UCITA: TO SUPPORT OR NOT TO SUPPORT; THAT
IS THE QUESTION
The Uniform Computer Information Transactions Act (UCITA), formerly designated
as proposed Article 2B of the Uniform Commercial Code, was resoundingly
approved by the National Council of Commissioners on Uniform State Laws
(NCCUSL) at its annual meeting at the end of July, 1999. The proposed law, with
the approval and support of NCCUSL, will now be presented to the legislatures
of each of the 50 states for adoption as a free-standing uniform act.
UCITA has been over six years in drafting. The process as been extraordinarily
open, with representatives of a wide variety of interests attending drafting
meetings and commenting on proposed provisions. What is the result, and is it
deserving of support?
In deciding whether to support UCITA, the only question is: will those who
provide computer software and other computer information and those who use it,
and the public at large, be better served by having UCITA in place than being
without it? The answer is: we are better off with it than without it.
UCITA is, first and foremost, a contracting statute. When revisions to Article
2 of the Uniform Commercial Code were first being proposed, it was anticipated
that software and information transactions would be included in Article 2 -
Sale of Goods. Software and information transactions have, however, for their
short history of existence, primarily used contractual arrangements in the form
of licensing agreements to grant rights to use software and computer
information. The licensing framework has worked well. In the past two decades,
the computer information industry has grown from tiny to over $100 billion a
Such explosive growth and technical change in an industry is unprecedented. The
licensing model has worked well because it offers maximum flexibility in an
industry in which change is rapid and constant. It became apparent to those
involved in the legislative drafting process that Article 2, dealing with sales
of goods, was ill-suited to transactions in software, and that a separate set
of provisions based on the licensing model and confirming the basic outlines of
existing law and practices regarding these transactions, would be better suited
to the continuing, rapid expansion of the affected industries, their suppliers
and their customers and clients. Accordingly, UCITA accepts the basic
proposition that the licensing model deserves recognition in our statutory law.
UCITA also recognizes that technology is changing rapidly, and that a maximally
flexible legal framework with uniform rules regarding recognition of the
underlying legal framework is essential to its continued growth, and that any
attempt to provide specific solutions to specific problems is not only contrary
to freedom of contract principles, but in the context of such rapid
technological change, risks becoming obsolete by the time the statute is
adopted. Thus, UCITA sets forth guiding principles and default rules, and
thereby addresses the needs of digital commerce by adapting long-standing
principles of contract law to the needs of the digital marketplace.
In addition to confirming the licensing model, adopting UCITA will provide some
uniform rules and standards regarding contract formation in this area and
establish balanced default rules regarding a variety of issues, e.g. choice of
law and remedies. Beneficial results will include increased certainty in
contracting and should include a resulting decrease in litigation.
UCITA has been criticized because it allegedly pre-empts federal law
(especially federal copyright law), because it fails to prohibit “outrageous”
and “inappropriate” terms in license agreements, and because it fails to
mandate granting broader rights and broader, non-disclaimable warranties to
users. Various specific provisions have also been criticized. Most of these
criticisms reflect an incomplete understanding of the proposed provisions. For
example, the provision on self-help has criticized as permitting undisclosed
“pinging” -- a process by which a given program examines all software on a
system to determine whether that system is running unlicensed copies of that
program. As indicated below, the provision does not prevent “pinging” but does
require that inclusion of such a self-help mechanism be timely disclosed and
consented to by the licensee.
The first criticism, alleged pre-emption of federal law, is simply erroneous.
