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. Letter from American Law Institute (ALI) to NCCUSL explaining Reasons ALI Will Not Vote at May Annual Meeting

March 26, 1998

Gene N. Lebrun
President
NCCUSL

Charles Alan Wright
President
The American Law Institute

Dear Gene and Charlie:

          This memorandum memorializes the discussion among the ALI ad hoc committee on Article 2B in the telephone conference on March 18. The committee consists of Bennett Boskey, Harvey Perlman, ellen Peters, John Subak, Mike Traynor and me, and had the consultation of Professors Neil Cohen and Amelia Boss and of elena Cappella and Mike Greenwald. The committee conferred among itself, then patched in Connie Ring (chair of the 2B Drafting Committee) and Professor Ray Nimmer (Reporter), and then concluded with further discussion among itself.

          1. Although denominated a "Tentative Draft," the text of 2B to be presented for discussion at the May ALI meeting is not to be presented for approval. The text as it now stands needs significant revision, along lines indicated below. It has been substantially improved following the direct participation of Boris Auerbach (of NCCUSL and an ALI member) and Neil Cohen but still needs substantial further work. The 2B Drafting Committee will have two meetings between now and the ALI May meeting. However, it seems unlikely that the Drafting Committee will by then have completed and approved the changes that appear necessary. In any event, a draft reflecting even the first of these two meetings could not reach the ALI members in time to give them a fair opportunity to study and understand this complex formulation.

          2. The ALI should do what it reasonably can to expedite its consideration of the 2B text. To that end, the ALI ad hoc committee will have a full dress meeting in Philadelphia in June to review the text as it will then stand (hence, reflecting the work of the two forthcoming sessions of the 2B Drafting Committee and the discussion at the Annual Meeting). The meeting has been set for June 23-24 but may be rescheduled for June 24-25 to make it possible for Connie Ring to attend both days. That meeting may be too late for incorporation of any recommendations for further revision into the text that will be presented to the annual NCCUSL meeting at the end of July.

          The plan is therefore that revised 2B will be presented to the ALI Council next October of this year (or possibly December) and to the ALI 1999 Annual Meeting. Assuming the text has been approved by the Council with whatever amendments it may recommend, however, NCCUSL will probably proceed with the adoption stage with a note that the ALI Council has approved it and that consideration by the ALI members as to whether to give final approval is contemplated in May 1999.

          The foregoing plan assumes that the following problems discussed by the ad hoc committee have been satisfactorily resolved.

          3. The principal problems addressed by the ad hoc committee are as follows:

          A. Scope

          The text as it now stands applies to "licenses and software contracts." "Licenses" in turn is defined as those relating to "information", and in somewhat difference fashion, "informational proprietary interest." The origin of the project and its general orientation has been to software. However, the stated scope sweeps far beyond software.

          "License" as a legal term can include, without resort to perverse usage, any kind of agreement by anyone who has any kind of legal interest. "Information" is not a familiar term, but in ordinary understanding, without resort to perverse usage, it includes something that has significance to another. "Proprietary interest" in information is a complicated term that appears to be equivalent to "property" in information. Hence, a definition in these terms suggests that there is a property interest when a "license" covers "information." But whether or not there is or should be a "property" interest created when something of significance is transmitted is a very sensitive issue implicated in myriad contexts.

          For instance, does the issuance of a library card create an Article 2B contract? If the library provides access to on-line information, the agreement pursuant to which the library card is issued may be an "access contract." Moreover, the library card agreement gives the cardholder access to other reference services and materials in the library (i.e., access to the information but with less than the full proprietary rights of the library), that access would be a "license" as that term is defined. If so, has the American Library Association vetted the substantive rules for the appropriateness to libraries?

          The scope of Article 2B as it currently stands suggests that there are many such examples that can be imaged. If the scope is to remain broad, it must take heed not only of the needs of transactional groups that might have participated in the drafting process but also others whose livelihood might be governed in ways not yet recognized. Some transactions that fit within the articulated scope of the Article would not benefit from the rules prescribed by the Article. They can be specifically excluded from coverage -- but only if they are identified during the drafting process. In this context, it should be noted that the Drafting Committee has recently received correspondence from several industry sectors seeking exclusion from the scope of Article 2B because of concerns about the application of its rules to transactions not anticipated during the drafting process.

