05/06/98 - Article on UCC Article 2B revision query

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Hello: I've gotten permission from Rebecca Lynn Eisenberg to forward her article on the recent UC-Berkeley UCC 2B conference. It appears below. A shorter version appears at http://www.examiner.com/skink/skinkMay3.html. Rob Richards -------------------------------------------------------------------------- Robert C. Richards, Jr., M.A., M.S.L.I.S Technical Services Librarian University of Colorado Law Library Fleming Law Building Kittredge Loop South Campus Box 402 Boulder, Colorado 80309-0402 Telephone: (303) 492-7535 Fax: (303) 492-2707 E-mail: rrichard@stripe.Colorado.EDU URL: http://alexia.lis.uiuc.edu/~rrichard -------------------------------------------------------------------------- UCC Article 2B (or Not 2B) By Rebecca Lynn Eisenberg, Esq. mars@bossanova.com, http://www.bossanova.com/rebeca/ Ever stop to read those long-winded blocks of legalese that pop up onto your computer screen each time you install a new software application? You might look at the tiny text long enough to pick out words like "license," "exclusive" and "contract," but chances are, you scroll straight to the bottom to click on the button that reads, "I accept." Bad idea. If a proposed addition to the Uniform Commercial Code (UCC), the set of model, standard commercial laws that govern trade in virtually all 50 states, is enacted, you could be giving up a lot more than you bargained for just by clicking your mouse. In fact, if UCC "2B" is enacted, you could potentially give up your rights to criticize or analyze the product you purchased - rights that are currently protected by federal law. In the past, these "shrink-wrap" (because we see them when we open shrink-wrapped software) or "click-through" (because we see them when we download or install software) license agreements have been viewed by most consumers and legal experts as unenforceable. Although software publishers use them regularly, only one court has held any purchasers to their terms. UCC 2B will change that, as part of updating existing laws for the "information economy." The UCC provides the framework for the state laws that govern commercial transactions, including sales of goods. It is a model code written on the national level, that is then submitted to the individual state governments for approval (which it is almost always given). Because it is the state rather than federal laws that govern these contracts, the UCC is needed in order to make these laws consistent, predictable and familiar across each state. The UCC was first written in the 1950's, but a lot has changed since then. Although its provisions make sense when applied to "sales of goods," they don't work as well when applied to intangible "digital" products like software, which are usually "licensed" rather than "sold." In other words, when you purchase software, you are really only purchasing the "right" to do something with the product - like use it for personal use - but you do not own the underlying "information" itself. According to copyright and patent law, that information is owned by the publisher or author, and all you have purchased is a "license" (or limit set of rights) to use it. Because a license is different from a sale, the old rules often do not apply. This is a big deal, since the "digital economy" adds up (by conservative estimates) to trillions of dollars changing hands each day (and growing). Whether we access business-oriented databases at work or pay-by-click-based pornography web sites at home, we take part in this "global information marketplace" - a marketplace that also includes old-fashioned copyrighted expressions like books, magazines, movies and (yes) newspaper articles. Although these information products are currently governed by a combination of general state "common law" (as opposed to statute-law) and federal intellectual property law (copyright and patent), most industry-people feel that that is not enough, and new state statutes are needed. Thus, two groups of lawyers and professors -- the American Law Institute and the National Conference of Commissioners on Uniform State Laws (the latter of which contains representatives from each state government) -- convened to write the new rules. Their work -- UCC 2B-they say, is almost finished, and they hope to offer it for state approval by the fall of this year. If all goes as planned, each state will adopt a version of 2B, and the governments of other countries then will follow. The goal of UCC 2B, according to its drafters, is to make life easier for lawyers and businesspeople by creating a set of standards they can rely on when writing licenses and other contracts involving information products. These standards would include background rules for interpreting warranties, legal remedies, and whether or not an electronic "signature" is binding. By putting current "industry standards" into writing, lawsuits and transaction costs would be reduced, and we all would benefit with lower prices and more predictable e-commerce. The problem is that few in the "industry" find UCC 2B's rules "standard." Last week, a group of 300 lawyers, law professors, business academics and advocates convened at UC-Berkeley at a conference held to discuss the proposed laws. Whether representing the interests of big companies like Intel and Disney or public interest organizations like the World Bank and the University of California Law Library, almost every speaker implored UCC 2B's drafters to put their quest on hold. While they agreed that a set of uniform rules would in fact be helpful, fostering efficiency and clarifying confusion, they insisted that it is too early to tell what is "uniform," for what seems now to be a good "rule" in a few years will not. It's like trying to nail a target moving 900 miles per minute. Take, for example, the most contentious issue purportedly resolved in the proposed UCC 2B: shrink-wrap licenses. Calling these forms "mass market licenses," the draft makes them enforceable, even if they restrict rights of users that are protected by copyright and patent law. For this reason, developers and consumers are starting to take notice. Over the past week, a flurry of emails about UCC 2B popped up on all sorts of Internet mailing lists. Although software companies reasonably need a way to protect themselves against piracy and misuse of their products, many of the shrink-wrap licenses give them too much power. Cem Kaner, an attorney and former programmer, described a typical example (from www.nai.com): "Attention, Please Read: Installing this software constitutes your acceptance of the terms and conditions of the license agreement. Please read the license agreement before installation. Other rules and regulations of installing this software are: 1. The product can not be rented, loaned or leased� 2. The customer shall not disclose the results of any benchmark test to any third party without Network Associates' prior written approval. 