UCITA PASSES;

UCITA PASSES -- MODEL LEGISLATION ON ITS WAY TO STATES

DECEMBER 1999

Guest columnist: Sarah K. Wiant, Director of the Law Library & Professor of Law, Washington & Lee University, Lexington, Virginia

Despite significant opposition from such groups as the Digital Future Coalition, consisting of 42 national organizations that represent education libraries and consumers, on July 29, 1999 the National Commissioners on Uniform State Laws (NCCUSL) voted to approve the Uniform Computers Information Transactions Act (UCITA).[1] UCITA is a controversial model act that would apply uniform legislation to software licensing issues.

The proposed state-by-state legislation will drastically change the manner in which libraries operate in today's information age. Until this legislation is enacted, it is unclear whether shrinkwrap licenses associated with software which limit users' rights granted under copyright law are legally enforceable. The disparity in judicial treatment of shrinkwrap licenses and questions of federal preemption of state software license terms have resulted in recent efforts to revise the Uniform Commercial Code (UCC).

Generally, shrinkwrap licenses permit users to access software programs or information provided on discs. Similar to shrinkwrap licenses are "click-on" licenses and "active click wrap" licenses, which accompany vast amounts of information online. Unlike shrinkwrap licenses, which physically accompany a disc or package, click-on and active click wrap licenses are usually transmitted electronically and usually do not require any explicit agreement to adhere to the terms of a license. They are typically activated the instant the user installs software. Many users may agree to the terms sight unseen in order to continue with the software installation. Often the term “shrinkwrap” is used generically to encompass these electronic licenses also.

Uniform Commercial Code Revisions

The UCC is drafted by two groups, the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL), and generally is the most influential source of contract law in the United States. Once provisions of the UCC are approved by both the ALI and NCCUSL, they are submitted to each state government for adoption. Each state then enacts the UCC or provisions of the UCC it wants and those enactments become the law of that state. Unlike federal copyright law, contracts are governed by state law.

Initially, the proposals would have been a new section, Article 2B of the UCC, which would cover licensing of software and information. The Article 2B draft defines a license as a contract that grants permission to access or use information subject to conditions set forth in the license. A license is neither a sale nor a lease, because those terms refer to goods. The focus is not on the physical disc but on the information or application on the disc.

After multiple drafts and much debate over more than two years, the American Law Institute found the draft to be fatally flawed and in May 1999 withdrew its support. As a result, the proposals could not go forward as an article of the UCC. In spite of the ALI's opposition, the NCCUSL commissioners voted to ratify the model legislation changing its name to the Uniform Computer Information Transactions Act (UCITA) and to offer it to states for enactment. The passage of UCITA and its potential for adoption into law in each state would authorize most types of shrinkwrap licenses. Of general concern, however, is what happens if only some states adopt UCITA, in which case there still will be no uniform contract law relating to shrinkwrap licenses.

Software Licenses and Intellectual Property Law

The legitimacy of shrinkwrap licenses has produced continuing debate in the intellectual property field. In the Copyright Act of 1976, Congress struck a careful balance between reserving exclusive rights to a work's author, while preserving some uses for the public. Shrinkwrap licenses are contracts separate from the provisions of the Copyright Act. Frequently, these contracts are more restrictive than copyright law. For example, shrinkwrap licenses that prevent the resale of the user's copy of the software expressly conflict with the Section 109, the first sale provision of the Copyright Act which permits "the owner of a particular copy…without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy…". Under the first sale provision, an owner of an object is allowed to treat it as his own. An owner, for example, can use, resell or lend the object as she pleases. By terming the transaction a "license" rather than a "sale," vendors make clear that they are permitting the user to use a copy of the software while the vendor retains ownership of the underlying program. The most important shrinkwrap provisions in terms of intellectual property are those limiting users' rights -- rights which users would otherwise enjoy under federal copyright law.

UCITA

Although the proposal has been improved to address some of the library community's objections, there are still a number of provisions that raise concerns. The broad definition of information coupled with the definition of access contract suggests that UCITA will be the primary law governing information transactions by libraries if states enact the legislation.

Among the points of contention in the draft is the validation of shrinkwrap and click-on licenses. Sections 210 and 212 represent a significant provision and imply that action by a user through a clickable button would satisfy the requirement of an opportunity to view and a license would be formed. The standard terms must be made conspicuous. According to Section 105, any provision which is preempted by federal law is unenforceable to the extent of the preemption. The effect of this language for libraries is unclear. For example, it is unclear whether provisions limiting users rights by a UCITA contract is enforceable. These agreements should state conspicuously limits on copying. UCITA's neutrality approach on preemption is inconsistent because Section 503 permits licenses to include language that would prohibit transfers. Such language would eliminate purchaser's rights under the first sale doctrine. Another concern is the right of vendors to repossess software by disabling it remotely, which should not be permitted except in egregious cases.

Librarians should actively lobby their state legislators to oppose state adoption of UCITA or to see that the most problematic portions of it are not passed. If states do pass the legislation, then libraries must be aware of these sections and negotiate the removal of the sections from the licenses they sign.