          It is common ground that there is and should be a legally protectable interest in software. It is common ground that there is and should be a legally protectable interest in movies, records, television programs, and CD-ROMS. But what about rights of use after "first sale" of a copyrighted book, or of a copyrighted software program for that matter? And what about customer lists in the public domain, secret formulae, and the privacy rights of those who are not public figures? Does a right to "license" "information" imply a right to restrict uses, or further uses, of information in ways that, under the law as it stands, are not now enforceable?

          The 2B Drafting Committee has worked through numerous specific inclusions and specific exclusions. However, the ad hoc committee is not confident that these are exhaustive and correct. Hence, it remains troubled that the definition of scope begins with such a comprehensive term as "license" and suspects that there are other situations, not yet brought to mind, that come within this general term but which have not been specifically excluded. The question, then, is why it is necessary or appropriate to frame 2B in such an inclusive way. Why not "software" or, if appropriate, "software" plus specified other types of information?

          It may be determined to keep the scope broad, as it currently is, but in that case the committee believes that further study is necessary to uncover inappropriate coverage of particular transactions and to entertain pleas for exclusion made by industries only now becoming aware of the broad reach of the proposed statute. Alternatively, the scope of the article can be limited to a closely-defined class of transactions and its scope be widened after experience in the application of the article's rules.

          B. Architecture

          The arrangement and structure of Article 2B's provisions does not reveal a strong overall governing logic. This is not to say that such governing logic does not exist, but that the drafting often obscures rather than illuminates that logic. This concern is not simply aesthetic. Rather, a statute that does not reveal its underlying structural logic is more difficult for non-expert lawyers and judges to understand and is less likely to be applied consistently with that logic to problems that are not squarely addressed by the statute's text.

          In addition, the lack of a strong logical structure leads to overlaps, lacunae, and inconsistencies in articulation within substantive areas that ought to be more completely integrated. The remedies portion of the recent drafts is an example of how structural deficiencies can lead to substantive difficulties.

          C. Clarity of expression

          Many provisions are expressed in awkward terms, indeed sometimes rather convoluted ones. We surmise that these formulations evolved by the same process as the architectural problems. The concern here again is not merely aesthetic, but rather a concern about uncertainty of meaning.

          In connection with both architecture and drafting, the ad hoc committee did not consider itself impelled by a desire for perfection, but guided by a standard of reasonable drafting. Nevertheless, some of the drafting falls so far below customary ALI standards that it is unlikely the Council will approve 2B even if the major policy issues are appropriately resolved.

          D. Relation to Other Law

          There is still an insufficient explication of the relationship between the provisions of 2B and federal law, particularly copyright and patent law. There is also inattention to the similar relationship between the proposed statute and preexisting state law, including common law and other statutory law such as consumer protection statutes. The copyright issue was identified in the "McManis motion" presented at last year's ALI Annual Meeting. However, the problem appears to be more subtle and of wider scope, as indicated by Steve Chow and David Rice with respect to federal law and Harvey Perlman and Justice Peters with regard to state law. Apparently there is little disagreement as to the substantive policy issues involved. There is disagreement about whether the text is "neutral" as to these issues.

          An aspect of this problem is the relationship of 2B to the "background" state tort law of negligence and recklessness, and state contract law of good faith and substantial performance. Some of us believe that the obligations signified by these legal concepts cannot be disclaimed through adhesion provisions. If that premise is accepted for 2B transactions, it should be made clear by a black letter statement. Such an acknowledgment of these legal rules would address at least some of the "consumer" issues.

