Copyright 2000 Prentice Hall Law & Business
                              The Computer Lawyer

                                   May,  2000

SECTION: UCITA; Vol.  17,  No. 5; Pg. 20

LENGTH: 10362 words

HEADLINE: I Why You Should  Oppose UCITA

BYLINE: by Cem Kaner; Cem Kaner, J. D., Ph.D. (<kaner@kaner.com>,
<http://www.badsoftware.com>), practices law in Santa Clara, CA, focusing on the
law of software quality.  He is also a software development consultant and
author.  Beginning in August 2000, he will be a Professor of Software
Engineering at Florida Institute of Technology.

   n1 All references to UCITA are to the November 1, 1999 draft at
<www.law.upenn.edu/bll/ulc/ulc_frame.htm>.  I have also reviewed proposed
amendments circulating in a file named CITA100AM.DOC.  This file is not yet
posted at the University of Pennsylvania Web site.  These proposed amendments
don't change the substance of the present article.  References to the Comments
to UCITA are to the October 15 draft comments posted at
<www.law.upenn.edu/bll/ulc/ulc_frame.htm>.

   The Drafting Committee's responses to criticism have been disappointing.
Proponents of UCITA dismiss criticisms, speaking of them as "fabricated or
uninformed claims of opposition." n2 Even in the drafts of UCITA itself, we see:
"Many public statements have been made about the effect of Article 2B on
consumer protection.  Most are political efforts to mislead." n3

   n2 Ray Nimmer, "UCITA: A Commercial Code for the New Commerce," UCC Bulletin,
Dec. 1999, at 1, 2.

   n3 July 24 -- 31, 1998 draft, prepared for the 1998 Annual Meeting of the
National Conference of Commissioners on Uniform State Laws, available at
<www.law.upenn.edu/bll/ulc/ucc2b/ucc2bamg.htm>.  This quote comes from the
Prefatory Remarks, in the subsection headed "Consumer Protection Rules."

   As a proposed revision to the Uniform Commercial Code (UCC), Article 2B was
co-developed by the National Conference of Commissioners on Uniform State Laws
(NCCUSL) and the American Law Institute (ALI).  At its May 1998 annual meeting,
the ALI membership approved a motion stating that Article 2B "should be returned
to the Drafting Committee for fundamental revision." n4 The revisions were not
made, and the ALI withdrew from the Article 2B process in 1999. n5 The ALI
co-authors all revisions to the UCC.  Without its support, NCCUSL renamed
Article 2B as UCITA.

   n4 A copy of the memorandum in support of this motion is available at
<www.ali.org/ali/Braucher.htm>.  An industry Web site,
<www.2BGuide.com/ali.htm1#98m>, gives a good synopsis of the supporting
memorandum.

   n5 American Law Institute and National Conference of Commissioners on Uniform
State Laws, NCCUSL to Promulgate Freestanding Uniform Computer Information
Transactions Act, Joint Press Release, Apr. 7, 1999,
<http://ali.org/ali/pr040799.htm>; American Law Institute, "Article 2B Is
Withdrawn from UCC and Will Be Promulgated by NCCUSL as Separate Act," ALI
Reporter, <ali.org/ali/r2103%5Fart2b.htm>.  "The Council of the [American Law]
Institute continued to have significant reservations about both some of its
[Article 2B's] key substantive provisions and its overall clarity and
coherence." Jean Braucher, "Why UCITA, Like UCC Article 2B, Is Premature and
Unsound," UCC Bulletin, July, 1999, at 1, <www.2bguide.com/docs/0499jb.html>.

   This article looks at some of the key criticisms of UCITA.  There are many
other significant problems with UCITA.  These are just examples, chosen to get
across the point in a short article that there are big problems with this bill.
 
Opposition to UCITA

   The first thing to realize about UCITA is that it lacks the support of the
software industry.  Yes, software publishers like UCITA.  And software
publishers are important players in the software industry.  But this pocket of
support does not mean that the bill has the support of the industry as a whole.

   The Association for Computing Machinery opposes UCITA. n6 So does the
Institute for Electrical and Electronic Engineers. n7 These are the two main
professional societies in the field.  Software engineering, by the way, is a
licensed profession in Texas, Ontario, and British Columbia. n8 The American
Society for Quality opposes UCITA, at the encouragement of its Software
Division. n9 The Independent Computer Consultants Association, which represents
individual software developers and small software service providers, sent a
representative to several UCITA/Article 2B drafting committee meetings,
proposed changes (which weren't adopted), and eventually came out in opposition
to UCITA. n10 The Free Software Foundation, which supports the development of
open source software products like Linux, opposes UCITA. n11 The Software
Engineering Institute, which was formed by the US Department of Defense to
further the state of software practice, and which is highly influential in the
field, opposes UCITA. n12 These are substantial organizations.  They are not
wild-eyed consumer advocates.  They are major players in the software industry.
They, along with several other developers' groups, all oppose UCITA.

   n6 Barbara Simons, Letter to NCCUSL, July 12, 1999,
<www.acm.org/usacm/copyright/usacm-ucita.html>; Barbara Simons, "From the
President: Melissa's Message," 42 Comm. ACM, June 1999, at 25.

   n7 Paul J. Kostek, President, IEEE-USA, Letter to NCCUSL, July 20, 1999,
<www.ieeeusa.org/forum/POLICY/1999/99july20.html>.

   n8 Steve McConnell & Leonard Tripp, "Professional Software Engineering: Fact
or Fiction?" IEEE Software, Nov./Dec. 1999, at 13, 16.

   n9 American Society for Quality, "ASQ Opposes Law on Computer Software
Transactions," <www.asq.org/articles/publicaffairs/072699state.html>.

   n10 Sharon Marsh Roberts, Independent Computer Consultants Association,
unpublished letter to Article 2B drafting committee, Oct. 5, 1998.

   n11 Free Software Foundation, "Help Defeat UCITA,"
<http://commons.somewhere.com/rre/1999/RRE.campaign.against.abu.html>.

   n12 Stephen E. Cross, Director, Software Engineering Institute, Letter to the
NCCUSL Commissioners, June 1, 1999, <www.badsoftware.com/sei.htm>.

