Last week, Margaret Jane Radin, Stanford law prof on loan to Michigan (and 1L Contracts prof to yours truly), came by to talk about not one but two new papers, Regulation by Contract, Regulation by Machine and Regime Change in Intellectual Property: Superseding the Law of the State with the "Law" of the Firm. Both are interesting, levying some heavy-duty economic analysis at an emerging problem that goes beyond the Internet per se. As society continues to emphasize intellectual property as much or more than real property and license agreements become de rigeur, we are starting to see the flexibility of both contract law and copyright become more and more brittle. Many license agreements "plug up" the holes (such as fair use, in copyright, or unconscionability in contract) that have historically been left as escape valves.
Moreover, the advent of DRM technology (or, as Prof. Radin puts it, TPM (Technological Protection Measures) makes it possible for licensors to implement in silicon what they might not be able to implement in law. This has implications not only for public policy, but for the rule of law itself -- yet few people outside of academia seem really concerned.
Anyway, if you want a flavor of our discussion, look inside.
- September 30, 2004 -- Margaret Jane Radin: Regulation by Contract, Regulation by Machine / Regime Change in Intellectual Property: Superseding the Law of the State with the "Law" of the Firm - Margaret Jane Radin (Stanford Law School) - - Work is rooted in property theory Interest in market entitlements that are, in theory, inalienable. This comes up a lot -- and comes up recently in IP. - is IP just a bunch of default rules? - most rules don't state that they're non-waivable We tend to assume that most or all of them can be waived by contract - Top concern is waivers appearing in standardized forms Particularly, but not only, in the terms of agreement - Do our rights appear in the Copyright Act or the MS End User Agreement? - Papers presume that these contracts are enforceable - they might not be Courts could toughen up on the players here, and toss out some/many/all of these contracts. This is certainly one of the things we could discuss here, today - Merger of contract and property - - What rights do we start out with? Where do we end up? How do we get there? My work is aimed at answering these questions - - Massive contracting out of limitations laid down by the contract regime - freedom of K v. stability of the regime - control by firms v. democracy/sovereignty - efficiency debate Is it more efficient for the rules in this area to be laid down by the government? There are reasons to believe that we can't order our entire system through end-user agreements because of dangers in notice, etc., etc. - propertization v. free speech v. competition policy This is a pretty major theme of the second paper - competition assumes that there will be space for entry in new markets If we're going to have that, then we can't permit all the useful assets to be locked up - free speech assumes . . . some freedom - - Firms' attempts to extend control more broadly than copyright generally permits Ideas. Facts. Functional items. etc. These are "holes in copyright" -- many firms are attempting to plug these with contracts - are/should some of these holes be protected by non-waivable rights? - Inalienable rights / permissibility of waivers We might think that some rights are inalienable . . . - free speech Some software licenses have attempted to bar, for example, critical reviews of the product. Most of us would agree that people can't waive their free speech rights in such a way. - or maybe, some rights are non-waivable by certain kinds of instruments E.g., money-now-terms-later, or adhesion contracts. - e.g., ProCD Judge there presumed that bilateral, negotiated bargaining was happening . . . but there's almost no reason to think that it was. - or maybe it's the mass-market waivers that give us pause typically, such wide-ranging acts are the domain of legislatures, not firms. Do certain kinds of waivers "turn bad" the more people agree to them? - - Looking @ the background regime - welfarist economics v. political economics v. non-economic analysis - welfare Tends to assume that the background regime is aimed at wealth maximization. A good welfare economist would readily agree that there is such a thing as excessive propertization, but the trick is knowing when you've reached that point. - if the "holes" in copyright were hammered out for efficiency purposes, then contracting around them is likely to be inefficient - political economics Tends to assume that the legislative scheme comes from a bunch of rents, gained by powerful interest groups at the expense of those who are less powerful. Particularly good for explaining things like DMCA, or the Copyright Act (which was pretty much privately-negotiated). Radin: tend to lean towards political economy when it comes to intellectual property. - here, plugging the "holes" can be done through either contracting or legislation, whichever is cheaper This is a pretty grim theory of where we're at right now. Radin: this is not my theory of democratic process . . . - still, needs to be taken seriously - Q: Is legislature still the best process for resolving the problems we see in contracting? Well, had there been a better-organized constituency present in the negotiation of the copyright act, fair use would be more than an affirmative defense. NB: