The University of Chicago Law School Faculty Blog

Voting Machines

On Mega-Tuesday Iasked to use the electronic voting machine at my local voting place, and I did so.  This is my third such vote, and I remain puzzled by the hostility to new voting tehcnology. I do not doubt that some touch-screen machines are vulnerable, but it is not as if the older technologies have been foolproof. The future is surely with the touch-screen or some other form of online voting.

So here was my Super-Tuesday thought. We should associate touch-screen voting with touch-screen ATM machines. Banks have won over consumers to these machines, and though they occasionally err, they are far superior to human tellers for simple banking transactions. And much less expensive too - leaving aside the interesting question of how the costs of tellers are passed on, as compared to the more obvious fees associated with cash machines. If hacking dedicated but online machines is so easy, one would think that hackers would focus on ATMs, but in fact our ATM system is quite secure. So why not let voters cast their votes at bank machines? With some effort, a large number of ATMs, perhaps in indoor locations, could double as VMs, or voting machines.

Under one version of this plan, the vestibules and lobbies of banks would become the new polling places. But under another version, voters could first receive a card or number from an election office or polling place and then proceed to any or almost any ATM machine to cast a vote. Election Day might be a banking holiday, and banks might even pay for the right to be an Election Day spot because such identification might imply first-rate security. Under the first plan, we picture election officials serving as gatekeepers at each ATM, much as they do at the polls at present. Dispersed ATMs make this more difficult. Under the second version, where voters receive cards to use at ATM/VMs, the analogy is to absentee ballots or early voting in most states. Whatever fraud we fear from the possibility that a voter will receive the authorization card to cast a vote - and then sell it or transfer it to another, we ought to fear from absentee ballots that are picked up by or mailed to voters. These constitute an increasing proportion of the vote, and I know of no evidence that fraud is a serious problem at this retail level.

It is interesting that despite all the problems with conventional voting technologies, including hanging chads, lost ballots, stolen boxes, and long lines, there is resistance to new technology. I like to think that innovation will come more quickly if it is associated with a related technology that is now so widely accepted.

Van Houweling Responds Part II: First Sale and Patent Exhaustion [Mobblog: The New Servitudes]

As Henry and Jim both note in their comments, there are doctrines within intellectual property law that are entangled with the servitude issues that I discuss in The New Servitudes.  Specifically, both the first sale doctrine embodied in section 109 of the Copyright Act and the software-specific provisions of Section 117 that Jim mentions allow owners of copies of copyrighted works to do specified things with those copies notwithstanding the exclusive rights of copyright holders.  In the patent context the analogous judge-made doctrine is patent “exhaustion”—the meaning of which the Supreme Court is currently considering in the LG v. Quanta case to which Henry refers.  I’m anxious to discuss Quanta.  But first let me give a little background (familiar to those who have read the paper) about the connections I see between first sale, exhaustion, and more general concerns with servitudes.

I argue in the paper that the early twentieth century cases in which these IP doctrines developed reflect an anxiety about enforcing servitudes attached to items of personal property (an anxiety that is in turn explained by the concerns with notice, “the problem of the future,” and externalities that I described in my initial post).

For example, in Bobbs-Merrill Co. v. Straus, the case that established the (later codified) first sale doctrine, a book publisher attempted to enforce a restriction printed inside books that purported to limit the price at they could be resold.  The plaintiff copyright owner argued that by distributing books subject to restrictive terms it was granting purchasers only a conditional license to exercise the vending right that the Copyright Act otherwise granted exclusively to it; vending outside the terms of that license (that is, selling books for more than the minimum price) therefore amounted to copyright infringement.  The Copyright Act, according to this logic, provides a mechanism for imposing running restrictions on chattels that the common law lacks.  The Second Circuit rejected that argument, and the Supreme Court affirmed.  210 U.S. 339 (1908).

The Court’s opinion purports merely to interpret the language of the Copyright Act, concluding that the right to “vend” granted in the Act is exhausted as to a given copy of a copyrighted work once that copy is sold.  But this interpretation seems to have been motivated in part by the more general notion that chattels should not be burdened with running restrictions.  Now, to be sure, the statutory rights granted to copyright holders supersede that hostility to some extent: there are some things that the owner of a copyright-embodying chattel is not permitted to do with it (for example, reproduce each of its pages) on account of the non-possessory intellectual property rights created by copyright (which have, as I noted in my earlier post, a servitude-like character).  But Bobbs-Merrill articulates limits on even a copyright holder’s power to impose running restrictions on personal property.  In the patent context, a similar logic seems to motivate cases like Bauer v. O’Donnell, 229 U.S. 1 (1913), in which the Court refused to enforce a retail price restriction printed on packages of patented medicine because “a patentee who has parted with a patented machine by passing title to a purchaser has placed the article beyond the limits of the monopoly secured by the patent act.”

