Contract preemption: an issue to watch

Back in December I wrote about the lawsuit that has finally been filed against UCLA claiming that the policy of streaming digitized view for course-related viewing is copyright infringement.  Late in January UCLA responded with a motion asking the court to dismiss the lawsuit for lack of subject matter jurisdiction and failure to state a claim.

The alleged lack of jurisdiction is based on a claim of sovereign immunity, the idea that the federal courts cannot hear most cases against a state entity as part of the Constitutional scheme called, confusingly, “federalism.”  That argument is the bulk of the motion.  But there is another issue, one of several involving the alleged vacuity of the claims against UCLA, that caught my attention.

As I noted in my earlier post, the complaint by AIME and Ambrose Video asserts that at least some of the videos at issue are under license and that digitizing and streaming those videos is a breach of that contractual agreement.  I questioned earlier whether the license being claimed was, or should be, cognizable.  But UCLA is making a different claim in its motion to dismiss, that the state breach of contract claim based on a license is preempted by federal law.

Section 301 of the Copyright Act says that state laws that create ” legal or equitable rights that are equivalent” to the exclusive rights in copyright are preempted.  Thus state or common law copyrights are mostly superseded by the 1976 federal Act.  But two questions have long remained: whether or not this meant that state enforcement of contracts governing intellectual property could be preempted, and what rights are “equivalent” to copyrights.

We routinely assume that “contracts trump copyright;” libraries are told that all the time regarding the databases they license, and they often pass the message on to users.  It is generally correct. In one of the most cited cases on this point, ProCD v. Zeidenberg, Judge Easterbrook of the 6th Circuit held that a contract creates rights only between the specific parties and thus those rights are not “exclusive” and so not preempted.  But the question remains somewhat unsettled, and UCLA is exploiting an apparent loophole in the general rule that we have mostly taken for granted.

In an 8th Circuit case that the Supreme Court left standing, National Car Rental Systems v. Computer Associates, preemption was denied, but the denial was based on interesting reasoning — that the contract covered the use of the intellectual property, and that use was simply not one of the exclusive copyrights.  Professor Nimmer, perhaps the foremost authority on U.S. copyright, picks up this reasoning and suggests that a contract that attempts  to “serve as a subterfuge to control nothing other than the reproduction, adaptation, public distribution, etc.” of copyrighted works should be preempted.  So a contract controlling how licensed property could be used — who could access it, for example — would be enforceable under state contract law, but one that dealt with reproduction, distribution and the other exclusive rights would not be.

UCLA applies this reasoning to say that the alleged video licenses should be preempted insofar as they would govern whether or not making a copy for digital distribution is allowed, since this would be equivalent to the rights under copyright.  The upshot of this argument would be that schools could not license away their right to make fair use of content they license, since fair use is a limitation on the exclusive rights and thus part of what would be preempted in any contract action.  Fair use would have to be decided on its own terms, spelled out in section 107 of the Copyright Act, and could not be “ruled out of court” by a contract.

I have long maintained that non-negotiable contracts (like shrink wrap licenses) should be preempted by federal copyright law, so that one does not give up rights like fair use without a chance to discuss and defend them.  If UCLA argument is successful, it would suggest a broader rule, that contracts that abrogate fair use and other aspects of copyrights exclusive rights scheme would always be preempted.  I have no idea if this will fly in the District Court; the case might get dismissed on sovereign immunity grounds so that the issue would not even be addressed.  And even if UCLA prevailed on this point, an appeal would be likely.  So I am not suggesting that we change our long-standing belief that contracts trump copyright in most case, just that we watch this issue carefully and consider its full ramifications.