Letter from Pamela Samuelson to NCCUSL Objecting to UCITA
July 9, 1999
Re: The Uniform Computer Information Transactions Act
A month or so ago, the National Conference Office sent you a copy of the Houston Law Review issue containing several articles on the model law formerly known as UCC 2B, now called the Uniform Computer Information Transactions Act (UCITA). As you know, the UCITA will soon come up for vote at the NCCUSL Annual Meeting.
If the articles in the University of Houston's Symposium: Licensing in the Digital Age issue conveyed an impression that the law review literature on UCC 2B/UCITA was uniformly positive, you should know that this is not so. There have been numerous articles published in the law review literature in recent years that have been highly critical of 2B/UCITA both generally and in certain specific details. In the interest of providing the Uniform Law Commissioners with full information, this letter will provide an overview of criticisms from the wider law review literature about this model law.
Many criticisms of 2B/UCITA emerged at a conference sponsored by the Berkeley Center for Law and Technology on Intellectual Property and Contract Law in the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Transactions in Information and electronic Commerce, April 23-25, 1998. Many articles first presented at that conference were published in dual symposium volumes of the California Law Review and the Berkeley Technology Law Journal. While both symposium volumes include pro and con articles on this proposed law, the weight of the commentary came down against UCITA. I have described below some of the key points raised by the commentary in the Berkeley symposia.
The UCITA Invites Confusion over Current Business Practices
While a uniform commercial law is generally envisioned as a codification of current business practices, several commentators regarded UCITA as inviting confusion over the transactions is proposes to cover. If enacted, these commentators fear, UCITA will bring about lengthy and expensive litigation trying to determine which business practices are effected and how. The following is a sampling of the potential for confusion:
The distinction UCITA makes between "software" and "computer program" runs counter to standard industry practice in which these terms are used interchangeably and would introduce confusion into software licensing, as well as having harmful effects on consumers. See, e.g., Michelle Kane, When is a Computer Program Not a Computer Program?, 13 Berkeley Tech. L.J. 1013 (1998), UCITA §102 (a) (13), (64).
Commercial law professor Peter Alces thought that 2B/UCITA's reduced warranty requirements would only invite litigation and cause an expansion of products liability law, as courts sought to do justice in cases involving defective software. See Peter A. Alces, W(h)ither Warranty: The B(l)oom of Products Liability Theory in Cases of Deficient Software Design, 87 Calif. L. Rev. 269 (1999).
UCITA's treatment of content authors as licensors of information does not reflect the traditional relationship between authors and content exploiters. UCITA may make it too easy for an author to 'assent' to contract terms favoring the exploiter. In addition, UCITA's exclusion provisions invite confusion as to when UCITA would apply to transfers of an author's work. See Jane C. Ginsburg, Authors as "Licensors" of "Information Rights" Under U.C.C. Article 2B, 13 Berkeley Tech. L.J. 945 (1998), UCITA §103 (Scope).
UCITA will cover virtually all licensing in trade secrets; yet, the text of UCITA adopts some rules that make no sense in relation to trade secrets, such as the rule requiring licensors to provide refund rights to licensees under some conditions. See Rochelle C. Dreyfuss, Do You Want to Know A Trade Secret? How Article 2B Will Make Licensing Trade Secrets easier (But Innovation More Difficult), 87 Calif. L. Rev. 191 (Jan. 1999).
The UCITA transfer-of-license-rights rules are at odds with traditional principles of trade secrecy law. Since many, if not most, licenses have express 'no transfer' provisions, UCITA's default rule that the licensor's permission would be required when the license is silent runs counter to downstream parties expectation that a transfer is effective and would not open them to a lawsuit for trade secret misappropriation and copyright infringement. See David Rice, License with Contract and Precedent: Publisher-Licensor Protection Consequences and the Rationale Offered for the Nontransferability of Licenses Under Article 2B, 13 Berkeley Tech. L. J. 1239 (1998), UCITA §§ 501 et seq.
While UCITA envisions enforceable agreements between "reasonably configured" electronic agents, there are as yet no standards by which to judge whether an electronic agent has been reasonably configured. In fact, electronic agent technology is still very much in experimental design, and it is far from clear that this will be the primary mode of electronic commerce contract making. See Michael Froomkin, Article 2B as Legal Software for electronic Contracting Operating System or Trojan Horse?, 13 Berkeley. Tech. L.J. 1023 (1998), UCITA §§ 214 218.