   Proponents of UCITA have suggested that the primary opposition to UCITA comes
from consumers. n13 Certainly, consumer advocates oppose UCITA, n14 as do the
Attorneys General of Arizona, Arkansas, California, Connecticut, Florida, Idaho,
Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Missouri, Nevada, New
Jersey, New Mexico, North Dakota, Oklahoma, Pennsylvania, Tennessee, Vermont,
Washington, West Virginia, and Wisconsin, and the Administrator of the Georgia
Fair Business Practices Act. n15 The staff of the Federal Trade Commission has
written two reports that are highly critical of UCITA. n16

   n13 Carlyle C. Ring, H. Lane Kneedler, & Gail D. Jaspen, "Uniform Law for
Computer Info Transactions Is Offered," Nat'l L.J., Aug. 30, 1999, at B07;
Carlyle C. Ring, Jr., & Raymond T. Nimmer, "Series of Papers on UCITA Issues,"
<www.nccusl.org/pressrel/UCITAQA.HTM>.

   n14 E.g., see Consumer Federation of America
(<www.cptech.org/ucc/sign-on.html>); Consumer Project on Technology (Ralph
Nader) (<www.cptech.org/ucc/sign-on.html>, <www.cptech.org/ucc/ali3-10.html>,
and <www.badsoftware.com/alidec97.htm>) Article 2B protest page:
<www.essential.org/cpt/ucc/ucc.html>; Consumers Union (1999,
<www.2bguide.com/docs/cu699.html>; 1998, <www.2bGuide.com/docs/cu1098.html>;
1997, <www.ali.org/ali/hillga.htm>; 1997, <www.2bguide.com/docs/a.html>);
National Consumer Law Center (<www.4cite.org/members.html>); National Consumer
League (<www.cptech.org/ucc/sign-on.html>); United States Public Interest
Research Group (<www.cptech.org/ucc/sign-on.html>).

   n15 Letter from Attorneys General to NCCUSL, July 23, 1999,
<www.badsoftware.com/aglet1.htm>; letter from 11 additional Attorneys General to
NCCUSL, July 28, 1999, <www.badsoftware.com/aglet2.htm>.

   n16 See Joan Z. Bernstein et al., Letter to NCCUSL, July 9, 1999,
<www.ftc.gov/be/v990010.htm>.

   The opposition to UCITA is, however, much broader than this.  Many
intellectual property specialists oppose UCITA, including 50 intellectual
property law professors, n17 the American Intellectual Property Law Association,
n18 and the Committee on Copyright and Literary Property, the Communications and
Media Law Committee, and the Entertainment Law Committee of the Association of
the Bar of the City of New York. n19 The press, n20 libraries, n21 and the
entertainment industry n22 oppose UCITA, as do large commercial software
customers. n23

   n17 Letter from 50 IP professors to NCCUSL and ALI, Nov. 17, 1998,
<www.2bguide.com/docs/1198ml.html>.

   n18 Margaret A. Boulware, American Intellectual Property Law Association,
"Proposed Uniform Computer Information Transactions Act (UCITA)," July 16, 1999,
<www.2bguide.com/docs/799aipla.html>.

   n19 Committee on Copyright and Literary Property of the Association of the
Bar of the City of New York (co-sponsored by the Communications and Media Law
Committee and the Entertainment Law Committee), report on a proposal of the
National Conference Of Commissioners on Uniform State Laws to adopt a proposed
Uniform Computer Information Transactions Act, June 21, 1999,
<www.2bguide.com/docs/Copy.Comm1.pdf>.

   n20 National Association of Broadcasters, Newspaper Association of America,
Magazine Publishers of America, letter to NCCUSL, May 10, 1999,
<www.2bguide.com/docs/coalit5.html>; National Writers Union, "NWU Memo to UCC 2B
Drafting Committee," Oct. 9, 1998, <www.nwu.org/pic/ucc1009a.htm>; American
Society of Media Photographers, Letter to the Article 2B drafting committee,
July 14, 1998, <www.nwu.org/pic/uccasmp.htm>.  Also, InfoWorld and International
Communications Association are members of the 4CITE coalition opposing UCITA,
<www.4CITE.org>.

   n21 American Association of Law Libraries, American Library Association,
Association of Research Libraries, Medical Library Association, Special
Libraries Association, several letters, <www.arl.org/info/letters/libltr.html>,
<www.arl.org/info/letters/lebrun7.12.html>,
<www.arl.org/info/letters/Lebrun_NCCUSL_letter.html>, and
<www.arl.org/info/letters/Wright_ALI_letter.html>.  The American Association of
Law Libraries, American Library Association, Art Libraries Society of North
America, Association of Research Libraries, Special Libraries Association, and
the Virginia Association of Law Libraries are members of the 4CITE coalition
opposing UCITA, <www.4CITE.org>.

   n22 Motion Picture Association of America, National Association of
Broadcasters, and the National Cable Television Association, several letters,
<www.2BGuide.com/docs/v9-98.pdf>, <www.2bguide.com/docs/1298mpaa.html>,
<www.2bguide.com/docs/coalit5.html>.

   n23 The Society for Information Management, Circuit City, several insurance
companies, and Caterpillar, Inc., are members of the 4CITE coalition opposing
UCITA, <www.4CITE.org>.
 
Unreasonable, Surprising Terms

   During the UCITA drafting process, lawyers representing large corporate
customers said repeatedly that UCITA would force them to change their business
practices.  Their concern is that software contracts contain remarkably
aggressive terms.  They don't think that they would be bound by the worst of
these terms in mass-market contracts under current law, but these terms
certainly seem enforceable under UCITA, no matter who pays for them or who
installs them on their company's computer system.  Therefore, these corporate
counsel said, they think that they will have to get involved in a review of
every software acquisition and installation made by their companies.

   Here is an example of the problem.  Go to Intel's Web site, at
<www.intel.com/home/funstuff/webapplets> and click on "photo album II." If the
page is the same as it was on March 21, 2000, this page advertises the Intel
Photo Album II applet.  It says, "Use the Photo Album II applet to add high-tech
image transitions to your Web pages.  Origami, Unseen Wind and Brush are just a
few of the effects that will surprise and delight your viewers."

   The product category appeals to consumers, relatively junior designers of Web
sites, and other people who would not normally have much power to bind a
corporation to significant contracts.  This product is free.  No one has to sign
a check or purchase order to get it.  It can be obtained and used at a company
with no review by anyone involved with the management of that company.  Intel's
page provides two sets of samples of use of the product: the Lincoln High School
Student Activity Center and TransWorld Travel.  Neither organization would be
classified as a consumer under UCITA.

   Buried in the license agreement (at
<www.intel.com/cpc/webapplets/album2/agreement.htm>), starting 577 words into a
1,228-word document, is the following text:

   Licensee agrees that all works of authorship, inventions, improvements,
developments making use of the Applet or any portion of the Applet, solely or in
collaboration with others, as well as all patents, copyrights, trade secrets,
trademarks and other intellectual property rights therein and thereto
(collectively, "Developments"), are the sole property of Intel.  Licensee agrees
to assign (or cause to be assigned) and does hereby assign fully to Intel all
such Developments.

   The next section puts licensees under a duty of disclosure to Intel.

   Suppose that you are the corporate counsel in a company that has a public Web
site and an internal site that includes a password-protected section that
presents new technical ideas and specifications for your advanced product's
group review.  The ideas presented are valuable trade secrets.  Unfortunately,
one of your company's technical staff downloaded the Intel Photo Album II
applet, didn't read or understand all of the legal terms, and used it on the
public Web site and to create the New Ideas presentation.  If Intel's license
clause is enforceable, Intel now owns part of your public site -- and your
secret presentation.