State law cannot supersede federal law, and UCITA does not even purport to do
so. UCITA is a contracting statute. Federal copyright law will continue to
cover computer software, which is, by statute, a “literary work”
in which copyrights inhere from the moment of inception. In fact, the
licensing model is supported by, and supports, copyrights. Copyright law does
not preempt making contractual arrangements in connection with copyrighted
material. Quite the reverse. Copyright permits the licensing of copyrighted
materials, in this case, computer information, and the use of a license can
expand the rights of the licensee beyond those which ownership of a copy would
provide, while protecting the rights of the licensor. For example, a license
might grant a licensee permission to copy a software program onto three
machines, or the right to incorporate a program into the licensee’s software
and redistribute that program to third parties. In the absence of such
permission, either use would probably constitute copyright infringement. If
discovered, the infringer might be liable for damages. If undiscovered for a
long period, the program might be deemed to have passed into the public domain,
and the copyright owner might lose its copyrights. The licensing model enables
the licensor to grant expanded rights without losing the ability to exploit its
creation for commercial gain, and enables the licensee to use the program in a
wider variety of ways than the copyright laws permit, with confidence that such
use will not give rise to accusations of infringement.
Federal copyright law is not the only federal law which may be relevant to
computer information. Patents have been granted on computer information, and
therefore, where invoked, patent laws (and case law) may also cover computer
information. Federal anti-trust laws and unfair competition laws, including
laws against false, deceptive and misleading advertising (e.g. Section 43 of
the Lanham Act and Section 5 of the Clayton Act) are currently being used to
challenge a number of Microsoft’s commercial practices, and these laws will
continue to provide avenues of redress for false advertising and misleading
claims regarding computer information transactions. Similarly, federal consumer
protection statutes (e.g. the Magnusson-Moss Act) will continue to apply in
appropriate circumstances. UCITA will also leave state anti-trust, “little FTC”
and consumer protection laws intact, and applicable to computer information
transactions in appropriate circumstances.
The allegation that UCITA will enable computer information providers to enforce
“outrageous” or even “inappropriate” terms is also without foundation. UCITA
requires computer information transactions to meet the time-tested, common law
standards applicable to contracts by expressly providing that contract terms
which are “unconscionable” or against public policy are unenforceable. A term
which is “outrageous” is more formally described as a term which “shocks the
conscience of the court”, i.e., is unconscionable. A term which is
“inappropriate” is, under basic principles of common law, unenforceable if it
is inappropriate for society as a whole, that is, contrary to public policy.
Thus, contentions that providers of computer software and other computer
information will somehow be able to enforce outrageous or inappropriate terms
are unsupported and unsupportable.
UCITA has been criticized because it does not mandate granting broader rights
and warranties which cannot be disclaimed. In many cases, such criticisms are
attempts to achieve through legislation what cannot be achieved in the
marketplace because the cost of broader rights and warranties is greater than
the benefit for which users are willing to pay.
The NCCUSL Drafting Committee considered suggestions that UCITA mandate broader
rights and undisclaimable warranties. They also considered second-level
consequences. Broadening rights and warranties by statute would require that
computer information be sold at higher prices to cover the cost of the
increased risk of making good on warranties which cannot be disclaimed. One
foreseeable result is that some applications and other computer information
will not be offered because small developers will not be willing to take the
additional risk of warranties which cannot be disclaimed. Another foreseeable
result is that some applications and other information will not be sold at
higher prices in sufficient quantities to be commercially viable, and therefore
will not be offered. Providing mass market software would become more costly
and riskier, thus making it more difficult for small developers to compete with
larger “deep pocket” providers. Reducing the number of small developers who
offer mass market computer information will make the industry as a whole less
competitive. Thus, mandating broader rights and undisclaimable warranties will
result in higher prices, less variety and choice of available software
applications and other computer information, and less competition in the
computer information industry - all undesirable results for providers, users,
and society as a whole. The Drafting Committee’s decision to have UCITA remain
neutral, rather than mandating broader rights and undisclaimable warranties, is
entirely appropriate, even wise, given the foreseeable unintended results of
Permitting any kind of self-help has been criticized as unfair to licensees.