These cases (and other similar cases including Straus v. Victor Talking Machine and Motion Picture Patents Co. v. Universal Film Manufacturing Co.) are complicated by the fact that the substance of the restrictions was arguably anti-competitive--a fact that has led several commentators to suggest that the general hostility toward chattel servitudes (and the specific IP doctrines of first sale and exhaustion) could be replaced with particularized antitrust scrutiny--especially now that antitrust law is more doctrinally mature than it was when these cases were decided.  Richard’s post suggests that he would endorse this view.  And it is also reflected in the Federal Circuit’s 1992 decision in Mallinckrodt, Inc. v. Medipart, 976 F.2d 700 (1991). 

In Mallinckrodt the Federal Circuit characterized the early patent exhaustion cases as “establish[ing] that price-fixing and tying restrictions accompanying the sale of patented goods were per se illegal.  These cases did not hold, and it did not follow, that all restrictions accompanying the sale of patented goods were deemed illegal.”  The court, therefore, refused to interpret those cases as necessarily invalidating a use restriction that neither fixed prices nor tied multiple products but rather limited a patented medical device to “single use only.”  The court suggested that so long as the condition did not violate the antitrust laws, it was enforceable against a purchaser of the medical device through a suit for patent infringement.  The Federal Circuit reaffirmed this logic in LG v. Quanta, in which the Supreme Court recently heard oral argument. 

To my mind, the Federal Circuit has adopted an overly narrow view of the purpose of the exhaustion doctrine.  Safeguarding competition through antitrust might deal with some types of negative externalities, but it does not eliminate every problem associated with chattel servitudes.  Problems with notice and information costs, and with unjustified but inescapable burdens on future activity (the problem of the future) can still loom large. 
      
There are some interesting allusions to these problems in the LG v. Quanta oral argument.  Justice Breyer suggested that the “doctrine that you cannot impose equitable servitudes upon chattel” might help to decide the case.  And he returned several times to a hypothetical in which a patent holder tries to enforce restrictions on a consumer’s use of patented bicycle pedals: 

“Imagine that I want to buy some bicycle pedals, so I go to the bicycle shop….The inventor has licensed somebody to make them, and he sold them to the shop.  I go and buy the pedals.  I put it in my bicycle.  I start pedaling down the road.  Now, we don’t want 19 patent inspectors chasing me….” 

Breyer apparently finds this a troubling scenario even if the pedals come with some sort express notice of the use restrictions.  He asked whether

“if … I go in the bicycle shop and I buy the pedals and then they give me … one of these pieces of paper that has all of the 42,000 words on it and there are in these 42,000 words it says, and now you are put on notice that once you put it in your bicycle and you pedal away, they’re going to get you and you’re going to be hauled into Patent Court, then--then that’s ok?”

I don’t want to read too much into the tea leaves of this oral argument transcript.  But Breyer seems to be suggesting (in part relying on the traditional rule against chattel servitudes) that consumers would be justifiably surprised to find themselves “hauled into Patent Court” for merely using things they had lawfully acquired, even where the restriction was imposed by a patent holder by means of a written notice attached to the good.  As Henry's post suggests, the problem here is not exactly lack of notice--the information is available in the “42,000 words” in Breyer’s hypothetical.  But it may not be reasonable or even desirable to expect people (at least not retail pedal purchasers) to absorb that information.  The Court expressed this same anxiety back in Straus v. Victor Talking Machine Co., in which it refused to enforce a restriction printed on plates attached to record players after noting that “not one purchaser in many would read such a notice, and that not one in a much greater number, if he did read it, could understand its involved and intricate phraseology.” 

This gets us back to Lee’s question:  don’t the problems that I associate with running servitudes also plague restrictions that don’t run--e.g. plain vanilla contracts (which are also often unread, misunderstood, and not fully contemplated)?  What is especially problematic about servitudes?  That is a critical question to which I will return in my next post.

Henry Smith's Comments [Mobblog: The New Servitudes]

First of all, I’d like to echo previous posts in praise of Molly’s article. It is systematic and illuminating on the question of servitudes in three related but very distinct contexts (real property, personal property, and IP), despite the theoretical and empirical difficulties servitudes have always presented. Think of poor Bigelow heroically tackling the touch and concern requirement. 

In both the article and especially in her post, Molly, correctly in my view, makes the desirability of enforcing servitudes a comparative exercise. This is truly Coasean in spirit, even if the answer does not always point in the direction of contract enforcement. As a number of posts have reflected upon, one main issue here is notice, and in particular the most cost-effective method of furnishing it. While Richard is right that systematic and centralized land records do often provide effective notice, it is an empirical question how they stack up against other methods in any given type of situation. Other methods include standardization, equitable doctrines of notice (which incidentally apply in personam and not in rem), and doctrines absolving those encountering rights from liability. Where a legal device fall between in personam contract and in rem property, we should expect intermediate strategies to deal with the potentially large but still limited set of dutyholders. See Thomas W. Merrill & Henry E. Smith, The Property/Contract Interface, 101 Colum. L. Rev. 773 (2001). 