   In early versions of Article 2B, a clause like this might have been knocked
out.  In Section 2B-308 (Dec. 12, 1996 draft), Article 2B, said: "A term does
not become part of the contract if the term creates an obligation or imposes a
limitation which: (1) the party proposing the form should know would cause an
ordinary and reasonable person acquiring this type of information and receiving
the form to refuse the license if that party knew that the license contained the
particular term." Unfortunately, even this weak exclusion of surprising,
material terms is not part of UCITA.  Had you reviewed the license, you would
probably have rejected this term immediately and told the staff member not to
use Photo Album II for any purpose inside your company.  But you didn't review
the terms.  So if your staff used the product, how can you protect your
company's work products and secrets from Intel?

   You might try arguing that the term is unconscionable under UCITA Section
111, but courts are rarely receptive to a business's plea for relief from a
contract term on grounds of unconscionability. n24 You might try arguing that
this term should not be enforced because something about it violates a
fundamental public policy, n25 but I'm not sure which policy you would cite.

   n24 James J. White & Robert S. Summers, 1 Uniform Commercial Code, 4th Ed. @
4.9 (1995).

   n25 UCITA @ 105(b): "If a term of a contract violates a fundamental public
policy, the court may refuse to enforce the contract, enforce the remainder of
the contract without the impermissible term, or limit the application of the
impermissible term so as to avoid a result contrary to public policy, in each
case to the extent that the interest in enforcement is clearly outweighed by a
public policy against enforcement of the term."

   Clearly, before allowing your company to use any piece of software, clip art,
downloaded information, or anything else that can be construed as computer
information, you must review each and every associated license, even for
products that cost nothing or only a few dollars.  Otherwise, the intellectual
property of your company is at risk.
 
Email Receipt Rules

   UCITA 102(a)(53) defines "receive" as taking receipt and 102(a)(52)(II)
defines "Receipt" to mean "in the case of an electronic notice, coming into
existence in an information processing system or at an address in that system in
a form capable of being processed by or perceived from a system of that type by
a recipient, if the recipient uses, or otherwise has designated or holds out,
that place or system for receipt of notices of the kind to be given and the
sender does not know that the notice cannot be accessed from that place."
Under Section 215(a), "Receipt of an electronic message is effective when
received even if no individual is aware of its receipt."

   This definition creates serious problems.  It leaves you defenseless in
situations in which you never had access to a message that was sent to you,
because you "received" that message, but you never got it or could never read
it.  It creates serious risks for anyone who uses filters to automatically purge
pornography, get-rich-quick schemes, and other trash from their electronic mail.
It also creates significant costs and risks for corporations who receive
electronic mail.
 
Defenseless Against Non-Receipt

   Suppose that your email address is <yourname@YourISP.com>.  And suppose that
you engaged in an electronic transaction (such as downloading software from a
Web site) and that the associated non-negotiable, visible-only-after-the-sale
license specified in the fine print that all legal notices could be sent to you
by email to <yourname@YourISP.com>.  By clicking OK to that license, you have
designated your Internet service provider (in this case, YourISP) as the place
or system for receipt of such notices.  When the other party sends a message,
UCITA says that the message has been received by you when it reaches
<YourISP.com> in good shape.

   The fact that the message reached <YourISP.com> does not mean that it will
reach you.  There can be a problem at YourISP's server (e.g., they lose your
messages) or a transmission problem (e.g., the message gets corrupted or lost en
route to your machine) or the message might be corrupted at your computer (e.g.,
maybe by a virus or by a bug in your mail program).  In any of these cases, you
don't see the message, but UCITA says that you have received it.

   Note the difference between this situation and the mailbox rule.  Under the
mailbox rule, we create a presumption that a letter has been received within a
certain time after it is sent.  But that presumption is refutable.  In this
case, even though the message has never reached any screen that lines up with
your eyeball, UCITA says that as a matter of law, you have seen it.
 
You Can't Filter Your Email

   The second issue is the filtering issue.  According to a recent article in
the Boston Globe, n26 a huge proportion of circulating email is spam:
unsolicited junk mail.  For example, 15 to 30 percent of the email received by
America Online is spam.  The article quotes estimates that pornographers are the
source of 30.2 percent of the spam on the Internet, followed by get-rich-quick
and work-at-home schemes (29.6 percent).  People who receive a lot of email
often use filters, programs that detect spam and erase it before they ever have
a chance to notice it.

   n26 Simson Garfinkel, "Declaring War on Spam: Internet Service Providers and
Consumers Battle Electronic Junk Mail Problem," Boston Globe, Dec. 9, 1999,
available via <www.boston.com/globe/search>.

   Suppose that you use a filter that wipes out any message that originates from
the domain, <SpamSender.com>.  Someday, someone might send you a legal notice
via <SpamSender.com>.  If your filter wipes out messages from that source, you
will never see the legal notice.  But under UCITA, that notice will have full
legal effect because it reached your system, even though it stood no chance of
reaching your eyeballs.

   Under UCITA, anyone who engages in electronic commerce (such as electronic
banking) will probably end up with email notification clauses in their
contracts.  If they filter the junk out of their email, they risk being held
accountable for having received messages that their computer completely hid from
them (as it was supposed to do).  A risk-averse person will not and should not
use spam filters because of the risks of filtering that are imposed on them by
UCITA.  Under UCITA, these people will have to hand-filter every offensive piece
of pornography that is dumped to their system.
 
Corporate Email

   UCITA's mailbox rule creates challenges for the corporation as well.
Corporations receive a lot of spam.  Today, in many companies, much of this spam
is filtered (identified and deleted) as it comes into the system.  The corporate
computers identify the spam as having a traditional title or as originating from
an ISP that routinely hosts spammers.  As they filter, some legitimate mail is
inevitably lost.  So, imagine yourself as corporate counsel.  Do you tell your
company they can continue to automatically filter mail?  Or, because of the
UCITA-imposed risks on filtering, do you say that they have to stop filtering
and actually inspect/read every message?  How much of your company's time are
you willing to waste on this?  How much of their time are they willing to let
you waste?

   Another problem is the difficulty of finding skilled network and system
administrators in the current job market.  Under UCITA, mail sent to
<employee@Corporation.com> has been received when it reaches Corporation's
server, but if Corporation is having trouble breaking in a new system
administrator, a lot of mail might never reach any of Corporation's employees.
Lost email is not like lost letters that go to the wrong person but can be
rerouted back.  Losing a day of email is like sending all of your company's mail
to the shredder.  It's gone.  And if you just lose a percentage of it, you might
not even realize that you have a lost mail problem until your company is held
accountable for notices that no one ever actually had the opportunity to read.
 
