is the case. There has been
no claim that the Federal Circuit’s stated rule that patent licenses
must be contractual has caused a lessening of patent licensing.
Copyright might be different, but the primary area in which this
issue would be significant is open-source licensing, where licenses are
often offered broadly, with little attempt to meet the requirements of
contract formation.
30
Perhaps open-source licensing would be
lessened, but given that the law is currently uncertain,
31
it seems
26. See infra Part IV.D.1.
27. See supra note 19.
28. Some of this work addresses the property-contract issue by suggesting that notice
will address any concerns about property’s in rem character. See Herbert Hovenkamp,
Post-Sale Restraints and Competitive Harm: The First Sale Doctrine in Perspective, 66
N.Y.U.
A
NN.SURV.AM. L. 487, 521 (2011) (“[A] notice requirement seems much more
suitable to the problem than the more draconian route of forbidding such restraints
altogether.”); Glen O. Robinson, Personal Property Servitudes, 71 U. C
HI.L.REV. 1449,
1486 (2004) (“However, this at most argues for the simple expedient of requiring the seller
to give the buyer notice of any limitations or conditions on the title of the property being
transferred.”). On the alternative of notice, see the text accompanying notes 212-20 infra.
29. See Richard M. Stallman, Don’t Let ‘Intellectual Property’ Twist Your Ethos, GNU
O
PERATING SYS. (June 9, 2006), http://www.gnu.org/philosophy/no-ip-ethos.html (“There’s
another reason not to use contract law: It would require every distributor to get a user’s
formal assent to the contract before providing a copy. To hand someone a CD without
getting his signature first would be forbidden. What a pain in the neck!”). See also infra
text accompanying note 203.
30. See infra Part II.B and text accompanying notes 154-56.
31. Importantly, the law is not only uncertain, but it is known to be so. See 2
R
AYMOND T. NIMMER,INFORMATION LAW § 12:40 (2006) (“There are those who believe that
a restricted transfer does not require assent to the terms of the restriction. Thus, for
112 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
unlikely that there is great reliance on legal protections, as
compared, for example, to informal and reputational ones.
32
Part II of this Article provides a brief description of the basic
problem, describing two common licensing scenarios in which
contracts are often not present and highlighting the significance of
the existence or nonexistence of an explicit license contract. Part III
discusses three kinds of property: tangible property, patented
inventions, and copyrighted works. For each, it describes the current,
sometimes-uncertain legal treatment of licenses and, in light of this
background, the views of those who advocate noncontractual
licensing. Part IV rejects those views and argues on several grounds
that a contract should be required for an intellectual property
owner’s grant of a restrictive license. Downstream transfers need not
be contractual, but where they are not, the patentee or copyright
owner should be required to establish the intent element of a
secondary infringement claim.
II. L
ICENSING WITH USE RESTRICTIONS
The basic scenario at issue here is the transfer of some, but not
all, rights to use a patented invention or copyrighted work. One can
think of this scenario as involving two transactions: the first
transaction provides access to the intellectual property (IP), and the
second seeks to impose restrictions on its use. In the first transaction
then, the IP owner performs some act, like selling a product or
making it available for download on the internet, that the recipient
could reasonably conclude gives it permission to use the product. In
example, some advocates of the open-source software movement believe that terms under
which they distribute software need not be contractual, but are notices or permissions that,
if violated, expose the violator to an infringement claim.”); L
AWRENCE ROSEN,OPEN
SOURCE LICENSING:SOFTWARE FREEDOM AND INTELLECTUAL PROPERTY LAW 51-71 (2005)
(discussing whether open source licenses are contracts or pure licenses and the
implications of the distinction); Robert A. Hillman, Contract Law in Context: The Case of
Software Contracts, 45 W
AKE FOREST L. REV. 669, 674-75 (2010) (“What is unique is the
series of questions open-source software presents for contract law, such as whether the
licenses are contracts, what constitutes assent to them, whether they are supported by
consideration, whether any warranties attach to the quality of the software, and whether
the copyleft and other provisions guaranteeing openness conflict with federal intellectual
property law.”) (footnotes omitted). Although open-source advocates do not share this
uncertainty, they do sometimes feel the need to defend the enforceability of open-source
licensing. See Eben Moglen, Enforcing the GNU GPL, GNU
O
PERATING SYS. (Sept. 10,
2001), http://www.gnu.org/philosophy/enforcing-gpl.html; The GPL is a License, Not a
Contract, supra note 11.
32. See Mariateresa Maggiolino & Maria Lillà Montagnani, From Open Source
Software to Open Patenting—What’s New in the Realm of Openness?, 42 I
NT’L REV.INTELL.
P
ROP.&COMPETITION 804, 818 (2011) (“[W]hen facing the issue of validity of [open-source
software, or OSS] licenses, it is worth mentioning that within the OSS movement there is a
strong mechanism of ‘informal enforcement.’ ”).
2012] MUST LICENSES BE CONTRACTS? 113
the second transaction, however, the IP owner purportedly restricts
the transferee from using the IP in certain ways. Not every
restrictive transfer, or “license,”
33
will actually involve two distinct
transactions, but it is useful to separate the two steps conceptually.
Doing so makes clear that in some circumstances an IP owner can
provide access to its IP in a way that does not clearly incorporate
restrictions on its use, even if the IP owner intends to incorporate
those restrictions.
This point is critical because some cases and commentators argue
that if a user has not agreed to the license restrictions intended by
the IP owner, then the user has no license at all and is thus an
infringer.
34
That is so only if the IP owner does nothing that could be
construed as granting access to the IP. If the IP owner has provided
access to its IP in some way that can be interpreted to exhaust its IP
rights or impliedly grant a license to it,
35
then a subsequent or
concurrent attempt to restrict use could be ineffective, while the basic
right of access would remain. This situation can arise either in patent
or copyright contexts.
A. Patent Law “Label Licenses”
So-called “label licenses” in patent law typically arise through a
sale of a patented good that bears some use restriction on its label or
on the product itself. Referring to the two-transaction model
suggested above, the first transaction is the sale, in which the buyer
pays money to the IP owner and receives in return the patented good,
possibly with no stated restrictions on use of the good imposed at the
time of the sale. The usual rule in patent law is that the sale of a
patented product conveys the right to use it. As the Supreme Court
said in United States v. Univis Lens Co., “[a]n incident to the purchase
of any article, whether patented or unpatented, is the right to use and
sell it.”
36
Therefore, one would expect that in this scenario there would
be no restrictions on the purchaser’s use of the patented product.
The Federal Circuit has suggested otherwise, however, by focusing
on product labels and other forms of notice to the buyer that state the
patentee did not intend the buyer’s rights to be unrestricted. The
leading Federal Circuit case on this issue is Mallinckrodt, Inc. v.
Medipart, Inc., where the patentee put a “single use only” label on
33. For convenience, I will sometimes use the term “license” in this Article to refer to
this scenario without regard to whether the particular transaction at issue meets the
legal requirements for an enforceable license. Thus, even though this Article argues
that a license should only be enforceable if it is a contract, the term will sometimes be used
more broadly.
34. See infra text accompanying note 151.
35. See infra note 79.
36. 316 U.S. 241, 249 (1942).
114 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
its product, purporting to prohibit the buyer from cleaning and
reusing the product.
37
The question, then, is whether the inclusion of
this label, which the buyer may or may not notice, actually imposes
an enforceable restriction on the buyer’s use of the product. The
Federal Circuit and courts following it have suggested that the answer
can be yes, because the post-sale notice can create a contractual
license restriction.
38
To reach this result, the courts distort contract law beyond
recognition. The doctrinal problems will be discussed below,
39
but for
present purposes the key point is that the approach allows a patentee
to use labels (and, in one instance, even press reports
40
) to take what
a buyer would reasonably think was an unrestricted sale and convert
it, after the sale, to a restrictive license.
41
This goes well beyond even
the shrink-wrap and click-wrap cases, which have generally required
some sort of notice at the time of sale that additional restrictions will
be forthcoming, in addition to a right to return the product if the
additional restrictions are rejected.
42
Those factors are not present in
the “label license” cases.
B. Open-Source Software
Another context in which licensees can be caught unaware by
restrictive licensing is that of open-source software licensing. Here
the initial “transaction” can be the act of making the software
available for download, often on a site dedicated to open-source
software, like SourceForge.net. The circumstances here can be
somewhat different from those in the patent context, because on
some such sites the license terms for copyrighted software are made
available.
43
Therefore, whereas in the patent example it is easy to see
how the initial sale and the subsequent label notice are distinct, one
might think that with open-source software, access to the IP is
provided only through the same transaction that imposes the
restrictive license; that is, clicking on the “download” button both
grants access to the software and indicates the licensee’s consent to
the license.
37. 976 F.2d 700, 702-03 (Fed. Cir. 1992).
38. See infra Part III.B.
39. See infra Part III.B.1.
40. See infra text accompanying notes 103-07.
41. Mallinckrodt, 976 F.2d at 702-03.
42. See infra text accompanying notes 95-101.
43. See, e.g., The WordPress License, W
ORDPRESS.ORG, http://wordpress.org/about/license/
(last visited Jan. 21, 2013) (“The license under which the WordPress software is released is
the GPLv2 (or later) from the Free Software Foundation. A copy of the license is included
with every copy of WordPress, but you can also read the text of the license here.”). Note
that although the page to which this passage links has the GNU General Public License,
version 2 (GPLv2), the passage states that the applicable license is “GPLv2 (or later),”
which leaves the actual license terms unclear.
2012] MUST LICENSES BE CONTRACTS? 115
It is often not the case, however, that access to open-source
software is provided only after assent to, or even a specific reference
to, a license.
44
Experimentation at SourceForge.net reveals that of
twenty programs selected at random, only two required that the user
provide any sort of assent to a license to run the program.
45
In the
other eighteen cases, it was only necessary to click on a “download”
button, with no reference to a license, and then install and run the
program. Furthermore, users can download many open-source
programs without going to the pages describing the programs, where
the applicable licenses are identified. As a result, there is often not
even notice of an applicable license. Even if a user looks for license
information, the source of the software, such as SourceForge.net,
sometimes provides only general notice of the type of license
intended. For example, the applicable license may be listed as the
“GNU General Public License (GPL),”
46
but because there are several
versions of the GPL that differ significantly,
47
there is no way for a
user to determine what specific license terms are intended. It is not
even clear that the copyright owner intends any particular GPL, or if
the owner just intends to enter into some sort of open-source license
and chose the GPL from a list on the website.
C. Consent, Notice, and Property
The preceding paragraphs have shown that it is possible—indeed,
common—for buyers and users to acquire access to intellectual
property without being made aware of use restrictions that the IP
owner intends to impose. The questions, then, are whether and how
such restrictions can become enforceable. These questions are taken
up in more detail in the remainder of this Article, but the answers fall
into three categories: contract, notice, and “bare” property protection.
44. See Madison, supra note 4, at 301 (“[I]t is clear that software users frequently
either do not assent to non-negotiated standard license forms or (particularly in the open
source context) may experience the code in a technical environment where it is relatively
easy to use the code without being confronted by a demand for assent.”). Even if this were
true, it would not be sufficient to form a contract, because the transaction would not
involve consideration. See infra text accompanying notes 134-44.
45. Record of experiment on file with author. See, e.g., FileZilla, S
OURCEFORGE.NET,
http://sourceforge.net/projects/filezilla/?source=directory (last visited Jan. 21, 2013).
Actually, on this page, where one can download the FileZilla ftp client program, the terms
of the license are not available, but the page identifies the “GNU General Public License
(GPL)” as the applicable license. There are, however, three main versions of the GPL and
several variants, so this does not actually define the terms to which the licensee would be
subject. Of course, the terms of the license need not be available on the web site; they could
be provided, and consent required, when the program is run. But our experiment showed
that this was not the case. No consent at all was required to run eighteen of the twenty
programs tested.
46. See supra note 45.
47. See Richard Stallman, Why Upgrade to GPLv3, GNU
O
PERATING SYS.,
http://www.gnu.org/licenses/rms-why-gplv3.html (last visited Jan. 21, 2013).
116 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
These approaches are outlined here, and the remainder of this
Article questions whether they are appropriate means of structuring
IP licensing.
The first approach is contractual, and it is the primary approach
in patent law. Even though buyers may not be informed of intended
restrictions when they buy the patented products, courts have held
that knowledge of the IP owner’s intentions—even if acquired after
the purchase—can make the restrictions binding under contract, at
least if the buyer does not return the product.
48
The basic theory
here is similar to that of shrink-wrap licenses, where decisions
like ProCD, Inc. v. Zeidenberg have held that purchases with
knowledge that future terms are forthcoming can make those later
terms binding.
49
In the patent licensing context, though, the courts do
not inquire carefully into whether there was pre-purchase notice of
additional terms.
50
The second approach, focusing on notice, derives to some extent
from contract in two ways. First, the contractual approach in some
instances effectively devolves into one involving notice because actual
consent is not required but inferred. Additionally, notice of the IP
owner’s desired restrictions is said, with some Supreme Court
support,
51
to be sufficient to make the restrictions binding, at least if
there has been a prior, contractual violation of those restrictions. In
this way, notice serves to carry the breach downstream in the
distribution chain to parties that are not in privity with the IP
owner, providing a sort of in rem, property-like protection.
The final approach is a purely property-based one. This approach,
which is advocated primarily by proponents of open-source software,
relies neither on contract nor notice, but simply argues that licensees
can obtain only those rights granted by the copyright owners.
Therefore, if the copyright owners impose restrictions in their
licenses, licensees are bound by those restrictions, regardless of
whether they know of them. The problem with this claim is that, as
discussed further below,
52
the manner in which open-source software
is made available could be viewed as making the software available
without restrictions. In the end, both the property approach and the
patent courts’ notice or “contract lite” approach fall short on both
doctrinal and normative grounds.
48. See infra text accompanying notes 87-107.
49. 86 F.3d 1447, 1451-52 (7th Cir. 1996); see infra text accompanying notes 95-97.
50. See infra Part III.B.1.
51. See infra text accompanying notes 114-17.
52. See infra text accompanying notes 154-56.
2012] MUST LICENSES BE CONTRACTS? 117
III. LICENSING IN DIFFERENT PROPERTY REGIMES
The following Parts describe the doctrinal rules for the licensing of
both tangible and intellectual property. Although the focus of this
Article is intellectual property, the law for tangible property is
discussed as a contrast, and because it is relied upon by those
who argue for the existence of bare licenses in the IP context.
Because the focus here is on licensing, the discussion below does
not include actual transfers of the tangible or intellectual property
itself. Although real property owners can transfer property with
restrictions using equitable servitudes, that result is generally
achieved in the IP context through licensing (which does not
involve transfers of the property rights), not assignment (which
does).
53
Hence, the discussion is confined to similar transfers in the
tangible-property context.
A. Tangible Property
In real property the closest analogy to an intellectual property
license would be either a lease or a license, because both allow the
property owner to give rights in the property to another without
giving up ownership.
54
A lease, however, puts the lessee in possession
of the property,
55
so it is more akin to a temporary assignment of
intellectual property than to a license. A real property license, unlike
a lease, leaves the property owner in possession of the property, but
allows the licensee to enter on the property for specified purposes.
56
It
is also the form of property transfer to which open-source advocates
53. Several authors have drawn analogies between IP licensing and property
servitudes. See Robinson, supra note 28; Molly Shaffer Van Houweling, The New
Servitudes, 96 G
EO. L.J. 885 (2008). The analogy is complicated by the fact that in some of
the cases discussed here, particularly the patent cases, there is a transfer of a tangible
object embodying the intellectual property at issue. But the ownership of the intellectual
property right itself is not generally transferred. Cf. infra text accompanying notes 62-63.
54. See, e.g., In re Historical Locust St. Dev. Assocs., 246 B. R. 218, 225 (Bankr. E.D.
Pa. 2000) (“A license is commonly defined as a mere permit or privilege to do what
otherwise would be unlawful; it is generally revocable at the pleasure of the owner, and
gives occupancy only so far as necessary to engage in the agreed acts of the performance
of agreed services and no further. It is a privilege to occupy under the owner, and only
insofar as the owner expressly allows.”) (quoting In re Daben Corp., 469 F. Supp. 135, 142
(D.P.R. 1979)).
Sales of patented products do transfer ownership of the product, of course, but they do not
transfer ownership of the patent itself, which is the intellectual property at issue. Thus,
drawing analogies to the treatment of equitable servitudes in the transfer of tangible
property can be misleading. Cf. Robinson, supra note 28. Nevertheless, equitable
servitudes are discussed below in the context of personal property, and the law for real-
property equitable servitudes is similar.
55. “A lease, on the other hand, gives the right of possession of the property leased,
and exclusive use or occupation of it for all purposes not prohibited by its terms.” In re
Historical Locust St. Dev. Assocs., 246 B. R. at 225 (quoting In re Daben Corp., 469 F. Supp.
at 142).
