A Dangerous New Software Law- LAW OFFICE OF ELIAS M. GORDAN

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0 height="100%"><tr> <td valign="top" width=175 BGCOLOR="#A6CAF0" TEXT="#080000"> <div> <B> <TABLE BORDER="0" CELLPADDING="2" CELLSPACING="1" WIDTH="132" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 35 ><NOBR><div> <IMG BORDER="0" SRC="1x1.gif" HEIGHT="29" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="21"></div> </NOBR></tD> <tD VALIGN=TOP><NOBR><div> <IMG BORDER="0" SRC="1x1.gif" HEIGHT="29" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="21"></div> </NOBR></tD> <tD VALIGN=TOP WIDTH="20"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="35" ALIGN="bottom" WIDTH="20" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP><NOBR><div> <IMG BORDER="0" SRC="1x1.gif" HEIGHT="29" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="13"></div> </NOBR></tD> <tD VALIGN=TOP><NOBR><div> <IMG BORDER="0" SRC="1x1.gif" HEIGHT="29" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" WIDTH="27"></div> </NOBR></tD> </tR> </TABLE></B></div> <div> <B>© </B>2001 Elias M. Gordan</div> <div> All rights reserved</div> <bR> <div> <B>Law Office of</B></div> <div> <B>Elias M. Gordan</B></div> <div> Post Office Box 60</div> <div> Palos Park, IL  60464</div> <bR> <div> Phone  708.923.9735</div> <div> Email  gordanlaw@att.net</div> <div> Web    www.gordanlaw.com</div> <div> <A HREF="index.htm" TARGET="_top" TITLE="HOME PAGE LAW OFFICE OF ELIAS M. GORDAN"><U><B>HOME</B></U></A></div> <div> <A HREF="id24.htm" TARGET="_top" TITLE="LAW OFFICE OF ELIAS M. GORDAN About Us"><U><B>About Us</B></U></A></div> <div> <A HREF="id30.htm" TARGET="_top" TITLE="LAW OFFICE OF ELIAS M. GORDAN Links"><U><B>Links</B></U></A></div> <div> <A HREF="id26.htm" TARGET="_top" TITLE="LAW OFFICE OF ELIAS M. GORDAN Contact U"><U><B>Contact Us</B></U></A></div> <bR> <bR> <bR> </td> <td valign="top" BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <B>The Uniform Computer Information Transactions Act (UCITA): A Minefield for Businesses</B></div> <div> ©2001 Attorney Elias M. Gordan.  All rights reserved.</div> <bR> <div>         As online transactions assume greater importance in commerce, calls have been made to extend the Uniform Commercial Code from transactions in goods, to transactions in information.  Such transactions have tended to be governed both by state contract law, and state and federal intellectual property law.  In 1998, the National Conference of Commissioners on Uniform State Laws (NCCUSL), responsible, with the American Law Institute (ALI), for the Uniform Commercial Code, proposed an article 2B for the Uniform Commercial Code, which would govern transactions in computer information, such as software and application service providers (ASPs).  The act is known as the Uniform Computer Information Transactions Act, or UCITA for short.  Supported by major software vendors and ASPs, it has become law in Maryland, and will become law on July 1, 2001, in Virginia.  The Act is currently under consideration in the District of Columbia, Delaware, New Jersey, Arizona, Florida, Ohio, Rhode Island, and Texas.  A major effort is under way to propose the legislation in other states.  It was proposed in Illinois last year as Senate Bill 1309, by Senator Kirk Dillard (R-Downers Grove), and was reintroduced this year, with very few changes from the NCCUSL version, as <B>House Bill 3058,</B> by Representative Tom Cross (R-Yorkville). <FONT SIZE="3" COLOR="#0000BF" FACE="Arial" ><A HREF="http://www.legis.state.il.us/legisnet/legisnet92/hbgroups/hb/920HB3058LV.html" TARGET="_top" TITLE="http://www.legis.state.il.us/legisnet/le"><U>Read the Bill</U></A></FONT> (56 pages). </div> <div>        Since its initial proposal in 1999, the 350-page (with commentary) NCCUSL version of UCITA has proven to be very controversial .  According to a 2 August 1999 CNET News article, the American Law Institute (ALI) withdrew from involvement in the drafting stage, and the majority of State Attorneys-General have expressed opposition to the Act.  Why?  Thirteen noteworthy features of the Act deserve further consideration, for both the NCCUSL and Illinois versions:</div> <div> 1) <B>The Act encompasses far more than “computer information”</B>.  