Known Defects

   One of the fundamental assumptions of UCITA is that "the complexity of
software products makes them inherently imperfect." n27 "Minor flaws ('bugs')
are common in virtually all software." n28 "In fact, the idea of perfect
software is a goal or aspiration not presently attainable, at least not without
exorbitant costs that would drive many thousands of small companies out of the
business." n29

   n27 Carlyle C. Ring, Jr. & Raymond T. Nimmer, Series Of Papers On UCITA
Issues, section on Perfect Tender/Material Breach of Substantial Performance,
<www.nccusl.org/pressrel/ucitaqa.htm>.

   n28 Carlyle C. Ring, Jr. & Raymond T. Nimmer, Series Of Papers On UCITA
Issues, n. 10, <www.nccusl.org/pressrel/ucitaqa.htm>: "An A. B. A. Software
Contract Task Force recommended that the perfect tender rule be abolished with
respect to software contracts because of the complexity of the software product
and the fact that minor flaws ("bugs") are common in virtually all software."
UCITA, Jan. 20, 1997 draft, Reporter's Note 8 to @ 2B-108.

   n29 Carlyle C. Ring, Jr. & Raymond T. Nimmer, Series Of Papers On UCITA
Issues, section on Perfect Tender/ Material Breach of Substantial Performance,
<www.nccusl.org/pressrel/ucitaqa.htm>.

   This is a straw man.  In the Article 2B/UCITA meetings, the debate about
accountability for defective software was not about whether software should be
perfect.  Clearly, it is impossible to test software products exhaustively or to
prove by testing that a product is defect free. n30

   n30 Cem Kaner, "The Impossibility of Complete Testing," 4 Software QA 28
(1997), <www.kaner.com/imposs.htm>.

   But what about known defects?  It might be impossible to find all the
defects, but that issue doesn't apply to the defects that were actually found.
In mass-market software, a large proportion of defects (often the vast majority
of them) that reach customers are discovered and intentionally left unfixed by
the publisher before the product is released. n31 Several representatives of the
software engineering community, and Ralph Nader's representative (Todd Paglia)
and I repeatedly proposed that software companies should be held accountable for
defects that they knew about at the time of sale and chose not to disclose. n32
These proposals typically barred consequential damages for defects that were
unknown or that were revealed to the customer in the product documentation
(which makes it possible for customers to avoid or mitigate losses caused by
known defects).  Additionally, damages for known defects in mass-market products
could be limited to demonstrable out-of-pocket expenses and capped, perhaps at $
500 per customer.  These proposals were rejected.

   n31 Cem Kaner & David L. Pels, Bad Software: What To Do When Software Fails
(1998), at 23.

   n32 Cem Kaner & Todd Paglia, "Consumer Issues and Article 2B," submitted to
the ALI, Dec. 5, 1997, <www.badsoftware.com/alidec97.htm>; John R. Reinert,
IEEE-USA President, Letter to NCCUSL, February 23, 1998,
<www.ieeeusa.org/FORUM/POLICY/1998/98feb23.html>; Barbara Simons, "From the
President: Melissa's Message," 42 Comm. ACM, June 1999, at 25; Sharon Marsh
Roberts, "Position Statement of the Independent Computer Consultants
Association," circulated at the 1998 NCCUSL Annual Meeting.

   One of the arguments made by UCITA proponents was that failure to disclose a
known defect should be dealt with under the law of fraud. n33 Sometimes, such a
failure might be fraudulent -- as when the seller knowingly makes a false
statement about the product.  But in the sale of goods, mere failure to mention
a known defect, even a material defect, may not give rise to fraud liability.
Software publishers should be held accountable for breach of contract if they
knowingly delivered a defective product without revealing the defect.

   n33 Carlyle C. Ring, Jr. & Raymond T. Nimmer, Series Of Papers On UCITA
Issues, <www.nccusl.org/pressrel/ucitaqa.htm>, state: "Is it true that UCITA
takes away protections that I have under current law where the licensor knows
that the software contains serious defects?  No. Under Article 2, common law,
and UCITA, that problem, when it exists, is a question of whether the licensor
committed fraud.  UCITA has the same rules as Article 2 on this issue.  The law
of fraud is not changed by UCITA."

   The proposal that software publishers should be accountable for known defects
arose out of the special recognition in UCITA that software companies need a
break because of the alleged inevitability of defects.  Some of the details of
that break include the de facto elimination of the requirement that warranty
disclaimers and damage limitations be conspicuous and made available to the
customer before the sale, elimination of the principle of minimum adequate
damages, the adoption of a rule that excludes incidentals and consequentials for
defects even when the agreed remedy fails, and the adoption of a more
seller-favorable definition of material breach.  The proposal was a tradeoff --
let the new law reduce publisher risk for losses caused by previously
undiscovered defects or defects that were disclosed to the customer, but reduce
the customer's risk of losses caused by defects that were known and left hidden.

   Within the current state of software engineering, it is usually commercially
unreasonable to attempt to create a defect-free software.  Accordingly, it is
reasonable to limit the liability risk of publishers and other software
developers for defects that they didn't know about or that they were honest
enough to disclose, even if those defects cause substantial losses.  But what if
the state of the art improves?

   Watts Humphrey raised this issue at several meetings of the UCITA/2B drafting
committee.  Professor Humphrey is a former vice president of IBM, is the author
of seven books on software engineering, and is widely respected in the field.
He presented data to the drafting committee that showed that new development
methods were succeeding in producing very large, very complex products that were
nearly defect free. n34 Humphrey's comments at the drafting committee meetings
were largely ignored.  Ultimately, his points were reiterated by the Director of
the Software Engineering Institute, Stephen Cross, who wrote:

   The Article 2B draft assumes that software products are inherently defective
and that the current quality practices in the industry will not improve.  The
history in other fields demonstrates that as a technology matures, the
marketplace becomes more sensitive to quality issues.  In fact, software quality
is a growing concern to the user community, and software quality is an active
current area of study.  Considerable progress is being made. . . . The Article
2B proposal makes no technical sense.  We feel that it would inhibit natural
market forces, damage users, and ultimately limit the health and growth of this
industry.  While we appreciate the efforts that have been made to produce the
UCC-2B draft, we must urge you to oppose its adoption. n35

   n34 Pat Ferguson et al., "Results of Applying the Personal Software Process,"
30 IEEE Computer, May 1997, at 24; Watts S. Humphrey, "Comments on Software
Quality," circulated to the Annual Meeting of the National Conference of
Commissioners on Uniform State Laws, July 25 -- Aug. 1, 1997,
<www.2bguide.com/docs/whsq.html>.

   n35 Stephen E. Cross, Director, Software Engineering Institute, Letter to the
NCCUSL Commissioners, June 1, 1999, <www.badsoftware.com/sei.htm>.
 
