Proposal Fading But Not Yet Gone

Infotech and the Law Jonathan Cain

Jonathan Cain

Proposal Fading
But Not Yet Gone

The proposed Article 2B of the Uniform Commercial Code, designed to create a uniform state law for software and other information product and service licensing, has not yet gone the way of the dial telephone and the 300 baud modem, but it's far from healthy.

The scheduled vote to approve the draft article has been pulled from the agenda of the annual conference of Uniform State Law Commissioners, to be held this July. The draft has been sent back to committee for more work. This action guarantees it will be at least two years before the proposed law can be submitted to state legislatures for consideration.

In the meantime, some of the article's former advocates have withdrawn their support, and others are on the fence. Those software industry supporters that remain in favor of the draft contend that any changes to address the concerns of consumers, lenders and other interests will defeat Article 2B because licensers will reject any such amendments.

What went wrong, and what should software and information service vendors and consumers expect?

A Uniform Commercial Code is supposed to clarify the legal environment for commercial transactions, expand commerce by increasing the uniformity and predictability of law among the states, and provide default rules for those cases where the parties fail to cover a point of dispute in their contracts.

The UCC's Article 2 governs the sale of goods and has been part of the commercial legal landscape for many years. While the sale of software products arguably has been subject to Article 2, it hasn't covered licensing of information products and services. The Article 2B project was initiated to try to develop a uniform code that would cover software and information product and services licensing.

The result, as it stands today, is a confused, occasionally contradictory mix of concepts derived from the law of the sale of goods; software and information licensing practices developed in decades of effort by lawyers for software developers, motion picture studios and book publishers to enhance the interests of their clients; and occasional concessions to consumer advocates who charged that earlier drafts of the article were weighted too heavily against licensees.

The draft is far from a simple, clear statement of accepted principles of commercial law. It chooses sides in contentious areas of legal debate and invites conflict with federal patent and copyright law. Most important, it would change the law in several critical areas.

One hot area of legal debate has been the enforceability of shrink-wrap or "click-wrap" software licenses, especially in cases where the buyer was not even aware of the terms of the license when he made the purchase. The draft clearly comes down in favor of the enforceability of such license agreements, but provides that if the buyer in a so-called "mass market" transaction immediately returns the software after he has a chance to read the agreement, he can obtain a refund.

Another area of debate involves the extent to which software and information vendors can maintain restrictions on using licensed property that exceed the protections offered by federal copyright and patent law.

Federal law does not grant licensers unlimited control over their intellectual property; it balances their rights with the interests of licensees and society as a whole to use the property. Article 2B would purport to give licensers greater control over the "downstream" use of their software or information, to such a degree that these private rights
would become equivalent to or exceed copyrights.

One apparently mundane detail that will have great economic significance involves the freedom of a licenser, particularly of a mass market product or a product or service sold through electronic commerce, to name the forum where disputes may be brought. The ability to require buyers to resolve disputes in a distant forum can be a overwhelming advantage to the seller.

These problems will not be easily resolved. The 2B drafting committee has worked four years to produce the draft. A vote was deferred last summer to give the committee another year to refine it. Another year of effort and several contentious drafting meetings later, the draft is no closer to approval. Some participants suggest it may languish so long that the effort will be effectively abandoned.

More likely, the ambitious scope of Article 2B will be narrowed and efforts will be made to sidestep some of the more intractable issues. Even if the resulting article does not cover every licensing issue, and even if it is not uniformly adopted by state legislatures, it will be used by courts struggling with new situations as a guide to accepted principles of commercial law.

Jonathan T. Cain chairs the Technology Practice Group of Mays & Valentine LLP, McLean, Va. His e-mail address is jcain@maysval.com.


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