When notice is the issue it is often important to keep in mind here that it is not information that is scarce but rather attention as Herbert Simon pointed out a long time ago. See Herbert A. Simon, Designing Organizations for an Information-Rich World, in Computers, Communication, and the Public Interest 37, 40-41 (Martin Greenberger ed., 1971). Thus, even where land records or notices printed on a product may give notice in some sense, there might still be reasons to force a standardized format (cf. nutrition information, or the terms of consumer loans). Even the land records are not a “data dump” but limit the types and form of documents that are permitted to be recorded. Format can matter. For example, a rule that rent is incompatible with fee ownership means that once one knows that an interest is a fee simple, one can stop looking for information along this dimension. Similar problems arise in contract, and are solved with a different mix of private and public solutions (making contracts shorter, enforcing reasonable consumer expectations etc.) 

One reason servitudes present a problem of informational detail is that they implement a governance strategy. Basic exclusion (keep off, boundaries) is a platform upon which we can build governance regimes, i.e. rules of proper ruse. Governance rules refine and supplement the basic exclusionary regime when particular use conflicts are important enough. Governance rules can be contractual, common law, or some combination of statute and regulation. (For an application to IP, see Henry E. Smith, Intellectual Property as Property: Delineating Entitlements in Information, 116 Yale Law Journal 1742, 1784-98 (2007).)Servitudes are a largely private governance regime. One possibility here is that courts have little problem with servitudes as long as they can be said to refine and supplement the basic exclusionary regime. Servitudes that are not refinements but unrelated (e.g. the haircut) or more than a mere refinement (e.g. going outside the copyright baseline) present information problems that normal governance regimes do not. 

A particularly interesting aspect of Molly’s paper is its treatment of new servitudes and how they implicate some of the traditional concerns with servitudes both more and less than real and personal property servitudes do. In particular, the possibility that licenses can conflict downstream is a very important point. It is a little reminiscent of water law in which property rights definition is difficult because it is desirable or unavoidable that water rights interlock tightly (the return flow issue in first appropriation is a dramatic example). One feature of basic exclusion rights is their modularity: behind the boundary a lot of “internal” information about uses and the users is irrelevant to an outside dutyholder: the interface between the owner’s property and the rest of the world (in rem) is a simple keep off. I do not need to know much about use or owners to keep off Balckacre or not to steal a car in a parking lot.

For a variety of purposes we need refinements (governance) which complicate this interface where uses interact (e.g. nuisance and servitudes). One difference between land, chattels, and intangibles is that the exclusion strategy is easier to carry out for tangible property. The baseline is clearer: in the case of land there is a physical bubble that corresponds to the module that the exclusion strategy provides. By contrast, in IP this is necessarily artificial. Thus it is easier for servitudes in IP to fail to have reference to an exclusion baseline. Some do have reference to a clear ex ante baseline, as with the creative commons licenses favoring use but within the scope of the copyright. But some of Molly’s other examples do not (as where rights to criticize are being contracted away). The conflicting license issue too would not arise if IP were more naturally modularized: servitudes here can in principle be about anything and interact with each other in any way. The modularity of land rights through spatially defined exclusion limits the extent to which servitudes will come into conflict. Owners will be aware what a servitude will “cover” (almost literally) in the case of land. (If however, we followed the Legal Realists, and assert that there is no core to the bundle of sticks of rights in land, the situation would be a lot more like the one Molly points out for software). Software as a resource does not ensure this. 

Complex interfaces can reduce transferability, as in the case of water. In some kinds of property, those setting up property desire liquidity and this more than enough incentive for standardization (financial instruments are an example). In other cases, idiosyncratic rights (fancies) may “pollute” the general informational atmosphere, making information costs for others go up. The resulting need on the part of others generally to be on the lookout for more types of information in no set format can present an externality that exceeds the benefits of the idiosyncrasy to the transacting parties. What private incentives there are for liquidity and how large the externality is partly determine the need for standardization. Also, as long as the state is involved in enforcing property rights there can be economies of scope in the state taking on the standardization function as well. 

Many of the issues in this article are of relevance to the case of LG v. Quanta now at the U.S. Supreme Court. In this regard the distinction Molly draws between commercial producing entities and individual consumers (who may have more of an everyday expectation of being able to use a physical article) is potentially a good rule of thumb. Maybe this is a subject for a future post, but for one thing, those manufacturing under a license are a more expert audience with more at stake, than in the case of consumers. There is less reason for the law to worry about the processing costs of closer, more expert dutyholders. There are many issues raised by the LG v. Quanta case, and I’d be interested in how Molly and others think this fits into her overall scheme of concerns.

Jim Gibson’s Comments [Mobblog: The New Servitudes]

   Molly’s insights and observations in The New Servitudes seem self-evident—almost obvious—until one considers that no one has really made them before. For me, that’s the definition of a great article, and reading it was a rare treat. I’m delighted to be included in the mob that has a chance to blog on it here.

