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Bar Journal - December 1, 2000

The Uniform Computer Information Transactions Act at a Glance

By:
 
INTRODUCTION

The Uniform Computer Information Transactions Act (UCITA) is a contract law statute. It is an attempt to standardize and unify the law for the intangible subject matter involved in computer information transactions on the Internet and elsewhere. Proponents argue that UCITA is the answer to a desperate need for uniform law treatment of software and other computer information. Certain opponents of UCITA claim that the act is simply ratifying commercial practices developed by the software industry for its own benefits and that, by its adoption, consumer rights will suffer. This paper will give a brief overview of the contents of UCITA, especially provisions that establish new additions to current law, as well as highlights of some of the more controversial provisions of the act.

BACKGROUND

Why a new uniform law for computer information transactions?

Traditionally, the Uniform Commercial Code (UCC) has been the primary form of uniform contract law in the United States. Article 2 of the UCC is based on a sale of goods model. This approach worked well when applied to commercial transactions for the sale of goods. Commercial transactions involving copyrighted works, during the pre-computer age, were generally based on two business models:

  • licensing transactions between authors, publishers, and distributors of copyrighted works. These transactions generally involved transfers of all or portions of the intellectual property (IP) rights.
  • sales of copies of the copyrighted works to the general public, a transaction in which no transfer of the IP rights occur.1 

At the onset of the computer era, the economy shifted from goods to service based, and neither the UCC nor the common law fit many of the new types of transactions, especially not the unique attributes of computer information transactions. Contracts for computer information are quite distinct from contracts for the sale of goods. In a sale of goods, the focus is on rights to a tangible item. In contrast, a contract for computer information focuses on intangibles and the rights in those intangibles.2  "Software, multimedia, digital databases, artificial intelligence systems, and other computer information products are governed by an intellectual property law dominated by copyright law."3  Since copyright law grants several exclusive rights (among them, the right to reproduce and distribute copies of a copyrighted work)4  to the copyright holder, the title to the information does not pass in most computer information transactions. A person who acquires computer information contained on a computer disc owns the disc but not the information contained on the disc. The right to use the information on the disc is governed by contract and IP law.

The software industry has long been dissatisfied with the current legal protection available to computer information. As an example of this dissatisfaction, the publishers of computer information, aware of how vulnerable computer information is to alteration and perfect copying, have developed an industry practice of only making their products available subject to a license.5  Arguments have been raised that due to the ease by which computer information products can be reproduced, transmitted, and incorporated into other works justifies the imposition of restrictions beyond those provided by copyright law.6  Other problems that add to the discontent of the computer industry are claims that many computer-based information products, such as databases, are of important economic value but are not protected under current copyright law.7  Widespread adoption of mass-market licenses, the so called click-wrap and click-through licenses, and questions as to their enforceability also added to the call for laws more suited to the computer information technology era.8 

How did UCITA come to pass?

As a response to this longstanding need for a uniform law to cover computer information transactions, the American Bar Association formed study groups to see how to best resolve these issues.9  These study groups evolved into a joint National Conference of Commissioners on Uniform State Laws (NCCUSL) and American Law Institute (ALI) effort to create an new UCC Article 2b to deal with the commercial law of licensing.10  The ALI ceased its effort to revise Article 2 of the UCC, and the NCCUSL picked up where ALI left off. The purpose of the NCCUSL is to promote uniformity in state law in all areas where uniformity is practicable and desirable.11  It is made up of over 300 judges, lawyers, and law professors, and has representatives (called Commissioners) from all the fifty states and the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.12  The Commissioners are appointed to drafting committees, and each committee chooses a "reporter" to draft the proposed act. The "reporter" for UCITA was Dean Raymond T. Nimmer from the University of Houston Law Center.13  After over four years of work and numerous meetings and drafting proposals, the final draft of UCITA was submitted to the NCCUSL for a vote at its annual meeting on July 29, 1999. There, the NCCUSL adopted the final draft of UCITA by a vote of 43 to 6.14 

THE THEMES OF UCITA

The Preface to UCITA points out that five themes frame many of the terms of UCITA.15  They are: (1) the paradigm transaction is a license of computer information, rather than a sale of goods; (2) innovation and competitiveness have come from small entrepreneurial companies as well as larger companies; (3) computer information transactions engage fundamental free speech issues; (4) a commercial law statute should support contract freedom and interpretation of agreements in light of the practical commercial context; and (5) a substantive framework for Internet contracting is needed to facilitate commerce in computer information.16 

THE SCOPE OF UCITA

What transactions does UCITA cover?