56. Restatement (First) of Prop.: Servitudes § 512 (1944).
118 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
refer in analogy to their “bare licenses.” Therefore, it will be the
focus here.
The Restatement of Property defines a license as “an interest in
land in the possession of another which (a) entitles the owner of the
interest to a use of the land, and (b) arises from the consent of the
one whose interest in the land used is affected thereby . . . .”
57
There
is no reference, under this definition, to consent of the licensee;
consent of the licensor is sufficient. That approach appears also to
extend to the imposition of restrictions, or the scope of the license, as
the Restatement also states that “[t]he extent of a license is fixed by
the terms of the consent which creates it.”
58
Because the consent that
is referenced here is that of the property owner (or “the one whose
interest in the land used is affected”
59
), consent of the licensee to the
restriction on scope appears not to be required.
Not only does the licensor not need a contract to impose
restrictions on the licensee, it is also the case that even if the license
is contractual, the contract will not prevent the licensor from
exercising its property rights, at least in the context of revocation:
The essential characteristic of a license is that it is revocable at
the will of the possessor of the land, subject only to the licensee’s
right to be on the land for a reasonable time after revocation for
the purpose of removing his goods thereon. Even though the
revocation of a license may be a breach of contract and give rise to
an action for damages, it is effective to deprive the licensee of all
justification for entering or remaining on the land except as
provided above.
60
That is, a court will not grant specific performance of a contractual
obligation on the part of the real property owner to provide access.
61
The reason for this relative unimportance, even subordination, of
contract in the real-property context is important in determining its
significance for IP licenses. The means by which real property owners
can grant access to their property irrevocably and impose restrictions
57. Id. There are two additional elements, which require that the interest “(c) is not
incident to an estate in the land, and (d) is not an easement.” Id.
58. Id. § 516. The position of downstream users—that is, transferees that receive
access to property from an earlier, upstream transferee—a topic of great importance in the
IP context, is not entirely clear for real property. The license may not be personal, but it
appears that it also does not give the licensee the right to transfer it to unrelated parties:
“A license is not necessarily limited in its extent to uses by the licensee through action by
himself alone. His use may be made through the acts of his servants, members of his
family, his guests, or others whom he is privileged by the terms of the license to authorize
to act under it.” Id. cmt. d.
59. Id.
60. 28A M
ASS.PRACTICE § 626, at 12 (1981) (citing Baseball Publ’g Co. v. Bruton, 18
N.E.2d 362 (Mass. 1938)).
61. See Baseball Publ’g, 18 N.E.2d at 364 (“There can be no specific performance of a
contract to give a license, at least in the absence of fraud or estoppel.”) (citations omitted).
2012] MUST LICENSES BE CONTRACTS? 119
on their grantees is not by license but by servitude,
62
which requires
either a contract or a conveyance, both of which must satisfy the
Statute of Frauds or an exception to it.
63
Because the conveyance
alternative to contract has its own formal requirements, the law of
real property does not support the view that any “bare license,”
without such formalities, can suffice to bind licensor and licensee.
Moreover, both patent and copyright law offer formal alternatives
akin to recording of real-property transactions for certain kinds of
licenses, which suggests a recognition in IP of the value of formalities
that ensure that care and consideration are given to the transaction.
For personal property, which is more analogous to IP than is real
property, the enforceability of restrictions, generally in the form of
equitable servitudes, is less well-accepted.
64
Glen Robinson, in his
recent article on the issue, states that few personal property cases
have enforced this form of restriction.
65
The reason for the scarcity of
cases is perhaps that, as he writes, the general view is that personal
property servitudes are impermissible.
66
This view has prevented
much consideration of how such servitudes would be formed.
Although Robinson’s work contends that the value of personal
property servitudes has been underestimated, he focuses primarily
on intellectual property, not on tangible personal property.
67
Nevertheless, Robinson points to several cases that discuss the
issue in the context of tangible property. In Clairol, Inc. v. Sarann Co.,
for example, the plaintiff, a manufacturer of hair coloring, sought to
enforce a restriction on the labels of some bottles of its product that
62. An irrevocable license is a servitude. See RESTATEMENT (THIRD) OF PROP.:
S
ERVITUDES § 1.2 cmt. g (2000). The term “servitude” is now used by the Restatement to
refer to what were traditionally called “real covenants” or “equitable servitudes.” Id. § 1.4.
63. Id. § 2.1. This rule applies only to an irrevocable license. See supra note 62. But if
a license is to be revocable then the contract has no binding implications for the licensor. It
should therefore have none for the licensee either. That is, the licensee’s property rights
should not turn on contract, even if its contractual ones might do so. After all, if the
licensor may revoke the license at any time, the licensee cannot rely on the contract
anyway. So, far from providing notice and consent in those circumstances, the contract is
more likely to be misleading. It is possible that a contract would not even be possible if the
licensor could revoke the license at will, because in that case the licensor would have
provided no consideration. See, e.g., Wickham & Burton Coal Co. v. Farmers’ Lumber Co.,
179 N.W. 417 (Iowa 1920) (promise that preserves full discretion of the promisor is not
consideration). Whether there was consideration would depend on whether the licensor
promised not to revoke for a period of time. In that case, even if the licensor could revoke as
a matter of property law, the contract would be valid and the licensor would have to pay
damages, as stated in the quoted passage accompanying note 60 supra.
64. See Robinson, supra note 28.
65. Id. at 1455.
66. Id. at 1450-52.
67. Id. at 1452 (“Because the most important contemporary occasion for considering
personal property restrictions arises in the field of intellectual property, that special form
of property rights will receive the lion’s share of attention in this Article, but this should
not obscure the fact that I am concerned about property rights in general, not simply
intellectual property rights.”).
120 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
prohibited sales to the general public.
68
There was no contract between
the plaintiff and the defendant retail store that was violating the
restriction, but the court allowed notice to substitute for contract:
There is, however, one serious problem with plaintiff’s reliance on
the theory of equitable servitudes. Most of the cases and articles
on the subject seem to assume the existence of a contractual
restriction agreed to between the buyer and seller, which is then
enforceable against subsequent purchasers with notice. There is no
such express contractual restriction here. There does exist,
however, an implied restriction, considering all of the
circumstances of this case, including the prominence of the legend
and the fact that professional purchasers from plaintiff know that
the basis of the price differential they get is their place in the
marketing scheme. However, even if this were not so, Waring is
authority for the proposition that a purchaser with knowledge of a
restriction is bound thereby, regardless of whether the restriction
is contractual in nature . . . . This court, therefore, holds that
plaintiff is also entitled to the relief it seeks under the theory of
equitable servitudes.
69
Although this passage seems to support the enforcement of
personal property servitudes generally, in fact the case’s position is
more limited. For one thing, it requires knowledge of the restriction
on the part of the party against whom it is enforced, a problematic
requirement for several reasons.
70
More importantly, the court did
not hold that every equitable servitude would be enforced, because it
said that “[t]he commentators have agreed on the need for a careful
examination of the equitable servitude sought to be applied, in order
to determine whether public policy will be furthered by its
application.”
71
The case made much of the possible harms that could
result from using hair coloring without proper instructions, and
because those harms could have injured the reputation of Clairol, the
court also found the defendant liable on an unfair competition
theory.
72
The same two factors—public policy concerns and unfair
competition—were also present in Waring v. WDAS Broadcasting
Station, Inc., the case cited in the passage quoted above.
73
Even more
significantly, Waring noted that the cases in which equitable
servitudes had not been enforced typically involved intellectual
property and were cases in which “the attempted restrictions, being
in restraint of trade, were against public policy.”
74
That points to a
68. 37 Pa. D. & C. 2d 433 (Ct. Com. Pl. 1965).
69. Id. at 453-54 (citing Waring v. WDAS Broadcasting Station, Inc., 194 A. 631 (Pa.
1937); Nadell & Co. v. Grassom, 175 Cal. App. 2d 420, 346 P.2d 505 (Cal. Dist. Ct. App. 1959)).
70. See infra Part IV.C-D.
71. Clairol, 37 Pa. D. & C. 2d at 452.
72. Id. at 442-51.
73. 194 A. 631 (Pa. 1937).
74. Clairol, 37 Pa. D & C 2d. at 445.
2012] MUST LICENSES BE CONTRACTS? 121
need to consider the particular factors that are presented by non-
contractual restrictions in the IP context.
B. Patents
Patent licensing law formally attributes more significance to
contracts than did Clairol, but in substance the result is often much
the same. It is formally different because the Federal Circuit has said
that a contract is required to restrict purchasers of patented
products. In reality, though, the lower courts, including the Federal
Circuit, in fact apply the doctrinal “contract” rule in such a way as to
make notice of the restriction sufficient for its enforceability.
Moreover, the Supreme Court has enforced a restriction against a
purchaser that had knowledge of the restriction but was not
contractually bound by it, thus effectively applying a notice rule.
1. Patent Licenses Must Be Contracts
In Hewlett-Packard Co. v. Repeat-O-Type Stencil Manufacturing
Corp., the Federal Circuit stated clearly that a patentee can impose
restrictions on purchasers only through contract:
Each case turns on its own particular facts, but a seller’s intent,
unless embodied in an enforceable contract, does not create a
limitation on the right of a purchaser to use, sell, or modify a
patented product as long as a reconstruction of the patented
combination is avoided. A noncontractual intention is simply the
seller’s hope or wish, rather than an enforceable restriction.
75
The context in Hewlett-Packard was the defendant’s effort to use the
patent-law right of repair
76
to modify Hewlett-Packard’s patented
inkjet printer cartridges to make them refillable. Hewlett-Packard
sought to prevent these actions on the ground that it had “clearly
manifested its intent that the ink jet cartridges be non-refillable.”
77
The
court thus rejected what it called this “intent-of-the-patentee analysis.”
78
Although the passage just quoted refers to a purchaser, rather
than to a licensee, which would seem to implicate exhaustion of
the patent, not licensing,
79
the court also explicitly connected the
purchase to licensing:
75. 123 F.3d 1445, 1453 (Fed. Cir. 1997); see also Jazz Photo Corp. v. Int’l Trade
Comm’n, 264 F.3d 1094, 1106 (Fed. Cir. 2001) (“[T]he patentee’s unilateral intent, without
more, does not bar reuse of the patented article, or convert repair into reconstruction.”
(citing Hewlett-Packard, 123 F.3d at 1453)).
76. On the right of repair, see Aro Mfg. Co. v. Convertible Top Replacement Co., 365
U.S. 336 (1961).
77. Hewlett-Packard, 123 F.3d at 1453.
78. Id.
79. Generally speaking, an unconditional sale of a patented product “exhausts” the
patentee’s rights in it, Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 618 (2008),
122 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
Generally, when a seller sells a product without restriction, it in
effect promises the purchaser that in exchange for the price paid, it
will not interfere with the purchaser’s full enjoyment of the
product purchased. The buyer has an implied license under any
patents of the seller that dominate the product or any uses of the
product to which the parties might reasonably contemplate the
product will be put.
80
Thus, Hewlett-Packard stands for the proposition that a contrary
intent of the patentee will not prevent a purchaser or other licensee
from making uses of the patented invention, unless those uses are
prohibited in an enforceable contract.
Moreover, Hewlett-Packard is consistent with earlier Supreme
Court cases. In Hobbie v. Jennison, for example, the defendant was
an assignee with rights to sell patented pipe in Michigan, but not in
Connecticut.
81
The defendant sold the pipe to a customer for use in
Connecticut, and another assignee, one with the rights to sell in
Connecticut, sued.
82
The Court said that “neither the actual use of
the pipes in Connecticut, or a knowledge on the part of the defendant
that they were intended to be used there, can make him liable.”
83
Moreover, the Court drew a contrast between mere knowledge and
binding conditions:
It is easy for a patentee to protect himself and his assignees, when
he conveys exclusive rights under the patent for particular
territory. He can take care to bind every licensee or assignee, if he
gives him the right to sell articles made under the patent, by
imposing conditions which will prevent any other licensee or
assignee from being interfered with.
84
Although the Court did not make clear whether these “conditions”
would be contractual, it clarified the point in a subsequent case,
Keeler v. Standard Folding Bed Co.
85
There the Court said that if the
patentee can impose such restrictions, it would be by contract:
“Whether a patentee may protect himself and his assignees by special
and copyright’s first-sale doctrine produces a similar result, see 17 U.S.C. § 109 (2006). But
even if an IP owner’s rights are not exhausted, a transaction can create an implied license
or prevent infringement suits through estoppel theories. See TransCore, LP v. Elec.
Transaction Consultants Corp., 563 F.3d 1271, 1278-79 (Fed. Cir. 2009); Wang Labs., Inc.
v. Mitsubishi Elecs. Am., Inc ., 103 F.3d 1571, 1581 (Fed. Cir. 1997); infra note 156. The
courts’ conclusions regarding implied terms of license agreements can be surprising. See
Phillip B.C. Jones, Violation of a Patent License Restriction: Breach of Contract or Patent
Infringement?, 33 IDEA 225 (1993).
80. Hewlett-Packard, 123 F.3d at 1451.
81. 149 U.S. 355 (1893).
82. Id.
83. Id. at 363.
84. Id.
85. 157 U.S. 659 (1895).
2012] MUST LICENSES BE CONTRACTS? 123
contracts brought home to the purchasers is not a question before us,
and upon which we express no opinion.”
86
Keeler thus seems to say
that if a patentee seeks to restrict the uses to which transferees put
patented products, it can only do so by contract.
Those patent cases that enforce, or at least suggest the possible
enforcement of, license restrictions also point to contract. For
example, in Mallinckrodt, Inc. v. Medipart, Inc., the patentee put a
“single use only” label on its product, but the alleged infringer
repaired the product for reuse.
87
The court held that for this repair to
be prohibited, it was necessary that the sale of the product be “validly
conditioned under the applicable law such as the law governing sales
and licenses . . . .”
88
This seems to look to contract law,
89
an
interpretation strengthened by its statement that “private parties
retain the freedom to contract concerning conditions of sale.”
90
In a
footnote, the court also pointed to contract, stating that “[i]n
accordance with the Uniform Commercial Code a license notice may
become a term of sale, even if not part of the original transaction, if
not objected to within a reasonable time.”
91
It is clear though, that Mallinckrodt’s approach to contract
formation is an incorrect interpretation of the formation rules of
U.C.C. § 2-207, for at least two reasons.
92
First, under § 2-207, it is
not the case that a contract can incorporate any term in an
unobjected-to notice, but only (sometimes) an “additional term” that
is included in “[a] definite and seasonable expression of acceptance or
a written confirmation.”
93
Surely a label license does not constitute a
contract acceptance. It is also unclear how a label license could
constitute a “confirmation,” given that it bears no indicia of
confirming the previous formation of a contract. And even if some
notices might be confirmations, a “single use only” label on a product
could not reasonably be characterized in that way. Second, even if a
label license were a confirmation, the recipient’s failure to object to
the term is not the only requirement for the new term to become part
of the contract. It can only become part of the contract, and then only
between “merchants,” if the term does not “materially alter” the
86. Id. at 666. Indeed, the Court in the next sentence suggested that even breach of
such a contract would not give rise to an infringement suit: “It is, however, obvious that
such a question would arise as a question of contract, and not as one under the inherent
meaning and effect of the patent laws.” Id.
87. 976 F.2d 700 (Fed. Cir. 1992).
88. Id. at 709.
89. The “law governing sales,” at least, is contract law, so one assumes that “the law
governing sales and licenses” must be contract law. Id.
90. Id. at 708.
91. Id. at 708 n.7 (citing U.C.C. § 2-207(2)(c)).
92. An additional peculiarity of the statement in Mallinckrodt is its claim that a new
term may be applicable “even if not part of the original transaction.” Id.
93. U.C.C. § 2-207(1) (2011).
124 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
contract, which a term significantly restricting use of the patented
product likely would.
94
The courts relying on § 2-207 entirely fail to
address these issues.
Thus, these “label licenses” do not satisfy the rules of contract
formation, a fact that can be emphasized by comparing them to their
closest analogs: shrink-wrap and click-wrap licenses. Although the
shrink-wrap and click-wrap license cases have made contract
formation relatively easy, they still require an act from which
contractual consent can be inferred.
95
For example, in ProCD, Inc. v.
Zeidenberg, where the buyer of a software database claimed that he
could not be bound by terms of which he was unaware at the time of
purchase, Judge Easterbrook argued that post-purchase consent
could form a contract.
96
But he still required consent: “A buyer may
accept by performing the acts the vendor proposes to treat as
acceptance. And that is what happened. ProCD proposed a contract
that a buyer would accept by using the software after having an
opportunity to read the license at leisure.”
97
The failure to exercise
the right of return was the act of consent that contract law requires.
98
In cases where no such act was present, courts have not found the
formation of a contract. For example, in Specht v. Netscape
Communications Corp., the court confronted a situation where the
plaintiffs received no presentation of a license agreement but merely
clicked “download” to obtain the software at issue.
