On July 29, the National Conference
of Commissioners on Uniform State Laws (NCCUSL) by a vote of the
states 43 to 6 promulgated the Uniform Computer Information Transactions
Act (UCITA) for consideration by the various state legislatures
for adoption.
Information technology accounts for
huge share of the nation's economy and is the most rapidly expanding
component of our economy. Until UCITA, there has been no contract
law that provides clear, consistent uniform rules for the intangibles
subject matter involved in computer information transactions in
Internet and elsewhere and no uniform law developed to provide
substantive guidance for these transactions. UCITA will make
it possible for states to provide a neutral and predictable legal
framework for transactions in computer information in Internet
and in other transactional contexts, and for states to provide
greater legal certainty for millions of transactions occurring
daily.
UCITA has been discussed and debated
during an eight year period in well-attended drafting meetings,
website, and e-mail lists, and in many seminars and symposia.
During this time, a number of issues have been debated and redebated
in depth. Many important changes to the draft have been made
responsive to those substantive discussions. UCITA with these
changes was overwhelmingly endorsed by NCCUSL as appropriate for
state adoption. Some criticism persists without taking into account
the responsive changes made.
In UCITA discussions, a number of issues
have been emphasized recurrently. Thus, we have prepared a series
of papers to provide responses to the various recurring questions.
The answers are based on UCITA as promulgated with the substantive
changes made during the deliberative process over eight years.
1. Scope
2. Opt-in
3. Fair use/ Preemption
4. Consumer Issues
5. Warranties
6. Published Information Content
7. Perfect Tender
8. E-Commerce
9. Assent rules - general
10. Mass-market Licenses
11. Shrinkwrap licenses
12. Electronic self-help
13. Duration of license
14. Transferability of license
15. Choice of Law
16. Choice of forum
2 DSC Communications v. Pulse Communications, -- F.3d -- (Fed. Cr. 1999) (the case involved a standard form software license used in the telecommunications industry). See also MAI Systems Cor. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Expediters int’l of Wash., Inc. v. Direct Line Cargo Mgmt Servs., Inc., 995 F. Supp. 468 (D. N.J. 1998) (licensee not an owner).
3 Some courts, however, use this fundamental policy idea to invalidate some contract terms. See Consumers Union of U.S. v. General Signal Corp., 724 F.2d 1044 (1983) (Consumers Union restriction on quoting data from magazine unenforceable).
4 Two law professors (professors Perlman and McManus) who during the years of UCITA debate separately made motions designed to protect fair use and free speech interests in contracting have publicly stated that the provisions of Section 105 and its comments fairly meet their motions and resolve the concerns.
5 "Fair use" describes "limited and useful forms of copying and distribution that are tolerated as exceptions to copyright protection." Pacific & Southern Co. v. Duncan, 744 F. 2d 1490, 1494 (11th Cir. 1984), cert. den., 471 U.S. 1004 (1985). The doctrine embraces use of copyrighted work for purposes of criticism, comment, news reporting, teaching, scholarship, research or the like. It is not a wholesale privilege to use portions of copyrighted works for any purpose.
2 Even in Article 2, however, a substantial performance standard applies to any case where more than one delivery is contemplated.
3 An A.B.A. Software Contract Task Force recommended that the perfect tender rule be abolished with respect to software contracts because of the complexity of the software product and the fact that minor flaws ("bugs") are common in virtually all software." UCITA, 1/20/97 Draft, Reporter's Note 8 to § 2B-108.
4The following comment is illustrative. It was submitted by Matthew Dixon Cowles to Ed Foster, InfoWorld Contributing Editor, who solicited email and published a column to elicit comments on UCITA from end users:
