Letter from American Committee for Interoperable Systems (ACIS) to NCCUSL Opposing UCITA
July 13, 1998
Writer's Direct Dial Number
By U.S. Mail
Dear Mr. Lebrun:
The American Committee for Interoperable Systems (ACIS) represents over 40 information technology companies in the business of developing innovative products which interoperate with products made by other firms. We write to express our serious concerns with a conflict the current draft of Article 2B establishes with state trade secret law.
The Uniform Trade Secrets Act recognizes that one may discover another person's trade secret by proper means such as reverse engineering. Reverse engineering -- the detailed analysis of another firm's product -- is particularly important in the information technology industry because of the competitive need to interoperate. Simply put, if your software is not compatible with an existing software platform such as an operating system, no one will buy your software. And to learn all the information necessary to achieve complete compatibility with an existing platform, software developers often need to reverse engineer the platform. The interface information they uncover through the reverse engineering is, of course, a trade secret, but, as noted above, trade secret law permits the discovery of another person's trade secrets by reverse engineering.
Unfortunately, Article 2B creates a potential conflict with this fundamental trade secret principle. Under Section 2B-208, a prohibition on reverse engineering contained in a mass-market shrink wrap license would be an enforceable contract term. This would allow a software developer to circumvent the limits of trade secret law simply by including a shrink wrap license in a product that was sold to literally millions of customers. In effect, Section 2B-208 permits a software developer with a dominant market position unilaterally to bind millions of people to secrecy.
To be sure, Section 2B-208 provides that an unconscionable term does not become an enforceable part of the contract, but there is no guarantee that courts will, in fact, find a shrink -wrap prohibition on reverse engineering to be unconscionable. Additionally, Section 2B-105 provides that trade secret law supplements, and is not displaced by, Article 2B. But this general statement does not resolve the question of whether one can contract around a limitation of trade secret law by means of a shrink-wrap license. Software developers with dominant market positions will exploit this uncertainty to prevent other firms from performing the reverse engineering necessary for interoperability. The dominant developers thus will use their shrink-wrap licenses to dictate the terms under which other firms can develop interoperable products. This inevitably will increase prices, and reduce consumer choice.
Fortunately, there is a simple solution to this problem. We propose adding the following sentence at the end of Section 2B-105(b): "A term which prohibits a licensee from acquiring a trade secret by proper means does not become part of a mass market license under this article." The terms "trade secret" and "proper means" are defined in the Uniform Trade Secrets Act. Significantly, the limitation we propose would apply only to mass market licenses. This will permit contracts to be used to preserve secrecy in appropriate circumstances -- when there is limited distribution of the product at issue.
Article 2B has the potential of greatly facilitating the development of electronic commerce. At the same time, it has the potential of greatly increasing monopoly power by rendering enforceable shrink-wrap terms with an indirect anticompetitive impact. The Conference should take great care to eliminate the potential misuses of Article 2B.
Thank you for your attention to this matter. Please feel free to call me if you have any questions.
Peter M.C. Choy
cc: All Commissioners
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