Section 102.11 defines “computer information transactions”, to include agreements to create, modify, transfer, and license computer information or informational rights.  While it does not include transactions merely because the parties agreed to communicate online, Section 103 does extend the Act to the following types of transactions:</div> <div> - software “bundled” with a computer or a peripheral, such as a printer;</div> <div> - transactions where computer information, or access to computer information, is the primary subject matter;</div> <div> - employment agreements for outside contractors retained to create or modify computer information, such as programmers; and</div> <div> - employment agreements for freelance news reporters.</div> <div> Interestingly enough, financial services, insurance services, and telecommunications products are exempted from UCITA.  While the Illinois version has retained these exemptions, proposals for other States may differ.</div> <div> 2) <B>The Act is easy to slip into a “choice of law” or “forum selection” contract provision.</B>  Section 109(a) of the Act specifically rejects the notion, enshrined in Section 1-105 of the Uniform Commercial Code,  that a contracting party must use the laws of a State with a reasonable relationship to the contract.  According to explanatory note 2(a) of Section 109, physical boundaries such as State boundaries do not apply in cyberspace.  Moreover, the argument goes, contracting parties in different States may want to impose the laws of a “neutral” State.   Since UCITA is currently the law in Maryland, and will take effect in Virginia later this year, a party in California and a party in Alaska can agree to apply Virginia or Maryland law, and UCITA, even if there is no connection between any of these States. </div> <div> 3) <B>The Act is meant to “fill in the gaps”.</B>  As with the Uniform Commercial Code, the provisions in UCITA will apply, unless the parties specifically agreeotherwise.  See Section 113.</div> <div> 4) <B>The Act is intended to override the Uniform Electronic Transactions Act (UETA), in the event the two Acts conflict.</B>  See Section 105.  The Illinois version of UCITA does not follow this.</div> <div> 5) <B>You can be bound by the terms of a contract under UCITA (without an opportunity to see a copy of the contract)  just by using or looking at the information in question.  This would be true even if you were forced to pay to look at the information, you later decided the information was worthless, or you did not want it.</B>  Sections 604, 609, and 707 prevent contract avoidance, or rejection of information “goods” after inspection, where one has enjoyed a non-returnable “benefit” from looking at them or using them.  See also Section 201 (permitting enforcement of contracts otherwise unenforceable under the Statute of Frauds).  Under Section 112, agreement to a contract may be established by authentication of a record showing assent, <B>or</B> by intentional conduct.  If you do not like the “information” you have “contracted” for, your major recourse is to return it.  If “returning” the information harms your computer in the process (a real possibility with poorly-written software), your recourse against the information provider may be severely limited or nonexistent under UCITA (see Section 209, which bars recovery of out-of-pocket expenses, and costs of lost time or lost opportunities).  <B>Section 803 permits contractual limitations on  liability if the software or computer information fails, and  the contracting party is harmed.  Moreover, the harmed party can still be bound to the contract.</B></div> <div> 6)  <B>In cases  where “click-wrap” agreements are used to obtain your approval to contract terms, the information licensor is not obligated to facilitate the printing of a copy for your records.</B>  See Sections 112 and 211.  Contract terms may be stored on a Website or server and still meet the requirements of the Act, even if you are prevented from printing a copy for your reference.</div> <div> 7) <B>The Act seeks to use contract law to restrict or frustrate user rights granted under the Copyright Act.