2 U.S. Government Working Group on Electronic Commerce, First Annual Report at 14 (11/98).
MML | CON | AGREEMENT THAT ACT GOVERNS; OPT-IN OR OPT-OUT OF UCITA |
CON | TRANSACTIONS SUBJECT TO OTHER STATE LAW | |
CON | APPLICABLE LAW; CONTRACTUAL CHOICE OF LAW. | |
MML | ADOPTING TERMS OF MASS-MARKET LICENSES. | |
CON | ELECTRONIC ERRORS: CONSUMER DEFENSES. | |
CON | MODIFICATION AND RESCISSION. | |
MML | CONTINUING CONTRACTUAL TERMS. | |
CON | THIRD-PARTY BENEFICIARIES OF WARRANTY. | |
MML | EFFECT OF NO TRANSFER CLAUSE | |
CON | FINANCING ARRANGEMENTS: OBLIGATIONS IRREVOCABLE. | |
MML | COPY: REFUSAL OF DEFECTIVE TENDER. | |
CON | CONTRACTUAL MODIFICATION OF REMEDY. | |
CON | STATUTE OF LIMITATIONS. |
2 See Micro Star v. Formgen, Inc., 942 F. Supp. 1312, aff’d 154 F.3d 1107 (9th Cir. 1998) (court concluded that either the license barred the conduct or there was no license and therefore no defense to the claim of infringement).
3 See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996);; Hill vs. Gateway 2000 Inc., 105 F.3d 1147 (7th Cir. 1997) (enforceable based on use without objecting to contract for computer); Brower v. Gateway 2000, Inc., 676 NYS2d 569 (NY AD 1998); M.A. Mortenson Co., Inc. v. Timberline Software Corp., 1999 WL 39017 (Wash.App. 1999); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993) (enforceable where no prior firm agreement because terms conditional, but not effective where prior telephone agreement); Caspi v. The Microsoft Network, L.L.C. et. al., Superior Court of New Jersey Appellate Division, A-2182-97T5 (approved for publication 7/2/99) (choice of forum clause in online contract which consumer could review entire contract and click "I Agree" or "I disagree" enforceable). Further, other decisions not within the information industries also validate that contract terms not seen at the time of contracting can be enforceable. See Carnival Cruise Lines, Inc., 499 U.S. 585 (1991). Among the cases enforcing the terms of a shrinkwrap without delving into arcane enforceability questions is Green Book Int’l Corp. v. Inunity Corp., 2 F. Supp. 112 (D. Mass. 1998). See also Micro Star v. Formgen, Inc., 942 F. Supp. 1312, aff’d 154 F.3d 1107 (9th Cir. 1998) (lower court enforced license buried in code; appellate court did not review this issue, concluding that either the license barred the conduct or there was no license to prevent claim of infringement). Compare, e.g., Vault Corp. v. Quaid Software, 655 F.Supp. 750, aff’d 847 F.2d 255 (5th Cir. 1988) (lower court held contract was invalid contract of adhesion, appellate court did not review this issue)..
4 See Step-Saver Data Sys., Inc. v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993) (shrink wrap enforceable where no prior agreement because terms conditional, but not effective where prior telephone agreement).
UCITA Section 816 substantially limits
licensor repossession of information, while Articles 2, 2A and
9 impose no limitations beyond trespass and breach of peace.
Yet this section of UCITA has been quite controversial. What
does it really say and how does it work?
2 See American Computer Trust Leasing v. Jack Farrell Implement Co., 763 F. Supp. 1473 (D. Minn. 1991) (use of remote deactivation device after a payment default permitted and not a tort); Franks & Son, Inc. v. Information Solutions, Comp. Indus. Litig. Rep. 8927-8935 (N.D. Okla. 1988) (use of disabling code enjoined where existence was not previously disclosed to buyer); North Texas Preventive Imaging, LLC v. Eisenberg, SA CV 96-71 AHS (C.D. Cal 8/19/96, unpublished), 1996 U.S. Dist. LEXIS 19990, where the licensor included, without notice, a disabling code in a disk labeled as an "update" to an existing program. There is no suggestion that the parties could not have initially contracted for the disabling code. To the contrary, in determining whether an action existed under the federal Computer Fraud and Abuse Act, the court quoted the legislative history wherein Senator Leahy stated that the act "would not criminalize the use of disabling codes ‘when their use is pursuant to a lawful licensing agreement that specifies the conditions for reentry or software disablement.’" Id. at 11.
