ProCD, Inc. v. Zeidenberg

86 F.3d 1447 · U.S. Court of Appeals · 1996

Facts

ProCD compiled a database of telephone directory information, SelectPhone, and sold it on CD-ROMs. To implement a price discrimination strategy, ProCD sold the consumer version at a low price for personal use, with a shrinkwrap license restricting commercial use. Matthew Zeidenberg purchased a consumer package of SelectPhone. He then ignored the license terms, formed Silken Mountain Web Services, Inc., and resold the database information on the Internet for a fee, undercutting ProCD's commercial pricing. ProCD sued Zeidenberg seeking an injunction against further dissemination.

Procedural history

The district court held that shrinkwrap licenses were not enforceable contracts because their terms were inside the box, and that federal law preempted their enforcement even if they were contracts. ProCD appealed this decision. The Seventh Circuit Court of Appeals reviewed the district court's findings on both contract formation and copyright preemption.

Issue

1. Are shrinkwrap licenses enforceable contracts, even if their terms are inside the product packaging and not visible at the time of purchase? 2. Does federal copyright law preempt the enforcement of such shrinkwrap licenses?

Holding

The court held that shrinkwrap licenses are enforceable contracts under the Uniform Commercial Code, and federal copyright law does not preempt their enforcement. The district court's judgment was reversed, and the case was remanded with instructions to enter judgment for ProCD.

Rule

The court established that shrinkwrap licenses are enforceable contracts under the UCC, specifically § 2-204(1), which allows contract formation through conduct. A vendor, as master of the offer, can propose terms that a buyer accepts by using the software after having an opportunity to review the license and reject the goods if the terms are unacceptable. Furthermore, the court ruled that federal copyright law, specifically § 301(a), does not preempt the enforcement of contract rights created by shrinkwrap licenses. Contractual rights bind only the parties to the agreement and are not "equivalent to any of the exclusive rights within the general scope of copyright," which are rights against the world.

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