W. A. Drew Edmondson
Attorney General of Oklahoma
112 State Capitol
Oklahoma City, OK 73105

           Re: UCITA (Uniform Computer Information Transactions Act)

Dear Mr. Edmondson:

            In reference to a letter dated July 28 upon which you were listed as a signator, I am the Chair of the Drafting Committee that prepared UCITA, a past President of NCCUSL,¹ a Virginia Commissioner to NCCUSL since 1970, and the Chair for the revisions to the UCC Articles to, among other things, modernize it for e-commerce; namely Articles 3, 4, 4A and 5 promulgated in 1990, 1990, 1989, and 1995, respectively.

            This letter explains why NCCUSL has promulgated UCITA, responds to the criticisms in your letter particularly of UCITA Sections 105(d), 112 and 211, and 304, and addresses your request that NCCUSL table UCITA.

            UCITA began as a result of a study by an ABA committee in the 80's that strongly recommended that NCCUSL draft a uniform act for computer information. Since then and for more than eight years NCCUSL has been engaged in doing so. The many drafts have been on a number of websites; have been discussed at length at every NCCUSL Annual Meeting 1996 - 1999 and at the Annual and other meetings of the ABA; and has been commented upon in numerous law journals including extensively in Berkeley, Houston and John Marshal Law Reviews. All sixteen meetings of the Drafting Committee (two and one half days each) have been open with observer attendance and participation numbering from at least 50 to more than 110. There have been many news, magazine and other publication stories on UCITA.

            Until your letter of July 28, we have not received over the eight years any written communication from any office of an Attorney General although there was a brief effort with some assistants from a few states to arrange an informal meeting. I had heard that a few months ago there was a meeting of assistants for consumer affairs that included a critical discussion of UCITA, but no one from NCCUSL was invited before or after that discussion to respond to any concerns. Thus, your letter not only came as a surprise but without any opportunity for me or the Drafting Committee to address those concerns and to explain the act. I am sure you would agree that such communication and opportunity to meet in advance would have been more appropriate and productive.

            The Conference had before it your letter, when it considered UCITA and after lengthy debate (15 total hours, section by section) and with amendments, approved and promulgated UCITA for consideration by the various states with only six states (out of 53 jurisdictions) voting in the negative.

            However, the approval by NCCUSL does not foreclose the opportunity to discuss your concerns. I would be glad to make arrangements to meet personally with you. If after a discussion, some concerns remain, NCCUSL is always open to the consideration of appropriate amendments.

            The Information Technology (IT) industry from 1995 to 1998, contributed 35% to the nation’s economic growth; brought down overall inflation by 0.7 percentage point by increasing efficiency and productivity; has had a robust 10.47 average annual growth; and is predicted by 2006 to employ half of the U.S. work force.² Yet the legal foundation for this new sector is undeveloped.

            The need for clarification and certainty in the law for the information age, and uniformity of law among the states, is beyond question. On the Internet, the reach is national and beyond. This growing segment of our economy cannot fulfill its full potential without uniformity.

            The White House in a paper issued on July 1, 1997 stated: "Many businesses and consumers are still wary of conducting extensive business over the Internet because of a lack of predictable legal environment governing transactions ... the administration supports the prompt consideration of these [uniform state law] proposals, and the adoption of uniform legislation by all states"³

            Alan Greenspan in remarks to a luncheon in Chicago on May 6, 1999 said: "the newest innovations, which we label information technologies, have begun to alter the manner in which we do business and create value..."

            It will be vitally important to states to provide the legal environment to encourage the location of these new industries in their states.

            Among those who have accepted the opportunity to actively participate in the drafting process, there has been broad support for the approval of UCITA and its prompt enactment by the various states. See the attached excerpts from some of those letters.

            Turning to the particular concerns expressed about in Sections 105(d), 112 and 211 and 304, the following is pertinent to your consideration.

Section 105(d)

            Your comments fail to note the provision of Section 105(c) that provides "... if this [Act] conflicts with a consumer protection statute [or administrative rule], the conflicting statute [or rule] governs." This UCITA section clearly states that any substantive consumer protection statute trumps UCITA and any contract term in an agreement within the scope of UCITA. Because of Section 105(c), the following statements in your letter reflect an incomplete and incorrect understanding of what the act would do:

"[UCITA] preempts any state law that ...[requires]

(a) ... "advertising disclosures ... to warning labels"
(b) ... "time, place and manner of disclosure..."
(c) ... "disclosure of the fact that a minimum purchase is required..."
(d) ... "warning of the potential harm"

Moreover state law that specifies "readability"; "proximity"; and "language" requirements control over UCITA. These requirements are not within the scope of the definition of "conspicuous" notice.