Obvious Defects and Material Breach

   Under current law, contracts for packaged software (products that are
delivered to the customer without extensive customization) are governed by
Article 2 of the UCC.  Article 2 allows the customer to reject a product for any
failure to conform to the contract that is detected during a relatively brief
inspection period. n36 This is the perfect tender rule.

   n36 UCC Article 2, @ 601.

   UCITA retains the perfect tender rule for mass-market software but eliminates
it for most business software transactions. n37 To reject the product under
UCITA, the business must prove a material breach of contract.  (Even then, under
Section 803, the contract can specify that the customer simply has no right to
cancel.) The elimination of perfect tender undermines the credibility of a
customer's threat to cancel the contract unless obvious defects are fixed.  It
reduces the bargaining power of the customer.

   n37 UCITA, @@ 601(b)(2), 704.

   After the initial inspection period has passed, the mass-market customer can
cancel the contract only if the breach is material. n38 For most defects, the
consumer or business customer will have to show a material breach in order to
prove entitlement to a refund.

   n38 UCITA, @ 601(b)

   UCITA creates a new, more seller-friendly definition of "material breach."
Here is the definition under UCITA:

   UCITA 701(b): A breach of contract is material if:

   (1) the contract so provides;

   (2) the breach is a substantial failure to perform a term that is an
essential element of the agreement; or

   (3) the circumstances, including the language of the agreement, the
reasonable expectations of the parties, the standards and practices of the
business, trade, or industry, and the character of the breach, indicate that:

   (A) the breach caused or is likely to cause substantial harm to the aggrieved
party; or

   (B) the breach substantially deprived or is likely substantially to deprive
the aggrieved party of a significant benefit it reasonably expected under the
contract.

   In contrast, here is the definition of a material breach from the Restatement
of Contracts Second, Section 241:

   In determining whether a failure to render or to offer performance is
material, the following circumstances are significant:

   (a) the extent to which the injured party will be deprived of the benefit
which he reasonably expected;

   (b) the extent to which the injured party can be adequately compensated for
the part of that benefit of which he will be deprived;

   (c) the extent to which the party failing to perform or to offer to perform
will suffer forfeiture;

   (d) the likelihood that the party failing to perform or to offer to perform
will cure his failure, taking account of all the circumstances including any
reasonable assurances;

   (e) the extent to which the behavior of the party failing to perform or to
offer to perform comports with standards of good faith and fair dealing.
 
A Hypothetical on Material Breach

   To see the difference between the two material breach standards, imagine that
you are an attorney representing a customer of a packaged software product with
a non-negotiable click-through license.  (This might but need not be a
mass-market product.) Suppose further that the software had a defect that your
client considers serious.  The vendor does not yet have a fix for this defect
and has made no promise as to when (if) it will be fixed.  Your client wants a
refund for the software.  The vendor (who published the software) has refused to
give the refund.  You have discovered that the defect was known to the vendor at
the time of sale.  It was not documented or revealed to the customer.

   Under UCITA and under the Restatement, your customer is entitled to a refund
if she can prove a material breach of contract.

   Under UCITA, Section 701(b)(1), the breach is material if the contract says
it is.  The contract was written by the vendor, and so for the vendor, the UCITA
standard for material breach by the customer is whatever the vendor's contract
says it is.  There's probably nothing in the contract useful for the customer.

   Under Section 701(b)(2), the breach is material if it is a substantial
failure to perform a term that is an essential element of the vendor-drafted
agreement.  It's unlikely that the vendor would write a contract that contains,
as an essential term, a requirement that the product do something that it cannot
do.  This won't help your client either.

   That leaves UCITA's Section 701(b)(3), which allows your client to recover
for substantial harm or for being substantially deprived of a significant
benefit.  How much harm is enough to be called "substantial"?  How significant
does the benefit have to be before it is "significant" and how badly must the
program misbehave before that benefit is "substantially" gone?  These are
questions of fact that will often leave the vendor with room to argue that a
problem is not significant or substantial enough.

   The Restatement analysis will be much more favorable to your client.  Under
the Restatement, your client's case will be evaluated under five factors:

   1.  The extent to which your client is deprived of the benefit: This is like
the UCITA standard except that if the other factors are favorable to the client,
a breach can be material with a less substantial deprivation of a less
significant benefit.

   2.  The extent to which your client can be adequately compensated: If the
vendor won't pay incidental or consequential damages and won't quickly fix the
defect, a customer might reasonably and legitimately expect a refund (so that
she can go buy something that works) rather than a partial refund.

   3.  The extent to which the party failing to perform will suffer forfeiture:
A vendor who sells many copies does not suffer a forfeiture when one customer
cancels the contract for one copy.

   4.  The likelihood of cure: The vendor isn't making any promises.

   5.  The extent to which the behavior of the party failing comports with
standards of good faith and fair dealing: You can reasonably argue that the
vendor's delivery of known, undisclosed defects fails to reflect good faith and
fair dealing.

   Lack of compensation, lack of cure, no risk of forfeiture, and sharp
practices by the seller are a common combination in the industry.  It speaks
strongly to the bias of UCITA that these are taken out of the equation.
 
Restrictions on Speech

   UCITA Reporter Ray Nimmer complained of "distortions" in the debate on UCITA,
identifying as a "misrepresentation" "that UCITA allows licensors to prevent
licensees from commenting about the products.  This allegation makes nice copy
and superficial impact, but is simply untrue.  You can scroll through the UCITA
draft and not find any such provision." n39 Opponents quickly point to UCITA
Section 102(a)(20), which defines "contractual use restriction" as "an
enforceable restriction created by contract which concerns the use or disclosure
of, or access to licensed information or informational rights, including a
limitation on scope or manner of use." Section 307(b) states that "If a license
expressly limits use of the information or informational rights, use in any
other manner is a breach of contract." Under the statute's own definition, a
nondisclosure clause is a contractual use restriction.  Under Section 307(b),
such a restriction is enforceable.

   n39 "Correcting Some Myths About UCITA,"
<http://www.2bguide.com/docs/rne.html>.

   These provisions may keep vital information from the marketplace.  Consider
the following restrictions, downloaded (July 20, 1999) from <www.mcafee.com>,
the Web site for VirusScan, a mass-market software product, on July 20, 1999:
"The customer shall not disclose the results of any benchmark test to any third
party without McAfee's prior written approval." "The customers will not publish
reviews of the product without prior consent from McAfee."

   Clauses like these are enforceable in traditional, negotiated licenses, and
they are used to block magazine reviews. n40 UCITA arguably extends the
enforceability of such clauses even in mass-market products.  Perhaps they will
eventually be found to conflict with public policy but until then, the plain
language of UCITA will have a chilling effect on criticism of mass-market
products.

   n40 "The Test That Wasn't," PC Magazine, Aug. 1999, at 29.  According to that
article, Oracle "formally declined to let us [PC Magazine] publish any benchmark
test results."
Security Problems Caused by Self-Help

   UCITA Section 816 allows software vendors to place disabling codes in
software and to activate them remotely (such as by sending an email) to shut
down a customer's use of the product.