99
Subsequently,
the “plaintiffs encountered no further information about the plug-in
program or the existence of license terms governing its use.”
100
Then-
Judge Sotomayor stated that “a consumer’s clicking on a download
button does not communicate assent to contractual terms if the offer
did not make clear to the consumer that clicking on the download
button would signify assent to those terms.”
101
Label licenses are more akin to Specht than to ProCD. Generally
speaking, nothing requires a buyer to read a label license before
purchasing or even using the product. The license terms are merely
written on the product or perhaps even merely published in trade
94. Official Comment 4 to § 2-207 indicates that a material alteration is one that
would “result in surprise or hardship if incorporated without express awareness by the
other party.” Id. cmt. 4.
95. The shrink-wrap cases have generally involved copyrighted works rather than
patented inventions, but the contractual issues are the same.
96. 86 F.3d 1447, 1451 (7th Cir. 1996).
97. Id. at 1452.
98. ProCD’s contractual analysis has been heavily criticized. See, e.g., Legal-Ware,
supra note 15, at 1049-54.
99. 306 F.3d 17, 22-23 (2d Cir. 2002). Cf. supra text accompanying notes 44-46; infra
text accompanying notes 154-56 (discussing open-source software downloads).
100. Specht, 306 F.3d at 23.
101. Id. at 29-30.
2012] MUST LICENSES BE CONTRACTS? 125
journals.
102
Although it is certainly possible that buyers might see the
notice, there is generally no effort made to ensure it. Nor is there
generally any effort made to ensure an act of assent, or even an
explicit indication like ProCD’s that return of the product is possible.
And even if return were possible, notice prior to purchase that
further terms will be forthcoming is generally absent. Hence, even
under ProCD, there is no reason to think that a contract is formed.
A particularly egregious example of the application of U.C.C.
§ 2-207 is found in Monsanto Co. v. Scruggs.
103
The defendant in
Scruggs argued that he bought patented seed from an authorized
dealer but had not been required to execute a license agreement.
104
The court relied on Mallinckrodt’s interpretation of § 2-207 in rejecting
the argument:
The Mallinckrodt case specifically notes: “In accordance with the
Uniform Commercial Code a license notice may become a term of
sale, even if not part of the original transaction, if not objected to
within a reasonable time.” Mitchell Scruggs and the other
defendants were aware of the conditions under which Monsanto
and its seed partners made its technology available to consumers.
Their failure to contest the terms of the conditional license within
a reasonable time after sale suggests that Monsanto's licensing
conditions became an enforceable term of sale.
105
The court did not even attempt to show that the term was included in
an acceptance or confirmation, as § 2-207 requires. That requirement
was replaced, apparently, by the observation that the defendants
“were aware of the conditions.”
106
As the court noted, “[t]he
restrictions in Monsanto’s licenses have been advertised in trade
journals, have been publicized through public meetings with farmers,
and appear on the product label.”
107
Despite the reference to § 2-207,
this replaces the contractual requirement with one of mere notice.
102. See infra text accompanying note 107.
103. 249 F. Supp. 2d 746 (N.D. Miss. 2001), aff’d, 459 F.3d 1328 (Fed. Cir. 2006). See
also Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992).
104. 249 F. Supp. 2d at 751, 754.
105. Monsanto, 249 F. Supp. 2d at 754 (citations omitted).
106. Id.
107. Id. at 750. Cf. Landgericht Frankfurt [LG Frankfurt] [District
Court of Frankfurt] Sept. 6, 2006, No. 2-6 O224/06 at 6 (Ger.), http://www.jbb.de/
fileadmin/download/urteil_lg_frankfurt_gpl.pdf [hereinafter Frankfurt District Court],
unofficial translation available at http://thinkingopen.files.wordpress.com/2007/07/
d-link-verdict-english-translation-061028_2_.pdf [hereinafter Frankfurt District Court
translation] (“Since the conditions of the license granted by the GPL are easily available on
the Internet, they were without a doubt incorporated into the contractual relationship
between the authors and Defendant.”) (citation omitted).
126 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
2. Non-Contractual Restriction by Notice?
Despite its reference to contract law, the Federal Circuit in
Mallinckrodt was somewhat vague in stating that for a post-sale
restriction to be enforced, it is necessary that the sale of the product
be “validly conditioned under the applicable law such as the law
governing sales and licenses.”
108
Is “the law governing . . . licenses”
distinct from the law governing sales, i.e., contract law? The court
said that it was “not decid[ing] whether the form of the restriction
met the legal requirements of notice or sufficed as a ‘label license,’ as
Mallinckrodt calls it, for those questions were not presented on this
motion for summary judgment.”
109
It is not at all clear what legal
significance the court ascribes here to “notice,” which might be
distinct from contract. Although the issue would seem to have been
resolved by the subsequent decision in Hewlett-Packard,
110
whether
notice can substitute for contract remains unclear.
For example, in Pioneer Hi-Bred International, Inc. v. Ottawa
Plant Food, Inc., the court said, referring to notices on bags of
patented corn seed, “that knowledge of the limitations plus failure to
object makes the terms of a ‘limited label license’ enforceable . . . .”
111
The court here also purported to be interpreting the contract
formation rules of U.C.C. § 2-207,
112
but it did not seem entirely sure,
108. 976 F.2d at 709.
109. Id. at 701.
110. See supra text accompanying notes 76-80. It is supported also by a more recent
opinion. See Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001). In
Jazz Photo, Fuji alleged that replacing the film in its single-use cameras was infringement,
relying in part on notices on the cameras. Id. at 1107. The administrative law judge
described the notices:
A Fuji flash QuickSnap single use camera is in a box and each of the box and
the outer cardboard cover of the camera has statements instructing the
purchaser to not remove the film and return the camera to the photoprocessor
and further cautioning the purchaser about the risk of electrical shock if
opened by the purchaser . . . . [The packaging also] instructs the purchaser that
the single use camera will not be returned to the purchaser after processing.
Id. The Federal Circuit rejected the notice approach though, as it did in Hewlett-Packard,
stating “[a] license is governed by the laws of contract.” Id. It emphasized the contract view
by observing that “[t]here was no express contractual undertaking by the purchaser,” and
that “[t]hese statements [on the camera and packaging] are instructions and warnings of
risk, not mutual promises or a condition placed upon the sale.” Id. at 1108.
111. 283 F. Supp. 2d 1018, 1047-48 (N.D. Iowa 2003).
112. As in Mallinckrodt, the court entirely ignored the fact that the notice was not in
an acceptance or written confirmation. See supra text accompanying notes 92-93. Its
analysis of the licensee’s failure to object was similar to that of Mallinckrodt, but the
Pioneer court also addressed the materiality issue, cf. supra text accompanying note 94,
though not satisfactorily. The court relied on Official Comment 4 of § 2-207, which
indicates that whether an additional term “materially alters” the agreement depends “on
whether the additional term ‘result[s] in surprise or hardship if incorporated without
express awareness by the other party.’ ” Pioneer, 283 F. Supp. 2d at 1048. Then the court
said Ottawa could not “generate a genuine issue of material fact that it was, itself, actually
‘surprised’ by the restriction on resale in the ‘limited label license.’ ” Id. But the test is one
of materiality, not surprise, and the Official Comment asks not whether the party was
2012] MUST LICENSES BE CONTRACTS? 127
stating that “[a]t least in the first instance, the conditions of a waiver
of patent rights—i.e., the terms of a grant of a license to make, use,
or sell the patented item—are subject to contract considerations.”
113
Does the court’s reference to “the first instance” suggest that there is
a noncontractual “second instance”? And is “subject to contract
considerations” the same thing as “governed by contract law”? In
Pioneer, as in Mallinckrodt and Scruggs, the court seemed to leave
open the possibility of some sort of noncontractual notice that would
be binding on licensees.
In fact, there is support from the Supreme Court for a noncontractual
notice interpretation. In General Talking Pictures Corp. v. Western
Electric Co., patent rights for audio amplifiers were separately licensed
to manufacturers for “private” and commercial use.
114
One of the
“private” licensees, “knowing that it had not been licensed to
manufacture or to sell amplifiers for use in theatres as part of talking
picture equipment, made for that commercial use the amplifiers in
controversy and sold them to Pictures Corporation for that
commercial use.”
115
The Court held that Pictures Corporation, the
buyer, was liable:
As the restriction was legal and the amplifiers were made and sold
outside the scope of the license the effect is precisely the same as if
no license whatsoever had been granted to [the “private” licensee].
And as Pictures Corporation knew the facts, it is in no better
position than if it had manufactured the amplifiers itself without a
license. It is liable because it has used the invention without
license to do so.
116
The key point here is that although the original licensee was party
to a contract with the patentee, Pictures Corporation was not—it had
no commercial relationship with the patentee. Yet it was still held
liable because it knew of the infringement. That raises the question,
however, of the potential liability of buyers who are not on notice of
the original restriction and of what sort of notice would be sufficient
to create liability. The Court declined to answer these questions:
We have consequently no occasion to consider what the rights of
the parties would have been if the amplifier had been
manufactured “under the patent” and “had passed into the hands of
a purchaser in the ordinary channels of trade [which presumably
surprised in fact, but whether it would be if the term was “incorporated without [its]
express awareness.” In other words, would Ottawa have been surprised by a no-resale
restriction if it did not know of it previously? Surely the answer is yes.
113. 283 F. Supp. 2d at 1036.
114. 305 U.S. 124, 125-26 (1938).
115. Id. at 126.
116. Id. at 127.
128 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
would mean that it was sold to a ‘commercial’ buyer by a ‘private’
buyer].” Nor have we occasion to consider the effect of a “licensee’s
notice” which purports to restrict the use of articles lawfully sold.
117
Those questions remain unanswered today, despite the Supreme
Court’s recent decision in Quanta Computer, Inc. v. LG Electronics,
Inc.
118
In Quanta, LG had licensed Intel to sell the patented products,
but LG had also required Intel to give notice to Intel’s customers that
LG had not licensed those customers. LG argued that this meant that
the unlicensed customers were infringing LG’s patents.
119
The Court
disagreed, holding that Intel’s authorized sale of the products
exhausted LG’s patent rights because “[n]o conditions limited Intel’s
authority to sell products substantially embodying the patents.”
120
Quanta leaves unclear what actions LG needed to take to impose
restrictions on Intel’s customers. Presumably LG could have
contractually required Intel to sell only to customers that themselves
had licenses from LG. In that case, would buyers without licenses be
liable for infringement if they had no notice of the restriction? And
could LG have imposed the restriction on Intel noncontractually?
That is, suppose that LG had simply informed Intel that it was not
permitted to sell to unlicensed buyers (rather than, as in the case,
contracting with Intel to inform buyers that they were unlicensed).
Would the Court have viewed this instruction as a “condition” that
“limited Intel’s authority” to resell the product? Quanta provides no
answers to these questions.
Some writers, however, argue that Quanta allows a “notice and
restriction” approach, which “provides flexibility but requires careful
drafting in view of Quanta”
121
:
In addition, a notice provision must be included, which requires
written notification to buyers of the restriction in addition to
specifying exactly what parties, what sales, or what circumstances
define an “authorised” sale. The notice provision must also be
directly tied to the restricted licence grant and must clearly state
that failure to comply with the notice provision constitutes a breach
of the licence agreement itself. In this way, the notice requirement
operates to quash a defence brought by unauthorised buyers.
122
What the buyers’ defense would be is unclear. Presumably the authors
are suggesting that a purchaser in an unauthorized sale could be free
117. Id.
118. 553 U.S. 617 (2008).
119. Id. at 630.
120. Id. at 637.
121. Dorothy R. Auth & Jason M. Rockman, Conditional Patent Licensing After the
Supreme Court’s Decision in Quanta, 2 B
LOOMBERG EUR.BUS.L.REV. 415, 419 (2008).
122. Id.
2012] MUST LICENSES BE CONTRACTS? 129
from liability if it did not know that the sale was unauthorized, but the
law here is not clear.
In any event, a rule that notice or knowledge is required to
establish liability for patent infringement, which is normally a strict-
liability offense, would be odd. It makes perfect sense, however, if the
offense at issue is not direct infringement but inducement, because
the Supreme Court recently held that “induced infringement under
§ 271(b) requires knowledge that the induced acts constitute patent
infringement.”
123
In a context like that of General Talking Pictures,
where the third-party infringer was profiting from and aware of the
infringement of the original licensee or purchaser, liability for
inducing the direct violation seems appropriate and does not require
adding an additional knowledge or notice element to the definition of
direct infringement. This approach to the issue is especially
appropriate given that § 271(b) was added to the Patent Act in
1952, meaning the section was not available at the time of General
Talking Pictures. The advantages of this approach are discussed
further below.
124
C. Copyright Cases
In copyright, no court has clearly stated that a contract is required
to impose license restrictions, but none has held that a contract is
unnecessary either. This has led to a conflict in the statements of
courts and commentators. Although the courts do not explicitly
require a contract, they still seem to look for the indicia of contract
formation, and some commentators argue for creative interpretations
of contract law to ensure contractual enforceability. Other
commentators, however, use the absence of a clear contractual
requirement to argue for the enforceability of “bare licenses.”
1. Copyright Licenses as Contracts
Compared to real property and even to patent law, the law on
whether copyright licenses must be contracts is unclear. As one of the
leading cases states, “[t]he enforcement of a copyright license raises
issues that lie at the intersection of copyright and contract law, an
area of law that is not yet well developed.”
125
A leading copyright
treatise generally seems to assume that licenses are contracts,
stating that “[i]f the grantee under an assignment or license uses the
work in violation of the provisions of the authorizing instrument, . . .
123. Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). Section
271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as
an infringer.” 35 U.S.C. § 271(b) (2006).
124. See infra Part IV.D.2.
125. Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1122 (9th Cir. 1999).
130 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
[w]hether [the grantor] will be entitled to damages or injunctive
relief, or a combination of both, depends on general principles of
contract law beyond the scope of this treatise.”
126
However, the
treatise, like other sources, does not explicitly state that a license
must be a contract.
In fact, the same treatise suggests that at least some copyright
licenses need not satisfy all the requirements of contract formation:
“Notwithstanding that feature of state law, no consideration is
necessary under federal law to effectuate a transfer of copyright
ownership that does not purport to require consideration.”
127
But the
cases cited for this proposition relate only to revocability of licenses,
where some cases hold that the absence of consideration makes a
license revocable.
128
Those cases are consistent with the view that a
license, to be enforceable, must be a contract. Revoking a license is
the licensor’s act of ceasing to comply with its previous promise not to
sue for infringement, and if that previous promise was not
contractually enforceable because of the absence of consideration,
then there would be no obstacle to revocation. That is, these cases
can be interpreted to mean that revocation is permissible where the
license is noncontractual.
126. 3 MELVILLE B. NIMMER &DAVID NIMMER, NIMMER ON COPYRIGHT § 10.15[A][1]
(Matthew Bender rev. ed., 2012). Moreover, the treatise discusses the implications of state
contract law for copyright transfers, and if such transfers were not contracts, it is not clear
why contract law would be relevant. See id. § 10.03[A][8].
127. Id. As the text indicates, although this statement refers to transfer of ownership of
the copyright, it appears to be intended to apply more broadly since it cites licensing cases.
128. See id. § 10.02[B][5] (“[N]onexclusive licenses are revocable absent
consideration.”). Where consideration is present, however, the license is irrevocable, and
“[t]his is so because a nonexclusive license supported by consideration is a contract.”
Lulirama Ltd. v. Axcess Broad. Servs., Inc., 128 F.3d 872, 882 (5th Cir. 1997); see also
Carson v. Dynegy, Inc., 344 F.3d 446, 451 (5th Cir. 2003).
Consideration would presumably not be sufficient in itself, because it would also
be necessary that the terms of the agreement included irrevocability. Most of the cases
appear to make this assumption so long as there has been no reference to revocability,
which appears to make it a question of interpretation. See, e.g., Lulirama, 128 F.3d at 883
(“The record in this case provides no indication that the parties intended that Axcess’s
right to use the jingles was terminable at the will of Lulirama.”). Interestingly, one court
appeared to tie this interpretation question to the question of whether a contract existed:
“If [the licensor] had the ability to terminate the license at will, then no contract could exist
because [the licensor’s] obligation under the contract would be illusory. . . . A presumption
exists that parties to a purported contract did not intend to make illusory promises.” Id. at
882-83 (citations omitted). The reasoning here appears to rely on an assumption that the
parties must have intended to create contractual obligations. If no contract was necessary
to create a license, that assumption would presumably be unwarranted.
Even where consideration is lacking, licenses are sometimes deemed irrevocable
on other grounds. Several courts have concluded in cases where there was no such
irrevocable license supported by consideration that the copyright owner was nevertheless
estopped from bringing an infringement claim. See, e.g., Carson, 344 F.3d at 453-55; Keane
Dealer Servs., Inc. v. Harts, 968 F. Supp. 944, 947-48 (S.D.N.Y. 1997). These courts have
generally referred to the estoppel as a copyright doctrine, but it might also be possible to
treat it as promissory estoppel that would substitute for consideration and thus support a
contractual approach.