2 See, e.g., Everex Sys., Inc. v. Cadetrax Corp., 89 F.3d 673 (9th Cir. 1996) (patent license); Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984) (copyright); Michaels v. Internet Entertainment Group, Inc., 5 F. Supp. 823 (C.D. Cal. 1998) (license in videotape); In re Patient Education Media, Inc., 210 B.R. 237 (Bankr. S.D.N.Y. 1997) (license in photographs); Microsoft Corp. v. Harmony Computers & Elecs., Inc., 846 F. Supp. 208 (E.D.N.Y. 1994) (software license); In re Alltech Plastics, 71 B.R. 686 (Bankr. W.D. Tenn. 1987). A limited exception may exist in some circuits which allow a reorganized debtor in bankruptcy Chapter 11 to assume a pre-existing license. See Institute Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997).
3 See e.g., MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Microsoft Corp. v. Harmony Computers & Elecs., Inc., 846 F. Supp. 208 (E.D.N.Y. 1994).
2 Restatement (Second) of Conflict of Laws § 187 (may be invalid if not resolvable by contract and either there was no "reasonable basis" for the choice of that state’s law, or "application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.").
3 See, e.g., Finch v. Hughes Aircraft Co., 57 Md. App. 190, 469 A.2d 867, 887, cert den 298 Md. 310, 469 A.2d 864 (1984), reh. den. 471 U.S. 1049 (1985); Medtronic Inc. v. Janss, 729 F.2d 1395 (11th Cir. 1984); Universal Gym Equipment, Inc. v. Atlantic Health & Fitness Products, 229 U.S.P.Q. 335 (D. Md. 1985); Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607 (1st Cir. 1993).
4 Some courts already use this principle in some cases to avoid use of an agreed choice to circumvent important state interests. See Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App.4th 881, 72 Cal. Rptr.2d 73 (Cal. App. 1998); Wolfe v. Protégé’ Sys., Inc., 506 S.E.2d 429 (Ga. App. 1998).
5 See, e.g., Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607 (1st Cir. 1993) (agreed choice of law enforceable and determines law applicable to claims under contract or claims that are disguised contract claims; does not alter law in reference to claim of fraud).
6 UCC § 1-105(1).
A recent appellate court recognized
that the same considerations are present and commonplace now "in
other international ventures, especially those involving the type
of electronic communication and computer integration involved
[here]."6 The same is true on the Internet: a recent appellate
court decision enforced a "click-wrap" choice of forum
clause in the MSN membership agreement for online services, holding
that the clause did not violate any public policy.7
2 See, e.g., Gilman v. Whear, First Securities, Inc., 692 A.2d 454 (Md. App. 1997); Texas Source Group, Inc. v. CCH, Inc., 967 F. Supp.2d 1114 (S.D. Tex.. 1997).
3 Restatement (Second) of Conflict of Laws § 80.
4 See Mellon First United Leasing v. Hansen, 1998 WL 907954 (Ill. App. 1998).
5 Carnival Cruise Lines, Inc., 111 S.Ct. 1522, 1527 499 U.S. 585 (1991).
6 Evolution Online Sys., Inc. v. Koninlkijke Neferlan NV, 145 F.3d 505 (2d Cir. 1998).
7 Caspi v. The Microsoft Network, L.L.C. et. al., A-2182-97T5 (N.J. Super A.D. 1999) (choice of forum in online "click-screen" contract was enforceable and did not conflict with public policy given that class would involve many different domestic and international domiciles; nothing about the presentation or placement of the clause indicated that it was proferred unfairly or with a design to conceal or de-emphasize it).
The fact that a term is in a standard
form that cannot be negotiated may be a factor, but its not decisive.
That is exactly why courts should look at this under a standard
of reasonableness and fairness. UCITA requires this. Indeed,
in the Supreme Court case quoted above, the choice of forum was
contained in a non-negotiable standard form.
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1 See, e.g., MS Bremen v. Zapata Offshore Co., 407 U.S. 1, 10 (1972) ("prima facie valid"); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991); Evolution Online Sys., Inc. v. Koninlkijke Neferlan NV, 145 F.3d 505 (2d Cir. 1998); Sterling Forest Assocs, Ltd. v. Barnett-Range Corp., 840 F.2d 249 (4th Cir. 1988); Republic Leasing Co., Inc. v. Haywood, 495 S.E.2d 804 (S.C. App. 1998); Proteva Inc v. Warrantech Help Desk, Inc., 1999 WL 90638 (ND Ill. 1999) (choice of forum in software agreement enforced).