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UCITA Blessing Or Curse?
Kris Ananthakrishnan
Friday, February 28, 2003
RIGHT NOW ALL IS QUIET, AND AN UNEASY CALM prevails. But make no mistake: this war is far from over. It won’t be long before the first salvo of the year will be fired. Like all wars, this one, too, has a history. And like all wars, the outcome could profoundly affect us in some way. But, thankfully, that’s where the similarity ends. In this war, there are no guns, no missiles, and certainly no blood.

The genesis of this discord is a document innocuously titled “Article 2B,” authored initially almost a decade ago by the National Conference of Commissioners of Uniform State Laws (NCCUSL). The intent of these 300 state-appointed commissioners was to produce a proposal for a law for uniform software transactions. The outcome, unfortunately, has turned into a wrangling match between the supporters and detractors of the proposed law.

The way the proposed law was originally written, it was clear that the terms were heavily in favor of the software licensors. Among other things, it gave software publishers the right to enforce “shrinkwrap” and “clickwrap” licenses as legally binding contracts. In other words, if you clicked on the “I Accept” button when you install a software, and then find out that the software was unacceptable for whatever reason: well, you are out of luck. You just signed away any rights you had to sue the software publishers for consequential damages. No wonder practically every software industry association (including Business Software Alliance, Digital Commerce Coalition, and Silicon Valley Software Industry Coalition) lined up squarely behind the proposal.

“Outrageous!”, claimed consumer groups, IT business users, and host of advocates of the consumer rights. “How can anyone accept legally binding licensing terms even before really using the product?” they asked. “It isn’t fair to empower the software vendors at the cost of restricting the rights of consumers,” they argued. And so the battle began.

In response to all the adverse reactions, Article 2B has undergone quite a few changes and amendments in the past ten years. The name itself is not Article 2B anymore. It is now called UCITA (Uniform Computer Information Transactions Act). But what hasn’t changed is the rancorous debate that still rages over the benefits and shortcomings of the proposed law.

To be sure, UCITA sets out to address a real concern that exists today: the lack of a standard licensing framework across the 50 states of the U.S. In the same way, the Uniform Commercial Code facilitates the laws of interstate commerce: there is a need for such a uniform code that governs e-commerce transactions. The idea is that UCITA fills this need, and would aid the states in addressing software warranty and licensing concerns in a consistent manner.

To that end, UCITA creates a number of new rights for licensees: rights that licensees do not currently enjoy. Also, in cases where certain rights do exist in one state but not in another, UCITA standardizes the rights across all fifty states. For instance, UCITA makes many perpetual licenses truly perpetual, whereas current law would have made such licenses subject to being revoked at the licensor’s will. UCITA also gives consumers a statutory right to avoid the consequences of errors in on-line transactions. Additionally, licenses are presumed to be transferable under UCITA. The current law makes no such presumptions.

For all intents and purposes, the proposed law seems like a definite slam-dunk. The extent and scope of standardization of licensee rights that UCITA proposes run the gamut from the mundane to the ambitious. In spite of this, the state attorney generals of almost every state of the union (Maryland and Virginia being the notable exceptions) do not seem all that impressed. They fear that UCITA could potentially override the tried and tested consumer protection laws that are already in effect in their states. A case in point is a recent argument heard in the Manhattan Supreme Court.

Network Associates Vs Elliott Spitzer
One of Network Associates’ products is a firewall called “Gauntlet.” Buried amidst the fine print of the End User License Agreement (EULA) for the Gauntlet software, there are some pretty restrictive terms. One clause states that users cannot publish product reviews without first getting permission from Network Associates. Now, when the editors of “Network World” magazine published a rather unflattering review of Gauntlet a few years ago, they knew they were in violation of the licensing agreement. But the editors decided it was not a fair clause, and went ahead with publishing their review without consulting with Network Associates. Sure enough, Network Associates retaliated with a warning letter to the magazine.

The editors of the magazine did not take the warning seriously. Neither did Network Associates, it seems, since it took no further action. But there certainly was one person who took all this quite seriously: New York’s Attorney General Elliott Spitzer.

Spitzer took Network Associates to court, arguing that the “no-review-without-permission” clause was blatantly illegal since it directly challenged free speech rights that all consumers enjoyed. Network Associates disagreed, contending that the clause had nothing to do with free speech, and that it was a deterrent against inaccurate reviews. Finally, on January 17, 2003, Manhattan Supreme Court Justice Marilyn Shafer ruled against Network Associates. She specifically prohibited the speech-censoring language previously contained in Network Associate’s Licensing Agreements. Additionally, she “enjoined the company from including with its products ‘any language restricting the right to publish the results of testing and review’ unless the company first gives the Attorney General 30 days notice.”

Rest assured that this is not the last you have heard of disputes relating to license clauses. Software vendors have progressively introduced more and more restrictive clauses in their license agreements. Some software licenses now require users to agree that they will not join any class action lawsuits against the software vendors. Another popular clause forbids any claim for damages caused as a result of bugs in the software. Obviously, the concern here is that UCITA would make these shrinkwrap and clickwrap license terms binding and enforceable.

Professor Ray Nimmer, a UCITA drafting committee reporter, says that this concern is misplaced. He questions the assumption that once UCITA is enacted, all terms of all license agreements are always enforceable. Courts have always stepped in to prevent abuses, he protests. As a counter-argument, he points out that without UCITA, the consumers would no better off. This is because current software licenses are, indeed, sometimes viewed as enforceable by the courts even today. So there is really no guarantee that the license terms are unenforceable now, just as there is no guarantee that the terms will be enforced if UCITA is enacted.

Where does this leave the business and software community? Fragmented and disoriented, to say the least. On the one hand, there is a crying need for a uniform E-commercial code. On the other hand, if the code is not recognized as fair and unbiased, of what use is such a code? E-commerce and b-to-b transactions are becoming the norm of business transactions rather than the exceptions. With information-based transactions now beginning to transcend international borders, this type of standard code could serve as an excellent source of regulations that could be used during arbitration. A standard commercial contract code for information industry transactions could not be more timely.

Lack of such a uniform standard in software licensing would undeniably inhibit growth and raise overall transaction costs. Even the opponents of UCITA concede that there are provisions in the law that benefit the licensees. What is missing is the fine balance that would give the proposed law the crucial element of fairness. Consensus can be achieved only if the two sides set aside their mistrust of each other and set out to address the issues earnestly. Until then, the best we can do is to stay out of the crossfire.

V. Anantakrishnan is a senior technology manager at AXA Financial in New York. He has over a decade of experience managing and implementing large scale systems integrations projects in the telecommunication and financial industries. He holds a masters in international business from Columbia University, and a masters in IT management from Carnegie Mellon University. He can be reached at vak88@hotmail.com

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