2012] MUST LICENSES BE CONTRACTS? 131
A leading case addressing the issue of a licensor’s effort to impose
restrictions on the licensee’s use of the copyrighted work is Sun
Microsystems, Inc. v. Microsoft Corp.
129
The question at issue was
whether Microsoft’s violation of a license term was (1) merely a
breach of a covenant or promise, which would give rise only to a
breach of contract claim, or (2) exceeded the scope of the license,
meaning Sun could sue Microsoft for infringement. In line with other
courts,
130
the court stated that “[t]he determination of whether the
[terms at issue] are covenants or limitations on the scope of the
license is likewise a contractual issue, for it requires us to construe
the license.”
131
This seems to assume that this central issue is one of
contract, but there was no doubt that the license in Sun
Microsystems was a contract. In those circumstances, contract law
would of course be used to interpret the license, but in another case
where the presence of a contract was not so clear, another approach
might be taken.
Jacobsen v. Katzer is perhaps the case that has come closest to
addressing this issue. Jacobsen made his copyrighted computer code
available through an open-source “artistic license.”
132
The issue
presented in the case was whether the defendant Katzer’s failure to
comply with the terms of the license gave rise to an action for
copyright infringement. Jacobsen argued that it did but that the
parties had not entered into a contract. Instead, he argued that he
had granted a so-called “bare license,” which “define[d] the scope of
the license grant.”
133
Katzer, on the other hand, argued both that he
possessed a license and that the parties had entered into a contract.
134
Katzer’s argument, however, did not make clear whether he viewed a
contract as being necessary to the existence of the license.
The Federal Circuit, without extensive explicit consideration of
the issue, appeared to treat the license as a contract, applying a
contract-law analysis to decide the case and referring, as did Sun
129. 188 F.3d 1115 (9th Cir. 1999).
130. Other courts have characterized the question as whether the licensee breached a
covenant or violated a condition. See, e.g., Graham v. James, 144 F.3d 229, 236-37 (2d Cir.
1998). Regardless, courts have treated the issue as one of contract law. See, e.g., id. at 236
(“This argument turns—and fails—on the distinction in contract between a condition and
a covenant.”).
131. Sun Microsystems, 188 F.3d at 1122.
132. 535 F.3d 1373, 1376 (Fed. Cir. 2008). The current versions of this license are
available on the website of the Open Source Initiative. See Artistic License 1.0, O
PEN
SOURCE INITIATIVE, http://www.opensource.org/licenses/artistic-license-1.0.php (last visited
Jan. 21, 2013).
133. Corrected Brief of Plaintiff-Appellant Robert Jacobsen at 43, Jacobsen, 535 F.3d
1373 (No. 08-1001). See also id. at 28-35, 39-41 (arguing that no contract existed).
134. Brief of Appellees at 16-17, Jacobsen, 535 F.3d 1373 (No. 08-1001).
132 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
Microsystems, to the contract-law condition-covenant distinction.
135
The key requirements for the existence of a contract would be
acceptance of the license by Katzer and consideration. Neither topic
was addressed carefully by the court. The court’s discussion of the
acceptance issue was limited to this statement: “The downloadable
files contain copyright notices and refer the user to a ‘COPYING’ file,
which clearly sets forth the terms of the Artistic License.”
136
But
other courts have refused to accept that being pointed toward a
license is acceptance of it, as the discussion above of shrink-wrap and
click-wrap licenses illustrates.
137
The court addressed the consideration issues somewhat more
explicitly, if not more satisfactorily. The court’s basic approach focused
on the collaborative aspect of open-source work:
Through such collaboration, software programs can often be
written and debugged faster and at lower cost than if the copyright
holder were required to do all of the work independently. In
exchange and in consideration for this collaborative work, the
copyright holder permits users to copy, modify and distribute the
software code subject to conditions that serve to protect
downstream users and to keep the code accessible.
138
But this is not a valid theory of consideration. Some licensees of
open-source programs no doubt contribute to the debugging and
improvement of the programs, but not all do. More to the point,
none of them promise to do so, so there is no promise that would
constitute consideration.
139
The court also offered other possibilities based on more specific
requirements in the license: “The choice to exact consideration in the
form of compliance with the open source requirements of disclosure
[of the source of software] and explanation of changes, rather than as
135. The implications of the court’s condition-covenant distinction are thoughtfully
discussed in Robert W. Gomulkiewicz, Conditions and Covenants in License Contracts:
Tales From a Test of the Artistic License, 17 T
EX.INTELL.PROP. L.J. 335 (2009).
136. Jacobsen, 535 F.3d at 1376.
137. See supra text accompanying notes 95-102.
138. Jacobsen, 535 F.3d at 1379.
139. See Axel Metzger & Till Jaeger, Open Source Software and German Copyright
Law, 32 I
NT’L REV.INTELL.PROP.&COMPETITION 52, 72 (2001) (“While it is true that the
acquisition of a right of use to open source software is subject to conditions, nevertheless
these have no final binding effect in the sense of a validity condition for one’s own
obligation to perform, such as is the case for the promise of a reward. . . . The obligations
attached to modified software are only ‘added on,’ i.e., they are not directly connected with
the benefit itself, but only result once additional acts have been effected. One can therefore
speak of the donation of a conditional right.”). See also Clive Gringras, The Validity of
Shrink-Wrap Licenses, 4 I
NT’L J.L. & INFO.TECH. 77, 89 (1996). Nor is there any indication
that the copyright owner anticipated a unilateral contract, see Corrected Brief of Plaintiff-
Appellant Robert Jacobsen, supra note 133, at 39-41, under which the actual collaborative
effort, rather than a promise of such effort, could be consideration. In any case, as noted in
the text, not all licensees engage in such effort.
2012] MUST LICENSES BE CONTRACTS? 133
a dollar-denominated fee, is entitled to no less legal recognition.”
140
But this does not constitute valid consideration either. A gift is not
consideration, nor is a conditioned gift.
141
So, for example, if an
offeror said, “I will give you $3000 if you promise to use it to buy a
car,” a commitment to use the money to buy a car would not be
consideration. That is so because in the exchange the recipient gives
up no legal right, having had no prior right to the money or to any
particular use of it.
For the same reason, a licensee’s commitment to use offered
software in a particular way cannot constitute consideration. Because
the licensee has no right prior to the license to use the software in
any way, a grant of only limited uses of it is merely a gift. The fact
that the giver could have been even more generous by granting use of
the software with no restrictions does not alter this conclusion. It
is still the case that the licensee has not given up anything. Only
if the licensee gives up some right, says contract law, will there be
valid consideration.
142
So the license in Jacobsen appears not to have constituted a valid
contract. Jacobsen, the copyright owner, conceded (or contended) as
much.
143
Yet the Federal Circuit appeared to consider it important to
address acceptance (even if obliquely) and consideration.
144
This
presumably is evidence of the court’s view, consistent with its patent
cases, that a license must be a contract. As in Mallinckrodt, however,
the court in Jacobsen was quite creative in determining that such a
contract exists.
Some commentators, however, argue that licenses like those in
Jacobsen do indeed meet the requirements of contract formation.
145
140. Jacobsen, 535 F.3d at 1382.
141. Ben Giles makes a somewhat similar argument, though couched in
terms of a pre-existing duty on the part of the promise. See Ben Giles,
Consideration and the Open Source Agreement, § 4.2, NSW
S
OC’Y FOR COMPUTERS &
THE LAW, https://www.nswscl.org.au/index.php?option=com_content&view=article&id=
78:consideration-and-the-open-source-agreement&catid=21:september-2002-issue&Itemid=31
(last visited Jan. 21, 2013).
142. It is possible that if the licensees agreed to contribute something independent of
their use of the copyrighted software, they might have provided consideration, but the
terms of open-source licenses impose restrictions only on the use of the copyrighted
software. See infra text accompanying note 160.
143. See supra text accompanying note 133.
144. Jacobsen, 535 F.3d at 1381-82.
145. Some commentators make general statements about the enforceability of open-
source licenses without engaging in doctrinal analysis, sometimes instead relying on court
decisions that also have not carefully addressed challenges. See, e.g., James G. Gatto,
Doubts Wane Over GPL Enforceability, M
ANAGING INTELL.PROP., Feb. 2007, available at
http://www.pillsburylaw.com/siteFiles/Publications/A9A22185D029BBE6EAA4332F1A7249E2.pdf
(“Most of these lawsuits are resolved before a full trial and, in some cases, the issue of GPL
enforceability was only tangentially addressed by the court.”).
134 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
In a recent article, Robert Hillman and Maureen O’Rourke argued
that open-source licenses provide consideration:
More challenging are open source licenses that do not contemplate
any of the above exchanges, but simply authorize licensees to
transfer, copy, or modify the software, subject to certain
conditions. Such “terms of use” often include (and we focus on) the
“copyleft” and “same terms” provisions discussed earlier. These
terms should also constitute consideration under the bargain
theory. Recall that general contract law finds consideration if a
condition constitutes more than is necessary to transfer a gift.
Terms of use, such as “copyleft” and “same terms,” are not
necessary to convey software and therefore constitute
consideration under general contract law if at least part of the
vendor’s motive (however insubstantial), judged objectively, is to
extract agreement to the terms of use.
146
This is a creative interpretation of the consideration doctrine.
147
The cases to which they cite involve “minor” promises made in the
context of a gift, where the goal is to determine whether the promisor
really sought “more than is necessary to transfer a gift,”
148
in which
case the bargain requirement of consideration would be met. Those
facts seem to have little to offer in the open-source context, where the
“consideration” is not necessary at all to effect the transfer, but
involves limitations on what can be done with the transferred work.
In the end, Hillman and O’Rourke’s argument seems to be colored by
their view that “open source licenses nicely fit into the category of
promises that contract law should enforce,”
149
but the desirability, if
any, of open-source licensing does not justify a distortion of the
consideration doctrine.
150
2. Copyright “Bare Licenses”
Many of those who argue that IP licenses need not be contracts come
from the open-source software movement. According to Eben Moglen,
one of the leaders of that movement:
The essence of copyright law, like other systems of property rules,
is the power to exclude. The copyright holder is legally empowered
to exclude all others from copying, distributing, and making
derivative works.
146. Robert A. Hillman & Maureen A. O’Rourke, Rethinking Consideration in the
Electronic Age, 61 H
ASTINGS L.J. 311, 328 (2009).
147. See McGowan, supra note 19, at 211-12 (expressing skepticism regarding Hillman
& O’Rourke’s argument).
148. Hillman & O’Rourke, supra note 146, at 328.
149. Id. at 331.
150. In fact, Michael Madison argues that the desirability of using contract law to
govern open-source licensing is questionable, and he suggests that another scheme, distinct
from traditional licensing law, should be considered. See Madison, supra note 4, at 317-39.
2012] MUST LICENSES BE CONTRACTS? 135
This right to exclude implies an equally large power to license—
that is, to grant permission to do what would otherwise be
forbidden. Licenses are not contracts: the work’s user is obliged to
remain within the bounds of the license not because she
voluntarily promised, but because she doesn’t have any right to act
at all except as the license permits.
151
This may be a plausible story when the owner has not given the
user any reason to believe that the user may have unlimited access to
the copyrighted work. But in some circumstances the user (a)
reasonably believes that it has the right to use the work,
152
and (b)
has not agreed to, and may not even be aware of, any purported
restrictions on its use.
153
In such circumstances, it is not clear what it
means to say that the user “doesn’t have any right to act at all except
as the license permits.” Is that the “license” as it appears to the user
(or objective observer) or as intended by the copyright owner?
Another perspective is that a grant of access that appears to be
unrestricted should in fact be unrestricted, and a copyright owner
that wants to restrict the terms of a license must get the licensee’s
consent or at least ensure that the licensee knows of the restrictions
or that the restrictions are intended.
In fact, not only is open-source software often offered through a
“Download” button without providing any sort of notice of or
requiring any consent to restrictive terms,
154
but it is sometimes
offered in a way that emphasizes the freedom that licensees
purportedly receive. When a user arrives at SourceForge.net, the
banner at the top of the page encourages the user to “Find, Create,
and Publish Open Source software for free.”
155
Nothing in that
151. Moglen, supra note 31. Many of these claims have been made in the particular
context of the Free Software Foundation’s General Public License (GPL):
The GPL, however, is a true copyright license: a unilateral permission, in
which no obligations are reciprocally required by the licensor. Copyright
holders of computer programs are given, by the Copyright Act, exclusive right
to copy, modify and redistribute their programs. The GPL, reduced to its essence,
says: “You may copy, modify and redistribute this software, whether modified or
unmodified, freely. But if you redistribute it, in modified or unmodified form,
your permission extends only to distribution under the terms of this license. If
you violate the terms of this license, all permission is withdrawn.”
Pamela Jones, The GPL Is a License, not a Contract, LWN.
NET (Dec. 3, 2003),
http://lwn.net/Articles/61292/ (quoting Eben Moglen); see also Robert Pierce,
Principles of Software Licensing, T
HE SOFTWARE LAWYER (Aug. 30, 2009),
http://softwarelawyer.blogspot.com/2009/08/principles-of-software-licensing.html.
152. See Maggiolino & Montagnani, supra note 32, at 811 (“[I]t is commonly believed
that the computer programs produced and distributed with [open-source software] belong
to the public domain.”).
153. See supra Part II.B.
154. See supra text accompanying notes 44-46.
155. SourceForge – Download, Develop and Publish Free Open Source Software,
S
OURCEFORGE.NET, http://sourceforge.net/ (last visited Jan. 21, 2013).
136 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
slogan—or indeed elsewhere in the general material on the website—
alerts users that use of the software that they obtain on the site is
subject to restrictions. This marketing approach can easily be
understood to provide users with an implied license to unrestricted
use of the software.
156
Advocates of bare licensing, like Moglen, actually appear to
acknowledge the significance of this point in principle. That is, they
do seem to acknowledge, implicitly at least, that binding the user
requires consent in some circumstances. But those circumstances,
they say, are only present for some open-source licensing:
But it is sometimes said that the GPL [GNU General Public
License] can't be enforced because users haven't “accepted” it.
This claim is based on a misunderstanding. The license does not
require anyone to accept it in order to acquire, install, use, inspect,
or even experimentally modify GPL’d software. All of those
activities are either forbidden or controlled by proprietary software
firms, so they require you to accept a license, including contractual
provisions outside the reach of copyright, before you can use their
works. The free software movement thinks all those activities are
rights, which all users ought to have; we don’t even want to cover
those activities by license. Almost everyone who uses GPL’d
software from day to day needs no license, and accepts none. The
GPL only obliges you if you distribute software made from GPL’d
code, and only needs to be accepted when redistribution occurs.
157
This passage seems to accept that restrictions on redistribution
require consent. But Moglen apparently does not mean actual
consent: “And because no one can ever redistribute without a license,
we can safely presume that anyone redistributing GPL’d software
intended to accept the GPL.”
158
The flaw in this argument is that a
user who obtains a work in a manner that appears to involve the
grant of a license without restrictions (like downloading from a site
like SourceForge) may not even know of the intended restrictions, let
alone “intend[] to accept” them.
156. It has been argued that licensing under the GPL will also grant an implied license
to any patents that cover the licensed software. See Adam Pugh & Laura A. Majerus,
Potential Defenses of Implied Patent License Under the GPL, F
ENWICK &WEST LLP,
http://www.fenwick.com/FenwickDocuments/potential_defenses.pdf. Several authors have
argued recently for expansive use of implied copyright licenses. See Orit Fischman Afori,
Implied License: An Emerging New Standard in Copyright Law, 25 S
ANTA CLARA COMPUTER
&HIGH TECH. L.J. 275 (2009); Raghu Seshadri, Bridging the Digital Divide: How the Implied
License Doctrine Could Narrow the Copynorm-Copyright Gap, 11 UCLA J.L. & T
ECH. 1
(2007), available at http://www.lawtechjournal.com/articles/2007/03_071220_seshadri.pdf;
John S. Sieman, Using the Implied License To Inject Common Sense into Digital Copyright,
85 N.C. L. R
EV. 885 (2007).
157. Moglen, supra note 31.
158. Id.
2012] MUST LICENSES BE CONTRACTS? 137
Moglen also seems to derive support for his less-than-strict
approach to consent through the claim that the GPL imposes only “a
very minor restriction, from the copyright point of view.”
