Proposed legislation could have big impact on e-commerce

by Matthew Osborn | Aug 19, 1999 7:00:00 AM

Tags: Matthew Osborn

Takeaway: A proposed law could drastically change the relationship between software vendors and users. Find out why.

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As e-commerce continues to change the way business is transacted, industry and legal analysts assert that laws need to reflect this growth. Those analysts note that existing laws—which vary from state to state—are inadequate to meet the demands of Web-based transactions.

Legislation proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL ) is designed to unify commercial laws governing the licensing of software and digitally transferred information. As the proposal hits state legislatures across the U.S., not everyone is happy about the proposed bill, which critics claim eliminates the rights of licensees, giving the power to licensors.

Uniform licensing regulations proposed
Software licensing arrangements often pit user groups against vendors, and the recent legislation passed by the NCCUSL could fuel the fire. Although the group, which is comprised of over 300 state-appointed lawyers, judges, and other legal experts, doesn’t have the power to directly implement laws, it has a strong influence in state legislatures.

At its annual meeting held July 23 to 30, the group voted to pass the Uniform Computer Information Transactions Act (UCITA), which could change the way software licenses are handled. UCITA started as an amendment to the Uniform Commercial Code (UCC) covering software licensing. The proposal would create uniform regulations for digital transactions, such as licensing, sales, and software development contracts, in all 50 states. UCITA will be presented to all 50 state legislatures. When software users and producers argue their cases before state governing bodies, it could be a nasty fight.

Pros
If adopted by state legislatures, the act could have several implications. Proponents believe that it will harmonize the law in respect to software and other information products, such as online news services. Since the sales licensing agreements are different than the sales of goods, if passed, the law would better handle Internet-based transactions in the digital age.

Software vendors assert that smaller businesses will benefit from uniform rules for digital transactions, as well as save money by not having to research the e-commerce laws of all 50 states.

As Robert Holleyman, president and CEO of the Business Software Alliance , noted, ”The rapid evolution of the Internet and the dramatic increase in electronic commerce highlight the need for UCITA. This new statute will enable e-commerce by providing certainty to consumers and industry regarding online transactions in the new digital marketplace. UCITA provides a uniform commercial law, which is clear, fair, and balanced while retaining consumer protections. The statute allows the codification of the three Rs: replace, refund, or repair."

Cons
The critics of the act are just as vocal, citing that if it’s adopted by the states, the rights of consumer groups, software developers, magazine and newspaper publishers, and business owners could be threatened. Government agencies and legal consortiums have questioned UCITA’s implications for how purchasers of software could use the products.

The opposition says it will harm the rights of small businesses and consumers by limiting their rights to file suit against defective products, limiting the sale of used software, and enabling software companies to remotely shutdown their products if users violate the license.

The FTC also expressed its concern over the proposal. In a July 9 letter to John McClaugherty, chairman of the NCCUSL, the FTC reinforced these concerns: “UCITA endorses a license model for ‘computer information transactions.’ For example, under UCITA a license to use software (rather than the sale of the software itself) would allow the licensor to limit or control how the licensee uses the software, even where the software has been mass-marketed to consumers. Examples of these limits or controls include restrictions on a consumer's right to sue for a product defect, to use the product, or even to publicly discuss or criticize the product.”

For more information:
There is a wealth of information available on this topic. The following sites offer opinions on both sides of the debate.

• Anti-UCITA resource page offers opinions against.
• Abrahams Kaslow & Cassman deconstructs the critics’ arguments.
• Society for Information Management has come out against the UCITA. This site outlines its policy.
• Business Software Alliance presents its support of the proposed legislation on its Web site.
• Bad Software: What To Do When Software Fails provides news and information about anti-UCITA activities, including a link to software licensing attorney Cem Kaner’s op-ed piece.
• The Uniform Commercial Code Article 2B Revision Draft Download Site allows users to download the latest draft of the proposal.
• American Law Institute withdrew its support for the measure in April of 1999.

This legislation could change the entire relationship between software vendors and users. Drop us a note and give us some feedback.

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Very trueomar@...  | 08/13/00