The Uniform Computer Information Transactions Act is intended to create a legal framework for transactions in computer information and will provide greater legal certainty for the millions of transactions which are occurring daily under less than clear legal rules. This additional certainty should encourage the continued growth of the digital information industry, a key economic engine of the U.S. economy, while keeping transaction costs to a minimum.

The route to a permanent home for computer information transaction rules has been circuitous. Initially, the National Conference of Commissioners on Uniform State Laws conceived a separate uniform act to house these rules. Then, due in large part to the tendency of courts to try to fit software transactions under Article 2 of the Uniform Commercial Code, NCCUSL decided to try to include these rules as a part of Article 2. After a three-year effort, however, it was concluded that the fundamental transaction model for computer information, the license, was so different from a sale as to justify separate treatment from Article 2. Given the amount of work that had been done to attempt to harmonize these rules with other aspects of the UCC, NCCUSL decided to develop a separate article of the UCC dealing with computer information transactions. As that effort proceeded, however, it became apparent for a number of reasons that it was not practical at this time to try to fit computer information transactions under the UCC. Thus, NCCUSL, demonstrating the truth of the old adage that your first instinct usually is the right one, recently decided to return to its initial decision to develop a free standing uniform law on computer information transactions. (Hereafter in this article, the term "UCITA" will refer to the current proposed law and its predecessors). UCITA is expected to be passed by NCCUSL at its annual meeting this summer, and introduced in the state legislatures in the fall of this year.

The proposed statute has been under intense review and discussion for over 10 years by a series of National Conference of Commissioners on Uniform State Laws drafting committees and a large number of advisors and observers including consumer advocates, software developers, information providers and both small and large software and information licensees. A law that will so fundamentally affect this important industry is bound to be controversial. UCITA lives up to this expectation. The NCCUSL drafting committee has done an outstanding job in trying to balance competing interests to create a fair and balanced statute.

Although now separate, the draft was written under the auspices of, and holds true to, the traditions of the Uniform Commercial Code, one of the most successful laws ever created and a prime reason why the U.S. has been able to function so successfully as a national economy. The draft continues the principle of freedom of contract. This principle has been in place since the creation of the UCC. It embodies the idea that, with important safeguards for less powerful groups in our society, each of us should be free to form whatever type of contract we want rather than have the government dictate under what conditions we can buy or license goods, services, or information.

Consumer protection laws, both at the Federal and State level, have created substantial protection for consumers. UCITA breaks new and important ground in extending and expanding protections for the consumer. The draft also attempts to codify and reflect existing commercial practice in the belief that the marketplace is the best place to formulate rules for conducting commercial transactions.

Those who oppose UCITA generally fall into a number of well recognized categories: (1) "Consumer advocates" who want UCITA and by extension other State contract law to create a series of mandatory rules under which goods, services, and information may be purchased or licensed; (2) "Purists" who believe that existing commercial practices in the information industry are inconsistent with traditional contract law and view the creation of UCITA as an opportunity to change these practices to reflect their views of the "correct" way of forming and interpreting contracts; (3) "Traditionalists" who are all in favor of having a broad universal legal framework for these types of transactions, as long as the framework reflects only their industry practices; and (4) "Lobbyists" who are interested in protecting their industry groups regardless of the fairness of their positions on other groups or traditional commercial practice.

Each of these groups tends to have a narrow, parochial focus regarding the proposed statute that will increase the costs of these transactions by requiring vendors to change their existing, and highly efficient, contracting models or by destroying the potential for passage of the Article and thus leaving the law to develop State by State and case by case without providing a needed, predictable framework for the information industry to be able to continue to grow. What these groups have in common is their ability to be able to command attention from the media out of all proportion to the reasonableness of their positions or their support in the drafting process or in the economy as a whole.

One of the best kept secrets in this debate is that there has been surprisingly little litigation or other evidence of consumer abuse in software contracting or information licensing. The information industry has been able to provide to Americans a significantly higher standard of living at very low transactional costs by adopting streamlined commercial practices. UCITA reflects this philosophy. We would need to carefully consider the implications of changing this successful business model for the economy in general, and for consumers in particular.

The proposed law represents a series of compromises to balance the needs of many different points of view. While there are issues of legitimate concern, there are also a substantial number of myths being circulated about the proposed law which are either wrong, or which erroneously imply that current law is more favorable. What's more, the benefits of UCITA are often overlooked.

Currently, there is no clear statutory law across the 50 states which applies to computer information transactions. There have been some court decisions which applied the UCC rules on the sale of goods to software transfers. However, this process is less than optimal in providing certainty and often is inappropriate given the differences between a sale of a tangible good and a license to use intellectual property. Even those who support applying the rules on sales of goods are hard pressed to justify that approach in the case of software downloaded over the Internet. Beyond statutes, the law in court decisions is open to interpretation and often is hard to find.