Self-help provisions were extensively considered and debated during the NCCUSL
drafting process and the result was to permit electronic means to prevent a
licensee from using licensed computer information under highly limited
circumstances. These include the right to discontinue access
or otherwise prevent use
on rightful cancellation of a license if the self-help can be achieved
without breach of the peace or personal injury and provided the licensee has
separately manifested assent to a contractual provision authorizing the use of
Such notice to licensees is not required under current law, which leaves it to
“word of mouth” and the free market to advise licensees that a licensor has
included self-help mechanisms in a computer information transaction.
There are other provisions which give licensees rights they do not have under
current law. For example, if license terms are not disclosed prior to delivery
or imposition on the licensor of the obligation to deliver, a typical situation
when programs are purchased in boxes from a retail store with the license
inside, UCITA requires that the licensee be given the right to return the mass
UCITA also requires that any disclaimer of warranties be stated in
clearer language than is required under current law.
UCITA also gives licensees the right to avoid the results of errors
on-line, requiring only that the licensee give prompt notice of the error.
UCITA also expressly states that state consumer protection laws will
take precedence where they conflict with UCITA. Thus, if UCITA provides for a
shorter statute of limitations than state consumer protection laws, the longer
statute of limitations in the state consumer protection laws will apply.
UCITA was conceived of, and remains, a contract statute. It follows time-tested
principles of freedom of contract, and relies on traditional requirements of
reasonableness, good faith and fair dealing, and traditional limitations on
that freedom, e.g. unconscionability, fraud, and misrepresentation, to assure
that contracts are enforced in a responsible manner. Its purpose is to
facilitate commerce by codifying existing law, resolving conflicts in existing
law where they currently occur, and establishing fair and uniform rules for
computer information transactions, thereby increasing certainty in transactions
involving computer information, including but not limited to computer programs
(applications), access to proprietary databases and electronically-delivered
services, and electronic commerce.
There is an inherent tension between freedom of contract and
legislatively-imposed consumer protection contractual requirements. UCITA makes
no attempt to resolve that tension. UCITA includes provisions designed to
protect consumers, but it is first and foremost a contracting statute, not a
consumer protection statute. As a philosophical matter, it leaves each state to
establish consumer protection laws as it sees fit, and supports the decisions
made by individual states in their consumer protection statutes by expressly
providing that it does not override state consumer protection statutes.
No piece of legislation is perfect. To be adopted, and beneficial to society as
a whole, legislation must consider a variety of interests. The goal of good
legislation is not, therefore, perfection, but striking the right balance among
competing views. UCITA is the result of a long and extraordinarily open
drafting process. The NCCUSL Drafting Committee has crafted a
carefully-considered and well-balanced statute. It strikes a fair and workable
balance among a wide range of interests, it can reasonably be expected to
reduce litigation by providing uniform guidelines, and it will support the
continuing growth of the computer information industry and expansion of
electronic commerce which hold great promise for our country’s future growth.
For these reasons, it appears that on balance, providers and users of computer
information, and society as a whole, are more likely to be helped than hurt by
adoption of UCITA, and therefore, it is worthy of support.
1999, Micalyn S. Harris, All Rights Reserved. Ms. Harris is Vice President,
Secretary and General Counsel of Winpro, Inc., a software consulting, design
and development company, with offices in Ridgewood, NJ, and New York City’s
“Silicon Alley.” This paper is based on an article which first appeared in the
October, 1999 issue of The Metropolitan Corporate Counsel.
to the United State Department of Commerce, the world packaged software market
was $109.3 billion in 1996, of which $50.4 billion was in the U. S. The world
packaged software market is expected to exceed $125 billion in 1997. U. S.
Industrial Trade Outlook ’98. United States Department of Commerce, 1998. Note
that these figures reflect only packaged software. The scope of UCITA is not
limited to packaged software, and therefore, UCITA would impact an even larger
17 U. S. C. 101 et seq.
text of the proposed legislation (and drafts of all uniform laws) can be
accessed at email@example.com or
NCCUSL's web site at the University of Pennsylvania,
www.upenn.edu. Additional reference materials may be found at
www.2BGuide.com, and a forum regarding information on the more limited
but related Electronic Transactions Act may be found at