June 21, 1999

Re: Opposition to UCITA

Dear Uniform Law Commissioner:

Consumers Union, the nonprofit publisher of Consumer Reports magazine, asks you to reject the Uniform Computer Information Transactions Act (UCITA) when it is presented to you at the NCCUSL annual meeting.

Part of the Conference's desire to promulgate UCITA appears to be to place itself on the cutting edge of contract law. UCITA, however, is unlikely to bring the Conference esteem, respect, or a uniform statute. Instead, it may bring more of what it has brought to date—controversy; criticism by the media, by computer users, and by consumer groups; and criticism that the Conference has gone too far in order to satisfy the software industry. This will not be helpful to the uniform law process as a whole, or to the Conference's larger purposes and goals.

We are not alone in our concerns about the fairness of the UCITA draft. This project has engendered deep and broad opposition. From the Fall of 1998 through May of 1999, numerous organizations registered their opposition to Article 2B/UCITA. These organizations included five major library associations, consumer groups, law professors, associations of computing professionals, corporate software users, trade associations for the motion picture, cable television, broadcasting, and recording industries; and trade associations for newspaper and magazine publishers.

The substantive decisions in this proposed Act have been widely criticized in the press, as the enclosed sampling of highly unfavorable headlines shows. Major publications, including the New York Times, U.S. News & World Report, Miami Herald, Cincinnati Enquirer, San Francisco Examiner, San Jose Mercury News, and San Diego Union-Tribune, have run stories or columns criticizing UCITA and/or Article 2B, and decrying its effect on consumers. In addition, the online media, serving people most likely affected by the Act – software users -- has consistently criticized the Act. Critical online media coverage of UCITA/Article 2B has included Anchor Desk, Computerworld, Network World, PC World Online, InfoWorld, CIO Web Business Magazine, Freedom Forum Online, and ZDNet.

Here are some of the key problems with UCITA

• UCITA freezes the law at the wrong time and place

A key reason for our opposition to UCITA is that it freezes the law in a way that reflects only what the software industry asserts is currently possible in terms of consumer protection. UCITA statutorily closes off from future development many issues that a court might or might not decide in favor of a consumer today, but would be more likely to decide in favor of consumers in the future as technological developments make consumer protection easier and cheaper to provide.

Freezing the law at or below the current standard of consumer protection and statutorily deciding some key issues in favor of licensors eliminates an incentive for software makers to improve their treatment of consumers in the future. UCITA's approach is a lowest common denominator approach. This is simply the wrong approach for a statute that will be the law for at least a decade or longer in the fast-changing market for software and computer information.

• UCITA's opt-in rule will interfere with sales law

UCITA's opt-in rule for mixed transactions will allow sellers of goods with any information component to opt into UCITA's weak rules, no matter how inappropriate that approach is to the sale. If any part of a sale of goods or services includes "information" then section 103(e) permits the seller of those goods to opt into UCITA. The definition of "information" reaches all types of data, text, images, sounds, or computer programs. [Section 102(a)(37)] A car with a computerized braking system, a toaster with a pre-programmed chip, even a toy with electronically generated sounds all would be subject to this broad opt in rule. A seller of goods with any information component could use UCITA's opt-in to:

• restrict the elements of the implied warranty of merchantability [403(a)];

• change the focus of the implied warranty of merchantability to the purposes for which an item is distributed, rather than the purposes for which it is used [403(a)(1)],

• avoid the obligation to provide a minimum adequate remedy even when a limited remedy is valueless or unconscionable [803(c) and comment 6];

• make perfect tender variable by agreement in mass-market sales [104(c)(3)];

• eliminate the perfect tender rule for non-mass-market sales [704(b)]; and

• apply other restrictions in UCITA that were originally justified, if at all, on the ground that information is different from goods.

Other state laws, including UCC Article 2, would be preserved from UCITA's opt in only to the extent that they cannot be varied by agreement.

• UCITA creates a dangerous precedent for on-line contracting law

The adoption of UCITA would create pressure for the pro-licensor provisions of UCITA to be copied into the law for on-line sales of goods. If UCITA is adopted, sellers of goods are likely to push hard to get the same ability to impose post-sale terms, liability restrictions, and so forth. This pressure could be particularly strong where goods and information are competing products, or where goods and information are sold on-line by the same seller to the same customers. UCITA's provisions are just not appropriate to set the standards for all on-line consumer contracts.