159
There are
several flaws in the argument. First, the GPL license in fact imposes
more than one restriction, as Moglen explained in a declaration filed
in a suit in which the GPL was at issue:
19. If a user wishes to redistribute software she has received under
the GPL, whether in modified or unmodified form, the license
permits that activity as well. Here, however, the permission is
qualified by three primary conditions:
• Redistribution must itself occur under GPL and only GPL, with
no additional license conditions. (See Exhibit B, §2(b));
• Redistribution must include “source code,” the human-readable
form of computer programs that allows programmers to
understand and modify computer programs for themselves, as
opposed to “object code,” which is the “machine language” version
of computer programs that is very difficult for programmers to
understand or modify. (See Exhibit B, §3(a)); and
• Redistribution must include a copy of the GPL, so that users are
aware of their rights to use, copy, modify and distribute, and so
that anyone engaged in redistribution is also aware of the conditions
under which redistribution is permitted. (See Exhibit B, §1).
160
The GPL-license-only restriction is probably the most significant, but
the requirement of disclosure of source code is important as well, and
has in fact been the focus of some GPL enforcement actions.
161
Second, even if only one restriction was imposed, and even if it
was minor, it is not at all clear that there is some sort of de minimis
exception for imposing binding restrictions on licensees. Though he is
not clear, Moglen appears to argue that multiple or major restrictions
would require a contract, but single, minor restrictions do not.
162
He
159. Id.
160. Declaration of Eben Moglen in Support of Defendant’s Motion for a
Preliminary Injunction on Its Counterclaims ¶ 19, Progress Software Corp. v. MySQL
AB, 195 F. Supp. 2d 328 (D. Mass. 2002) (No. 01-CV-11031), available at
http://www.gnu.org/press/mysql-affidavit.pdf [hereinafter Moglen Declaration].
161. See McGowan, supra note 19, at 210-11 (contrasting the GPL with other licenses
which impose obligations that are “mild and undemanding”).
162. In the preceding paragraph in the same declaration, Moglen actually made
comments suggesting that users must “accept” licenses for restrictions to be enforceable:
18. The GPL is a very simple form of copyright license, as compared to other
current standards in the software industry, because it involves no contractual
obligations. Most software licenses begin with the exclusive rights conveyed to
authors under copyright law, and then allow others access to the copyrighted
work only under additional contractual conditions. The GPL, on the other hand,
actually subtracts from the author’s usual exclusive rights under copyright law,
through the granting of unilateral permissions. When a work of copyrighted
software is released under the GPL, all persons everywhere observing its terms
are unilaterally permitted all rights to use, copy, and modify the software.
Because these permissions are unilaterally given, users who wish only to use
138 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
cites no case for this proposition, and I am aware of none that would
support it. Indeed, there is a certain irony in this claim, given that it
is made in support of the claim that the restrictions could be the
basis of infringement suits. If the restrictions were truly minor,
copyright owners presumably would not bother to enforce them.
In the end then, there is no doctrinal support for the “bare license”
approach, at least in the U.S.
163
The issue is more closely approached
in two German cases.
164
In each, the court expressed uncertainty
regarding the validity of the GPL license restrictions,
165
but noted
that if the licensee had not entered into a valid license, then any use
of the software would be illegal.
166
This conclusion has been criticized,
however: “On the face of it, that sounds plausible, but it is not. If
somebody offers software on the Internet for downloading and links
the download with invalid general terms, he can hardly sue for
copyright infringement.”
167
There is no discussion in the German
cases of an implied license theory, which could serve to permit access
by those who download software from a website without notice of any
restrictions, let alone invalid ones.
168
the software themselves, making copies for their own use, or who wish only to
make derivative works for their own use, do not have to “accept” the license,
because they have no reciprocal obligations under it.
Moglen Declaration, supra note 160, ¶ 18.
163. This Article focuses on the law in the United States. For discussions of the
law in other jurisdictions, see, for example, Andrés Guadamuz-González, The
License/Contract Dichotomy in Open Licenses: A Comparative Analysis, 30 U. L
A
VERNE L. REV. 296 (2009); Herkko A. Hietanen, A License or a Contract: Analyzing
the Nature of Creative Commons Licenses (July 20, 2008), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1029366; Metzger & Jaeger, supra note
139; Jennifer Buchanan O’Neill & Christopher J. Gaspar, What Can Decisions by European
Courts Teach Us About the Future of Open-Source Litigation in the United States, 38 AIPLA
Q.J. 437 (2010).
164. See sources cited supra note 107; Landgericht München I [LG München I] [District
Court of Munich I] May 19, 2004, No. 21 O6123/04 at 8 (Ger.), available at
http://www.jbb.de/fileadmin/download/urteil_lg_muenchen_gpl.pdf [hereinafter Munich
District Court], unofficial translation available at http://www.jbb.de/fileadmin/download/
judgment_dc_munich_gpl.pdf [hereinafter Munich District Court translation].
165. One commentator noted that the Munich District Court did not consider whether
a contract had been formed: “The fact that the Court jumped straight to this question,
without dealing with the question of whether a contract had been concluded in the first
place, can be explained by the fact that the conclusion of the contract had never
been disputed by the defendant.” Julian P. Höppner, The GPL Prevails: An Analysis of
the First-Ever Court Decision on the Validity and Effectivity of the GPL, 4 SCRIPT
ED 628,
632 (2004).
166. Frankfurt District Court translation, supra note 107, at 6; Munich District Court
translation, supra note 164, at 12.
167. Thomas Hoeren,
The First-Ever Ruling on the Legal Validity of the GPL—A
Critique of the Case, O
XFORD INTERNET INST., http://www.oii.ox.ac.uk/downloads/
index.cfm?File=resources/feedback/OIIFB_GPL3_20040903.pdf.
168. See Frankfurt District Court translation, supra note 107; Munich District Court
translation, supra note 164.
2012] MUST LICENSES BE CONTRACTS? 139
IV. WHY CONTRACTS SHOULD (USUALLY)BE REQUIRED FOR
IP
L
ICENSES
Given the lack of clarity in the law and the advocacy of non-
contractual licenses, it is important to consider the normative
justifications for requiring, or not requiring, licensors to use contracts
to bind their licensees to license restrictions. The next two sections
discuss two issues that support the requirement of a contract. First,
in the absence of contract, the framework for enforcement of licenses
is not clear. No other body of law is an obvious choice to fill the gap.
Second, in the absence of contract, the variety of possible property
interests that could be created by restrictions would impose
information costs on transferees, who would have to determine what
restrictions were imposed upstream. Although notice of restrictions
might seem like a sufficient solution to these problems, Part IV.C
argues that it poses its own problems, so that contract is the better
solution. A contract requirement may be too burdensome, however,
for transfers to downstream licensees. As a result, this Article
proposes an alternative: secondary liability, which requires an intent
to induce infringement. The intent requirement here would
substitute for contractual consent, and this approach would not
interfere with IP owners’ achievement of their legitimate goals in
enforcing their rights.
A. Interpretation and Enforcement
If licenses need not be contracts, it is not clear under what body of
law they would be enforced. Although some license restrictions may
be easy or uncontroversial to interpret under whatever body of law is
used, others may be less clear. For example, some websites specify a
particular type of license for computer software, but they do not
indicate which version of the license is applicable.
169
What body
of law should apply in such circumstances to determine which
version applies, or even to determine if the uncertainty makes the
“license” unenforceable?
Consider, for example, an issue that arose in the Progress
Software litigation, which involved the GPL and an allegation that a
party had distributed software without complying with the GPL’s
requirement that source code be made available.
170
Eben Moglen, who
was responsible for enforcement of the GPL for the Free Software
Foundation (FSF),
171
argued for the FSF that failure to comply with
the GPL terminates distribution rights of a person failing to comply
and that those rights cannot be reinstated without some sort of
169. See supra text accompanying notes 46-47.
170. Progress Software Corp. v. MySQL AB, 195 F. Supp. 2d 328, 329 (D. Mass. 2002).
171. See Moglen Declaration, supra note 160, ¶ 24.
140 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
affirmative action by the copyright holder.
172
But where the software
is continuously made available to the public under the GPL, it seems
that the formerly non-complying licensee, like everyone else, should
be able at any time to begin distributing software in compliance with
the license. The FSF’s position presumably relies on a view that some
body of law prohibits that option, but it does not identify that body of
law.
173
In an order granting partial summary judgment, the Progress
Software judge seemed to imply that the breach could be “cured” by
subsequent compliance. Like the FSF though, the judge did not make
clear from what body of law she derived the “cure” principle.
174
Whether the “cure” option, specifically, is available is not the
important issue. The issue is whether this question should be
answered by reference to contract law, copyright law, or some other
body of law, like a “law of bare IP licenses.” In fact, the “cure” concept
employed in Progress Software appears to be derived from contract
law. The Restatement (Second) of Contracts provides that “it is a
condition of each party’s remaining duties . . . that there be no
uncured material failure by the other party.”
175
Although what would
be required for a breaching party to cure a license violation may not
always be clear, it seems clear that the contract-law concept of cure
does not require any sort of action by the nonbreaching party, or
permit it to refuse to accept an otherwise valid cure. Thus, the
Progress Software judge appeared implicitly to apply contract law
rather than Professor Moglen’s somewhat different approach.
One might object that, regardless of what body of law applies,
limitations and provisions that are incorporated in the license would
be enforced. That would generally be true, but the section of the GPL
on which Moglen relied, § 4 of version 2,
176
does not in fact provide for
any particular means of reinstating license rights. The portion of the
section on which he apparently relied states only that “[a]ny attempt
[not permitted by the license] to copy, modify, sublicense or distribute
the Program is void, and will automatically terminate your rights
172. See Moglen Declaration, supra note 160, ¶ 22 (“Under §4, any licensee who
violates the GPL loses his right of distribution, until such time as that right is restored by
affirmative act of the copyright holder.”).
173. This issue was also important in the Best Buy litigation. See supra text
accompanying notes 6-10. Several recent blog entries highlighted the issue with
reference to Android, but they did not discuss the validity of the claim that the copyright
owner can demand affirmative action. See Edward J. Naughton, License Revoked:
Applying Section 4 of the GPL and the Lessons of Best Buy to Google’s Android, E
MERGING
TECH.BLOG (Aug. 8, 2011), http://brownrudnick.com/blog/emerging-technologies/
license-revoked-applying-section-4-of-the-gpl-and-the-lessons-of-best-buy-to-googles-android/.
174. The judge said only that she was “not persuaded based on this record that the
release of the Gemini source code in July 2001 didn’t cure the breach.” Progress Software,
195 F. Supp. 2d at 329. Although the use of the word “breach” might be read to suggest a
contract analysis, the same word might be used if a license were only a property concept.
175. Restatement (Second) of Contracts § 237 (1981).
176. See supra note 172 and accompanying text.
2012] MUST LICENSES BE CONTRACTS? 141
under this License.”
177
Because this section does not require an
affirmative act by the copyright owner for reinstatement of the license,
Moglen’s claim that such a requirement existed was presumably
derived from some background rule of law (though he did not identify
that rule).
The need for such background rules is common, of course. Many
contract cases turn on issues for which the parties have not provided
expressed provisions, so that interpretation often relies on factors
from outside the four corners of the contract, such as trade usage.
More to the point, contract law has rules (or meta-rules) for how the
interpretation process is conducted and when different sources for
applicable rules can be used.
178
If IP licenses are not governed by
contract law, it is not clear where courts could turn for such rules.
Moreover, to turn to some other body of law would be especially odd
because licenses that are contracts surely would be governed by
contract law.
179
The idea that contractual licenses would continue to be
governed by contract law but that “bare licenses” would be governed by
some other body of law has little to recommend it.
To be sure, courts need not require the niceties of contract law to
justify using contract law to interpret licenses:
It may be that bare licenses will be interpreted by the courts under
contract law principles, even in the absence of the contract
177. GNU General Public License, supra note 8. The full section reads as follows:
You may not copy, modify, sublicense, or distribute the Program except as
expressly provided under this License. Any attempt otherwise to copy, modify,
sublicense or distribute the Program is void, and will automatically terminate
your rights under this License. However, parties who have received copies, or
rights, from you under this License will not have their licenses terminated so
long as such parties remain in full compliance.
Id.
178. Lawrence Rosen makes this point in drawing a distinction between bare licenses
and contracts:
In the absence of a contract, the terms and conditions of a bare license may be
subject to varying court interpretations around the world. . . .
. . . .
Contract law, unlike copyright and patent law, provides procedures and
rules for license interpretation and enforcement. Contract law, in the published
court decisions and in the statutes adopted by legislatures around the world,
addresses almost every possible term or condition a lawyer could dream up for
a contract. Contract law specifies how contracts are to be formed, how they are
to be interpreted, how they are to be enforced, and the remedies for breach. In
many situations, where a license is silent about a particular term or condition,
contract law even provides default “fill-in” provisions.
R
OSEN, supra note 31, at 55, 57-58.
179. For patent law, see, for example, Power Lift, Inc. v. Weatherford Nipple-Up Sys.,
Inc., 871 F.2d 1082, 1085 (Fed. Cir. 1989) (“A license agreement is a contract governed by
ordinary principles of state contract law.”). For copyright, see, for example, ProCD, Inc. v.
Zeidenberg, 86 F.3d 1447, 1450 (7th Cir. 1996) (“Following the district court, we treat the
licenses as ordinary contracts accompanying the sale of products, and therefore as
governed by the common law of contracts and the Uniform Commercial Code.”).
142 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
formalities of offer, acceptance, and consideration. After all, major
software companies around the world distribute open source
software as part of their products; those open source licenses may be
technically and economically impossible to revoke. Furthermore, in
commercial dealings of any significance worthy of being turned into
litigation, there are almost certainly other aspects of offer,
acceptance, and consideration that can be invoked by creative
lawyers as proof that a contract was formed.
180
This argument resembles the position of Hillman and O’Rourke,
who say that “[b]y providing a framework for adjudication that
respects the structure of the movement and . . . the importance of
intellectual property law to it, contract law provides a measure of
certainty that will prevent the inevitable disputes from undermining
the movement.”
181
It is certainly true that applying contract law, even
if no contract was formed, would provide a measure of certainty, but
that may not be desirable. Contract law lets parties create their own
law, but it assumes the consent of both parties. Even the attenuated
evidence of consent that courts require for shrink-wrap and click-
wrap licenses has some minimal requirements, and as discussed
above,
182
many open-source licenses do not meet these requirements.
If instead the IP owner is permitted to set the terms of a “bare
license” unilaterally, a sufficient justification for enforcing those
terms may not exist. That is, it may not be legitimate for open-source
advocates to seek the interpretive benefits of contract law without
accepting even its minimal formation burdens. In fact, they do not
rely on contract law, at least explicitly, or indeed on any other
specific body of law.
Some commentary suggests other avenues for enforcing bare licenses:
A bare license—which, by definition, is not a part of a contract—
must be enforced outside the rubric of contract law. A bare license
is enforceable by the licensee under either equity concepts such as
promissory estoppel or, alternatively, under property law that
independently recognizes the effectiveness of licenses as a means
for unbundling and sharing ownership interests.
183
180. ROSEN, supra note 31, at 278.
181. Hillman & O’Rourke, supra note 146, at 332. Hillman and O’Rourke are also the
Reporter and Associate Reporter, respectively, for the ALI’s Principles of the Law of
Software Contracts. In a recent article discussing the Principles, they state that they
“apply to software transfers supported by consideration, meaning software contracts,
including contracts denominated as licenses, sales, or access contracts.” Robert A. Hillman
& Maureen A. O’Rourke, Principles of the Law of Software Contracts: Some Highlights, 84
T
UL.L.REV. 1519, 1522 (2010).
182. See supra text accompanying note 137.
183. Pierce, supra note 151.
2012] MUST LICENSES BE CONTRACTS? 143
Enforcement through property law is certainly an option,
184
but may
not provide a useful interpretive apparatus. Although the common
law of real property has developed rules for real property licenses,
there is a dearth of tangible property cases concerning restrictive
licenses,
185
which is the particular issue most relevant in the IP
context. In any event, there is no such common law of intellectual
property, which has always used contract law to interpret licenses.
To be sure, a property law of IP licensing could develop either
independently or as part of patent law, copyright law, or both. We are
not yet at a point though, where intellectual property is “property
law that independently [presumably meaning independently of
contract law] recognizes the effectiveness of licenses . . . .”
186
Moreover, it is not clear that even open-source advocates would
want licenses to be interpreted under IP law. One such advocate says
that “[m]ost free software licenses are based on copyright law, and for
good reason: Copyright law is much more uniform among countries
than contract law, which is the other possible choice.”
187
This claim is
questionable in several respects. First, it is not obviously true, even
on its own terms.
188
Second, the relevant question is not whether
184. It is not so clear that promissory estoppel is a valid approach to license
enforcement, even if it is put in italics. Promissory estoppel is a contract doctrine that
allows reliance on a promise to substitute for consideration and allows formation of a
contract, but that formation still requires an offer and acceptance. Perhaps the suggestion
is only that when offer and acceptance are present, a bare license could be enforced even
absent consideration through promissory estoppel. That is presumably true, but it is not
clear that the typical license situation satisfies the usual promissory estoppel standard.