Originally intended to apply to software transactions, the scope of UCITA was expanded to include computer information because the ability to transmit information electronically has caused a convergence of issues across a broad and disparate number of industries. Nonetheless, competing methods of information distribution such as print are excluded so as not to upset commercial practice there. In this discussion the focus is primarily on software transactions.

Various claims have been made in the press about what UCITA will or will not do. Here are some of the more inaccurate or misleading claims.

Myth No. 1
Shrink-wrap licenses - which aren't legal now - will be validated; and software publishers will be able to bind a user to any clauses in the license, however unfair or ridiculous, and will be able to deny a user the rights it would have if the software had been sold. In fact, shrink-wrap licenses are likely enforceable today; UCITA creates a statutory right to have unconscionable terms thrown out by a court amd licensing lets the software developer grant more rights than a licensee ordinarily would get in a sale..

Legality of shrink-wrap licenses. The recent legal trend is to enforce these license agreements as a valid marketing method. Today if a user uses the software after the license terms are available, the user likely is bound by the license. UCITA provides the user with more legal benefits than recent court decisions because UCITA statutorily mandates that there be an opportunity to review and reject the license terms, coupled with a right to a cost-free refund from the retailer if the terms are not acceptable. It also provides strong incentives to licensors to provide the license terms up front.

Unfair, ridiculous terms (anti-criticism clauses, reverse engineering). Courts draw on various legal rules to strike down unacceptable contract terms, among them the doctrine of federal preemption (when a state law conflicts with a federal law, the federal rule trumps), unconscionability and violation of fundamental public policy.

UCITA improves upon current law by clarifying that these protective legal doctrines apply to the licensing transaction. The draft law explicitly states that courts may refuse to enforce terms that are unconscionable or that violate fundamental public policies, and that contracts based on provisions of UCITA will not be enforceable if those provisions are preempted by federal law.

Far from "allowing" terms which prohibit criticism or reverse engineering of a product, as has been claimed in many reports, UCITA invites challenges to such restrictions. Such restrictions are identified in the Comments which accompany the draft law, as being appropriate clauses for review under the protective legal doctrines.

Sales versus license. Some argue that a sale carries more rights than a license, such as title to a copy of software, first sale rights. (e.g., you can resell the item without violation of intellectual property rights), and fair use "rights" (copies can be made for purposes of research, criticism, etc.), and that if a software publisher sells a product as opposed to licensing it, it has no way to impose "unacceptable" limitations.

First and foremost, UCITA neither imposes nor prohibits the licensing of software. The Federal copyright law provides for both the licensing and assignment of copyrighted information. Whether or not UCITA existed, it is likely that licensing will be the method of granting rights to end users to use copyrighted materials. This is true because unlike machinery or other "goods" that are traditionally sold, it is very easy to make and distribute copies of software and information. In order to permit a vendor to make a profit and be able to continue to develop new and improved products, the licensing model gives vendors important legal rights to protect the hard work that went into creating the product in the first place.

A license also allows a balance to be struck between the software publisher's legitimate interest in preventing illegal copying and theft of its source code, and the copyright law's interest in furthering commercial development. Under this balance certain license restrictions are allowed to protect intellectual property. At the same time, it has already been established that the legal protective doctrines apply to declare unenforceable any attempt to restrict protected activity, such as the right to reverse engineer to make an inter-operative product.

Myth No. 2
Software publishers can sell defective and virus infected products and disclaim all responsibility for damages. This falsely implies that under current law products must carry a warranty, and damages may not be disclaimed. This is simply not the case. In fact, UCITA improves upon current law in several ways.

Warranties. Current law does not require that a warranty be issued in a sale of a good, it merely requires that a customer be informed whether the customer is receiving a warranty or the product is being sold "as is," meaning that all warranties may be disclaimed. There is no developed law which addresses warranties in the context of a computer program license if no physical good is involved. UCITA extends warranty rules to all software licenses, and in mass market transactions where there may be no negotiation, protects against unfair surprise by requiring that a warranty disclaimer be conspicuous.

Additionally, UCITA clarifies that statements in advertising and product documentation can constitute express warranties. UCITA also creates a new implied warranty that will apply if a licensor is relied upon to create an integrated system - the warranty is that the different components will function together as a system. What's more, a new implied warranty for computer programs has been specially crafted, in the hopes that, free from the risk of trying to live up to the inappropriate warranty for goods, software companies will be encouraged to use rather than to disclaim it.

Imposing a mandatory warranty on software given the complexity of the product, the interoperability requirements and the fact that most software has bugs, would be a daunting task, a major departure from existing law and practice, and would likely add greatly to the cost of the product. The drafting committee declined to take this step.