UCITA is limited in scope and is intended to cover only some computer information transactions. UCITA defines "computer information" as "information in electronic form which is obtained from or through the use of a computer or which is in a form capable of being processed by a computer. The term includes a copy of the information and any documentation or packaging associated with the copy."17  A "computer information transaction" is defined as "an agreement or the performance of it to create, modify, transfer, or license computer information or informational rights in computer information. The term includes a support contract [as defined] under Section 612. The term does not include a transaction merely because the parties’ agreement provides that their communications about the transaction will be in the form of computer information."18  Thus, the subject matter of the transaction must be computer information in order for the transaction to be covered under the act.

As mentioned above, UCITA is intended to cover all transactions that concern computer information. These include, but are not limited to, contracts to buy or license software, contracts to create computer programs, contracts for multimedia products, contracts for computer games, contracts for online databases, and contracts to distribute information on the Internet.19  It is important to remember that the act is only limited to contracts and does not apply every time that information is communicated. There are many situations where we share information with other people and these communications have nothing to do with contracts for computer information. UCITA does not apply even if we share this information through e-mail.20 

When does UCITA not apply?

UCITA does not apply to goods (including computers), except for computer discs that contain the computer information21  and pre-installed software programs, which can be covered by UCITA.22  The law that applies to the sale of goods is embedded in Article 2 or Article 2A of the UCC; and UCITA does not affect that body of law.23  However, if any part of the transaction involves computer information, UCITA does contain a provision that will allow the parties to the transaction to "opt in" and allow its application.24  UCITA does not cover traditional sales of print books, magazines, or newspapers but it does cover on-line books and databases. The reason for the difference is that there is already existing law that covers print materials, but digital and on-line products have no uniform rules, which are needed due to the increasing volume of on-line transactions.25 

UCITA also expressly excludes certain transactions. These are: (1) financial services transactions; (2) contracts to create, perform or perform in, include information in, acquire, use, distribute, modify, reproduce, have access to, adapt, make available, transmit, license, or display: (a) audio or visual programming that is provided by broadcast, satellite, or cable as defined or used in the Federal Communications Act and related regulations as they existed on July 1, 1999, or by similar methods of delivering that programming; or (b) a motion picture, sound recording, musical work, or phonorecord as defined or used in Title 17 of the United States Codes as of July 1, 1999, or an enhanced sound recording; ("Enhanced sound recording" means a separately identifiable product or service the dominant character of which consists of recorded sound but which includes (i) statements or instructions whose purpose is to allow or control the perception, reproduction, or communication of those sounds or (ii) other information so long as recorded sounds constitute the dominant character of the product or service despite the inclusion of the other information.); (3) compulsory licenses; (4) contracts of employment of an individual, other than an individual hired as an independent contractor to create or modify computer information; (5) contracts that do not require that information be furnished as computer information or in which the form of the information as computer information is otherwise de minimus with respect to the primary subject matter of the exclusion.26 

UCITA AND ELECTRONIC COMMERCE, SOME KEY PROVISIONS OF THE ACT.

UCITA contains some unique features that add to or change existing contract law. According to Dean Nimmer, one of the basic premises of UCITA is that it should facilitate the continued expansion of electronic contracting in computer information.27  With that in mind, there are three issues that contract law must deal with in order to facilitate electronic commerce on the Internet and similar systems.28 

First, there is the issue of authorization. E-commerce requires the use of a computer to make and perform contracts. Therefore, records and signatures often will be kept only in electronic form. Prior to UCITA, there was no statute that provided comprehensive rules and procedures for electronic contracting. This created an uncertainty as to the enforceability of these on-line contracts. UCITA expressly validates electronic contracts and allows "authentication" as a form of signature.29  UCITA also recognizes the equivalence of electronic "records" and paper writings.30 