Arguing things out in litigation is a tough road . . . contract law doesn't give us a lot to work with in terms of protecting certain default rules/entitlements in the face of contracts that chip away at it. It's an interesting question why the judiciary is not more receptive to arguments that these contracts unduly impinge important copyright flexibilities. - - Some countries have agencies to review form contracts It doesn't seem to make the market grind to a halt there. We could consider this. - examples of possibly-questionable clauses - clauses regarding legal enforcement Lots of contracts nowadays force arbitration, etc. Courts seem to like this, and rarely call these contracts unconscionable. But a contract that deprives one party of any right of legal remedy (something that's at least theoretically possible) is one that doesn't properly exist inside the legal system, and so should not be called a contract at all! That's an extreme case, but there are almost certainly grey areas to explore here. - Q: Could FTC enforce this as a deceptive trade practice? Unclear whether they would have jurisdiction. Plus, the FTC is overworked. - Q: Seems like a broader problem than simply the licensing of IP This problem may/probably did preexist the modern era. But now, in the era of IP, they're coming to the forefront. Since soon, you'll have software in your toaster, this problem is becoming a broader one that affects many more people and many more aspects of life. - true . . . regulation by contract is something that could occur in any area This is a more general question . . . what to do when contract starts to supplant statutory background rules? Shortly we'll get to "regulation by machine," where this issue will be more tightly tied to intellectual property. - clauses looking like human rights / social commitments These go to issues of human rights, social contexts, etc. If there's a social commitment by a society to a certain set of human rights, etc., it might not be sufficient for us to permit individuals to waive these rights. For example, there are reasons why we might not want even well-informed individuals to waive, e.g., their rights to privacy. - regrettability / "heuristic biases" many of us think that giving up personal information, for example, is no big deal. But it's easy to imagine a situation in which, in the future, they become extremely big deals. For example the person who gives up some medical information now, but later doesn't like the fact that he's being deluged with spam related to that info. - rights that are politically weak This means rights that the background regime gives people, but that are likely to be undermined by rent-seekers. Often happens where rightsholders are widely dispersed, and lack a strong incentive to come together in the legislative arena. Fair use, for example, is a good example. The people who dislike it are stronger and better organized than the people who think it's really important. - Q: There are different conceptions of fair use . . . one might be that fair use is part of a social context argument The idea that fair use is a mechanism for permitting/encouraging societal benefits to arise, for which payment to the copyright holder would stifle or is impossible. Another is that fair use is an extension of the free speech commitment. Both of these offer some reasons why we might not want to permit individuals to waive fair use. - OTOH, digitization has the capacity to greatly lower transaction costs Could start to make it possible to compensate authors for uses that presently are covered under fair use. Under one conception of fair use, this makes fair use useless -- it no longer costs too much to charge people for small things. There's a substantial contingent of people who are arguing that fair use no longer has any function. It seems, sometimes, that courts are leaning towards this outcome. Not many (any?) cases that really adopt the first amendment view of fair use. - - Replacing contract by machine -- TPMs Used to call them DRMSs . . . now, Technological Protection Measures. The language from WIPO. There's an active debate on the WIPO treaty in Canada right now. Plus, the term DRM seems to presuppose the existence of rights - and maybe we don't need to presuppose that. - provides a way to "lock in" one interpretation of a contract's terms. - TPMs are not yet full-blown in the marketplace . . . they may never be We don't know yet whether there'll be widespread consumer adoption of this. - we'll assume that they'll catch on - Capable of accomplishing automatically what the contracts attempt to accomplish judicially Reserves a fair number of rights to the rights owners. - Are TPMs contracts? - a contract is a juridical structure of the sovereign state . . . machines aren't. - like an infallible injunction controlled by one party? No option to plead unconscionability . . . and no fair use defense. Certainly no efficient breach. - TPMs make even inalienable background entitlements irrelevant . . . we don't have any kind of law limiting these "machine-bound" injunctions. - DMCA provides protection for those who put these protections on, but no protections who think they ought not appear. - by hypothesis, these things take so much from outside the legal system that they may actually frustrate the rule of law -- too much self-help There's a reason that we almost never use self-help . . . amounts to the rule of all against all, and that's not "law."