   I’ll share two thoughts here:

   1. The article got me thinking about the preferred structure for regulating transactions in information goods: the top-down, public law approach of copyright and other intellectual property regimes versus the bottom-up, private law approach of contracts and servitudes. This is obviously not an either/or proposition; indeed, as Molly points out, copyright law’s default entitlements form the point of departure for the private-law restrictions in the licenses that she examines (the Microsoft Vista EULA, the GPL, and the Creative Commons licenses) and thus influence the degree to which such licensing schemes impose additional notice costs, generate negative externalities, and create difficulties for downstream users.

   But it struck me that some of the problems that Molly identifies might be mitigated if public law provided a more flexible range of entitlement options. Consider the “Problem of the Future” that has arisen in the context of copyleft licenses. One is not likely to find a more cooperative and collaborative community than open-source programmers and their Creative Commons cousins. Yet their focus on long-term benefit and their repeat transactions have created and then locked in an increasingly obsolete set of norms; as Molly explains, the sheer number of contributors to these projects makes altering the existing license terms nearly impossible, even if everyone recognizes the advantages of doing so. (I can see the article’s title now: The Creative (Anti)Commons.)

   If Congress were to offer a smorgasbord of opt-in copyright protections, however, this anticommons issue might not arise. So why shouldn’t the government develop intermediate sets of entitlements, like the Creative Commons licenses? Such a regime would provide only default rules, so individualized bargaining could still take place, but it would mitigate the lock-in problem of large-scale, collaborative licensing regimes. More generally, an increase in public law options would reduce the need for individualized tailoring at the contract/servitude level, which could help address some of the other problems that Molly identifies.

   Among other things, such an approach would require resurrecting copyright’s defunct opt-in provisions (particularly notice), but as I’ve argued elsewhere that may be a good idea regardless of the servitudes issue. Also, it would generate some new costs, in the form of the need for the consumer to become familiar with these various regimes and identify which one governs a given transaction; I can only hypothesize that the corresponding benefits that I have identified would be greater.

   2. Although I took Property from Glen Robinson, my knowledge of the intricacies of servitudes is a more than a bit lacking (my fault, not Glen’s), and like many others I have tended to view shrink-wrap and click-wrap licenses through a contract lens. And in the contract context, the aspect of such licenses that bothers me the most is that notice of the licensing terms often arrives quite late in the transaction, if it arrives at all. The end user may have a sense that there are additional terms awaiting him or her in the box or during software installation, but the cost of acquiring these terms is considerable and usually involves a fair amount of investment on the purchaser’s part (at least relative to the overall value of the transaction). This insulates such terms from the market pressures that we might normally expect to do the heavy regulatory lifting here.

   In contract law, my understanding is that we handle late-arriving terms through the infamous “battle of the forms” (and its counterpart in UCC § 2-207). This approach has not gained much purchase in the world of shrink-wrap and click-wrap licensing (somewhat inexplicably, in my view—see ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997)), but it at least provides a theoretical framework within which we can think about late-arriving contract terms. I cannot think of a similar concept in the law of servitudes, but I thought I would throw this out there for those more knowledgeable about such things.

   Parsing this issue raises other more tangential issues. I will touch on three, all from the software world:

a. First, where do we stand if the seller loses the battle of the forms (or its servitudes equivalent)? In other words, what happens if the shrink-wrap or click-wrap license does not become part of the bargain or encumber the chattel? On this note, let me just mention the underappreciated section 117 of the Copyright Act, which creates a use privilege for the owner of a copy of software, thus obviating the need to get any license from the copyright holder.

b. Second, section 117 in turn raises the “license versus sale” issue, because software companies insist that the section does not apply; apparently no one ever “owns” any “copies” of their programs. I have never understood the “license versus sale” dichotomy; for me, asking, “Is this transaction is a license or a sale?” makes about as much sense as asking, “Which is faster, New York or by car?”

c. Finally, even if the user has a legal privilege to install and run a program, technological restrictions may prevent the exercise of this privilege. And the Digital Millennium Copyright Act puts legal weight behind those technological protections, so that even a skilled hacker may decide to forgo a privileged use.

   Many thanks to Molly for a great read and to the Chicago folks for including me here!

Van Houweling Responds: The Affirmative Case for Enforcing Servitudes [Mobblog: The New Servitudes]

A number of themes have emerged from the comments so far.  I’ll jump back into the fray by addressing--for starters--the question of the affirmative case for enforcing servitudes. 

Both Stew and Randy are interested in exploring the affirmative case for enforcing servitude-like arrangements in the intellectual property context.  Stew reminds us of one element of the affirmative case in the land context:  “the servitude was the only effective mechanism for a landowner to deal with the monopoly power of his neighbor.”  And he asks whether enforcement of IP servitudes would also yield efficiency gains. 

Randy suggests that the answer is yes--pointing to price discrimination (which Lee also mentions) and systems competition as two examples.  Richard refers more generally to the “superior internalization of costs and benefits” that enforcement might yield.  The literature suggests additional possibilities.  Consider, for example, Henry Hansmann and Reineir Kraakman’s observation that coordinating downstream treatment of artwork can protect and promote an artist’s valuable reputation:  “The value of one work by an artist generally depends heavily on the quantity and quality of the artist’s other works. . . . The destruction or alteration of individual works can therefore damage the artist’s overall reputation and thus decrease the value of the artist’s other works as well.”  Hansmann & Kraakman, Property, Contract, and Verification:  The Numerus Clausus Problem and the Divisibility of Rights, 31 J. Legal Stud. 373, 409 (2002) (pre-print version).

