States to Take Another Crack At Uniform Licensing Law
By Jonathan T. Cain
Representatives of the 50 state legislatures meet in Sacramento July 25 to again consider a draft of a proposed Uniform Commercial Code article covering licensing of intellectual property, including software.
Last year's annual National Conference of Commissioners on Uniform State Laws produced heated exchanges on a draft uniform law. Software industry representatives, who had heavily influenced the drafting process, were confronted by consumer advocates who charged that the draft leaned excessively in favor of software developers. Rather than take a position on the draft last year, the ever-wary legislators sent the drafting committee back to work.
The presentation of this year's draft has a different tone. The drafting committee chairman and software industry representatives are taking pains to demonstrate that the draft is "balanced" and fair to consumers of all copyright industries - software, online services, publishing, motion pictures and recording.
The economic power of the software industry giants is being downplayed while the purchasing power of licensees is emphasized. Participation in the past year by such diverse interests as banking, libraries and other trade associations is offered as proof that the software industry no longer controls the drafting process.
The current draft has in fact responded to some of the concerns consumer advocates raised. One concern has been the fact that the draft took away from software purchasers the advantages of the "perfect tender" rule that applies to the sale of tangible goods.
Under that rule, failure of the seller to deliver goods that comply in every particular with specifications of the contract relieves the buyer from performing the agreement. Under the previous draft, the buyer is relieved of the duty to complete the transaction only if the breach is "material." Less than perfect performance by software must be accepted. The current draft retains the perfect tender for single delivery sales of mass market software.
Purchasers of some mass market software would also benefit from the draft's provisions regarding viruses. Purveyors of software would have an obligation to use reasonable care to avoid transferring viruses with the software. This obligation could not be disclaimed if the transaction involved distribution of mass market software on tangible mediums. Software obtained over the Internet, however, could be provided without a virus warranty.
E-commerce will be enhanced by the legal framework outlined in the draft. The use of standard forms of license is encouraged, while providing that purchasers have a realistic opportunity to reject license terms that are unusual or objectionable.
The draft does not specifically endorse digital signatures, but it does replace the idea of a "signature" with the concept of "authentication" of an agreement, which permits the use of a variety of devices to indicate authentic acceptance of the terms of an electronic offer. To protect consumers, the terms of a license that are not available until after the purchase price has been paid, such as shrink-wrap licenses, cannot be enforced unless a buyer may reject the license and receive a full refund.
It remains to be seen whether the changes to the draft law to appease consumer advocates will ultimately cause the software industry to decide that they would be happier without any uniform law. In written comments sent to the commissioners on July 15, the Software Publisher's Association said that the draft's wording to limit enforcement of shrink-wrap licenses was "of great concern." SPA said the industry would "continue to withhold judgment about whether the provisions on this subject are acceptable to the industry." This statement mirrors an earlier comment by an SPA staff representative, who told a drafting committee member in April that "he had marching orders to kill" the draft if the SPA's position on shrink-wrap licenses was not adopted.
The motion picture and banking industries have also indicated that they may withdraw their support of the drafting process because they are unhappy with key provisions. The Motion Picture Association has proposed wording that would "exclude its core and certain of its related businesses from the scope of the statute." Certain influential banks are concerned that the draft limits the rights of lenders to obtain and liquidate intellectual property which secures a loan transaction. The banks are asking that activities governed by bank regulations be excluded from the law.
The drafting process was supposed to have concluded with this annual meeting of the conference. As it became apparent earlier this year that significant policy and political issues remain, the charter of the drafting committee was extended for an additional year. A consensus on key provisions of the draft may yet emerge, but the hardening views of the software and motion picture industries suggests a difficult year ahead.
Jonathan T. Cain chairs the Technology Practice Group of Mays & Valentine LLP, McLean, Va. His e-mail address is email@example.com.
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