   Such disabling codes create a hole in the customer's system security.  When a
licensor leaves a back door in its code, something that allows them to shut the
software down with a single message:

   * Sometimes, a defect in the vendor's software will produce a shutdown by
accident.  (UCITA regards software defects as inevitable, so surely we can
expect some defects in the parts of the software that govern self-help.)

   * Sometimes, a third party will discover how to shut systems down this way.
(For example, the third party might by a former employee of the software
publisher.) Such a person might shut systems down for the fun of it or he might
engage in extortion, either of the vendor or the customer.  You might say, yes,
there are criminals who do these things, but they are beyond our control.  But
in this case, the criminal is exploiting a security hole that is authorized by
Section 816.  If self-help were banned, this risk would not exist.

   UCITA Section 816 remedies for wrongful use of such codes are probably not
triggered if the software is shut down accidentally or by a third party (such as
a cracker who learns the code or a disgruntled former employee of the vendor).

   Self-help was portrayed in the UCITA meetings as something essential to
protect the interests of small licensors.  However, the only group attending the
UCITA meetings that represents only small licensors, the Independent Computer
Consultants Association, urged NCCUSL to ban self-help.  Instead, ICCA
recommended that a party wishing to terminate use of its software should be
allowed to proceed by injunction and recover attorney's fees.  The availability
of attorney's fees goes a long a way toward making it possible for a small
licensor to be able to afford to obtain the injunction.  This proposal was
rejected by the drafting committee. n41

   n41 Sharon Marsh Roberts & Cem Kaner, letter on self-help to NCCUSL and ALI,
Dec. 21, 1998, <www.badsoftware.com/selfhelp.htm>; S. M. Roberts & C. Kaner,
"Self-Help Under UCITA," Circulated at the Annual Meeting of the National
Conference of Commissioners on Uniform State Laws, July, 23, 1999,
<www.badsoftware.com/shelp.htm>.
 
Transfer Restrictions

   Under UCITA, almost all software-related transactions will be licensing
transactions.  When a consumer buys a copy of Microsoft Word and a copy of a
book about the program, the software transaction would be a license, whereas the
book transaction is a sale, even if the two items were side by side, bought from
the same cashier, and the software license was not available to the customer
until after he or she paid for the product and took it away.  Under UCITA
Section 102(a)(42), a transaction can be a license even if the licensee is given
title to the transferred copy.

   This is a shift from long-established treatment of intellectual property in
the mass market. n42 Under the first sale doctrine, a publisher lost its
property interest in an individual copy of a book once it sold that copy.  The
restrictive notice could not transform a sale into a license. n43

   n42 To see the history of this issue in copyright law, shepardize
Jewelers' Mercantile Agency v. Jewelers' Pub. Co., 155 N.Y. 241 (1898)
(rejecting the fiction of a lease offered to all comers that restricted transfer
of the book and use of information in it), or  Bobbs-Merrill Co. v. Straus,
210 U.S. 339 (1908) (rejecting a restrictive notice on a book that prohibited
the buyer from reselling the book for less than a minimum price).

   n43  RCA Mfg. Co. v. Whiteman, 114 F.2d 86 (2d Cir. 1940) (licensing
language on record albums could not convert a mass-market sale into a license.)
For patent law, look at the doctrine of exhaustion, starting with  Motion
Picture Patents Co. v. Universal Film Manufacturing Co. 243 U.S. 502 (1917).

   According to an article by Connie Ring, Chairman of the UCITA drafting
committee: "UCITA is intended neither to avoid nor to contradict the large body
of existing federal intellectual property law." n44 Others vigorously disagree.
For example, the American Intellectual Property Law Association n45 protested to
NCCUSL that UCITA "eliminates the 'first sale' doctrine" (which allows the owner
of a copy to sell it or give it away).  Under UCITA 503(2), "a term prohibiting
transfer of a party's interest is enforceable, and a transfer made in violation
of that term is a breach of contract and is ineffective." A vendor who puts a
no-transfer clause in the license achieves a market-wide restriction --
equivalent to elimination of the first sale doctrine.  By allowing vendors to
enforce such restrictions in the mass market, UCITA allows them to evade the
federal balancing of private and public rights in intellectual property. n46

   n44 Carlyle C. Ring, H. Lane Kneedler, & Gail D. Jaspen, "Uniform Law for
Computer Info Transactions Is Offered," Nat'l L.J., Aug. 30, 1999, at B07.

   n45 Margaret A. Boulware, American Intellectual Property Law Association,
"Proposed Uniform Computer Information Transactions Act (UCITA)," July 16, 1999,
<www.2bguide.com/docs/799aipla.html>.

   n46 Robert P. Merges, "Intellectual Property and the Costs of Commercial
Exchange: A Review Essay,"  93 Mich. L. Rev. 1570, 1613, 1995; Mark A.
Lemley, "Beyond Preemption: The Law and Policy of Intellectual Property
Licensing,"  87 Cal. L. Rev. 111, 1999,
<http://papers.ssrn.com/paper.taf?abstract_id=98655>; Committee on Copyright and
Literary Property of the Association of the Bar of the City of New York
(co-sponsored by the Communications and Media Law Committee and the
Entertainment Law Committee), "Report on a proposal of the National Conference
Of Commissioners on Uniform State Laws to adopt a proposed Uniform Computer
Information Transactions Act," <www.2bguide.com/docs/Copy.Comm1.pdf>.

   UCITA Section 503(2) has several consequences.  For example in the face of
such a restriction:

   * A consumer who buys a computer game cannot lawfully give the game to his
sister after he gets tired of playing with it.  (Don't confuse this with giving
the sister a copy, which is already banned under the Copyright Act.  Section
503(2) says that the consumer cannot erase any local copy on his machine, put
the original disk back in the original box, and then give that disk and box to
the sister.)

   * A consumer who buys a copy of an encyclopedia on CD cannot donate the used
CD to his or her local library.

   * Used bookstores and used record stores will no longer be able to sell used
software.  The marketplace in used software is eliminated by UCITA.

   * A business that sells substantially all of its assets to a second business
cannot transfer its software to the second business, not even the mass-market
software that came pre-loaded on the computers bought by the business. n47 The
selling company will have to either wipe out the hard disks or inventory each
computer, finding every program, every piece of clip art, clip music, and
downloaded data, and get permission of the original licensor to transfer the
item to the buying company.  The transaction costs of this (the cost of
inventorying, finding all the licensors, getting all the permissions) will be
enormous.

   n47 In fact, because the computer sales are probably also governed by UCITA,
it is questionable whether the first business can transfer the computers
themselves to the second business.
 
