United States: Federal Circuit Reaffirms Copyright Does Not Preempt Contract Claim

The U.S. Court of Appeals for the Federal Circuit reaffirmed its original opinion in Bowers v. Baystate Technologies (IP Update, Vol. 5, No. 9, September 2002), Judge Dyk dissenting in part. Bowers v. Baystate Technologies, Case No. 01-1108, -1109 (Fed. Cir. Jan. 29, 2003).

The Court, in the majority opinion, adhered to its previous rulings that under First Circuit law, the applicable law in this case, the Copyright Act does not preempt the contract claim presented by Bower’s "shrink-wrap" license; the district court properly omitted copyright damages as duplicative of contract damages; and under a proper claim construction, no reasonable jury could have found in favor of Bowers with respect to his claim for patent infringement.

Judge Dyk dissented as to the copyright preemption issue only, voicing his concern that "under the majority’s reasoning, state law could extensively undermine the protections of the Copyright Act."

In Judge Dyk’s view, applying state law to give contractual effect to a shrink-wrap license is different from applying state law to give effect to a freely negotiated contract. By ruling that the state law in issue is not preempted by the Copyright Act, Judge Dyk asserts that the Court has authorized the use of "shrink-wrap agreements . . . [that] are far broader than the protection afforded by copyright law." The dissent argues that the majority opinion logically threatens other federal copyright policies by allowing copyright holders to extend their rights. "If by printing a few words on the outside of its product a party can eliminate the fair use defense, then it can also, by the same means, restrict a purchaser from asserting the ‘first sale’ defense . . . or any other of the protections Congress has afforded the public in the Copyright Act." The dissent also voices a concern that the majority opinion is in conflict with the only other federal court decision that addresses the issue, Vault Corp. v. Quaid Software, Ltd, holding that state law prohibiting the copying of a computer program is preempted by the Copyright Act.