Viruses. UCITA did attempt to create a duty to avoid viruses, but was unsuccessful in arriving at any consensus on the topic. This issue is unique in that the software publisher can be just as much a victim of the virus "defect" as the user. Furthermore, a user is every bit as likely to be the innocent transmitter of a virus as a software publisher, potentially triggering personal liability for damages. Sorting out the appropriate allocation of risk proved an impossible task in this project. Nor was there any demonstration by argument or example, that the disastrous affect on the market for a software program was insufficient motivation to take all reasonable steps to avoid viruses. The drafting committee therefor made the decision to leave the issue to present law and development through specific cases.

Damages. The UCITA default rule is that all types of damages are recoverable, including refund of the purchase price and damages for injury caused by defects. Representatives of the software industry argued strenuously to allow the latter type of damages to be recoverable only if the parties specifically agreed to include them, but the drafting committee did not agree. Thus, under UCITA, unless specifically disclaimed in the license, the licensor is liable for consequential damages. Damages may be limited to the refund of the price of the software, but only if such a limitation is conscionable, and only if it is explicitly stated in the license. This follows current law on the sale of goods.

Myth No. 3
UCITA will allow software publishers to subject you to unknown law and can require you to bring a lawsuit in a distant State under that State's law. This falsely implies that current law would allow you to pick the law or jurisdiction, despite any such designation in the contract. In fact, contractual choices of law and forum are routinely upheld today. UCITA generally follows this law, but improves upon it for consumers.

Current law recognizes that companies have a legitimate financial interest in choosing single law that is familiar and in limiting the jurisdictions in which they will be subject to a lawsuit. This is particularly critical in the software industry where, software giants notwithstanding, there are thousands of small software developers who, thanks to the Internet, now have a low-cost method to go national and even worldwide with the distribution of their products.

Nonetheless, UCITA does not allow unfettered choice of a jurisdiction. Choices will not be enforced if they are unreasonable and unjust. Additionally, a choice of law will not be enforced to the extent it denies a user the protection of mandatory consumer protection laws. If no choice of law is included in a license for software acquired from a store, UCITA requires that the law where the store is located (which will typically be the consumer's home state) be applied. Finally, UCITA, by virtue of being a uniform law, decreases the impact of a choice of law by creating identical law throughout the 50 states.

Myth No. 4
UCITA will allow a licensor to electronically disable mission-critical software, or extort exorbitant fees to refrain from doing so. In fact, current cases uphold this practice if there is notice or an agreement which authorizes it. UCITA actually provides important new protections for licensees by imposing restrictions on licensors' use of this form of self-help, and providing that consequential damages can be claimed for wrongful exercise. From the licensee perspective, UCITA has improved upon existing law.

First, UCITA does not "allow" a licensor to extort exorbitant fees. UCITA provides that a licensor which wishes to electronically disable software after cancellation of the license may do so only if a term in the contract allows it, at least two weeks notice is provided along with a description of the nature of the breach, and a person is identified with whom the licensee can communicate. UCITA also grants the right for an expedited hearing in these situations. Furthermore, self-help may not be exercised, regardless of whether the conditions are met, if there is a foreseeable risk of personal injury or significant damage to information or property. Finally, wrongful exercise of self-help gives rise to liability for consequential damages, which cannot be disclaimed.

Small developers have sought this remedy as a low-cost method to combat the problem of illegal copies of software, many of which are used in a business context, thus protecting their intellectual property by ensuring that software is no longer used after its license has been canceled.

Myth No. 5
The software industry has controlled the draft, which is unbalanced in their favor as a result. One or both of the authors have attended all of the meetings of the drafting committee, and this charge simply is not true. The UCITA drafting process is open to the public, and even has its own website, The 2BGuide [http://www.2BGuide.com]. Anyone can attend the meetings, express their views and submit written or email comments. The lawyers and law professors on the drafting committee were selected by the original co-sponsoring organizations, volunteer their time, and are forbidden to accept any benefits from those interested in the outcome of the law. Proposals for changes to UCITA are accepted or rejected in an open meeting based solely on whether the drafting committee is persuaded that the proposal should be adopted. There is no mechanism for any interest group to control or to unduly influence the drafting process.

In response to allegations of unbalance in favor of licensors, the reporter of UCITA has pointed out and identified the more numerous legal benefits which would accrue specifically to licensees than to licensors under this new law. The reporter also identified a significant number of instances in which legal protection to consumer-licensees has been increased in comparison to their rights under the law on sales of goods. Furthermore, as legal advisors to the process from the American Bar Association, we reviewed the impact on consumers and concluded in a published article that UCITA contains more protection for consumers than any other existing commercial statute.