1. INTRODUCTION

1. What are uniform laws? They're neither uniform nor laws
   1. They're created by a group of academics and lawyers called the National Conference of Commissioners on Uniform State Laws (NCCUSL), including a lot of law professors, and presented to the state legislatures.
   2. States may either pass, reject, or pass amended version – so they're not really uniform, but states don't usually make too many changes.
   3. Relevance of the official comments: comments are not part of the law, but are strong indications of the intent behind the law, and are given great deference by courts interpreting the laws.
2. What is the Uniform Commercial Code (UCC)?
   1. UCC Article 2 governs all contracts for the sale of tangible goods.
   2. Adopted in substantially identical form by all 50 states.
   3. Attempts to accommodate the way business is done in the real world; for example, has extensive "Battle of the Forms" provisions which control the terms of a contract formed by the exchange of pre-printed form offers (e.g. purchase orders) and acceptances (e.g. shipping manifests).
3. History of UCC Article 2B, now known as UCITA
   1. The process of drafting Article 2B of the UCC began in 1996 when the American Law Institute began formulating Article 2B of the UCC to govern information transactions. The ALI abandoned the effort in early 1999 due to major objections by a lot of its members. The NCCUSL took over, separated Article 2B into a separate code called the Uniform Computer Information Transactions Act (UCITA), which it adopted in July, 1999. UCITA in its present form is the result of a series of amendments (mostly involving exemptions for the motion picture and sound recording industries) adopted in February, 2000. It is presently being considered by the legislatures of most states.
   2. The drafting process followed by both ALI and NCCUSL involved a series of 16 public meetings throughout the U.S. Although the meetings were in principle open to everyone, many critics point out that they were dominated by representatives of the software industry.
   3. UCITA has been adopted as law in Maryland and Virginia.

2. KEY PROVISIONS OF UCITA

2.1 Scope: what transactions are covered by UCITA?

1. Contracts for the creation, transfer, modification, or license of "computer information."
   1. Which is defined: information in electronic form which is obtained from or through the use of a computer or which is in a form capable of being processed by a computer," § 102(a)(10).
   2. Covers all contracts for the sale or licensing of information of any sort, including but not limited to software.
   3. Does not cover contracts for the sale of goods that just happen to be click-through; e.g. buying clothes at www.landsend.com is not covered.
2. Opting out: parties may agree to opt out; that is, to NOT have the UCITA defaults apply to their contract.
   1. In a mass-market (anonymous/retail) contract, opt-out term must be "conspicuous."
   2. There are limitations on this, too; a mass-market can't opt out of the §816 limitations on electronic self-help, for example. (More on this later.)
3. Exclusions: UCITA does not apply to financial services transactions, broadcast and cable TV, motion pictures or sound recordings, email about an agreement.
   1. Employment contacts are excluded except contracts for employment as independent contractor.

2.2 Choice of law and forum

1. The contract may designate a specific jurisdiction's laws that govern it, and a forum to which litigation is restricted, and that's enforceable.
   1. However, any forum-selection of any consumer-protection law trumps UCITA on this; therefore parties cannot agree by contract to ignore consumer-protection laws.

2.3 The requirement that certain contracts must be in writing

1. Contract requiring payment of $5,000 or more can't be enforced unless it's in writing. § 201. For obscure historical reasons, legal jargon for this rule is the "Statute of Frauds."
2. In other words, verbal contract for payment of less than $5,000 is enforceable.
   1. Compare: under UCC, contract for sale of goods for more than $500 must be in writing. Thus, UCITA allows many more oral contracts than does UCC – why?
3. However (exactly as under UCC and common law), if parties act as if a contract has been formed, i.e. exchange money and information, contract can be enforced to the extent of the performance.
   1. That is, one can use this provision to avoid paying money someone claims is due, but not to get back money already paid.

2.4 Manifesting assent: what constitutes acceptance?

1. Basic contract math: offer + acceptance + consideration (i.e. each party does something for the other one) = enforceable contract.
2. Under UCITA, "acceptance" can consist of either:
   1. Any authenticated indication of acceptance, where authentication includes electronic processes intended to indicate acceptance. § 102(6)
   2. Acceptance by conduct: where the acceptor intentionally engages in conduct with reason to know that such conduct will be taken as acceptance.
3. There is no acceptance where the acceptor has had no opportunity to review the terms of the contract, § 112(e).
   1. This is not to say that the acceptor has to have actually done so, but he must have had an opportunity – same as in normal contract law.