Under the Restatement (Second) of Contracts, a promise that can be enforced via
promissory estoppel is one “which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a third person and which does induce such
action or forbearance . . . .” R
ESTATEMENT (SECOND) OF CONTRACTS § 90 (1981). The usual
scenario is that of a gift promise that induces reliance on the potential donee. In the open-
source context though, the only promise is the IP owner’s promise not to sue if the licensee
uses the IP as directed. Open-source advocates take pains to point out that in many open-
source licenses the licensee makes no promise. However, there is then no promise that
would bring the doctrine of promissory estoppel into play. Lydia Pallas Loren argues that
the licensor’s promise could be enforced through promissory estoppel. Focusing on whether
a promise to grant an irrevocable license—or irrevocable promise not to sue—is binding,
she says, “uses which involve attribution, identifying the license status, and release of a
derivative work under the share-alike requirements, should constitute sufficient detriment
to make the promise of non-revocability enforceable.” Lydia Pallas Loren, Building a
Reliable Semicommons of Creative Works: Enforcement of Creative Commons Licenses and
Limited Abandonment of Copyright, 14 G
EO.MASON L. REV. 271, 318 (2007). But it is still
the case that the licensee has made no promise to be enforced.
185. See supra Part III.A.
186. Pierce, supra note 151.
187. Stallman, supra note 29.
188. Richard Stallman, the author of this claim, does not offer any support for it, and
Lawrence Rosen takes issue with it:
Some suggest that since contract law varies around the world, open-source
contributors and distributors should rely exclusively on consistent copyright
and patent law for their licenses. But the varieties of contract law are
exaggerated, as are the similarities of copyright and patent law around the
144 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
contract law is uniform, but whether contract-law interpretation of
similar terms would be uniform. It seems at least possible that
contract law, a body of law whose purpose is to let parties define
their own legal relationships, would result in more uniform
interpretations than would copyright.
B. Information Costs
Another form of uncertainty would be created if property law
applied to licenses in the absence of contract. As described above, in
the absence of contract a licensee will often have no way of knowing
at the time of acquiring intellectual property what restrictions the
licensor seeks to impose. This presents a problem not only when
violations of the restrictions are sought to be enforced but also when
licensees consider entering into licenses. As in other contexts, the
presence of information costs creates a burden for the formation of
productive relationships.
In a series of articles, Thomas Merrill and Henry Smith have
outlined the relative costs of property law and contract law in a
variety of circumstances, and the balance weighs in favor of contract
law for IP licenses.
189
The key feature of property rights is that they
are rights in rem that can be enforced against anyone who violates
them. Hence, all potential violators/infringers must consider those
rights, and to the extent that the rights are uncertain or unclear, the
total societal costs of avoiding violation/infringement are dramatic.
190
Contract, in contrast, binds only those who have consented to the
contract, and they presumably are aware of the limits of their rights.
191
One of the examples offered by Merrill and Smith is very similar
to a restrictive license:
Suppose one hundred people own watches. A is the sole owner of a
watch and wants to transfer some or all of the rights to use the
watch to B. The law of personal property allows the sale of A’s
entire interest in the watch, or the sale of a life estate in the
watch, or the sale of a joint tenancy or tenancy in common in the
world. The global requirement for consistency of commercial transactions—a
requirement of the capitalist market system—helps ensure that contracts are
interpreted in much the same way around the world. Meanwhile copyright law
is not consistent; the courts around the world, for example, don’t agree on what
constitutes a derivative work of software.
R
OSEN, supra note 31, at 58.
189. See Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law
of Property: The Numerus Clausus Principle, 110 Y
ALE L.J. 1, 3-4 (2000) [hereinafter
Optimal Standardization]; Merrill & Smith, supra note 22, at 776-77; Henry E. Smith,
Intellectual Property as Property: Delineating Entitlements in Information, 116 YALE L.J.
1742, 1765-67 (2007).
190. See, e.g., Merrill & Smith, supra note 22, at 777.
191. Id.
2012] MUST LICENSES BE CONTRACTS? 145
watch. But suppose A wants to create a “time-share” in the watch,
which would allow B to use the watch on Mondays but only on
Mondays (with A retaining for now the rights to the watch on all
other days). As a matter of contract law, A and B are perfectly free
to enter into such an idiosyncratic agreement. But A and B are not
permitted by the law of personal property to create a property right
in the use of the watch on Mondays only and to transfer this
property right from A to B.
Why might the law restrict the freedom of A and B to create such
an unusual property right? Suppose, counterfactually, that such
idiosyncratic property rights are permitted. Word spreads that
someone has sold a Monday right in a watch, but not which of the
one hundred owners did so. If A now decides to sell his watch, he
will have to explain that it does not include Monday rights, and
this will reduce the attractiveness of the watch to potential buyers.
Presumably, however, A will foresee this when he sells the
Monday rights, and is willing to bear the cost of that action in the
form of a lower sales price. But consider what will happen now
when any of the other ninety-nine watch owners try to sell their
watches. Given the awareness that someone has created a
Monday-only right, anyone else buying a watch must now also
investigate whether any particular watch does not include Monday
rights. Thus, by allowing even one person to create an
idiosyncratic property right, the information processing costs of all
persons who have existing or potential interests in this type of
property go up.
192
This hypothetical is quite similar to some post-sale patent license
restrictions. Some restrictive practices address the informational
issue to some extent, as did the placement of a “single use only”
inscription on the patentee’s product in the Mallinckrodt case
described above, but others do not. For example, seed manufacturers
sometimes sell their patented seeds in bags that bear use
restrictions, but of course the seeds themselves cannot bear the same
restrictions.
193
Indeed, in a case currently before the Supreme Court,
the alleged patent infringer obtained patented, but unlabeled seed,
from a grain elevator.
194
Moreover, a seller that seeks to avoid license
restrictions could remove a label notice, making it extremely difficult
for an unsuspecting purchaser to determine that the product is
protected. It is one thing to apply patent law’s strict liability
approach to eliminate an “innocent infringer” defense when patents
are public records; it is quite another to use it to create a trap for the
unwary when there is no centralized database for license restrictions.
192. Optimal Standardization, supra note 189, at 27.
193. See Monsanto Co. v. Scruggs, 459 F.3d 1328, 1336 (Fed. Cir. 2006); Monsanto
Co. v. McFarling, 363 F.3d 1336, 1343-44 (Fed. Cir. 2004).
194. See Bowman v. Monsanto Co., 657 F.3d 1341 (Fed. Cir. 2011), cert. granted, 80
U.S.L.W. 3380 (U.S. Oct. 5, 2012) (No. 11-796).
146 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
The problem illustrated by Merrill and Smith’s hypothetical is
also present in open-source licensing. As in their hypothetical, there
are different versions of open-source licenses. Even the GNU General
Public License has had three different versions, plus other
variations, and, as described above,
195
copyright owners sometimes
do not specify which version is applicable. This can create significant
uncertainty, as illustrated in this question and answer from the
FAQs for GPL version 3:
My company owns a lot of patents. Over the years we’ve
contributed code to projects under “GPL version 2 or any later
version”, and the project itself has been distributed under
the same terms. If a user decides to take the project’s code
(incorporating my contributions) under GPLv3, does that
mean I’ve automatically granted GPLv3’s explicit patent license to
that user? . . .
No. When you convey GPLed software, you must follow the
terms and conditions of one particular version of the license. When
you do so, that version defines the obligations you have. If users
may also elect to use later versions of the GPL, that’s merely an
additional permission they have—it does not require you to fulfill
the terms of the later version of the GPL as well.
196
The problem here is that it seems impossible to determine which
version of GPL would be applicable. As the question is posed, the
company has never specified to those using its code which version
applied. Indeed, a company could license software under the GPL
without making a decision about which version is applicable. And the
answer expresses no concern about whether the patent-licensing
provisions of GPL version 3 are applicable, or even about whether a
user making a decision whether to use the code would be able to
determine whether they would be applicable. Even though a user
knows that some version of the GPL is applicable, it cannot know
which version that is, and therefore, it cannot know which licensing
provisions apply.
Molly Van Houweling presents a more detailed discussion of
notice and information costs in the context of IP licensing, comparing
license restrictions to personal property servitudes.
197
Like Merrill
and Smith, she notes the costs of such servitudes:
The information costs (and resultant clogging of transactions)
imposed by chattel servitudes may not be different in kind from
the costs that can be imposed by bilateral contracts (which are also
often unread, misunderstood, and not fully contemplated). . . . But
servitudes (including nominal “contracts” that behave like servitudes
195. See supra text accompanying notes 46-47.
196. Free Software Found., Frequently Asked Questions about the GNU Licenses, GNU
O
PERATING SYS., http://www.gnu.org/licenses/gpl-faq.html (last visited Jan. 21, 2013).
197. Van Houweling, supra note 53, at 932-39.
2012] MUST LICENSES BE CONTRACTS? 147
by running automatically to every possessor of an object to which
their terms are attached) exacerbate and magnify what might
otherwise be a problem of limited duration and scope.
198
She is ambivalent when it comes to considering the analogous effect
of licensing restrictions: “When we turn to running restrictions
imposed on computer software and other intangible works (and on
the objects embodying them), the notice and information-cost
calculus becomes yet more complicated.”
199
Her ambivalence derives
from the fact that most such restrictions do not go beyond the
protections granted by copyright.
200
That seems like the wrong question. The question is not whether
licensees are restricted from conduct in which they could engage with
no copyright license, but whether they are restricted from conduct in
which they might reasonably believe they could engage, given how
they obtained the licensed product. Here, Van Houweling points out
that licensors “impose these restrictions in the context of inexpensive
transactions in which restrictive terms are bundled with access to
unique intellectual assets that are partially insulated from
competition—thereby reducing consumers’ motivation and opportunity
to fully understand and compare terms.”
201
This is to some extent a
circular question, of course, but as she says with regard to tangible
property, non-contractual restrictive terms are problematic “because
people are conditioned to associate possession with certain rights of
use and transfer, and because the high salience of immediate
possession is likely to swamp accompanying terms.”
202
It seems likely
that the same expectations accompany intellectual property, at least
in the absence of prior notice or consent.
C. Consent and Notice
The most obvious solution to the interpretation and enforcement
problems described in the previous sections is simply to require that
license restrictions be imposed by contract. Not everyone would
agree, of course, and a simple statement of the counterargument for
this solution has been offered by Richard Stallman, one of the
founders of the free software movement: “There’s another reason not
to use contract law: It would require every distributor to get a user’s
formal assent to the contract before providing a copy. To hand
198. Id. at 916.
199. Id. at 933.
200. Id. at 935-39.
201. Id. at 938.
202. Id. at 916.
148 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
someone a CD without getting his signature first would be forbidden.
What a pain in the neck!”
203
Stallman presumably does not believe that it is appropriate to
impose restrictions on licensees without providing them at least with
notice of the restrictions. Indeed, no one seems to argue that notice
should be unnecessary; instead, the presence of notice seems to be
assumed.
204
That assumption though, is surely incorrect, particularly
for downstream transferees that may have no direct contact with the
IP owner, and are thus less likely to have notice of the IP owner’s
intentions. Lydia Pallas Loren has observed that “[m]any works
licensed under Creative Commons licenses are freely available on the
internet,” and because access often does not require an affirmative
act like clicking on an “I agree” button, “[i]t is entirely plausible for
an individual to engage in activity that the license deems to
be manifestation of assent without awareness of the license.”
205
More importantly, “a user may be unaware of the offer because she
has accessed a copy of the work that did not contain a notice of the
license’s existence.”
206
The problem with notice as a test for enforceability is that there is
no “law of notice.” In that respect, echoing the “if not contract, what?”
arguments discussed above, even if notice is the goal, the use of
contract may be the most efficient means of attaining that goal.
Contract law has well-established rules for determining whether
terms have been accepted, and though the law of contract has
developed (or devolved) to the point where acceptance may not be
compelling evidence of notice,
207
the current contractual rules are now
well-established and apparently reflect a determination of what level
of notice is sufficient. Contrary to Stallman’s claim, the avenues the
law provides for the imposition of standard terms through form
contracts and click-wrap licenses should hardly be a pain in the neck,
even for the most sensitive licensor.
203. Stallman, supra note 29. It is not the case, of course, that with a contract
requirement an IP owner would need to get a transferee’s consent, let alone its assent,
every time the owner wanted to transfer its IP. The owner would need to do so only if it
wanted to restrict the transferee’s use of the IP in some way.
204. See Moglen, supra note 31 (“After all, the GPL requires each copy of covered
software to include the license text, so everyone is fully informed.”). This is unrealistic,
of course. The fact that a license requirement exists does not mean that all users are aware
of it.
205. Loren, supra note 184, at 311.
206. Id.
207. Van Houweling makes this point:
The problem that remains, however, is that even explicit and firmly attached
notice is not effective for people who do not read it or fully integrate it into their
decisions. This is, of course, a potential problem with traditional, bilateral contracts
as well—one to which contract doctrine is not normally very sympathetic.
Van Houweling, supra note 53, at 933.
2012] MUST LICENSES BE CONTRACTS? 149
Indeed, the use of standard contracts may avoid more
fundamental problems that a notice approach would present, as the
Supreme Court’s recent decision in Quanta illustrates. In Quanta,
the patentee, LG, licensed its invention to Intel with a contractual
provision requiring Intel to provide a notice to its customers stating
that the purchase of the patented product from Intel did not give the
customers the rights to use it with non-Intel components.
208
Intel’s
license from LG did not, however, prohibit Intel from selling the
patented product to unlicensed customers.
209
As a result, the Court
found that the authorized sale exhausted LG’s rights, and the
downstream customers were not in fact subject to the purported
restriction in the notice they received from Intel.
210
The key point is that the purchasers from Intel, despite having
received notices stating that certain uses of the products that they
purchased would be infringing, were in fact freely able to use those
products, free of restrictions and free of infringement liability. The
only way for them to know that, however, was for them to investigate
both Intel’s conduct and the transaction between LG and Intel to
determine whether Intel’s sales were consistent with its contractual
obligations. Notice, in other words, can be false notice, and it is
costly, if not impossible, for licensees to determine the validity of the
notices they receive.
In Quanta, this problem was created in part because the
purchasers were downstream licensees that did not purchase directly
from the patentee, but the same problem could arise for direct
licensees. For example, suppose a patentee provided its licensees
with notice that certain conduct was prohibited, when in fact that
conduct was permissible under patent law.
211
In that case, the notice
208. Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 623-24 (2008).
209. Id. at 636.
210. Id. at 637-38. The same rule presumably applies to other products. Two
commentators have suggested, however, that the result might be different for seeds: “The
question of whether a bag tag license affirmatively restricts downstream use of the product
or merely provides notice has not yet been addressed in view of Quanta.” Tanya D’Souza &
Denise Kettelberger, Patent Exhaustion: Implications of Quanta on Seed Licenses and
Downstream Purchasers, 3 B
LOOMBERG L. REP.INTELL.PROP. 6, 7 (2009), available at
http://www.faegre.com/webfiles/Bloomberg%20IP%20Law%20Report%20092109.pdf.
Quanta in fact seems quite clear on this issue: a bag tag on seeds cannot itself impose
restrictions, but can only provide notice that might carry upstream infringement liability
downstream. That upstream infringement, however, can only derive from violation of a
contractual provision, not from nonconformity with notices. Thus, when the same authors
say that “[p]urchasers of seed take the product with the same restrictions of sale imposed
on the first purchaser in the chain,” id., that does not appear to be correct. They take the
product with restrictions only if the restrictions are incorporated in a contract.
211. This hypothetical might in fact have been presented by the Mallinckrodt case
discussed above. The “single use only” restriction might have conflicted with the right that
patent law gives to purchasers to repair (though not to “reconstruct”) the patented products
they purchase. See Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961).
The Federal Circuit in Mallinckrodt stated that the patentee was permitted to eliminate
150 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
would be false, and it presumably would not restrict the licensee,
perhaps contrary to the expectation of the patentee. But if the
licensee agreed to the restriction, the argument that it would be
binding is more compelling. In that case, it would raise difficult
questions about preemption of the contractual restriction by patent
law, but the difficulty would not be compounded by the question of
the validity of the notice.
D. Downstream Users and Secondary Infringement
A contract requirement poses significant problems, however, when
products pass to downstream users. Although an IP owner generally
will not find it prohibitively difficult to enter into contracts with its
immediate purchasers and licensees, those purchasers and licensees
may themselves pass on products without imposing similar
contractual restrictions. Even advocates of a notice approach
recognize this problem. In recent work, Herbert Hovenkamp has said
that “a notice requirement seems much more suitable to the problem
than the more draconian route of forbidding such restraints
altogether,”
212
but he seems to harbor some doubts. He notes that in
one of the Supreme Court’s first-sale cases, Henry v. A.B. Dick Co.,
213
the defendant was not a purchaser of the patented product (ink), but
a seller to the purchaser whose use violated the license restriction.