Consumer Warranty Protection

   Among the most important ways that UCITA affects consumers are its revisions
to warranty law.  The three most important effects are these:

   * UCITA eliminates the longstanding requirement that warranty disclaimers be
conspicuous and available to the customer at or before time of purchase.

   * UCITA pulls consumer software transactions out of the scope of the
Magnuson-Moss Warranty Improvement Act and of other consumer protection statutes
whose scope is specified as sales of goods.

   * UCITA pulls the teeth out of the express warranty by demonstration, making
it much harder to hold publishers' accountable for their staffs' product
demonstrations at trade shows, retailers, and so on.
 
Warranty Disclaimers

   Under UCC Article 2-314, a seller can exclude the implied warranty by
conspicuously n48 disclaiming it.  The exclusion clause in a shrinkwrapped
software contract might be conspicuous on its page if it is set apart from the
rest of the text by being in all capital letters.  But such a disclaimer cannot
be considered conspicuous at the time of sale (except for people with X-ray
vision) because it is inside the box and not available for viewing by the
customer.

   n48 UCC @ 1-201(10): "'Conspicuous': A term or clause is conspicuous when it
is so written that a reasonable person against whom it is to operate ought to
have noticed it.  A printed heading in capitals . . . is conspicuous.  Language
in the body of a form is 'conspicuous' if it is in larger or other contrasting
type or color. . . . " UCC @ 2-316 requires that written exclusions be
conspicuous.

   Over the past century, courts have consistently refused to enforce post-sale
disclaimers of the implied warranty of merchantability. n49 Under UCITA, n50
such disclaimers are fully enforceable in a click-through or shrinkwrapped
license even if they are completely unavailable to the customer before or at the
time of the sale. n51

   n49 For citations and a long discussion, see Cem Kaner & David L. Pels, Bad
Software: What To Do When Software Fails (1998), Chapter 7, especially footnotes
40 to 44 and the surrounding text.

   n50 UCITA, @@ 208 and 209.

   n51 One widespread marketing practice in the winter of 1999/2000 has been the
offering of $ 400 rebates to buyers of computers, so long as they sign up for
three years of service from a specific Internet service provider.  CompuServe is
one such provider, and it lays out the terms of the deal at
<www.compuserve.com/gateway/promo/default.html>.  Here is an excerpt from those
terms:

   The $ 400 . . . Rebates require (1) the purchase of any eligible computer;
and (2) . . . a contract commitment to a 3-year (36 months) subscription . . .
to CompuServe 2000 Premier Internet service at $ 21.95 per month.  Full
prepayment of the contract amount . . . is possible during your first month of
service. . . . Offer subject to . . . your acceptance of CompuServe's Terms of
Service.  Membership termination prior to contract commitment term requires
payment of a cancellation fee plus rebate repayment.

   I have searched CompuServe's Web site for these Terms of Service and cannot
find them.  I have sent emails to CompuServe asking for a copy of the Terms of
Service but have not received them.  I downloaded a copy of the CompuServe 2000
software and started to install it, hoping to get to a display screen, but I
stopped installation at the point that the software requested my credit card
number.  This request came several screens after the start of installation, but
before any link to a screen showing the Terms of Service.

   The CompuServe transaction is an access contract.  Under UCITA @
102(a)(44)(b)(IV), this is not a mass-market transaction.  Therefore, under
UCITA's @ 112 (e)(B), once you pay for the CompuServe service, you have no right
to cancel it (no "right to return") if you object to the CompuServe terms of
service.  Section 112(e) states: "However, a right to a return is not required
if: (B) in a case not involving a mass-market license, the parties at the time
of contracting had reason to know that a record or term would be presented after
performance, use, or access to the information began . . . " Additionally, look
at UCITA @ 304 (b): "If a contract provides that terms may be changed as to
future performances by compliance with a described procedure, a change
proposed in good faith pursuant to that procedure becomes part of the contract
if the procedure: (1) reasonably notifies the other party of the change." If the
CompuServe Terms of Service provide that CompuServe can change the terms
whenever it wants, then even if the original Terms of Service don't disclaim
warranties, a subsequent disclaimer will be enforceable as a change of terms, so
long as CompuServe reasonably notifies you of the change.  If this were a
mass-market contract, then under @ 304(b)(2) you could cancel it in the face of
this change, rather than accept the disclaimer, but this is an access contract,
not a mass-market contract, so you would not have that right.

   Additionally, even if CompuServe never disclaims the implied warranty, under
UCITA @ 803(a)(1) it may include a clause in the Terms of Service that precludes
"a party's right to cancel for breach of contract." Sharp practices like this
are more feasible under UCITA because you have no right to a minimum adequate
remedy (@ 803 Comment 6.  "Minimum Adequate Remedy.  An agreed remedy provision
does not fail because the court believes that it does not afford a "minimum
adequate remedy." Comments to UCITA, draft of Oct. 15, 1999).

   Compare this to UCC Article 2 (Official Comment 1 to @ 2-719): "It is the
very essence of a sales contract that at least minimum adequate remedies be
available.  If the parties intend to conclude a contract for sale within this
Article they must accept the legal consequences that there be at least a fair
quantum of remedy for breach of the obligations or duties outlined in the
contract."
 
Magnuson-Moss Act

   The Magnuson-Moss Warranty Act n52 provides consumers with additional
warranty rights, beyond the UCC.  For example, under the Act, a seller who
provides any written warranty with a consumer product or who sells you a service
contract (such as extended technical support) for the product may not disclaim
implied warranties. n53

   n52  15 U.S.C. @ 2301.

   n53  15 U.S.C. @ 2308(a) says, "No supplier may disclaim or modify
(except as provided in subsection (b) of this section) any implied warranty to a
consumer with respect to such consumer product if (1) such supplier makes any
written warranty to the consumer with respect to such consumer product or (2) at
the time of sale, or within 90 days thereafter, such supplier enters into a
service contract with the consumer which applies to such consumer product."
(Subsection (b) allows only one type of modification -- a shortened time limit.)

   The Magnuson-Moss Act applies to all consumer goods.  "Consumer goods" are
those that are "normally used for personal, family, or household purposes." n54
This is a broad definition, and under current law, it almost certainly includes
personal computers and most of the types of software that you'd buy in software
stores.

   n54  15 U.S.C. @ 2301(1).

   According to the Federal Trade Commission: n55

   The Act applies to written warranties on tangible personal property which is
normally used for personal, family, or household purposes.  This definition
includes property which is intended to be attached to or installed in any real
property without regard to whether it is so attached or installed.  This means
that a product is a "consumer product" if the use of that type of product is not
uncommon.  The percentage of sales or the use to which a product is put by any
individual buyer is not determinative.  For example, products such as
automobiles and typewriters which are used for both personal and commercial
purposes come within the definition of consumer product.  Where it is unclear
whether a particular product is covered under the definition of consumer
product, any ambiguity will be resolved in favor of coverage.

   n55 16 C.F.R. @ 700.1(a).