2.5 Electronic contracting

1. UCITA recognizes enforceability of contracts which are formed electronically; see § 107.
2. This includes "automated transactions," as defined in § 102(a)(7), which refer to contracts formed exclusively by so-called "electronic agents" which act without human review.

2.6 Interpretation of contracts

1. If a license expressly limits use of the information, then use in any other way is a breach, unless such use would be permitted by applicable law without this limitation. § 307(b).
   1. This may include use which would constitute fair use under copyright law; more on this below.
2. Contracts which do not have a specific duration may be terminated by either party upon "seasonable notice." § 308.

2.7 Warranties

1. Implied warranties – features of every UCITA contract unless specifically disclaimed:
   1. Enjoyment and non-infringement: licensor warrants that the information is delivered free of the rightful claim of infringement by a third party. § 401
   2. Merchantability of a computer program: warranty that the program is reasonably fit for the ordinary purpose for which it is used, and that it conforms to affirmations made on the container or label. § 403
   3. Informational content: warranty that there is no inaccuracy in the informational content caused by licensor's failure to use reasonable care. § 404
   4. System integration: if licensor has reason to know of the purpose for which licensee will be using the program, and if the licensee relied on the licensor for expertise in choosing the product, licensor warrants that it is fit for that purpose. § 405
2. Express warranties: licensor warrants that information conforms to any affirmation of fact or promise the licensor has made about the product, including in advertising. § 402

2.8 Transfer rights

1. UCITA generally permits transfer of a contractual interest.
2. However, parties may agree to a term prohibiting transfer. If they've done so, any attempted transfer is both ineffective and a breach of contract.
   1. Limitation on transfer rights in a mass-market license must be conspicuous.

2.9 Remedies: what options does the non-breaching party have?

1. Purpose of any remedy is to place the non-breaching party in the same position it would have been in had the breach not occurred. § 801 (but this is a restatement of general contract law.)
   1. Liquidated damages – that is, an amount of money agreed upon in the contract as the remedy for breach – are enforceable, but the court may refuse to award them if they constitute a windfall for the non-breaching party.
2. Cancellation: the non-breaching party may cancel the contract, which ends the right of the licensee to use the information.
   1. However, a canceling licensee may use the information for a limited period while obtaining substitute information, § 802(c)(4).
3. Prevention of use: (the so-called "self-help" provision): a canceling licensor has the right to prevent the continued use of the licensed information by the licensee. § 814. Limitations (§ 815): only if this can be accomplished
   1. without a breach of the peace
   2. without a foreseeable risk of personal injury or significant damage to information or property other than the licensed information
   3. where the licensee has separately assented to a term in the contract authorizing self-help by the licensor, § 816

3. Concerns about UCITA, and the NCCUSL's responses

3.1 Scope: critics complain that UCITA is too broad

1. Hybrid contracts: If the contract is for something which is not entirely "computer information" but which contains some computer information (like, say, a computer), UCITA covers only the computer information but not the other stuff. However, if the "primary subject matter" of the transaction is computer information, then UCITA covers the whole transaction.
   1. Numerous commentators have pointed out that this creates a difficult parsing problem for the courts: which part of the transaction dealt with the computer information, and which didn't?
      1. Examples: DVDs, computers with pre-loaded software
2. Mass marketcontracts: form licenses used for software/information products offered to the world at large.
   1. Generally the term refers to so-called "click-through" contracts.<
      1. Exceptions: site licenses, access contracts, see § 102(a)(44).
   2. They're enforceable under UCITA § 209, so long as the buyer style='mso-bidi-font-style: normal'>manifests assent and has an opportunity to review the license.
   3. Same as shrink-wrap licenses?
      1. It's fairly clear that shrink-wrap licenses (where terms are not disclosed to buyer until after payment) are enforceable. Lead case is ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). However, there has been considerable controversy in other courts.
      2. UCITA supporters point out that this is different: UCITA expressly requires that buyer have access to the contract before purchase.
      3. UCITA mass-market license is effectively like other take-it-or-leave-it contracts, so-called "contracts of adhesion." These are enforceable under general contract law.

