Overlap and conflict are inevitable in any legal system in which a federal government and state governments both have authority to enact laws. In our federal system, the Constitution's Supremacy Clause identifies federal law as preeminent in case of conflict. When conflict develops and litigation is required to determine whether state or federal law controls the issue at hand, our system analyzes the problem using the term preemption as a basis for analysis.

This Article explores the federal legislative process that precedes judicial preemption decisions. By studying the legislative process for its sensitivity to preemption issues, possible ways to modify the process to reduce the incidence of preemption problems have been identified. This Article compares state commercial law contained in the Uniform Commercial Code (U.C.C.) and federal law contained in the Copyright Act of 1976 (Copyright Act) to examine the preemption problem.

Business planners are particularly concerned with the predictability and stability of state commercial law. State commercial law is, however, peculiarly susceptible to disruption by preemption issues. Apart from the litigation expense in resolving the preemption issues, uncertainty as to the applicable law raises the costs of contracting because lawyers attempt to comply with the competing regimes rather than risk a faulty transaction. Because uncertainty adds directly to the costs of transacting business, Congress routinely should consider the impact of its legislation on state commercial law, attempt to articulate its preemption decisions clearly, and defer to state commercial law whenever possible.

The Copyright Act is a particularly good vehicle for observing the effectiveness of the legislative process in identifying and confronting preemption questions. The Copyright Act is a recent statute, it has an extraordinarily well-documented legislative history, and it intersects two distinct bodies of state law in ways that are worthy of comparison.

The first part of this Article provides a brief overview of the preemption issues implicit in shared federal-state authority over substantive and transactional intellectual property law and summarizes efforts by Congress and the Supreme Court to define the respective spheres of federal and state authority. In addition, it introduces the tension between the Copyright Act's federal transactional provisions and state law in U.C.C. Article 9 applicable to secured financing employing copyrights as collateral. The first part concludes that the Copyright Act substantially altered the balance of federal and state authority over substantive copyright law and paid close attention to the preemption question inevitable in shared substantive authority. Preemption cases on the substantive side continue to arise, but their disruptive effect was reduced substantially by the legislation.

The second part of this Article identifies key differences between the transactional regime of the Copyright Act and the state law regime of Article 9. It then explores the attention given by the Copyright Office, Congress, and others to the preemptive effect of the Copyright Act. This history suggests that, at best, policy makers gave cursory attention to this preemption problem and that policy makers evidenced little, if any, awareness of Article 9.

In the third part, the vacuum left by this failure to address carefully the federal preemption of Article 9 is addressed. The absence of legislative guidance has resulted in increased financing costs for borrowers and unsatisfactory resolutions by the courts. Results like these were clearly avoidable by federal lawmakers.

Part four considers the implications of the cases and the history of the Copyright Act. The central question remains: How could a federal legislative process spanning the years 1955 to 1975 be so uninformed of Article 9 of the U.C.C., certainly the most significant development in secured financing since the 1940s? This part suggests some ways to improve the legislative process in the future in order to minimize questions concerning federal preemption of state commercial law.

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Notes/Citation Information

The Business Lawyer (ABA), Vol. 48, No. 2 (February 1993), pp. 437-482


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