The second issue concerns how one establishes the terms of an electronic contract.31  "UCITA adapts common law concepts of manifestation of assent to contract terms to apply to electronic contexts. A manifestation of assent (Section 112) binds a party to the contract terms if, in context, the party had reason to know its acts would be treated as assent to the terms."32  This requires an opportunity to review the contract terms prior to assent. UCITA adopts the holding set out in a string of case law that an on-screen "click" acceptance constitutes acceptance. A "safe harbor" of a double-click reaffirming assent is also provided.33 

A particularly noteworthy provision recognizes the enforceability of agreements made by the interaction of "electronic agents"; even if no human was directly involved in either or both sides of the transaction.34  An "electronic agent" is defined as a computer program, or electronic, or other automated means used by a person to initiate an action, or to respond to electronic messages or performances, on the person’s behalf without review or action by an individual at the time of the action or response to the message or performance.35 

The final issue deals with "attribution". In other words, to whom is a signature, message or performance attributed to under the law?36  Under UCITA, attribution to a person means that the electronic event is treated in law as having come from that person. An electronic event is attributed to a person if it was the act of that person or its electronic agent, or if the person is otherwise bound by it under the law of agency or other law.37  UCITA also establishes that the party relying on attribution of an electronic authentication display, message, record, or performance to another person has the burden of proving that the act was that of the person or its electronic agent, or other agent.38  In many cases, parties may want to use an "attribution procedure" to establish identity. Such an "attribution procedure" is recognized and legally enforceable under UCITA, subject to some limitations such as commercial reasonableness and effectiveness.39  Attribution procedure in the act is defined as "a procedure to verify that an electronic authentication, display, message, record, or performance is that of a particular person or to detect changes or errors in information. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgement.40 

OTHER PROVISIONS OF UCITA

Constitutional Preemption and Fair use

It has been argued that intellectual property law preempts contract law, but some proponents of UCITA argue that this is an unnecessary concept since contract and intellectual property law properly coexists.41  Contract law does not preempt property law but a property holder is generally free to contract away rights that are granted through property law.42  Property rights are involuntary rights that are "good against the world" whereas contract rights are voluntary rights that are only good against the other contracting party. It has been suggested, by among others, Ray Nimmer, that it is a fallacy to assume that the sole or even primary value in a transaction involving information lies in the property rights, and therefore, contract law is, not only a desirable but, necessary "element" in IP law.43  According to Nimmer, there are natural limits to contract law such as the Supremacy Clause of the U.S. Constitution and the Federal Copyright Act,44  and UCITA does not alter these types of laws already in existence.45  UCITA explicitly recognizes this concept when it states that applicable federal law preempts its provisions.46 

Choice of Law and Forum

In today’s global market with Internet transactions steadily increasing, the choice of law and forum are critical commercial issues.47  UCITA adopts a "freedom of contract" approach, limited by a consumer protection rule.48  UCITA thus allows the parties to an agreement to choose the applicable law. However, in a consumer transaction, the choice of law is not enforceable to the extent that it varies a consumer protection rule that may not be varied under the law of the jurisdiction that would apply in the absence of the agreement.49  If there is no choice of law provision in a contract, then there is a default provision in UCITA that applies: (1) an access contract or contract providing for electronic delivery of a copy is governed by the law of the jurisdiction in which the licensor was located when the agreement was made; (2) a consumer contract that requires delivery of a copy on a tangible medium is governed by the law of the jurisdiction in which the copy is or should have been delivered to the consumer; and (3) in all other cases, the contract is governed by the law of the jurisdiction with the most significant relationship to the transaction.50  If the default jurisdiction is outside the U.S., the law of that jurisdiction governs only if it provides substantially similar protections and rights to a party not located in that jurisdiction as are provided under UCITA. Otherwise, the laws of the state that has the most significant relationship to the transaction governs.51 

UCITA also contains a choice of forum provision, which generally permits the agreement to govern. The section provides that the parties in their agreement may choose an exclusive judicial forum unless the choice is unreasonable or unjust. It also states that the judicial forum specified in the agreement is not exclusive unless the agreement provides so specifically.52  The Reporter’s Note states that the forum must be a court and not some other non-judicial forum such as arbitration.53  Other law governs non-judicial forum choices.54 