First, let me acknowledge the importance of addressing (and assessing) the affirmative case.  In The New Servitudes I focus primarily on the concerns raised by servitude enforcement across the contexts of real, personal, and intellectual property.  But in order to figure out what (if any) doctrinal and policy implications should be triggered by those concerns (as I hope to do in ongoing work), I of course need to weigh both the costs and benefits. 

Let’s focus for now on two potential benefits:  facilitating price discrimination and protecting creators' reputations.  Elsewhere I have briefly discussed the potential benefits of price discrimination for poorly-financed players in the copyright marketplace.  (See Distributive Values in Copyright, 83 Texas L. Rev. 1535,1569-71 (2005).)  As for protecting reputations--I see this as a minor theme in copyright, one that looms increasingly large with the rise of technologically-empowered creators who appear to be more motivated by reputational rewards than by the monetary rewards more traditionally associated with the exclusive rights granted by copyright law.  Indeed, reputational benefits are an important explanation for the growth of the free- and open-source software movements, and they seem critical to many Creative Commons licensors as well.

(I should say something here about how the servitude mechanism may be superior to other mechanisms--e.g. negotiated bilateral contracts--for facilitating price discrimination and protecting reputations.  For now let me concede the point that seems to be motivating some of Richard’s enthusiasm for the servitude mechanism:  those alternatives would be a pain in the neck.)

So should the benefits of enforcing servitude-like mechanisms that facilitate price discrimination and protect creators’ reputations trump the concerns I raise in The New Servitudes?  I’m not ready yet to offer a definitive answer, but I’ll introduce one way of thinking about the problem. 

We might say that intellectual property law itself acknowledges the need to coordinate uses of intangible works in ways that are more ubiquitous and durable than mere contractual agreements would be.  (Stew alludes to this when he points out that “[c]opyright itself is largely premised on the fear that creators of intellectual works cannot contract with all potential users, and that without statutory protection an author would be at the mercy of any user who could reproduce, display, produce derivative works, etc., thus destroying the market for the author’s work.”)  As I point out in the article and in a companion piece, the mechanism that intellectual property law deploys to achieve this coordination is itself servitude-like (creating non-possessory property rights that limit what end-users may do with a thing in their possession).  And, indeed, intellectual property itself triggers many of the concerns I associate with servitudes. 

So one way to think about the cost/benefit question is this:  Congress has already weighed the costs and benefits of servitude-like protection for intangible works of creativity and invention.  The results of that cost-benefit analysis are embodied in copyright and patent law--which create running restrictions but also impose limits (first sale, exhaustion, fair use, etc.) that address at least some of the concerns raised by servitude enforcement.  On this view, efforts to impose servitude-like restrictions above and beyond what is provided for by copyright and patent are (at least presumptively) invalid, because they upset the balance established by this Congressional scheme. 

(An aside:  I look forward to seeing what Henry has to say on this topic.  It seems to me that this approach resonates with some of his writing about the numerus clausus principle--in particular the points that he and Thomas Merrill make about the relative institutional competence of legislators versus common law courts when it comes to creating new types of property interests.  See Thomas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property:  The Numerus Clausus Principle, 110 Yale L.J. 1, 58-68 (2000)).

To me, this approach has the virtue of taking seriously everything that Congress and the courts have said about the importance of the various balances built into intellectual property law.  On the other hand, the balance that Congress has struck as a general matter may not be the ideal way to promote creativity and innovation in individual cases.  The assumptions that Congress has made about what typically motivates creators and innovators may justify the general contours of intellectual property law without negating the possibility that some creators have idiosyncratic preferences that could be most effectively enforced via servitudes--and that serving those preferences would benefit society by inducing the production of new works, or better works, or works by a wider variety of creators, etc.  (Not to mention the possibility that the Congressional balance has been rendered obsolete by changes in technology and transaction costs--a possibility that Randy raises in From Edison to the Broadcast Flag.)

But this brings us back to the costs of servitudes.  It’s one thing (albeit not an unproblematic thing--an issue to which we might return) to expect consumers to understand the generally-applicable background law of copyright and patent.  It’s something else to expect them to parse every unilaterally imposed idiosyncratic variation.  Furthermore, even putting notice problems aside, enforcement of some of these idiosyncratic preferences will surely not be efficiency-enhancing.  It’s particularly easy to imagine reputation-protection run-amok.  (“By opening this book you agree never to say anything bad about it or its author.”)  Lee and Richard have both suggested that we have other sources of law (antitrust, civil rights, Lee’s Fair Housing Act analogy) that might take care of some of these concerns (which would be raised to some extent even by traditional contracts with similar terms).  I hope to return to that issue in a separate post. 