214
Although the Court said that the ink seller had knowledge of the
license restriction,
215
Hovenkamp notes that “ordinarily an office
supply store selling ink would not be in a position to know what kind
of notice is printed on an ink-consuming machine back at the
purchaser’s office.”
216
Other cases pose similar issues.
This contingency of notice would lead to different treatment for
similarly situated parties who make the same contribution to
infringement,
217
depending on whether they have notice of the
the right of repair by imposition of the “single use only” restriction, Mallinckrodt, Inc. v.
Medipart, Inc., 976 F.2d 700, 709 (Fed. Cir. 1992), but that is likely incorrect. See Mark R.
Patterson, Contractual Expansion of the Scope of Patent Infringement Through Field-of-use
Licensing, 49 W
M.&MARY L. REV. 157, 171, 193-200 (2007).
212. Hovenkamp, supra note 28, at 521.
213. 224 U.S. 1 (1912).
214. Hovenkamp, supra note 28, at 518.
215. A.B. Dick, 224 U.S. at 11-12.
216. Hovenkamp, supra note 28, at 518.
217. It also could be inconsistent, at least in a case like A.B. Dick, with the law of
contributory infringement, which requires not just knowledge of the infringement, but sale
of a component “constituting a material part of the invention” and “especially made or
especially adapted for use in an infringement . . . and not a staple article or commodity of
commerce.” 35 U.S.C. § 271(c) (2006). In a case like Mallinckrodt, Inc. v. Medipart, Inc.,
where the third party’s activity would directly infringe, there would be no such problem.
976 F.2d 700 (Fed. Cir. 1992).
2012] MUST LICENSES BE CONTRACTS? 151
restrictions at issue. That is not necessarily a problem: it is exactly
what is contemplated by a notice requirement. So long as we believe
that being on notice correlates with culpability,
218
or we at least
believe that any discrepancies are not sufficiently unfair or otherwise
undesirable, the difference in legal treatment can be tolerated. But if
notice were an accepted part of the law,
219
parties would diligently
seek to avoid notice of post-sale restrictions, and proof of notice would
become central to infringement actions. As noted above, the law
relating to such proof is not currently well-developed, so this area
would be subject to much uncertainty.
220
More fundamentally, notice is an imperfect proxy for culpability.
In fact, IP law has developed its own approach to imposing liability
on indirect users, and that approach does not rely purely on notice.
Secondary infringement theories impose liability on parties that
promote infringement by others, which the law presumably has
determined strikes a better balance between culpability and innocent
infringement.
221
In the absence of a contractual license, then, IP owners
218. In this respect, it is worth noting that copyright law provides an “innocent
infringer” defense that provides for a reduction of damages when the “infringer was not
aware and had no reason to believe that his or her acts constituted an infringement of
copyright.” 17 U.S.C. § 504(c)(2) (2006). Although this defense does not eliminate liability,
it reflects an understanding that the copyright owner has some responsibility for ensuring
that others are aware of the circumstances that will constitute infringement. It also seems
well-adapted to the situation in which a defendant has innocently exceeded the scope of a
license, although a search did not locate any case in which it was applied in that context.
Cf. Encore Entm’t, LLC v. KIDdesigns, Inc., 2005 WL 2249897, at *10-13 (M.D. Tenn.
2005) (mentioning, though apparently not considering, innocent infringement where a
defendant claimed that it believed that the allegedly infringing conduct was within the
scope of its licenses).
219. Because a violation of a post-sale restriction could occur in many circumstances
that would not constitute contributory infringement, see supra text accompanying notes 6-
10, proof of notice would become important in a much broader range of cases.
220. See supra Part IV.C.
221. This approach, which balances the need for IP owners to control distribution of
their products against the costs of post-sale restrictions, echoes the balance arguably
struck by statute for importation of protected goods. The issue of the importation and
resale of copyrighted books manufactured abroad is currently before the Supreme Court in
John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210 (2d Cir. 2011), cert. granted, 132 S. Ct.
1905 (U.S. Apr. 16, 2012) (No. 11-697). In that case, the Solicitor General, like others,
argues that the best reading of the Copyright Act is one that does not treat foreign sales of
foreign-made works as exhausting the copyright owner’s rights but that does treat
authorized importation of such works to the U.S. as sales that exhaust the owner’s rights.
See Brief for the United States as Amicus Curiae Supporting Respondent at 7-13,
Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Sept. 7, 2012). Although the
arguments in the Solicitor General’s brief are primarily statutory, it also addresses the
policy concerns about downstream control of IP, touching on some of the issues discussed in
this Article. See id. at 26-30. In a forthcoming Article, Professor Guy Rub makes those
issues more explicit, arguing for a similar result but specifically relying on factors that are
important in evaluating claims of secondary infringement. See Guy A. Rub, The Economics
of Kirtsaeng v. John Wiley & Sons: The Efficiency of a Balanced Approach to the First
Sale Doctrine, 81 F
ORDHAM L. REV.RES.GESTAE (forthcoming 2013) (manuscript at
13), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2189955, (“[M]ost
importers know that the goods being imported are manufactured abroad and in fact there
152 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
should be required to rely on these theories. Liability based on notice
alone disturbs the balance that IP law has developed.
1. Intentional Inducement and Notice
One approach to the problem of downstream users that are not
contractually bound would be to allow them to use the products free
of liability, as suggested by the dissenting opinion of Justice Black in
General Talking Pictures:
Petitioner is held liable for using an ordinary vacuum amplifying
tube bought from one who had title and the right to sell. Notice to
petitioner that the vendor was violating its (the vendor’s) contract
with respondents gave the latter no right under the patent and
imposed no responsibility on the petitioner under the patent.
Petitioner became the owner of the tubes.
At this time a great portion of the common articles of commerce
and trade is patented. A large part of the machinery and
equipment used in producing goods throughout the country is
patented. Many small parts essential to the operation of
machinery are patented. Patented articles are everywhere. Those
who acquire control of numerous patents, covering wide fields of
industry and business, can—by virtue of their patents—wield
tremendous influence on the commercial life of the nation. If the
exclusive patent privilege to “make, use and vend” includes the
further privilege after sale, to control—apart from contract—the
use of all patented merchantable commodities, a still more
sweeping power can be exercised by patent owners.
222
That approach might be valid for some innocent downstream
purchasers, but the concern that animates many of the decisions in
this area seems to be that of intentional downstream avoidance of
license restrictions. This was the view of the majority in General
Talking Pictures, which unlike Justice Black did not view the
defendant, a downstream infringer, as a mere purchaser with notice:
Petitioner puts its first question in affirmative form:
“The owner of a patent cannot, by means of the patent, restrict the
use made of a device manufactured under the patent after the
device has passed into the hands of a purchaser in the ordinary
channels of trade and full consideration paid therefor.”
But that proposition ignores controlling facts. The patent owner
did not sell to petitioner the amplifiers in question or authorize the
Transformer Company to sell them or any amplifiers for use in
is a reasonable chance that they are aware that their actions conflict with the copyright
owner’s attempt to segment the market. . . . When it comes to resale markets the balance
is different.”).
222. Gen. Talking Pictures Corp. v. W. Elec. Co., 304 U.S. 175, 186 (1938) (Black,
J., dissenting).
2012] MUST LICENSES BE CONTRACTS? 153
theaters or any other commercial use. The sales made by the
Transformer Company to petitioner were outside the scope of its
license and not under the patent. Both parties knew that fact at
the time of the transactions.
There is no ground for the assumption that petitioner was “a
purchaser in the ordinary channels of trade.”
223
Thus, the Supreme Court relied not only on the defendant’s
knowledge that it was violating the license restriction, though it was
not contractually bound, but also its knowledge that the original
licensee, which was contractually bound, was also violating it.
Moreover, the Court’s rejection of the idea that the defendant was “a
purchaser in the ordinary channels of trade”
224
suggests a view that
the defendant’s role in the infringement was not a passive one.
Indeed, the Court did not rely purely on the defendant’s notice of
infringement: “As petitioner at the time it bought the amplifiers
knew that the sales constituted infringement of the patents embodied
in them, petitioner's second question, as to effect of the license notice,
need not be considered.”
225
The facts of General Talking Pictures, and of other situations in
which liability for downstream acquirers seems warranted, fit within
the statutory prohibition of inducing infringement: “Whoever actively
induces infringement of a patent shall be liable as an infringer.”
226
The Supreme Court recently clarified the law of inducing
infringement in Global-Tech Appliances, Inc. v. SEB S.A.
227
In
Global-Tech, the defendant, a subsidiary of Global-Tech, was a Hong
Kong-based manufacturer that Sunbeam requested manufacture a
deep fryer that met particular specifications. The defendant copied
SEB’s patented deep fryer, but the fryer it copied was purchased in
Hong Kong and bore no U.S. patent indication. SEB alleged that the
defendant had induced Sunbeam to infringe, but the defendant
argued that it did not know of SEB’s patent and that knowledge was
an essential element of inducement liability under § 271(b).
The Court agreed that the statute “requires knowledge that the
induced acts constitute patent infringement,”
228
but said that the
knowledge element could be met by willful blindness. The Court stated
that willful blindness, in turn, has “two basic requirements: (1) the
defendant must subjectively believe that there is a high probability
223. Id. at 180-81.
224. Id. at 181.
225. Id. at 182. The second question to which the Court referred was: “Can a patent
owner, merely by a ‘license notice’ attached to a device made under the patent, and sold in
the ordinary channels of trade, place an enforceable restriction on the purchaser thereof as
to the use to which the purchaser may put the device?” Id. at 177.
226. 35 U.S.C. § 271(b) (2006).
227. 131 S. Ct. 2060 (2011).
228. Id. at 2068.
154 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
that a fact exists and (2) the defendant must take deliberate actions to
avoid learning of that fact.”
229
The Court concluded that there was
“more than sufficient [evidence] for a jury to find that [the defendant]
subjectively believed there was a high probability that SEB’s fryer
was patented, that [the defendant] took deliberate steps to avoid
knowing that fact, and that it therefore willfully blinded itself to the
infringing nature of Sunbeam’s sales.”
230
The same approach could be taken to many violations of
restrictive licenses. The key difference lies in the nature of the direct
infringement that is induced. In Global-Tech, Sunbeam had infringed
because it sold infringing products. In the restrictive-license context,
the direct infringement is more problematic, because, as noted above,
there is no central database for license restrictions as there is for
patents. Therefore, for the reasons discussed above, there should be
direct infringement, which is the violation of the license restriction, only
where the direct infringer has contractually agreed to the restriction.
But once there is such a contractual violation, then the inducement
theory could apply to others who are not contractually bound.
This is exactly the approach taken by the Court in General
Talking Pictures. The original licensee violated its contractual license
by making sales for commercial use, thus making it a direct
infringer.
231
Then the buyer from the licensee purchased the products
for infringing purposes, making it liable for inducing infringement.
232
That is so, at least, if the buyer, as the Court said in Global-Tech,
“persuade[d] another to engage in conduct that the inducer knows is
infringement.”
233
The intent aspect of inducement, the Court said,
“involve[s] the taking of affirmative steps to bring about the desired
result.”
234
That seems an appropriate standard under which to judge
parties who violate license restrictions but are not contractually bound
by them. Only where their actions contribute to the infringement by
another who is contractually bound should the inducer be liable.
In a case like Mallinckrodt,
235
for example, if the defendant, which
refurbished the “single use only” products, knew of the license violation
by the owners,
236
the inducement theory could easily and appropriately
be applied. Under the current rule, the fact that the defendant was
violating the license restriction is sufficient to establish a violation,
regardless of the defendant’s knowledge of the restriction. Focusing on
229. Id. at 2070.
230. Id. at 2072.
231. Gen. Talking Pictures Corp. v. W. Elec. Co., 304 U.S. 175, 181-82 (1938).
232. Id. at 182.
233. Global-Tech, 131 S. Ct. at 2065.
234. Id.
235. 976 F.2d 700, 702-03 (Fed. Cir. 1992); see supra text accompanying notes 37-42.
236. This assumes that using the product more than once was a violation. See supra
note 210.
2012] MUST LICENSES BE CONTRACTS? 155
the notice issue, the Court in Global-Tech made clear that the notice
must establish “knowledge that the induced acts constitute patent
infringement.”
237
Mere notice that the patentee believes that the acts
at issue are infringement would not constitute knowledge of
infringement, as Quanta shows.
238
Instead, what is needed is knowledge
that a contractual license restriction has been violated upstream.
Inducement liability also requires the persuasive element of
inducement, of course. But it seems clear that in a case like
Mallinckrodt, the sale of refurbishment services to parties with a
license obligation not to refurbish the products would constitute
inducement. Here we can turn to the Supreme Court’s recent decision
in Grokster,
239
where it said that what is required is “clear expression
or other affirmative steps taken to foster infringement,” but that
“mere knowledge of infringing potential or of actual infringing uses
would not be enough . . . .”
240
Surely the refurbishing of a product to
permit an infringing use goes beyond knowledge of the infringement
to constitute an affirmative step to foster it.
241
In the open-source licensing context, however, the facts are not
typical of those in which inducement liability is found. Generally
speaking, secondary liability cases involve third parties, like the
defendants in Mallinckrodt and Grokster, that provide a good or
service to customers that directly infringe.
242
In the open-source
context, the downstream parties that might be liable for inducement
would not be providers to the direct infringers, but customers of
them. For example, in the action referred to at the beginning of this
article,
243
where the Software Freedom Law Center (SFLC) alleged
copyright infringement by Best Buy and other consumer electronics
companies for selling products with embedded open-source software,
the original contractual license violation, if any, would be the initial
failure by an upstream producer to comply with the GPL restrictions.
Best Buy, in the absence of a contract with the original software
copyright owner, would be liable for infringement only if purchasing
and marketing the products incorporating the non-GPL-compliant
software constituted inducement of that infringement.
Although this is not the typical inducement context, it nevertheless
seems to fit comfortably within the concept, as a leading licensing
treatise observes:
237. 131 S. Ct. at 2068.
238. See 553 U.S. 617, 636-37 (2011).
239. Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).
240. Id. at 937.
241. Refurbishment might, however, fall within the category of repair, as distinguished
from reconstruction. The Supreme Court has established that repair is not infringement.
See supra text accompanying note 76.
242. See supra text accompanying notes 6-10.
243. See supra text accompanying notes 235-41.
156 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
When a buyer purchases a patented product from a manufacturing
licensee in violation of a field-of-use restraint in the latter’s license,
both parties are likely to be aware of the violation, because the
nature of the buyer’s business is likely to reveal its intention to
violate the restraint. Under those circumstances, the manufacturing
licensee should be liable for infringement in knowingly making and
selling a patented product in violation of the limits of the license,
and the buyer, if aware of the restraint, should be liable for
inducing that infringement.
244
That is, purchase of a product, if one knows that it was produced in
violation of a contractual licensing restriction, is an “affirmative
step[] taken to foster infringement.”
245
Indeed, that hypothetical
describes General Talking Pictures exactly; although the Court there
found liability for direct infringement rather than secondary
infringement, § 271(b) of the Patent Act, establishing liability for
inducement of infringement, had not yet been enacted when the case
was decided.
To establish infringement in its case, then, the SFLC would need
to do three things. First, it would need to show that the restriction
that it seeks to enforce was the subject of a contract with some user,
though not necessarily with a defendant like Best Buy. That would
ensure that it did not provide its software in a way that led users to
believe that unrestricted use was permitted. Second, it would need to
show that the contractual restriction was violated. Third, it would
need to establish, if it alleged infringement by a party like Best Buy
that was not contractually bound, that the alleged infringer
had taken “affirmative steps to foster infringement” by another
party that was contractually bound. This requirement would ensure
that the nature of the defendant’s involvement in the alleged
infringement was sufficient to satisfy the criteria that IP law has
established.
246
What it may not do is distribute its software in a way
that does not make clear whether users are bound by restrictions and
then pursue any party that takes part in downstream distribution of
non-complying products.
244. Jay Dratler, Jr., 2 Licensing of Intellectual Property § 7.05, at 7-54, 7-55 n.38 (2012).
245. Grokster, 545 U.S. at 937.
246. There are interesting questions about whether this condition would be satisfied by
a party like Best Buy that is presumably several steps downstream of any contractual
violation. It might be that a court would determine that only the parties further upstream,
like the electronic equipment manufacturers or even the providers of electronic components to
those manufacturers, took “affirmative steps to foster infringement.” This determination,
however, seems exactly the one that IP law should be making, and one that is avoided by
allowing IP owners to pursue any downstream transferee of non-complying products.
2012] MUST LICENSES BE CONTRACTS? 157
2. Inducement and the Purposes of License Restrictions
The proposal of inducement as an alternative test for enforcing
license restrictions would presumably make enforcement more
difficult than it would be under a pure property approach, and
perhaps even more difficult than the “contracts lite” approach
employed in patent law.