Warranties

It has been argued that UCITA reduces the warranties that are given to licensees and that software publishers can disclaim all responsibility for damages even if they knew that they were selling defective products.55  However, current law does not require that a warranty be issued in a sale of goods. It does require that a customer be informed whether or not he/she is receiving a warranty or if the product is being sold "as is."56  UCITA provides several basic warranties that follow the same standard as existing UCC Article 2.57  The act also creates several new warranties.58 

There is an implied warranty of non-infringement that parallels Article 2. There is no warranty of good title since, with information products, licensors often do not have title, since they are also licensees. In addition, in computer information transactions, the warranty of non-infringement is its equivalent.59  There are also an implied warranty of quiet enjoyment, an implied warranty of merchantability, and an implied warranty of fitness for a purpose. These warranties closely parallel existing Article 2.60 

UCITA also provides for new warranties such as an implied warranty of system integration.61  This warranty implies an obligation that a group of elements will function as a system.62  An implied warranty of data accuracy provides that a merchant, in a special relationship of reliance with a licensee, has to warrant that the merchant will collect, compile, process, provide, or transmit informational content to the licensee without any inaccuracy in the informational content caused by the merchant’s failure to perform with reasonable care.63  UCITA makes it possible to disclaim these warranties but requires informative language concerning such disclaimer and thus requires that the disclaimer is conspicuous if the disclaimer is in a writing.64 

SOME CONTROVERSIAL TERMS OF UCITA

Opponents of UCITA have attacked a number of provisions within the act. There are certain provisions, however, that have been subject to particularly close scrutiny and severe criticism, most notably the provisions concerning manifestation of assent and opportunity to review, "shrink-wrap" or "click-wrap" licenses, and mass-market licenses.

Manifesting assent and shrink-wrap/click-wrap licenses.

The basic provisions on adopting standard form terms are in § 208 of UCITA. These provisions also apply to mass market licenses, except to the extent modified by § 209. Thus, both mass market and other standard form terms may be adopted by a party by manifesting assent.65  A party manifests assent to a record or term if the person, acting with knowledge of, or after having an opportunity to review the record or terms; (1) the party authenticates the record with the intent to adopt or accept the record or terms, or (2) the party intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term.66  Failing to act may be enough to satisfy the requisite conduct for assent.67  This provision appears to be tailor-made for shrink-wrap and click-wrap licenses, which generally hold that a consumer agrees to the license terms by tearing off the plastic wrapping around the computer product, or by clicking the "agree" button in an on-line transaction.68 

Opponents of UCITA have been highly critical of this provision, arguing that many consumers do not read the fine print and will unwittingly agree to highly restrictive licensing terms.69  Critics also point out that UCITA treats post-payment actions such as a mouse click onto a box during installation of software, as a manifestation of assent. The obvious concern is that such relatively brief act by a single user, who may often not read the length of most ‘take it or leave it’ form contracts, is argued to be inadequate evidence of assent."70  Proponents of UCITA argue that § 112 only follows the trend of recent court decisions, especially ProCD, Inc. v. Zeidenberg,71  upholding the enforceability shrink-wrap or click-wrap licenses.72 

In ProCD, the Seventh Circuit reversed the trial court and held the terms of a particular "shrink-wrap" license were enforceable. The Court held that the terms were not unconscionable and that the buyer of the software had assented to the terms of the license by keeping the software after purchase. Advocates of UCITA also point out that although UCITA allows for shrink-wrap or click-wrap licenses, there are strict limits to these licenses. A mass-market shrink-wrap license is unenforceable unless: (1) the buyer had reason to know that more terms were coming; (2) the buyer is offered a right to return the product if the terms are unsatisfactory: (3) the buyer’s right of return is free of charge; and (4) the buyer is reimbursed the reasonable cost of restoring the buyer’s system if it was altered when the buyer tried to read the license terms.73 