   The Software Publishers Association's Guide to Contracts n56 considered the
applicability of the Magnuson-Moss Act and concluded that "it is reasonable to
assume that software purchased for home computer use would be covered by the
Act."

   n56 Thomas J. Smedinghoff, The Software Publishers Association Guide to
Contracts and the Legal Protection of Software (1993), at 88.

   There are no published court rulings that have settled the question of the
applicability of the Magnuson-Moss Act to software, but it is generally believed
that courts would rule that the Act applies to consumer software.  Two related
lawsuits, Stuessey v. Microsoft n57 and Microsoft v. Manning n58 included a
claim for violation of the Magnuson-Moss Act.  In these cases, because of
compression-related problems "about three in 1,000 [people] lost data after
using MS-DOS 6.0." n59 In these two suits, customers sued for consequential
damages (Stuessey) or for a free upgrade to DOS 6.2 (Manning).  Microsoft had
disclaimed the implied warranty of merchantability n60 but the Magnuson-Moss Act
voids the disclaimer and reinstates the implied warranties. n61 Apparently, the
court accepted the applicability of the Magnuson-Moss claim because, despite
Microsoft's disclaimer, the Manning court applied the disclaimed warranty,
saying that "the software was not fit for the ordinary purpose for which
software is used." n62

   n57  837 F. Supp. 690 (E.D. Pa., 1993).

   n58  914 S.W. 2d 601 (Texas Ct. App., 1995).

   n59 Manning,  id., at 606.

   n60 I have a copy of the Microsoft MS-DOS 6 User's Guide.  DOS 6 was sold in
OEM versions, in upgrade versions, and possibly in other ways -- I don't know
what manual or license terms were supplied in all of these cases.  But in my
copy (Appendix E, p. 300), there is a disclaimer of implied warranties:
"MICROSOFT DISCLAIMS ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY."

   n61 Microsoft had warranted that MS-DOS 6.0 would "perform substantially in
accordance with the accompanying Product Manuals for a period of 90 days from
the date of receipt." (Manning,  id., at 609). In the event of a written
warranty, the Magnuson-Moss Act reinstates implied warranties.

   n62 Manning,  id., at 609.

   UCITA pulls software out of the scope of sales-of-goods law by defining the
transaction as a license.  Under UCITA, you are buying an intangible, a license,
not goods. n63 This pulls software outside of the scope of the Magnuson-Moss Act
n64 and of analogous state laws, n65 while allowing proponents of UCITA to claim
that UCITA does not change consumer protection laws.  (It doesn't, in this case.
It merely takes software outside of their scope.) Proponents initially rejected
these claims as misrepresenting the effect of UCITA (Article 2B).  These days,
they say instead that the Magnuson-Moss Act was never intended to apply to
software. n66

   n63 As a "senior corporate attorney for Microsoft Corporation" titled a
recent article of his, "The License Is the Product: Comments on the Promise of
UCC Article 2B for Software Licensing"; Robert W. Gomulkiewicz, Proceedings of
the Conference on the Impact of Article 2B, UC Berkeley, April 23 -- 25, 1998.

   n64 Similarly, software is taken outside of the scope of some state-level
consumer protection laws, such as the Song-Beverly Act, Cal. Civ. Code @ 1790 et
seq.

   n65 Such laws can be stricter than the Magnuson-Moss Act.  For example, under
California's Song-Beverly Consumer Warranty Act, "Any waiver by the buyer of
consumer goods of the provisions of this chapter, except as expressly provided
in this chapter, shall be deemed contrary to public policy and shall be
unenforceable and void." Cal. Civ. Code @ 1790.1.  The Act voids disclaimers
that don't strictly compliance with its requirements.  Id., @ 1792.3 The buyer
must be informed of a warranty disclaimer "prior to the sale" and in writing.
Id., @ 1792.4(a).  If a sale is by mail order, the catalog must show the
warranty disclaimer, for each item that is sold with a warranty disclaimer.
Id., @ 1794(b).  These provisions are in direct conflict with UCITA's rules that
allow post-sale presentation of disclaimers.

   n66 Fred H. Miller, "Speaking Frankly About UCC Article 2B," UCC Bulletin,
Mar. 1999, at 1.
 
Warranty by Demonstration

   Software products are complex.  Customers often buy them in reliance on
demonstrations made by sales-people at stores and trade shows.  The UCC
recognizes that customers rely on demonstrations.  Under Article 2-313(1)(c),
"Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model." UCITA gives vendors two ways to give demonstrations that would create
warranties under Article 2 but that do not create warranties under UCITA.

   First, under Section 402(a)(3): "Any sample, model, or demonstration of a
final product which is made part of the basis of the bargain creates an express
warranty that the performance of the information will reasonably conform to the
performance of the sample, model, or demonstration, taking into account
differences that would appear to a reasonable person in the position of the
licensee between the sample, model, or demonstration and the information as it
will be used." (Emphasis added.)

   If the vendor uses a preliminary "demo" version instead of a final version,
then no warranty is created even if the customer thinks she is looking at the
final version.  Note that this is not fraud if the vendor does not intend to
mislead the customer.  Also, UCITA substitutes the simple requirement of
conformance with "reasonable" conformance.  A bright line test becomes an issue
of fact for the jury.  Under current law, a customer can know with certainty
that there was a warranty and it was breached, but under UCITA, the customer
cannot.  UCITA provides an additional defense for the vendor to take to the
jury, the "differences" that should be noticed by a "reasonable" customer.

   Second, under Section 402(b): "An express warranty is not created by: . . .
(2) a display or description of a portion of the information to illustrate the
aesthetics, appeal, suitability to taste, or the like of informational content."
People buy products on the basis of their user interface.  If a vendor
demonstrates a product or publishes pictures of the product's screens, but
delivers a different version that is less appealing, less visually pleasing,
harder to use, and the like, the customer has no claim for breach of warranty.
Such a situation might or might not be fraudulent, depending on whether the
publisher intended to mislead people.  Independent of the fraud question, under
Article 2 this would be a breach of contract.  Under UCITA, it is not.
 
In Closing

   This article reviews a few of the problems with UCITA.  There are many
others.  The UCITA drafting process reflected a cozy relationship between the
software publishing industry and the drafters.  The drafting committee meetings
were dominated by lawyers representing information publishers.

   The UCITA bill is a sweetheart deal for software publishing corporations, for
database access providers (West and LEXIS played significant roles in UCITA and
will benefit from their increased ability to restrict your right to use court
cases that you download from them), for computer manufacturers (who can bring
their machines under UCITA), and maybe for some other goods vendors (UCITA-like
provisions are being pushed at the UCC Article 2 revision committee).

   The level of bias behind UCITA is not appropriate for a commercial statute of
its potential magnitude.

LOAD-DATE: April 25, 2000