          A further complex issue is the relationship of 2B to relevant law of foreign countries which currently is evolving rapidly.

          e. Electronic Contracting

          Article 2B contains detailed provisions governing electronic contracting. That subject, of course, has relevance far beyond the scope of Article 2B, and NCCUSL currently is working on a separate uniform act governing electronic contracting generally. It is not entirely clear to us what will or should happen if that separate uniform act contains provisions different in articulation or substance from analogous provisions in Article 2B. Electronic contracting provisions unique to the 2B context need not conform to more general rules, but unique to Article 2B formulations of non-unique principles would lead to serious questions. In addition, it is likely that UCC Article 1 will eventually be the home of many electronic contracting rules. It is to be hoped that the Article 2B provisions are not so narrowly tailored as to make them inconsistent with rules of more general applicability that will be devised for Article 1. There is federal and international pressure to finalize these electronic provisions. However, we are concerned about inconsistencies between the Article 2B provisions, those contained in the separate electronic transactions act, and those eventually to be codified elsewhere in the UCC.

          F. Other Legal Issues

          There are various issues that have been raised through correspondence with the ALI beyond those identified above, such as measures of damages when software does not perform as contemplated, responsibility for protection against harmful "viruses," and the significance of the "mass market" concept. These issues have been addressed by the Drafting Committee but remain controversial and will no doubt be addressed by members of the Institute in the deliberations on the text in May, and the ad hoc Committee in June.

          G. Absence of Comments

          Some of the foregoing problems could be ameliorated by Comment. The standard NCCUSL procedure is to draft Comment after the text has been completed and approved. This procedure is often awkward, however, particularly where issues arise concerning the relation between the proposed text and some other law. The question is whether some Comments should be formulated as part of the text presented to NCCUSL and the ALI.

        Best wishes,

 

Sincerely,

 

Geoffrey C. Hazard, Jr.

 

cc: ALI Ad Hoc Committee on UCC Article 2B
     Carlyle C. Ring, Jr.
     Raymond Nimmer


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UCITA: Uniform Computer Information Transactions Act 
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Home Box Office
Memo Spring 1998 (?)
 
45 Professors of Contracts and Commercial Law Letter 16.Jul.1999
 
Motion Picture Association of America Letter 10.Sep.1998
 
50 Intellectual Property Law Professors Letter 17.Nov.1998
 
Motion Picture Association of America Letter 09.Nov.1998
 
American Bar Association Letter 10.Jun.1999 
 
Motion Picture Association of America Letter 07.Dec.1998
 
American Committee on Interoperable Systems Letter 13.Jul.1998
 
Motion Picture Association of America Letter 10.May.1999
 
American Committee on Interoperable Systems Letter 07.Oct.1998
 
Movie, Publishing and Broadcasting Industry Letter 10.Sep.1999
 
American Committee on Interoperable Systems Letter 21.Jun.1999
 
National Music Publishers Association Letter 21.Jan.1999
 
American Committee on Interoperable Systems email 15.Jul.1999
 

Opposition Summary 
 
American Law Institute Letter 26.Mar.1999
 
 
Pamela Samuelson Letter 09.Jul.1999
 
Association of the Bar of the City of New York Report 21.Jun.1999
 
Principal Financial - Introduction to UCITA
 
 
Attorneys General Letter 23.Jul.1999
 
Principal Financial - Summary of UCITA
 
 
Attorneys General Letter 28.Jul.1999
 
Recording Industry Association of America Letter 09.Oct.1998
 

Attorneys General Letter 23.Jul.1999 
 
 
Sample Letter 


Caterpillar Statement 1999
 
 
Security Mutual Insurance Letter 26.May.1999
 

Consumer Groups Letter 10.Nov.1998 
 
Society for Information Management Letter 23.Mar.1998
 
 
Consumers Union Letter 08.Oct.1998
 
 
Society for Information Management Letter 08.Oct.1998
 
 
Consumers Union Letter 21.Jun.1999
 
Software engineering Institute Letter 01.Jun.1999
 
Digital Future Coalition Letter 23.Jun.1999
 
 
swtest-discuss Letter 20.Nov.1998
 

Digital Future Coalition Page Fall 1999
 


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