The mass-market license

The mass-market license is a novel legal concept created in UCITA.74  The term mass-market is defined as a standard form used in a mass-market transaction.75  A mass-market transaction means a transaction that is: (1) a consumer contract; or (2) any other transaction with an end-user licensee if: (a) the transaction is for information or informational rights directed to the general public as a whole, including consumers, under substantially the same terms for the same information; (b) the licensee acquires the information or informational rights in a retail transaction under the terms and in a quantity consistent with an ordinary transaction in a retail market; and (c) the transaction is not: (i) a contract for redistribution or for public performance or public display of a copyrighted work; (ii) a transaction in which the information is customized or otherwise specially prepared by the licensor for the licensee, other than minor customization using a capability of the information intended for that purpose; (iii) a site license; or (iv) an access contract.76 

Critics charge that, although the concept of the mass-market license appears simple enough, it is actually subject to numerous requirements and limitations.77  Even though the mass-market transaction includes all consumer contracts, the inclusion is limited by requirements related to the status of both parties to the transaction. The licensee must qualify as a "consumer" and the licensor must qualify as a "merchant". The term "consumer" does not cover a licensee that purchases a product mainly for professional or commercial purposes.78  Thus, under UCITA, a person acquiring software for a home business is not a consumer as to that transaction.79  An individual is a "merchant" for a particular transaction, only if that individual deals in information or informational rights of the kind involved in the transaction, if the individual holds themselves out as having particular knowledge or skill peculiar to the information, or if the individual employs agents that by their occupation hold themselves out as having that knowledge or skill.80 

So, if a person acquires software primarily for personal use pursuant to a standard form license from a person who deals in that type of software or who, through his/her occupation, holds him/herself out as having experience in that kind of software, the license is a mass-market license.81 

Proponents of UCITA argue that the mass-market license rules follow general contract law, and if anything, include consumer protections that are greater than under current law.82  For example, the consumer protection provisions available under UCITA, applies to businesses, no matter how large, that make retail purchases. This is a radical departure from current law, which typically limits consumer protection to consumers.83  Finally, proponents argue that there are stringent rules in the creation of a mass-market license, and a mass-market license is part of the contract only if the licensee manifests assent after having had an opportunity to review the terms of the license. Even after assent, the license is subject to certain limitations: (1) unconscionable terms are unenforceable, (2) terms that violate fundamental public policy are unenforceable, and (3) terms that conflicts with the actual agreement of the parties are unenforceable.84 

CONCLUSION

UCITA will govern all contracts for the development, sale, licensing, maintenance, and support of computer software, and most contracts for information in digital form. Critics are worried that UCITA favors the software industry and provides licensors with great power to dictate the terms under which their products are distributed. Supporters of UCITA, on the other hand, see this act as a means to provide clear and uniform rules for creating enforceable computer information agreements with minimal transaction costs. Due to the great number of objections to this act, it may not become the law in many states. The act does, however, create a good foundation for a uniform legal system for the computer information age.

Note: Currently, Maryland and Virginia are the only states that have approved UCITA legislation. In Maryland, the legislation is scheduled to take effect October1, 2000. Virginia has delayed the act’s implementation until July 2001, pending further review. Several other states (Delaware, Hawaii, Illinois, Louisiana, Iowa, New Jersey, Oklahoma, and D.C.) are actively considering adoption of UCITA.85 