Picker Comments (Mobblog: The New Servitudes)

I think that I will split up my comments a bit, doing some now and some in a subsequent post. For me, I start with wanting to understand why someone might want to impose a servitude and the kind of restrictions that are imposed. I don’t know that the paper offers a theory of use restrictions and those intrigue me.

In prior work, I have discussed two different sets of use restrictions. Molly discusses one of those, the turn-of-the-century limitations seen in early phonographs. You buy my phonograph, you have to play my cylinders on it. These are fairly conventional efforts at price discrimination in which the manufacturer is trying to sell the playing equipment for different prices to different customers and where the cylinders are used to measure intensity of demand. We can’t just assume that this sort of price discrimination is pernicious, and if we can’t do that, we may need to allow the use discrimination. (I lay out more of this in my Chicago L Rev piece, From Edison to the Broadcast Flag: Mechanisms of Consent and Refusal and the Propertization of Copyright (preprint version here).)

We can generalize that point, and I have done so in other work. There is certainly a class of servitude situations involving what we might call systems competition. Computer printers and toner cartridges are a good example of this. To the untrained eye, this looks like a pretty competitive market, and yet we have observed lots of use restrictions over time. Some of those have been contractual, but given the difficulty of enforcing those contracts, sellers have turned to technological lock-and-key systems. Efforts to break those systems have in turn taken us to cases under the Digital Millennium Copyright Act.

Consumers as a group can be better off if we make possible this sort of locked systems competition. Absent the lock, manufacturers will be forced to seek to recover all of their system development costs in the price of the printer and that can inefficiently discourage purchases of the printer. Better to recover more of those costs from heavy users and we can do that if we charge above marginal cost for the toner cartridge. But to do that, the cartridge needs to be locked to the printer. (I set this out in greater detail in my paper Copyright and the DMCA: Market Locks and Technological Contracts (preprint version here)).

In both of these cases, these use restrictions may enhance welfare. I don’t see how we assess old (or new) servitudes without understanding the circumstances under which use restrictions may be beneficial. I think that this is a general challenge for copyright law as it puts in play what role fair use should play. I will have more to say about that on Friday at a conference at Columbia Law.

 

Fennell's Comments [Mobblog: The New Servitudes]

Thanks for this fascinating article, Molly.  I assigned an excerpt from it to my 1L property students long before I knew this mobblog would take place, and due to a fortuitous alignment of the syllabus, we had a chance to begin discussing it on Friday (along with an excerpt from Glen Robinson's Chicago Law Review piece).   So my students will be reading along and, I hope, chiming in.

I think you are exactly right to draw distinctions among different flavors of "new servitudes" and to distinguish among problematic features of those servitudes (in your taxonomy, "notice and information costs," "the problem of the future," and "harmful externalities"). I just have a couple of suggestions on how you might go even further on those fronts.

First, I wonder if you could gain even more traction from land servitude analogies by considering which of these servitude forms most closely resembles each of the "new servitudes" you discuss. For example, the Microsoft EULA sounds like a negative easement in gross that benefits Microsoft and burdens the end user and her successors.  It works much like a conservation easement, in that everyone who comes into contact with the property is foreclosed from doing certain things with or to it, and may present some of the same concerns.  The Creative Commons and GPL examples, in contrast, look much more like the covenants in common interest communities (CICs) that reciprocally burden and benefit each parcel-holder.  Each person enmeshed in the overall scheme receives a benefit (access to the products of others) but also is subjected to a burden (giving reciprocal access to others).  The large number of benefited parties who must release each burdened party creates the anticommons-like dynamic you describe; similar problems have arisen in CICs.  So there may be more to learn by looking at the problems and solutions that are associated with the closest analogues for each "new servitude" type.

Second, although your taxonomy does this to some extent, it may be helpful to distinguish more sharply between two kinds of concerns about servitudes:  problems that are uniquely presented by servitudes "running" to other users (who may be remote in time and space), and public policy concerns that exist independent of these concerns about running.  With land servitudes, the first category of problems are tackled through running requirements and doctrines that provide, under certain circumstances, for modification or nonenforcement (or damages-only remedies, as Stewart Sterk notes in his comment).  Broader-based measures are used to address the second category of problems.  For example, the Fair Housing Act places side constraints on servitudes that run with the land, but it would also limit in exactly the same fashion and for exactly the same reasons non-running discriminatory agreements among individual neighbors.

Running itself may be an issue in the case of servitudes attached to Creative Commons and GPL licenses, in that it expands the web of reciprocally-bound parties.  And at least one concern that you raise about EULAs implicates running as such: the worry that restrictions affixed to obsolete software will hamper its use for education and research long after the software has ceased to hold significant commercial value.  [A quick aside on this point:  Might one possibility be a sunset on the enforceability of licensing agreements once the software in question is no longer available for purchase from the manufacturer or its successors? As long as the manufacturer continues to offer the product for sale, the use of servitudes could actually advance educational and research uses, for a reason noted by Glen Robinson:  servitudes make it feasible for manufacturers to engage in price discrimination].

