The encyclopedia · Strategy & Leadership · Strategic decision · 1996
ProCD enforced a license on uncopyrightable data
ProCD, facing resale of its uncopyrightable phone database, made buyers accept a license by using the software, which the Seventh Circuit enforced.
ProCD, Inc.
the move
ProCD spent over $10 million compiling data from more than 3,000 local telephone directories into SelectPhone, a searchable CD-ROM database. To recover that cost, ProCD priced the product differently for consumer and commercial buyers — charging businesses significantly more than individual consumers — but the raw telephone listings themselves were uncopyrightable facts under the Supreme Court's 1991 Feist Publications ruling, meaning copyright law alone couldn't stop a consumer buyer from copying and reselling the underlying data.
Matthew Zeidenberg bought a consumer-priced copy of SelectPhone from a retail store in 1994 and formed Silken Mountain Web Services to resell the directory data online at prices undercutting ProCD's own commercial rate — exploiting the exact gap between what the box's outer packaging disclosed and what copyright law alone could restrict. ProCD sued for breach of the license agreement included inside the packaging and displayed on-screen during installation; a Wisconsin district court initially ruled the shrink-wrap license non-binding, since its terms weren't visible before the purchase was ma
why it works
- Copyright doesn't protect facts, so ProCD couldn't stop resale under copyright law.
- Contract law can restrict any use if the buyer accepts the terms.
- Using the software after seeing the license and having a return option counts as acceptance.
- The court upheld the license, making the restriction enforceable.
what transfers
When IP law can't protect a valuable asset, use contract law to bind users through explicit acceptance.
what came after
The 7th Circuit reversed the lower court on June 20, 1996, ruling the shrink-wrap license was an enforceable contract. ProCD v. Zeidenberg became the foundational US precedent legitimizing shrink-wrap and later click-wrap software licenses, cited in countless subsequent cases and credited with enabling the software industry's broad shift from selling copies outright to licensing use under terms a buyer accepts after purchase, shaping how virtually all consumer and enterprise software is distributed in the US today.
references
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