ENDNOTES

1. George L. Graff, The Evolution of the Computer Information Transactions Act, 12 No. 9 Software L. Bull. 216 (1999).
2. Raymond T. Nimmer, UCITA: Modern Contract Law for a Modern Information Economy, 574 PLI/Pat 221, 227 (1999).
3. Id.
4. For a complete list of exclusive rights provided a copyright holder, see The Copyright Act of 1976 § 106 (17 USC § 106).
5. Pamela Samuelson & Kurt Opsahl, How Tensions Between Intellectual Property Policy and UCITA are Likely to be Resolved, 570 PLI/Pat 741, 746 (1999).
6. Graff, supra at 216.
7. Id.
8. Samuelson & Opsahl, supra at 746.
9. Id.
10. David G. Mayhan & Patricia A. Fennelley, The Uniform Computer Information Act: Ready or not, Here it Comes, 28 Dec. Colo. Law 63 (1999).
11. Holly K. Towle, The New Uniform Computer Information Transactions Act, 576 PLI/Pat 869, 871 (1999).
12. Id.
13. Id.
14. Mayhan & Fennelly, supra at 63.
15. Uniform Computer Information Transactions Act (UCITA) (1999), Preface.
16. Id.
17. UCITA § 102 (10).
18. UCITA § 102 (11).
19. Nimmer, supra at 236.
20. Id.
21. UCITA § 102 (10).
22. Mayhan & Fennelly, supra at 64.
23. Nimmer, supra at 236.
24. UCITA § 104.
25. Nimmer, supra at 236.
26. UCITA § 103 (d)-(e). See also Mary Jo Howard Dively, Overview of Uniform Computer Information Transactions Act, 574 PLI/Pat 171, 177-78 (1999).
27. Nimmer, supra at 234.
28. Id.
29. UCITA § 107. See also Nimmer, supra at 234.
30. Id.
31. Nimmer, supra at 234.
32. Id. See also UCITA § 112.
33. Id.
34. See e.g. UCITA §§ 107, 214, 215.
35. UCITA § 102 (a) (27)
36. Nimmer, supra at 235.
37. UCITA § 213 (a). See also Dively, supra at 193-93 for a good discussion on attribution.
38. Id.
39. UCITA § 212. See also Nimmer, supra at 235.
40. UCITA § 102(a) (5).
41. See Raymond T. Nimmer, Breaking Barriers: The Relationship Between Contract and Intellectual Property Law (1999) at http://www.2bguide.com/docs/rncontract-new.html.
42. Id.
43. Id.
44. See generally U.S. Constitution. Article VI, clause 2, and 17 U.S.C.
45. Nimmer, supra in Breaking Barriers.
46. UCITA § 105.
47. Nimmer, supra at 254.
48. Mayhan & Fennelly, supra at 67.
49. UCITA § 109 (a).
50. UCITA § 109 (b) (1)-(3).
51. UCITA § 109 (c).
52. UCITA § 110 (a) & (b).
53. UCITA, Reporter’s Note.
54. Id.
55. Donald A. Cohen, The Need for a More Objective Look at the Myths of the Proposed Uniform Computer Information Transactions Act at http://www.2bguide.com/docs/myths.html.
56. Id.
57. Nimmer, supra at 239.
58. Id.
59. Id.
60. Id. See also UCITA §§ 401-405.
61. UCITA § 405.
62. Nimmer, supra at 240.
63. UCITA § 404 (a).
64. Nimmer, supra at 240.
65. Carol A. Kunze, Mass Market Licenses in UCITA: A Legal Revolution, 8 (1999) at http:// www.2bguide.com/docs/ful.doc.
66. UCITA § 112 (a) (1) & (2).
67. Comment 3b. to UCITA § 112.
68. Kunze, supra at 9.
69. Mayhan & Fennelly, supra at 66.
70. Id.
71. ProCD,Inc.,v. Zeidenberg, 86 F3d. 1447 (7th Cir. 1996).
72. Mayhan & Fennelly, supra at 65.
73. Nimmer, supra at 249.
74. Id. at 246.
75. UCITA § 102 (a) (43).
76. UCITA § 102 (a) (44).
77. Kunze, supra at 3.
78. Id. at 4. See also UCITA § 102 (a) (15) "Consumer means an individual who is a licensee of information or informational rights that the individual at the time of contracting intended to be used primarily for personal, family, or household purposes…"
79. Id.
80. UCITA § 102 (a) (45).
81. Kunze, supra at 5.
82. Nimmer, supra at 246-47.
83. Id.
84. Id. at 247.
85. See e.g. The Chronicle of Higher Education: Information technology (Aug. 11, 2000) at http://www.chronicle.com/free/v46/i49/49a04701.htm, Computerworld (May 1, 2000) at http://www.computerworl.com/cwl, and Wideopennews (April 25, 2000) at http://www.wideopennews.com/computerworld/803.htlm.

The Author

E. Maria Reinemann is a recent graduate of Franklin Pierce law Center, Concord, New Hampshire.

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