3.2 Enforceability of use restrictions

1. Impact on competition: Reverse engineering
   1. UCITA may make contract provision against reverse engineering enforceable. UTSA explicitly makes reverse engineering a legitimate means of discovering a trade secret. American Committee for Interoperable Systems (ACIS) points out that reverse engineering of operating systems is essential for developers of software which is intended to run under those systems.
   2. NCCUSL responds: UCITA does not even so much as mention reverse engineering. Moreover, §105 recognizes that contract terms are unenforceable when they are in conflict with public policy.
2. Impact on freedom of speech: style='mso-bidi-font-style: normal'>Restrictions on criticism
   1. In general, parties do have the power to contract away First Amendment rights; First Amendment prevents only government restrictions on speech.
      1. Example: confidentiality agreements between employee and employer
   2. Shelley v. Kraemer: some precedent for theory that court enforcement of private contract (in that case, covenant against selling property to racial minorities) constitutes government action forbidden by constitution, but unclear to what extent that theory would apply.
3. Self-help disabling of licensed software: by far the most controversial aspect of UCITA
   1. UCITA §816 permits "electronic self-help" – which means "the use of electronic means to enforce a licensor's rights," or, in translation, remotely disabling the licensed software – under certain specified conditions.
      1. NCCUSL asserts that the specified conditions narrow, rather than broaden, the existing right to electronic self-help; this point is heavily disputed.
   2. Restrictions on electronic self-help:
      1. Must be accomplished "without a breach of the peace" and " without a foreseeable risk of personal injury or significant physical damage to information or property other than the licensed information," § 815(b).
         1. 1) Arguably, then, can't remotely disable software if doing so will cause damage to customer's data maintained by the software.
      2. Must be a separate term in the contract authorizing electronic self-help, to which the licensee separately assents. §816(c).
      3. Licensor must give 15 days' notice. §816(d).
      4. Licensee can get an injunction to prevent electronic self-help, § 816(g), and can go after the licensor for damages if licensor doesn't follow the rules, § 816(e).
   3. Modeled on self-help repossession provisions of UCC: §2A-525 authorizes self-help repossession of leased property by the lessor, and §9-503 authorizes self-help repossession of secured collateral.
   4. Cohen's argument: UCITA does not preserve a proper balance between creditor's (licensor's) rights to be paid and debtor's (licensee's) rights to be free of trespass and invasion of privacy; many consumer-protection laws provide stronger protection with respect to repossession of chattels.
   5. 5. Friedman's example: this is analogous to selling a car that has been designed to run for only five years, and disclosing that fact to the buyer, as distinct from selling a car with a provision in the sales contract that the buyer must junk it after five years.

3.3 Warranty rights of consumers

1. Criticism: UCITA makes it possible to disclaim any warranty, with the only requirement that, in some but not all cases, the disclaimer be conspicuous (and see section below about UCITA "conspicuousness.")
2. NCCUSL responds: disclaiming warranties is an utterly common practice today; see Linux, anything else distributed under a GNU license, Netscape, and a plethora of other examples of software products distributed on an "as is" basis.

3.4 Forum, choice of law, and suing in Paraguay

1. The general UCITA rule is that an agreed-upon choice of governing law, and of a forum (e.g. a state) where litigation is to occur, is enforceable.
   1. This is not a departure from current law: see Carnival Cruise Lines v. Shute, a 1991 Supreme Court case that held that cruise ship company could enforce a clause on the back of a ticket requiring passengers to sue in Florida.
2. Critics argue that this permits licensors to make it so inconvenient for a licensee to sue that they'll be effectively precluded from doing so.
3. NCCUSL responds:
   1. The choice of law is by agreement, not imposed by the licensor.
      1. Critics' response: the "agreement" is a clause in a take-it-or-leave-it contract.
   2. Courts have routinely refused to enforce forum clauses that are obviously intended to prevent lawsuits and have no reasonable basis.
      1. Critics' response: why not make that part of the UCITA itself rather than assuming courts will get it right.

3.5 Definition of "conspicuous"

1. Definition of "conspicuous" (UCITA § 102(a)(14)): " written, displayed, or presented [so] that a reasonable person against which it is to operate ought to have noticed it."
   1. This is followed by some "safe harbor" provisions – things which are always considered to be within the definition – including the use of all capital letters, or a contrasting font or type size.
   2. Opponents point out that "contrasting type" makes no sense in, e.g., a scrolling display on a Palm Pilot screen.
2. NCCUSL responds: §105(c) of UCITA states that any substantive consumer protection statute trumps UCITA and any contract term in an agreement within the scope of UCITA.