• UCITA interferes in a wholesale way with all other applicable state statutes on four key issues:

• Consent and agreement;

• signature;

• when a writing is required by another statute; and

• what is conspicuous.

UCITA turns upside-down the Conference's long tradition of deferring to state consumer protection law. UCITA has a general savings clause for consumer protection law, but contains major exceptions that eviscerate the rule. First, it omits case law from its list of what is preserved when it conflicts with UCITA. [Section 105(c)]. Second, subsection 105(d) wipes out all existing state consumer protection statutes requiring writing, signature, conspicuousness, consent or agreement.

If a state defines conspicuousness more effectively for consumers than the narrow safe harbor definition in UCITA, that state's judgment should not be overturned by UCITA. Similarly, if a state requires actual consent or agreement to particular types of contracts or terms, those requirements should not automatically be satisfied merely because UCITA would find a manifestation of assent.

UCITA's broad and wholesale interference with other state statutes is wrong. Combined with the opt-in provision of UCITA, it could lead to years of litigation over its application of a wide variety of consumer statues (at best), or elimination of some of those statutes' key requirements (at worst).

• UCITA is riddled with loopholes

UCITA is riddled with loopholes favoring license drafters. Here are just three examples. First, UCITA permits a licensor who has induced a consumer to enter into a long-term access contract to change the terms of the contract and hold the consumer to materially changed terms. UCITA appears in section 304 to permit cancellation if the change of terms is material, but section 104(c) permits that right to cancel to be varied by agreement. The result is that a licensor who has a customer in a long-term contract can use artful contract drafting to force the customer to accept even materially changed terms.

A second loophole undermines a section which had been added in response to concerns raised on the Conference floor at its 1996 annual meeting. After that meeting, UCITA, then called UCC Article 2B, was amended to preserve the perfect tender rule. The preservation was limited to mass-market software contracts. Nonetheless, the addition was an important recognition that ordinary licensees should be able to unwind a transaction when the product doesn't conform to the promises, rather than being stuck with the product plus a legal claim for damages. The section with the perfect tender rule, section 704(b), is undermined by section 104(c)(3), which fails to list it as a section that can't be varied by agreement.

Here is yet a third loophole. Section 104 places some restrictions on variation by agreement for some of the more important sections of UCITA, particularly for some of the sections affecting mass-market consumers. Section 103, however, provides a different way to avoid the application of the very same sections. Section 103(e) permits a contract drafter—who is very likely to be the licensor—to opt out of UCITA. A very few of the licensor's responsibilities are preserved after the opt-out, but many other obligations are avoidable by opting out under section 103 even when the same sections are nonvariable under section 104.

Among the sections that are not preserved when the contract drafter opts out of UCITA are the obligations of diligence, reasonableness, and care; the existence of the right to refuse an imperfectly conforming tender in a mass-market transaction; the creation and effect of express warranties; and many of the other provisions that have been touted by the supporters of UCITA as good for consumers. [Section 103(e)(1) and (2)].

There are just a few of the numerous loopholes in the UCITA draft that make it nearly an "anything goes" set of legal rules both for licensors and for sellers of goods with an information element.

• UCITA is fundamentally unbalanced

The discussion of loopholes, above, is only part of the evidence of lack of balance in UCITA. The problems with UCITA are too many and too deeply embedded in the draft to fully describe in a letter of any reasonable length. This letter has focused on some of the overarching problems with UCITA, but there are many others that have been raised in the public debate.

• Converting UCITA to a model act won't solve its problems

We have heard some speculation that UCITA might be presented for approval by the Conference as a model act, not a uniform act. That step is not enough to save this deeply flawed act. Even if the Conference approves UCITA only as a model act, industry members who want to see it enacted will use the credibility and prestige of the Conference to argue that the UCITA represents good public policy. Since UCITA does not represent good public policy, it should not be approved.

We respectfully suggest that the Conference decline to lend its imprimatur or its credibility to this deeply flawed proposed statute.

Very truly yours,

Gail Hillebrand
GH: as

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