            The exception stated in Section 105(d) applies only to limited issues in e-commerce and provides for a narrow over-ride of some rules that may have been enacted with only paper based transactions in mind, including how a notice is to be "conspicuous" in e-commerce. However, there is a legislative note that states: "Each state should review the statutes that may be affected by subsection (d) ... [and] the state should exclude ... statutes from subsection (d) [to which subsection (d) should not apply]." Thus your state can specifically exclude any statute you wish to exclude from the e-commerce provisions of Section 105(d).

            As in the current UCC, UCITA provides a definition of "conspicuous." "Conspicuous" in e-commerce extends to the contrast for notice of the term and not to the time, manner and content of disclosures required by your state’s law. In the sale of goods (UCC Article 2), "conspicuous" is defined by Article 1 (1-201(10)) in a similar way with safe harbors. I know of no case in which your state’s consumer protection laws have conflicted with the Article 1 definition operative for the sale of goods. There is no reason to believe that a similar safe harbor definition of "conspicuous" for computer information would have any different result.

            It is very probable that your current state rule on "conspicuous" notice is paper focused and may thus be inapt in e-commerce. Also, if your state has a digital signature act, there may already be uncertainty as to the application of the concept "conspicuous" notice to e-commerce.

            UCITA provides standards in e-commerce by which "conspicuous" notice may be achieved but if these standards are not met, the general standard applies; namely "so ... presented that a reasonable person against which it is to operate ought to have noticed it" or "in an electronic record ... it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react..."

            The problem of notice in e-commerce is not caused by UCITA. UCITA tries to give some reasonable standards to apply.

Sections 112 and 211

            With respect to Sections 112 and 211 (as promulgated in the final Act as 210), in-the-box terms for goods have been a business practice for 50 years under the Uniform Commercial Code and are present in billions of dollars of commerce. UCITA has imposed substantial restraints on such terms for computer information. In Section 210 (now 209), for example, UCITA specifically provides that terms available after use are adopted only: "if the parties have reason to know that their agreement would be represented ... by a later record ... and there would be no opportunity to review the record ... before ... use began."⁴ In addition, there is no assent under Section 112 unless: "The record or term is made available in a manner that ought to call it to the attention of a reasonable person and permit review." Under Section 211, in a mass-market transaction (essentially a consumer or other retail transaction), the consumer is entitled to more, including a cost-free return of a refund, incidental costs and expenses of restoring its system, if for any reason the consumer decides to return the information. This basically codifies current practice but expands rights from those under current case law.

            Section 213 (as promulgated 212) of UCITA provides in similar concept as in Magnuson/Moss that encourages pre-transaction disclosures on-line of the terms of the agreement. Otherwise, the vendor runs the risk it may not have met the "opportunity to review" obligation.

            Moreover, UCITA makes "unenforceable" terms which are (i) "unconscionable", (ii) against fundamental public policy, (iii) enforced or performed in "bad faith" which includes lack of "fair dealing", (iv) preempted by federal law such as under copyright law ("fair use"), and (v) contrary to supplemental principles of law and equity such as misrepresentation, duress, fraud, competition laws etc.

Section 304

            Lastly, with respect to Section 304, you refer to a consent order with AOL. Any consent order with AOL would continue to be binding on AOL regardless of UCITA. Section 304 only applies if the parties already have agreed to a procedure for making changes to a contract. Moreover, the procedure is enforceable only if the party "reasonably notifies" the other of changes and that notice is given in "good faith" (which includes commercial standards of "fair dealing" (102(34)). It is incorrect to say, as your letter does, that the Act requires only "minimal notice for doing so." "Reasonable" notice is not "minimal" notice. Article 1 of the UCC has always provided that standards for reasonable notice may be agreed upon if not "manifestly unreasonable" (See 1-102(3)). There have been no unjust results from the Article 1 standard applied for 50 years to the sale of goods. In mass-market transactions the other party has the right to terminate "if the change alters a material term." The consumer is protected in access contracts under 304(b)(2). "Mass-market transactions" includes "a consumer contract" (102(46). "Consumer contract" means a contract between "a merchant licensor and a consumer" (102(17). An "access contract" is such a contract. The approach is not greatly different than long sanctioned practice in open-end credit. See, e.g., Regulation Z §226.9(c).

Other concerns

            I believe a closer reading of the other provisions you mentioned would also give you comfort. For example, a choice of law cannot avoid or over ride a consumer protection of a state that otherwise has jurisdiction. A choice of forum cannot be "unreasonable and unjust". The scope provisions were significantly refined by amendments at the Annual Meeting. The section making "unenforceable" terms against fundamental policy specifically reference free speech in the comments and Section 104 specifically states that competition laws are not displaced. Implied warranties are added over those of Article 2 for goods for informational content that is not accurate for lack of "reasonable care" and an implied warranty that components sold as a package will operate together.

            I hope this is helpful in your assessment of UCITA as changed by the 15 hours of debate at the Annual Meeting. If you have continuing concerns, I would invite you to give me a call.

Sincerely, Carlyle C. Ring, Jr.

Enclosures