The exclusions from UCITA's Scope Are Confusing and May Be Ineffective
Over the course of the drafting of what became UCITA, numerous transactions were excluded from the model law's scope. Some commentators have questioned the clarity of these exclusions, suggesting that industry will be unable to determine whether UCITA applies without undergoing litigation. For example, the model law's exclusion of embedded software and proposed rules for determining what law will apply to hybrid transactions contain ambiguities which may not reflect the actual practices and expectations in the commercial world. See Laura Hutcheson, The exclusion of embedded Software and Merely Incidental Information from the Scope of Article 2B, 13 Berkeley Tech. L. J. 977 (1998), UCITA § 103 (Scope)
Industry groups have also expressed concern that UCITA's exclusions will not be sufficient. Even though many of the motion picture and broadcasting industries core business activities are now excluded from UCITA, many major content developers continue to be concerned that UCITA will be applied by analogy. In addition, they object to the application of UCITA to their DVD, multimedia products, and interactive services. While the Reporter's Notes to the most recent scope provision insist that "[o]rdinarily, a court should not apply Article 2B by analogy to these excluded transactions," the Motion Picture Association of America (MPAA) is concerned that the Reporter's Notes will be insufficient to "restrict the manner in which a court reasons." See MPAA, RIAA, NAA, NAB, NCTA, MPA, letter to Gene N. Lebrun, President of NCCUSL, December 7, 1998, available on-line at <http://www.2Bguide.com/docs/1298mpaa.html> (" we strenuously object to the current draft and direction of proposed Article 2B and will be forced to actively oppose its enactment."). See also MPAA, et al., letter to John McClaugherty, May 10, 1999, available on-line at <http://www.2BGuide.com/docs/coalit5.html> (entertainment industry still opposes UCITA).
UCITA Will Give Rise to Much Litigation About Its Relationship With Other Law
Several commentators took issue with the proposed model law's potential to change the balance in federal intellectual property law. These questions raise the specter of further litigation and confusion as courts attempt to establish what that relationship is. Regardless of the outcome of this debate, state courts will have to become familiar with federal law and address the relationship between the two sets of law. In particular, concerns have been raised regarding UCITA's endorsement of mass-market licenses.
One concern has been that the UCITA is too unbalanced in favor of copyright proprietors, and seemingly allows information industries to undermine user rights and other federal copyright policies through non-negotiated mass-market licenses. In any event, UCITA creates a tension between public policy objectives and the freedom to contract which will require litigation to resolve. See David Nimmer, elliot Brown and Gary N. Frischling, The Metamorphosis of Contract into expand, 87 Calif. L. Rev. 17 (Jan. 1999), Charles R. McManis, The Privatization (or "Shrink-Wrapping") of American Copyright Law, 87 Calif. L. Rev. 173 (Jan. 1999).
Although an attempt has been made to resolve this tension through a compromise provision that would install some public policy overrides in the model law, see UCITA §105 (Relation to Federal Law), legitimate concerns remain about the unduly high standard the proposal seems to require. Some critics fear that the phrase "violates a fundamental public policy" combined with "clearly outweighed" may cause courts to enforce contract terms that frustrate public policy objectives. Indeed, some critics in the technology industry assert that the use of the term "fundamental" may provide too much deference to the freedom of contract doctrine. See e.g., American Committee for Interoperable Systems letter to Carlyle Ring, Nov. 30, 1998, <http://www.2Bguide.com/docs/1198acis.html>.
In particular, mass-market license provisions that purport to prohibit reverse engineering have raised concerns. According to some scholars, such licenses may amount to copyright misuse, rendering them unenforceable. See Mark A. Lemley, Beyond Preemption: The Law and Policy of Intellectual Property Licensing, 87 Calif. L. Rev. 111, 170 (Jan. 1999), UCITA §211 (Mass-Market License), Reporter's Note 3 to UCITA §105 (Relation to Federal Law). See also David F. McGowan, Free Contracting, Fair Competition, and Draft Article 2B: Some Reflections on Federal Competition Policy, Information Transactions, and "Aggressive Neutrality," 13 Berkeley Tech. L.J. 1173 (1998).