3. The customer will not publish reviews of the product without prior consent from Network Associates." Other licenses go much futher, prohibiting programmers working on new products from analyzing the source code underlying existing software by means of decompiling and reverse engineering it -- research specifically protected by patent law in order to foster progress and innovation. Or, they disallow users from describing the software in reviews - a right specifically protected by the "fair use" doctrine of copyright law in order to foster research and the free flow of information. Some licenses disclaim all warranties - even those warranties that always accompany the sale of goods - and others establish "choice of forum" rules, meaning customers would have to file their grievances in, say, Oshkosh, Wisconsin, no matter where they live or made the purchase. Some licenses even explicitly allow software publishers to engage in "electronic self-help" when they believe the terms have been broken - for example, using the Internet to reach into your computer and disable or delete one program, even if disabling that one application disables your entire network or takes down your business. Although it seems likely that a lot of these terms would be struck as "unconscionable" (or grossly unfair) or unlawful by federal courts, no one will know for sure before lawsuits are filed and decided. Which means more work for lawyers, and a lot less "uniformity." It's not a pretty picture, and it is not clear whom to blame. Even the big software publishers seem unenthused about the proposed UCC 2B. "The Software Industry did not ask for this law," said Holly K. Towle, attorney at Preston Gates and Ellis in San Francisco and Seattle, Washington. Towle represents the dozen or so software companies that make up the powerful Business Software Alliance, including IBM, Microsoft and Symantec - most of whom both license their own software, as well as license software in turn from others. "The software industry was told that this law was going to be developed. If someone is going to write a law that affects your industry, do you just sit there and say, 'Okay, write it; tell us when you are done?' Or do you go to the meetings and say, 'Do you understand what kind of impact that rule would have?'" What impact would it have? Many are pessimistic. "Article 2B allows software publishers to sell software with serious known defects without fear of any significant consequences," explained Kaner. After all, "it would be malpractice for a licensing lawyer not to disclaim all warranties, prohibit reverse engineering, and take advantage of all of the many things you can do in 2B to eliminate accountability." Kaner in particular points to UCC 2B's potentially disastrous effects on consumers. "When the software companies then charge $3/hour for customer support, these laws could let a software company turn a defect into a profit center." Making these licenses enforceable would result in "lower quality products, lower customer confidence, and a weaker domestic industry," said Kaner. In other words, it would result in "bad software. 2B," Kaner insisted, "takes away the pressure from companies to do good work." Kaner is not alone in the fear that 2B threatens innovation. "We represent start-up companies, companies in growth mode, companies that are inventing things every day, and we want them to have an ability to do that without being suffocated by a property regime that prevents them from innovating and growing," said Hank Barry, a business lawyer at Palo Alto's prestigious high-tech firm, Wilson, Sonsini, Goodrich and Rossatti. "In the name of efficiency and low-transaction costs," said Barry, Article 2B "would shift the balance of power from a balance dictated by copyright to a balance dictated by contract," to the detriment of innovation and invention - and consequently to our economy in general. "Article 2B is confused and confusing," stated Michele Kane, Vice President for Computer Law for the Walt Disney Company, in no uncertain terms. And to the extent that anyone can interpret its provisions, they stand in stark contrast to laws currently existing in Europe and East Asia, complained law professors from the University of Amsterdam and Hitotsubashi University, in Tokyo, Japan. It even risks dividing "world society into haves and have-nots" warned Adnan Hassan of the World Bank, an international development bank that serves primarily developing countries. Perhaps most nefariously, the proposed law poses serious threats to the future of libraries, said Peter Lyman, University Librarian and Professor in the School of Information Management & Systems at UC-Berkeley. If UCC 2B would allow publishers to take away "fair use" rights that were formerly protected by copyright, libraries could be forced to charge borrowers "per use" each time a book was checked out, a page was photocopied, or a work was cited by a student or writer doing research. Ironically, if pushed through too quickly, the proposed laws regulating licensing of software may face the very problems that face software companies themselves: in the mad rush to publish something, what we get is nothing good. "The software industry is a very young industry," explained Ron Epstein, Senior Counsel in charge of licensing at Intel. "How can you look at an industry which is at most 15 years old and say that you can codify existing industry practice?" "Each month, a few more of us wake up and say, 'What the heck is going on here, and how can we stop it?'" said Epstein. "Now we know that we can just leave that to the Consumers Union, since they oppose it too." Haste makes waste - in software and in law. To slow down the train, the Consumer Project on Technology's Protest Page (www.cptech.org/ucc/ucc.html) and Cem Kaner's page (www.badsoftware.com) will show you how. Copyright 1998 Rebecca Lynn Eisenberg mars@bossanova.com All Rights Reserved http://www.bossanova.com/rebeca/clips/ rebecca.lynn.eisenberg http://www.bossanova.com/rebeca/ mars@bossanova.com, mars@well.com 415.437.2232 (phone/fax) 415.420.1342 (cell/pager)

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