247
The question this raises, from an IP
perspective, is whether this denies IP owners returns to which they
should otherwise be entitled. That requires that we consider the
purposes that are served by downstream license restrictions. The
reason for many post-sale restrictions is price discrimination, and
although price discrimination can be beneficial, Part IV.D.3 below
argues that its value decreases as restrictions are imposed
downstream. If price discrimination does not appear to be the likely
reason for many post-sale restraints, though, then why do IP owners
employ such restraints? The second possibility discussed below is
that many restraints are not being used to price discriminate, but to
prevent competition.
a. Price Discrimination
Price discrimination is a commonly cited justification for IP
protection.
248
For example, price discrimination, or metering, was
surely at least part of the purpose of the “single use only” restriction
in Mallinckrodt.
249
If customers were permitted to the use the product
only once, then Mallinckrodt could capture all the benefits provided
by its product in each use of the product. If, on the other hand, the
product could be reused, then Mallinckrodt would be required to set a
single price for multiple uses, which would likely either fail to
capture all the value from high-volume users and or price low-volume
users out of the market. This sort of price discrimination is not
always desirable, but it sometimes is, which raises the question of
whether it would still be permitted by an approach that relied on
inducement liability.
Inducement liability would not capture all instances in which
downstream purchasers use products in violation of license
restrictions. If the downstream use is purely passive, i.e., involves no
“affirmative steps taken to foster infringement,”
250
inducement
liability would not apply. In fact, though, none of the infringement
247. See supra Part III.B.2.
248. See, e.g., Wendy J. Gordon, Intellectual Property as Price Discrimination:
Implications for Contract, 73 C
HI.-KENT L. REV. 1367 (1998); Guy A. Rub, Contracting
around Copyright: The Uneasy Case for Unbundling of Rights in Creative Works, 78 U.
C
HI.L.REV. 257 (2011).
249. Mallinckrodt also justified the restriction based on concerns about quality and
safety. Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 702 (Fed. Cir. 1992).
250. Grokster, 545 U.S. at 937.
158 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
actions against downstream parties discussed in this Article, either
under patent law or copyright law, seem to have pursued passive
parties. That is not surprising: it makes more sense for an IP owner
to pursue those who are actively profiting from infringement, partly
because there are likely to be fewer of them, so that the litigation will
be more cost-effective.
Nevertheless, there might be cases in which suits against ultimate
consumers would be prevented by a rule that allowed infringement
actions only against those that induce infringement. To determine
the significance of the elimination of such suits, we must compare
their costs and benefits. The usual benefit cited, price discrimination,
becomes less compelling as the restriction moves downstream. Price
discrimination is beneficial to the extent that it allows the IP owner
to increase output, lessening or eliminating the deadweight loss of
monopoly. But this benefit is produced only to the extent that the IP
owner is able to accurately assess downstream demand. There is
little reason to think that an IP owner can do that for purchasers
with which it has no contractual relationship (and it is only for those
purchasers that the issue is important, because there is no dispute
that restraints can be imposed through contract).
For example, consider the facts of Quanta.
251
LG’s reason for
seeking to ensure the ability to license to the downstream purchasers
individually was presumably price discrimination. Because Intel’s
product was a general purpose computer,
252
it could have been used
for a variety of purposes, which presumably would have had different
values. As a result, price discrimination could theoretically have been
a profitable approach. Had LC properly restricted downstream sales
in its agreements with Intel, some if not all of those downstream
purchasers could probably have been pursued under an inducement
theory. Assuming that would not have been possible, though, it is not
clear what benefit the ability to pursue them as direct infringers
would have provided, for two reasons.
First, it seems likely that the cost of contracting with downstream
purchasers would be little more than the cost of determining their
valuations of the IP at issue. Indeed, determining downstream
purchasers’ valuations would probably be accomplished through
negotiations with them, which of course could as easily be
contractual negotiations as negotiations over settlement of
infringement suits. Indeed, it is difficult to see how ex post litigation
could be more efficient than ex ante negotiation in a case like Quanta.
LG could presumably have entered into a license contract with Intel
that prohibited it from selling the patented product to purchasers
251. See supra text accompanying notes 118-20.
252. See Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 633-34 (2008).
2012] MUST LICENSES BE CONTRACTS? 159
that themselves did not have licenses, which would have allowed LG
to set the license prices for those purchasers. The main advantage of
not doing so and instead seeking to extract “license” fees through
infringement suits seems to be an increase in bargaining power, but
that is not an approach that IP law should facilitate.
An approach that could be more efficient, though, would be for an
IP owner like LG to use field-of-use restrictions tied to the markets in
which the purchasers operated, obviating the need for individual
negotiations. That would be similar to the effort in General Talking
Pictures to divide the market into private and commercial users, or
that in Mallinckrodt to charge for each use of the patented product.
As discussed above, attempts to avoid such pricing schemes could
likely be pursued under the inducement approach described here,
Regardless, however, of whether effective enforcement of these
schemes would require direct infringement liability or could be
accomplished through a secondary infringement approach, the value
of use-restricted pricing depends on how well the patentee can set the
prices for different users. If the patentee miscalculates its pricing,
the costs of its attempt at price discrimination could easily outweigh
the benefits, and in that case IP law arguably should not facilitate
the price discrimination.
This points to the second reason why direct infringement claims
against the downstream purchasers could provide little gain. Cases
in which neither direct infringement actions based on violation of
contractual restrictions nor secondary infringement actions based on
inducement of direct violation are sufficient would presumably
involve purchasers that are several steps downstream. As the
infringement moves downstream, though, the value of price
discrimination by the IP owner becomes less. Consider the Quanta
case once again. There is no reason to think that LG would have been
better able than Intel to assess the downstream demand of Intel’s
customers sufficiently accurately to effect efficient price discrimination.
Consequently, LG could simply have used a pricing structure with Intel
that gave Intel the incentive to perform the downstream price
discrimination. Intel, because of its direct relationships with the
downstream purchasers, could then have chosen both the prices at
which it would sell to those purchasers and whether to contract with
them to restrict their uses of the patented invention.
Moreover, in some circumstances there could also be other, lower-
cost approaches to price discrimination. The patentee could simply
design a higher-quality product for the high-demand users. That
would distinguish the two markets, and allow different prices
without the need for post-sale restraints. That technique would have
the benefit of ensuring that the difference in prices is justified by
some difference in value, rather than a higher demand that could be
160 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
unrelated to the innovation at issue.
253
A price-discrimination system
that does not rely on post-sale restraints is especially important,
because the costs of the restraint system are considerable. As
discussed above,
254
providing notice to downstream acquirers will not
always be easy, and the patentee is likely to incur significant costs
both in ensuring notice, and perhaps in proving it in subsequent
litigation. And downstream market participants may make efforts to
avoid receiving notice, or to prevent notice of restrictions from being
received by their customers, in order to get a higher price. At the very
least, these costs should be considered in the determination of whether
property-based restrictions on downstream purchasers are desirable.
None of this is to say that there are not circumstances in which
limiting infringement liability as described here would prevent
efficient price discrimination. But current law does not even ask if
there is a satisfactory justification for infringement liability in this
context. In that respect, it differs from those few cases considering
servitudes for personal property, which as noted above have
emphasized the need for scrutiny “in order to determine whether
public policy will be furthered by” enforcement of such restrictions.
255
As the next section explains, some license restrictions do not in fact
further public policy.
b. Restriction of Competition
Infringement suits challenging noncompliance with license
restrictions have often prompted antitrust counterclaims or
analogous misuse defenses, particularly in the patent context. Such
claims have been less common in copyright, but similar issues arise
in that context as well.
256
The likelihood that a restriction of
competition is impermissible is highest where the IP owner employs
post-sale restraints against downstream purchasers. Where restraints
are employed downstream, they will likely affect markets independent
of those to which the IP owner’s innovation is directed. As a result,
the exclusive right that IP provides may not itself be an effective
means of preventing competition, and IP owners can turn to
supplemental restraints. But where IP rights affect competition
253. I have argued elsewhere that this principle should be applied in other contexts as
well. See Mark R. Patterson, When Is Property Intellectual? The Leveraging Problem, 73 S.
C
AL.L.REV. 1133, 1155-58 (2000).
254. See supra text accompanying notes 212-20.
255. See supra text accompanying notes 67-73.
256. See Lemley, Terms of Use, supra note 15, at 462; Van Houweling, supra note 53, at
921-22 (discussing “servitude” cases involving patents and copyrights and noting that “[a]ll
of the servitude-skeptical cases described above involved restrictions aimed either at
fixing minimum prices, leveraging market power from one market to another through tying
the use of specific products to the burdened chattel, or dividing a market by territory—that
is, restrictions with potentially anti-competitive effects that could harm third-party
market participants”).
2012] MUST LICENSES BE CONTRACTS? 161
beyond the IP owner’s innovation, the competition concerns can
easily outweigh the IP justification.
257
In the patent context, licensing is sometimes used to provide a
means of eliminating competition where no other means would be
available. One example is Pioneer Hi-Bred International, Inc. v.
Ottawa Plant Food, Inc., where Pioneer used “no resale” label
licenses to make possible an infringement suit against an
unauthorized distributor of its products, which had purchased them
from authorized distributors.
258
Normally, a manufacturer like
Pioneer would have no avenue for pursuing an unauthorized
distributor because there would be no contractual relationship with
it, but in Pioneer the court held that the label licenses created an
enforceable restriction that made the unauthorized distributor also
an infringer.
259
This allowed Pioneer’s seed patents to be used to
restrict competition in the market for seed distribution, where the
seed innovations of course played no role.
260
Another example, involving open-source software, arose in the
Progress Software litigation, where Progress was accused by MySQL
of distributing MySQL’s software without being in compliance with
the GPL. MySQL, unlike its licensees, was not required to comply
with the GPL:
MySQL AB engages in “dual licensing.” This means that it licenses
a version of MySQL to be freely used, copied, modified and
distributed by everyone under the GPL, and also makes versions of
its program that are distributed to particular customers without
the right of free distribution. Those who receive MySQL under the
GPL, however, are not entitled to engage in “dual licensing.”
Having received their copy of the program under GPL, they may
freely modify and redistribute, but that redistribution, under GPL
§2(b), must occur under the terms of the GPL, without any
additional limitation. In particular, anyone who modifies MySQL
must release that modified version in compliance with the GPL’s
requirement that everyone who receives the program must
receive “source code,” or all the materials required so that they
257. Ariel Katz has made a complementary point, arguing that as the connection
between the IP owner and the possible enforcement target becomes less close (in
terms of both transactional relationships and time), the valid competitive concerns
decrease. See Ariel Katz, What Antitrust Law Can (and Cannot) Teach About the
First Sale Doctrine 27-37 (Jan. 23, 2012) (unpublished manuscript), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1845842.
258. 283 F. Supp. 2d 1018, 1035 (N.D. Iowa 2003).
259. Id. at 1046.
260. The court did consider the effects of the restriction, concluding that there was “no
evidence in the record identifying restraints on competition within any appropriately
defined relevant market.” Id. It is quite difficult to prevail under the rule of reason, though,
so a patentee is likely to prevail simply by making the patent infringement suit possible.
162 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
themselves can understand, share and improve the program in its
modified form.
261
Thus, MySQL’s open-source software was a component of both its
commercial product and Progress’s. But only Progress was required
to disclose its source code, which put it at a competitive disadvantage
with MySQL. Of course, because MySQL’s software was copyrighted,
Progress had no pre-existing right to use it; MySQL could have
excluded others from its software entirely. But the mandated use of
open-source licensing for competitors distorts competition beyond the
use of MySQL’s open-source contribution, and thus is not clearly
within MySQL’s copyright rights.
262
This sort of extra-copyright effect was even more dramatic in early
drafts of GPL v. 3, and continues to be so in other open-source
licenses. The first discussion draft of GPL v. 3 included what is
known as a “patent retaliation” clause: “This License gives unlimited
permission to privately modify and run the Program, provided you do
not bring suit for patent infringement against anyone for making,
using or distributing their own works based on the Program.”
263
This
clause was directed at licensees who also had patent rights, presumably
in related inventions. It would have denied those licensees-patentees, if
they used the licensed software, the ability to enforce their patent
rights against others who used the software.
264
This restriction, too,
extends the licensor’s power beyond its innovative contribution.
265
261. Moglen Declaration, supra note 163, ¶ 30.
262. Furthermore, by distributing the software freely, MySQL is able to establish an
installed base of users, and then exclude Progress from competing against it in a derivative
proprietary market. This scenario is reminiscent of Microsoft’s use of Internet Explorer to
give Windows a competitive advantage. In each case, there is free distribution of one
program and the use of control over that program to gain an advantage in a related
market. And the case against Microsoft was made more difficult because the conduct at
issue was for the most part assessed under Sherman Act § 2, rather than § 1. Of course, the
case against Microsoft succeeded, but that was in part because the court applied a
standard more similar to the typical § 1 standard than to the usual § 2 standard.
263. GPLv3, 1st Discussion Draft, F
REE SOFTWARE FOUNDATION,
http://gplv3.fsf.org/gpl-draft-2006-01-16.html (last modified June 29, 2007). The second
draft narrowed this provision somewhat, see Opinion on Patent Retaliation, F
REE
SOFTWARE FOUNDATION, http://gplv3.fsf.org/patent-dd2.html (last modified Aug. 3, 2006),
and the final version eliminated it entirely because “its enforceability and effectiveness
[were] decided to be too dubious to be worth the added complexity.” See Software Patents and
Free Software, W
IKIPEDIA, http://en.wikipedia.org/wiki/Software_patents_and_free_software
(last modified Dec. 5, 2012). In fact, the source cited for this explanation says only that “We
took that out because it didn't seem like it would be terribly effective.” Transcript of
Richard Stallman on GPLv3 in Brussels, Belgium; 1st of April 2007, F
REE SOFTWARE
FOUNDATION EUROPE (Apr. 4, 2007), http://fsfe.org/projects/gplv3/brussels-rms-transcript.
264. This would have been true, apparently, even if the patentee did not itself use its
patented work with the licensed software.
265. They are similar to grantback clauses, which require licensees to grant a licensor
rights to any improvements. The GPL provision is similar to a grantback, but it is broader:
it effectively requires the licensee-patentee to grant patent rights to every user of the
licensed program, not just the licensor, and the patent rights need not related to an
2012] MUST LICENSES BE CONTRACTS? 163
As stated above, the purpose of this Article is not to assess the
desirability of license restrictions. To the extent that IP owners argue
that enforcement of such restrictions should be facilitated, though,
the justifications for the restrictions must be considered. The point of
the previous paragraphs is to argue that the case for easy
enforcement has not been made. Some effects of license restrictions
appear to be undesirable and it seems likely that those restrictions
that are legitimate can be successfully enforced through the
contract/inducement rules proposed here.
V. C
ONCLUSION
Open-source advocate Richard Stallman has decried “a vicious and
absurd system that puts all software developers in danger of being
sued by companies they have never heard of . . . .”
266
Stallman’s focus
was software patents,
267
but the danger of which he writes derives
not from software patents particularly, or even from patents or
copyrights generally, but from any unexpected property protections.
Ironically, the open-source software movement promoted by Stallman
is one the primary sources of this sort of “stealth” IP protection, as
are patent-law “label licenses.” As this Article has shown, with
noncontractual IP “licenses” those who acquire intellectual property,
particularly indirectly, can find themselves subject to restrictions of
which they had no knowledge. And even when acquirers of intellectual
property are aware of the restrictions to which the patentee or
copyright owner seeks to subject them, they may not be able easily to
determine if those restrictions are valid and enforceable.
The solution is simple: conform licensing law to clearly defined
and already-existing rules based on contract and secondary
infringement, rather than relying on ill-defined conceptions of
“notice.” This approach is generally consistent with the statements of
patent courts, if not their holdings, and is not inconsistent with
copyright law. Enforcement of license restrictions would be possible
against two types of infringers: those that violated contractual
license restrictions, and those that induce the infringement of such
contractual restrictions. These rules would allow the enforcement of
improvement to the licensed software. The Antitrust Guidelines for the Licensing of
Intellectual Property, promulgated by the U.S. Department of Justice and the Federal
Trade Commission, state that “[g]rantbacks may adversely affect competition . . . if they
substantially reduce the licensee’s incentives to engage in research and development and
thereby limit rivalry in innovation markets.” U.S. Dep’t of Justice & Federal Trade Comm’n,
Antitrust Guidelines for the Licensing of Intellectual Property § 5.6 (Apr. 6, 1995).
266. Stallman, supra note 47.
267. They were the subject of the quotation: “Software patents are a vicious and absurd
system that puts all software developers in danger of being sued by companies they have
never heard of . . . .” Id.
164 FLORIDA STATE UNIVERSITY LAW REVIEW [Vol. 40:105
desirable licensing restrictions, but they would preclude the sort of
surprise enforcement actions that Stallman rightfully criticized.