3.6 Contract formation and modification rules

1. Terms added to contract after performance begins: a contract may be modified after the parties have begun performance if the parties had reason to know that this was going to happen. § 208.
2. Altering the means by which consent is manifested: § 112(f) provides that the parties may, by agreement, alter what constitutes manifesting consent.
3. Critics complain that §§ 112 and 208 permit a party offering a mass-market license to withhold almost any contract terms it wishes until after a sale has occurred and provides that such terms become part of the contract if the purchaser reviews and accepts the terms after the sale.
   1. Attorneys general worry that §112(f) could allow seller to enforce "negative option" contracts, i.e. buyer must buy unless he expressly says he doesn't want to.
   2. Buyer could potentially agree to such a term by clicking on "I accept" without reading the contract.
4. NCCUSL responds:
   1. Terms adopted after use are available only if the buyer has advance notice that there will be later terms to the contract. §208(2)
   2. UCITA makes "unenforceable" terms which are
      1. "unconscionable,"
      2. against fundamental public policy,
      3. enforced or performed in "bad faith" which includes lack of "fair dealing,"
      4. preempted by federal law such as under copyright law ("fair use"), or
      5. contrary to supplemental principles of law and equity such as misrepresentation, duress, fraud, competition laws etc.
5. Section 304 permits vendor to modify terms of an ongoing contract (e.g. a contract for ISP service) merely by posting the new terms on a web page, which the consumer would be responsible for checking.
   1. This runs counter to current law; e.g. case where AOL refunded $2.5 million in user fees to users who weren't aware of a price increase that was posted but not brought to their attention in any other way.
   2. NCCUSL responds: Section 304 only applies if the parties already have agreed to a procedure for making changes to a contract. Moreover, the procedure is enforceable only if the party "reasonably notifies" the other of changes and that notice is given in "good faith."
      1. The ultimate fear, obviously, is that there will have to be litigation to define the limitations of what's meant by "reasonably notifies."

3.7 Conflicts between UCITA and copyright law

1. Fair use: does UCITA allow licensors to "replace the public law of copyright with the private law of contract"?  This was the concern voiced by the Digital Future Coalition, a consortium of educators, manufacturers, scientists, and librarians.
2. Translation: a licensor can include terms in a license which prohibit a use of the information which would be permitted under copyright law.
3. NCCUSL responds:
   1. Copyright law is federal law, and UCITA will be state law. Federal law always preempts state law; that's a result of the Supremacy Clause of the Constitution. Furthermore, UCITA contains a provision (at §105(a)) which states this principle explicitly: " A provision of this [Act] which is preempted by federal law is unenforceable to the extent of the preemption." So, if the federal law of fair use says that the copying is permitted, UCITA can't be invoked to say that it isn't.
   2. Publishers can already, under present non-UCITA law, license the use of information which prohibits using it in any way but the one specified in the contract; this is a standard feature of confidentiality agreements. This is an example of contract law trumping copyright law, because copyright "fair use" law often allows quotation of information in the context of criticism or parody.
   3. Finally, UCITA contains a provision (at § 105(b)) that a court may refuse to enforce provisions of a contract which violate fundamental public policy.

4. Selected resources for further UCITA research

1. Pro:
   1. http://www.ucitaonline.com is a web site provided by the NCCUSL; it contains the actual language of the Act, the official commentary, and links to a number of FAQs and responses to criticisms by the drafters and reporters of UCITA.
   2. The Series of Papers on UCITA Issues by Carlyle Ring and Ray Nimmer is probably the clearest and most straightforward response to the criticisms of UCITA; other responses (such as Mr. Ring's response to a letter from a group of state Attorneys General) tend to match the tone of the most strident critics.
2. Con:
   1. http://www.jamesshuggins.com/h/tek1/ucita.htm is a well-organized collections of the arguments against UCITA, with links to many "open letter" criticisms from the academic community. See, in particular, the letter from Prof. Pamela Samuelson.
   2. http://www.infoworld.com/cgi-bin/displayStory.pl?/features/990531ucita_home.htm is Info World magazine's top level UCITA web site, with links to a large number of stories in Info World about the process by which UCITA was drafted and adopted.
3. Academic (evenly balanced between pro and con):
   1. <http://www.law.berkeley.edu/journals/btlj/articles/vol13.html> contains links to a number of articles first presented at a symposium called Intellectual Property and Contract Law in the Information Age: The Impact of Article 2B of the Uniform Commercial Code on the Future of Transactions in Information and Electronic Commerce, which was held by the Berkeley Center for Law and Technology, part of the Boalt Hall School of Law, on April 23-25, 1998. The article by Prof. Julie Cohen, and Prof. David Friedman's response to it, are particularly worth reading.