Another concern is that the UCITA's electronic self-help provisions may interfere with copyright user rights and policies. Electronic self-help exists when the software contains code that enforces the contract terms, like a software program designed to erase itself if the licensing fee was not paid. Professor Julie Cohen asserts that copyright policy limits the extent to which software engineers can code in technical protection systems to enforce the terms of their licenses. See Julie e. Cohen, Copyright and Jurisprudence of Self-Help, 13 Berkeley Tech. L.J. 1089 (1998), UCITA § 816 (electronic Self-Help).
UCITA May Be More Original Than Accurate.
As you know, Professor Grant Gilmore once stated that a uniform commercial law should be "accurate, not original." Yet, UCITA is original in a number of respects. Virtually all of its electronic contracting provisions are original, as are its provisions on release of intellectual property rights, among others. Many consider that it is original as to one of its key provisions: that which would validate mass-market shrinkwrap license terms. The drafters of UCITA rely on ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) to support this provision. The ProCD decision held enforceable a shrinkwrap license that purported to place a "home use" restriction on a CD-ROM compilation of telephone data. Rejecting a copyright preemption claim, the Seventh Circuit noted that contract rights differ in nature from intellectual property rights, differentiating between rights that were good against only the person in agreement and rights good against the world.
UCITA's reverence for the ProCD ruling ignores both cases that have reached contrary legal conclusions and the commentators who have seriously questioned the case's analysis. A very cogent article co-authored by noted copyright scholar (and practicing attorney) David Nimmer argues that the Seventh Circuit's holding is in error, pointing both to case law and to intellectual property policy. See David Nimmer, elliot Brown and Gary N. Frischling, The Metamorphosis of Contract into expand, 87 Calif. L. Rev. 17 (Jan. 1999). See also Charles McManis, The Privatization (or "Shrink-Wrapping") of American Copyright Law, 87 Calif. L. Rev. 173 (Jan. 1999) (demonstrating conflicts UCITA will engender over user rights under copyright law); Jessica Litman, The Tales That Article 2B Tells, 13 Berkeley Tech. L.J. 931 (1998)(suggesting that 2B/UCITA is both confused and confusing about the source of the property rights on which the licenses it would regulate are based).
The originality of the UCITA approach may be explained, in part, from the tension inherent in a uniform law that attempts to bring diverse computer information transactions under a single umbrella statute. "The net result is that Article 2B, in trying to be all things to all types of computer information transactions, had reach a level of complexity that is at odds with both the U.C.C.'s and the [Clinton Administration's Framework for Global electronic Commerce]'s goals of simplicity and clarification." See Maureen O'Rourke, Progressing Towards a Uniform Commercial Code for electronic Commerce or Racing Towards Nonuniformity?, 14 Berkeley Tech. L.J. 635 (1999) (explaining some of the reasons why the Article 2B drafting process has been so controversial).
This letter can only provide a sampling of the criticisms of the model law formerly known as Article 2B. Critical commentary on UCITA/Article 2B has been published in other volumes. While commentators clearly differ on the merits of the UCITA, it is fair to say that they certainly have not come to a clear consensus in favor of the proposed law. While the model law has gone through several iterations since some of these articles were written, the criticisms retain their valence.
While this letter has mainly focused on the legal literature, criticisms have come not only from the academic community, but also from organizations representing a variety of industry groups. While the Business Software Alliance, comprised primarily of certain major software companies, has been actively supporting UCITA during the long drafting process, many groups have concerns or are opposed to UCITA. This includes the Digital Future Coalition which not only includes many of the nation's leading non-profit educational, scholarly, library and consumer groups, but also organizations representing consumer electronics, telecommunications, computer, software, and network access industries.
Please consider the critical as well as the supportive material on UCITA, and bring any questions or doubts you might have to the NCCUSL Annual Meeting later this month.
1. It may be worthy of note who wrote the articles in the Houston Law Review. They include the chair of the Drafting Committee, a Microsoft attorney and a partner at Preston, Gates and ellis, LLP, all of whom have been involved at length with the drafting process and have been consistent opponents of efforts to temper the proposed statute or insert public policy overrides.
3. See, e.g., J.H. Reichman & Jonathan A. Franklin, Privately Legislated Intellectual Property Rights: Reconciling Freedom of Contract With Public Good Uses of Information, 147 U. Penn. L. Rev. 875 (1999); Dennis S. Karjala, Federal Preemption of Shrinkwrap and On-Line Licenses, 22 U. Dayton L. Rev. 511 (1997), Jane Kaufman Winn, Open Systems, Free Markets and Regulation of Internet Commerce, 72 Tulane L. Rev. 1177 (Spring 1998).
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