Other concerns with EULAs seem conceptually removed from questions of "running."  For example, the possibility that EULAs will interfere with fair use rights seems like a substantive objection to the limits themselves, even as applied to the first purchasers of the product.  If our real objection is to the limitation itself and not to the fact that it runs, we need a different (and broader-based) response.  Otherwise, manufacturers could shift to non-running substitutes with the same substantive effects.  Consider what Glen Robinson terms "hardwired servitudes" – electronic products that self-destruct after some number of days or uses, or otherwise directly prevent any user from breaking the original license agreement.  These built-in constraints might be viewed as problematic, but not because of the time and remoteness concerns we would typically associate with running servitudes.

An analogy may help here.  Suppose a buffet restaurant rations access to its food with tickets that are issued only after a purchaser agrees to the following:  (1) the ticket can be used for no more than five separate trips through the buffet line; (2) no containers for carrying food may be used other than the plates supplied by the restaurant; and (3) these restrictions "run with the ticket"; if a ticket is transferred, the trip count does not reset, and the "no outside container" rule remains in force.  After observing the buffet's operation, we might well conclude that the customers are getting an unfair deal.  Perhaps the supplied plates feature a clever dome-like surface that precludes the efficient piling of food, or the restocking of the buffet is strategically staggered so that people can access only a small fraction of the ostensibly available foods on each trip through the line.  But because these are not, fundamentally, problems with the restrictions running to other diners, any response to them should be direct and broad-based (say, though prohibitions on deceptive buffet practices).  The running feature is indeed essential to the restaurant's current business model, but that business model (and the running servitudes necessary to sustain it) may turn out to be socially valuable once the substantive problems with the buffet's serving practices are addressed.

Thanks again for the paper, Molly, and for participating in this online event!

Epstein's Comments: Mobblog on the New Servitudes

It is of course an honor to be invited to comment on Molly Van Houweling’s article, on the New Servitudes, and, I think, important to do so, because in my view the extension of licenses to bind third parties to business arrangements counts as a welcome and not a troublesome development for the law of property in general.

Stewart Sterk's Remarks on The New Servitudes [Mobblog: The New Servitudes]

Molly’s article ties together doctrinal strands in such a compelling way that it leaves me asking myself why I hadn’t thought of the analogies in the same way.  For me, that’s the mark of a successful piece.  On top of that, her article raises some interesting questions for another day.  I’ll raise three of them.
    (1) Molly’s piece focuses on the reasons for judicial skepticism about enforcement of servitudes.  With respect to land, she identifies three: notice and information costs, the problem of the future, and externalities, and then skillfully examines how those same reasons for skepticism apply with respect to intellectual property servitudes.  But one could ask the question from another perspective.  In light of the problems she identifies, why did courts enforce servitudes, despite the problems she identifies, all of which cast doubt on the assumption that a consensual servitude is value enhancing?  One answer is that the servitude was the only effective mechanism for a landowner to deal with the monopoly power of his neighbor.  Only a next-door neighbor can provide me with the assurance that I won’t live next door to a factory or apartment house; only my neighbor can assure me that my view won’t be blocked by a wall, etc.  If easements and restrictive covenants were not enforceable, every time neighboring land were sold, the purchaser would be able to exert that monopoly power by demanding payment for agreeing not to build the factory or the wall, and I wouldn’t pay, because my neighbor could then turn around and sell, leaving me at the mercy of the new purchaser.  This explanation dovetails with the common law’s reluctance to enforce affirmative covenants against successors.  With affirmative covenants, neighbors typically enjoyed no monopoly power.  If my neighbor didn’t agree to maintain a driveway over my land, I could always hire someone on the market to do the same thing.  On this view, courts had a positive reason to enforce restrictive (but not affirmative) covenants, and that positive reason contributed to judicial willingness to overcome the problems Molly identifies.  Is there a comparable positive reason for enforcing IP servitudes?  What efficiency gains does enforcement of these servitudes promote?  It seems to me that an answer to those questions would provide a nice bookend to Molly’s focus on the reasons for not enforcing servitudes.
    (2) The increasing use of IP servitudes raises another interesting question: should licensors who extract servitudes on what we call intellectual property have to “opt out” of copyright protection?  Copyright itself is largely premised on the fear that creators of intellectual works cannot contract with all potential users, and that without statutory protection, an author would be at the mercy of any user who could reproduce, display, produce derivative works, etc., thus destroying the market for the author’s work.  But if that premise is wrong – if the author can impose a servitude that binds all potential users to license terms – then why afford copyright protection at all?  Of course, a regime that required licensors to choose between servitudes and copyright would provide little benefit to potential users; the typical licensor would choose more onerous license terms that incorporated all copyright protections, and then some.  But there might also be some leakage: users who, for some reason would not be charged with notice (because, for instance, someone had engineered the “click-wrap” out of a piece of software).   
    (3) Molly’s article does not focus at all on remedy, and I wonder whether the problems she identifies with enforcing IP servitudes might be significantly ameliorated by limiting licensors to money damages rather than injunctive relief.   Many of the costs Molly identifies of enforcing servitudes (particularly underutilization of resources) would become less significant if a potential user knew that injunctive relief were not available.  Consider, for instance, Molly’s example of the researchers who reverse-engineer Windows 95.  If Microsoft could only obtain money damages, the researchers might not be terribly concerned about the difficulties of obtaining Microsoft’s permission.  Limiting IP owners to money damages generally reduces the incentive for potential users to engage in expensive searches to learn whether works are protected, and to learn who owns the associated IP rights ( a point I make in my forthcoming article, Property Rules, Liability Rules, and Uncertainty About Property Rights, 106 Mich L Rev ___ (2008).)  Moreover, there is certainly precedent for limiting servitude owners to money damages as a remedy in a variety of cases.  (see, for instance, NY RPAPL sec. 1951 (prohibiting award of injunctive relief when servitude is of “no actual and substantial benefit” to the person holding the servitude).
    Thanks to Molly for providing such a provocative article!