</B>  By characterizing computer information transactions as “licenses”, and restricting  disclosure or use of the subject computer information after completion of the contract (Sections 202(e), 503, and 616), UCITA bypasses considerations of fair use, library rights, and the first sale doctrine, which encourage the free flow of information while seeking to protect the creators of said information.</div> <div> 8) <B>The Act allows “standard form contract” terms to be enforceable, even where the party offering the terms knows, or has reason to know, that the party would not accept the “standard form contract” if the terms in question were included.</B>  See Section 208.</div> <div> 9) <B>The Act allows contract terms to be changed without requiring affirmative notice to the other party.</B>  Section 304 of UCITA allows a party to merely post revised contract terms in a secure, accessible location such as a Website.  In non-consumer, non-mass market transactions, the other party may or may not have the right to subsequently withdraw from an altered contract.</div> <div> 10) <B>The Act does not require a licensor to provide software upgrades or support, nor does it require guarantees that support will resolve performance problems in the computer information.</B>  See Sections 307, 611, and 612.</div> <div> 11) <B>The Act permits automatic restraints or restrictions on the use of computer information</B>, <B> and insulates the licensor from liability for loss caused by use of the restraint.</B>  This provision, found in section 605, has aroused concerns that the technology underlying automatic restraints, will compomise the security of the licensee’s computer systems from outside attack, by “leaving the back door open”.</div> <div> 12) <B>Contracts for access to computer information can allow the provider to change the information at any time, and terminate at any time upon reasonable notice.</B>  See Sections 611, 617, and 802.</div> <div> 13) <B>Electronic self-help is permitted in non-mass market transactions.</B>  See Section 816.  While this section restricts the exercise of this right, electronic self-help, and the related prospect of a licensor controlling a licensee’s computer system, is, nevertheless, potentially present.</div> <div>         With potentially draconian terms such as these being proposed, it is crucial that Legislatures thoroughly, and carefully, deliberate and argue every provision in UCITA, and refine objectionable provisions, before enacting the Act.  Indeed, it is possible that this Act may exacerbate conflicts among State laws, and hinder, rather than help, the growth of electronic commerce.</div> <bR> <div> <B>To contact your Illinois State Legislator, </B><FONT SIZE="3" COLOR="#0000BF" FACE="Arial" ><A HREF="http://www.legis.state.il.us" TARGET="_top" TITLE="http://www.legis.state.il.us"><U><B>click here</B></U></A></FONT><B>.</B></div> <bR> <div> For the NCCUSL prototype (all 350 pages), click the link to the University of Pennsylvania's Biddle Law Library, and go to the NCCUSL link on the Biddle Law Library Website.  <FONT SIZE="3" COLOR="#0000BF" FACE="Arial" ><A HREF="http://www.law.upenn.edu/bll/" TARGET="_top" TITLE="http://www.law.upenn.edu/bll/"><U>Click here.</U></A></FONT></div> <bR> <DIV ALIGN="LEFT"></DIV> <div> (Elias M. Gordan, email <FONT SIZE="3" COLOR="#0000FF" FACE="Arial" ><A HREF="mailto:gordanlaw@att.net," TARGET="_top" TITLE="mailto:gordanlaw@att.net,"><U><U>gordanlaw@att.net,</U></U></A></FONT>  is a Chicago-area attorney concentrating in construction law, e-commerce issues, and intellectual property law, including patent, trademark, trade secret, copyright, and Internet matters.  He is a member of the Illinois and Indiana Bars.)</div> <bR> <div> <B>DISCLAIMER</B></div> <div> The information contained in this guide is meant only to convey general information, and is not intended to serve as legal advice or counsel, nor is it meant to create an attorney-client relationship.  The information presented here is subject to change or modification that any time without notice, and may not apply to the specific facts of your case.  Accordingly, you should check with a with an attorney before acting on this information, to make sure that it applies to your situation.</div> <bR> <bR> <div> As always, please <FONT SIZE="3" COLOR="#0000BF" FACE="Arial" ><A HREF="id26.htm" TARGET="_top" TITLE="LAW OFFICE OF ELIAS M. 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