UCITA "Rules"

Despite its downside, UCITA is gaining acceptance throughout the U.S. How does this act impact on the governance of software and networking services?

by / September 26, 2000
Despite its downside, UCITA is gaining acceptance throughout the U.S. How does this act impact on the governance of software and networking services?
By Jim Warren

State and local governments are massive consumers of computer software, services and information. There is a controversial new business code that may soon impact every aspect of such computer usage: the Uniform Computer Information Transaction Act (UCITA). In spite of its title, it applies to contracts and usage-limiting licenses for software and networking services, as well as for computerized informa tion.

UCITA was written by 11 members of a drafting committee, two of whom indicated law school affiliations and only one indicated any government affiliation. The chair of the UCITA drafting committee stated that significant parts of it are, "a radical departure from existing law."

Nonetheless, in late July 1999, the National Conference of
Commissioners on Uniform State Laws (NCCUSL) approved the 26,000-word draft by a 43-6 vote with two states abstaining -- thus recommending that it be legislated by each of the 50 states.

Who Likes UCITA?

It is widely understood within the computer industry that the large computer corporations will greatly benefit from UCITA, and some are funding vigorous lobbying efforts to get it enacted -- especially in states where legislators may be a bit less knowledgeable of its possible impacts on business and agency computer users and consumers.

Virginia and Maryland -- aggressively wooing computer corporations -- quickly adopted UCITA as part of their uniform business codes.

By mid-summer, Delaware, Hawaii, Illinois, New Jersey and Oklahoma had also introduced legislation to adopt these "radical" new codes, although Attorneys General for the latter two states are opposing it.

Notably, however, none of the leading technology states, such as California, Massachusetts or Texas -- where some legislators and many business people and citizens are highly computer literate -- have even introduced UCITA as of this writing, much less adopted it.

Is UCITA for You?

UCITA advocates describe it as, "the first comprehensive uniform computer information licensing law. This act uses the accepted and familiar principles of contract law, setting the rules for creating electronic contracts and the use of electronic signatures for contract adoption, thereby making computer information transactions as well grounded in the law as traditional transactions."

But should you support -- or oppose -- UCITAs adoption for agencies and consumers in your state? Would you want to purchase computer products or services under these new statutory contract and licensing rules? Perhaps more importantly, would you want to recommend that your agency make purchases under such licensing and contract rules?

Before deciding, consider who has been highly critical of these new rules, most of them formally opposing UCITA. A very partial list includes: Attorneys General of Arizona, Arkansas, California, Connecticut, Florida, Idaho, Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, North Dakota, Oklahoma, Pennsylvania, Tennessee, Vermont, Washington, West Virginia
and Wisconsin, in letters of July 23 and 28, 1999, to NCCUSL; Federal Trade Commission, Consumers Union, Consumer Federation of America, U.S. Public Interest Research Group;
American Association of Law Libraries, Association of Research Libraries, Medical Library Association, American Library Association; ACM (Association for Computing Machinery, the oldest computer professionals organization in the world), IEEE (Institute for Electrical and Electronics Engineers, the largest such professionals
organization in the world), Software Engineering Institute, Independent Computer Consultants Association, Society for Information Management; National Retail Federation, Newspaper Association of America, National Writers Union, Magazine Publishers of America, National Association of
Broadcasters; At least 50 intellectual property law professors, at least 43 contracts and commercial law professors, the American Bar Associations Working Group on Consumer Protection and the New York Bar Association.

Whats So Controversial?

One highly critical letter from the attorneys general alone was 4,500 words. It is far beyond the scope of this column -- or limited talents of its writer -- to provide detailed analyses of the areas of controversy.

However, the best pointers to opposition statements and organizations seem to be at Ralph Naders Consumer Project on Technology and Kraner & Pels site www.badsoftware.com . The most ardent supporting statements seem to be at Carol Kunzes site , plus the drafting committee chairmans comments at www.nccusl.org .

Even at best, different legal experts are reaching very different conclusions as to the meanings of UCITA rules as written. Here are some of the key areas of controversy:
"Shrink-wrap" licenses. UCITA proposes extensive rules -- the "radical departure" mentioned by the committee chairman -- for the form, modification, authorities and enforcement of what it calls mass-market licenses.

"Click-wrap" licenses. This is another variation in mass-market licenses, but with two very different incarnations: 1) License information may not be accessible until a user has purchased the product and actually launches the software. Then, the purchaser must either accept the license as presented by clicking on an acceptance button, or be unable to use the product. UCITA allows them to return such software, unused, for a full refund. 2) This same approach to licensing and binding contractual obligations also applies to many online services for access to, and use of, the Internet. However, how and whether the user will receive a copy of the license for their files -- or prove that such a copy is as was originally accepted -- may be less clear.

Adequate disclosure of license terms. There is considerable controversy over when and how disclosure of significant aspects of a paper, click-wrap or online license is reasonable to meet the needs of licensors, but also be fair to licensees and consumers. Some of the license requirements that may be of special interest to consumers
include duration of the license, permitted and prohibited uses of the product, circumstances for automatic cancellation of the license -- which then permits "repossession" of the product -- permission to make
backup copies or use it on more than one computer (home and office), non-transferability of the license and product to some later user and the ability to modify the license at some later date.

Unilaterally modifying licenses after acceptance. A click-on license will often allow the licensor to unilaterally modify contracts or licenses at some later date. This may impact continuing performances or may permit minimal notice -- simply posting the modification notice on some page in the licensors Web site. In response, the attorneys
general commented, "The sole remedy available to persons against whom such modifications would operate is cancellation, and even that remedy is limited to parties to mass-market contracts."

"Self-help repossession." When stated in the license or contract, UCITA permits vendors of software to "repossess" their products electronically -- over the Net or perhaps by embedded shut-off code -- if they believe there has been a substantial breach of contract or license. However, this is prohibited "if the licensor has reason to know that there is substantial risk to public health or safety or grave
harm to third parties."

Prohibitions against disclosing experiences with a product or service. Comments by the drafting committee chairman, "acknowledge the validity of confidentiality clauses, but indicate that in a mass-market context,
such a restriction -- prohibiting negative comments about a product or service -- might be challenged."

Choice of law; choice of judicial forum. A committee chairmans comment illustrates his perspective regarding which party should have to learn many states laws: "In Internet transactions, the choice of law where there is no agreed choice is the state of the licensors principal
place of business. Any other rule would create an endless need to learn the law of all states." However, "in consumer cases where a tangible product is delivered, UCITA specifies that the law is the law of the state where the product is to be delivered." Of special interest to agency officials, "consumer ... does not include ... a licensee
primarily for professional or commercial purposes."

The attorneys general letter concluded saying: "In our experience as law enforcement officials, we have found that there is a substantial element in our society unconcerned with matters such as consumer goodwill, who will exploit any method to gain advantage in their dealings with others. As it currently stands, UCITA is an open invitation to those persons to exploit our citizens."

As always, caveat emptor -- for yourself and your agency -- especially when mega-corporations lobbying dollars are trying to rewrite the rules!