Stew Sterk

The New Servitudes

I’m delighted to be a guest here at the Faculty Blog.  And I’m looking forward to this week’s mobblog about my article, “The New Servitudes” (forthcoming in the Georgetown Law Journal).  The article lies at the intersection of the two fields in which I teach—intellectual property and tangible property.  So it’s a real honor to be discussing it online with luminaries from both of those fields.

Let me get things started with an overview of the paper, which is ultimately about those pesky “licenses” that purport to define how consumers may use computer programs, digital music, and other intangible works of the information age.  For example, you have undoubtedly downloaded a computer program from the Internet after viewing a screen of text limiting how the program may be used; installation began only after you clicked “I agree.” 

Courts in the United States have increasingly enforced such restrictions—labeling them “click-wrap licenses” and applying to them the same contractual concepts that govern face-to-face exchanges of promises.  But I argue in the paper that the law of tangible property offers a different and more powerful lens through which to view them. 

As others have noted (including Glen Robinson in the University of Chicago Law Review), these licenses can usefully be likened to “servitudes”—non-possessory property interests that attach to land and impose their restrictions and obligations on generations of landowners (e.g. a covenant that prohibits a homeowner from painting her house pink).  Like the licenses that characterize the digital age, use restrictions imposed by servitudes bind remote purchasers with whom the beneficiaries of the restrictions may have no direct relationship.  They do not arise from any human communication, but instead “run with” the burdened assets and automatically bind current owners.

Although servitudes are a familiar feature of contemporary real property law, they have long encountered judicial skepticism that has generated a host of doctrinal complications.  This skepticism has been even more pronounced in the context of servitudes applied to items of tangible personal property (imagine a covenant prohibiting the owner of a horse from riding on a pink saddle). 

In the article I develop an account of the evolving jurisprudence of servitudes as applied to both land and personal property, identifying the sources of traditional servitude skepticism in order to evaluate contemporary licensing practices.  I apply the lessons I draw from the old servitudes to three paradigmatic “new servitudes”—the Microsoft Vista End-User License Agreement, the Free Software Foundation’s General Public License, and Creative Commons licenses.  (NB:  I am a board member and former staff member of Creative Commons.  But of course the paper expresses only my personal views.)

My examination of the tangible servitude jurisprudence finds that servitude skepticism arises from three types of concerns: (1) concerns related to notice and information costs; (2) concerns related to dead hand control and other aspects of what Julia Mahoney has usefully referred to as the problem of the future, and (3) concerns related to harmful externalities. 

Turning to the new servitudes, I find that some of the concerns that have animated skepticism about servitudes on land and personal property may in fact be more relevant to contemporary licensing practices than they are in the contexts in which they originally arose.  But the new servitudes differ from each other in respects that are critical to the applicability of the servitude analysis: each of the paradigmatic licenses that I examine exhibits a different mix of problematically servitude-like features. 

For example, the Microsoft EULA purports to impose restrictions beyond the background restrictions of copyright law (e.g. by limiting uses that courts have declared to be non-infringing “fair uses” under copyright law) on multiple generations of remote consumers by attaching itself ubiquitously to works of authorship for which there is limited effective competition.  These features raise nearly all of the concerns traditionally associated with servitudes—potentially confusing consumers for whom the restrictions are not initially salient (notice and information costs) and impinging on future creativity and innovation (the problem of the future) by imposing restrictions that threaten the positive externalities preserved by copyright’s public-regarding limitations (harmful externalities).

The GPL and Creative Commons licenses are fundamentally different in that they arguably impose conditions that are merely a subset of those restrictions already imposed by the background law of copyright—a characteristic that mitigates both notice and externality problems.  Indeed, by releasing creative works from unnecessary copyright restrictions, these licenses promise to generate positive spillovers from collaborative creativity.  But, ironically, this environment of collaborative creativity can result in complex webs of overlapping and potentially incompatible conditions, causing unanticipated future problems that may even transcend the problems that necessarily arise as a consequence of copyright law’s own running restrictions and long duration.  I have a few examples in mind that I am happy to describe once our discussion gets rolling. 

So with those basics on the table, let the mobblogging begin!