Prepared by Principal Financial Group

The Uniform Computer Information Transactions Act (UCITA) was adopted as a proposed uniform act by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in July 1999. UCITA has been introduced in state legislatures across the country. Enactment of UCITA would adversely impact businesses by shifting significant economic risks onto them as the licensees of computer technologies. This, in turn, would dramatically increase the cost of doing business, impacting employment, tax revenue and the competitiveness of products.

By way of background, NCCUSL has drafting committees that meet publicly to develop uniform laws on a variety of subjects. NCCUSL sometimes works jointly with the American Law Institute (ALI) - most notably in creating and amending the Uniform Commercial Code (UCC). After drafting is completed, model or uniform laws are offered for adoption before the entire NCCUSL body (and ALI, where appropriate). Once adopted, the model or uniform laws are introduced in state legislatures.

Some years ago, a joint drafting committee of NCCUSL-ALI was formed to draft UCC Article 2B, as an addition to the UCC, to set forth rules governing commercial transactions involving computer software. The committee was apparently formed at the urging of several very large computer software vendors, including Microsoft. In the spring of 1999, after years of drafting efforts and for the first time in the long history of NCCUSL-ALI joint efforts, ALI, having major objections to the draft, refused to participate further in its development. This forced the NCCUSL drafters to choose either to hold off adoption or remove the legislation from the UCC and offer it as a stand-alone Uniform Computer Information Transactions Act (UCITA). They chose the latter.

The operations of nearly all businesses depend on computer technologies. These technologies control, among other things, the calculation and disbursement of employee benefits, management of payroll processing, compliance with tax obligations, and payments to suppliers. Because of its very broad scope, UCITA would affect every facet of business. Following are just a few aspects of UCITA, which are of major concern:

General

Proponents claim that UCITA would bring clarity to an area of the law that has been confused. In fact, this area of the law is quite clear, as evidenced by the dearth of cases on point. Furthermore, business licensees have begun to see a shift in the contract negotiating postures taken by large software manufacturers. Many of the vendors say they want to move to a business paradigm under which they will refuse to negotiate the terms of a contract - all licenses will essentially be shrink wrapped. UCITA will enable them to achieve this goal by providing them with more ammunition to support a standard take-it-or-leave-it licensing model.

Electronic Self Help

UCITAs electronic "self help" remedy would allow a vendor to threaten disruption of a businesss critical systems if the vendors demands were not met. The facility with which "assent" to license terms may be manifested under UCITA makes it almost impossible for users to protect themselves, especially in the new "shrink wrapped" environment. Such a remedy is unfair and unnecessary given the availability of monetary damages and injunctive relief under current law - which can make the vendor whole in the event licensees do not pay license fees or violate use restrictions. UCITAs proponents say electronic self-help gives licensees added protections. On the contrary, this provision legitimizes and sets forth a blueprint for this Draconian remedy.

Not only does UCITA authorize electronic self-help, it goes even further and prevents the parties from making an enforceable agreement to bar the use of this remedy. Under current law, a contract provision barring all use of electronic self-help is enforceable, and many of business licensees consider it one of the most important license provisions to negotiate for. Even this means of protection would be taken away from licensees under UCITA.

Duration of License

UCITA would impose a new uncertainty regarding the duration of a licensees right to use licensed software. Businesses typically pay for a perpetual license in order to be assured that their operations, such as claims paying in the case of an insurance company, will not be disrupted. Under UCITA, agreements which do not specify a perpetual license term will be limited to a "time reasonable," giving the vendor the opportunity to bring the licensees operations to a standstill, at its discretion.

Warranties

UCITA would place an unreasonable burden on licensees to discover defects during an evaluation. Vendors assert that, even with all their resources and intimate knowledge of their software products, they are unable to test them adequately in order to warrant them as being error-free. Notwithstanding this, UCITA assumes the customer will be able to discover any and all defects during a short trial period. Licensees would have the Hobsons choice of either discovering defects during a brief inspection period (and by doing so, becoming subject to the licensors contract terms) or refusing to even try to meet this burden. With either "choice", licensees would lose the warranty protections they have under current law.

Additionally, the essence of a software transaction is a presumption that the licensor has the right to grant the license, free from infringement. UCITA would reduce the warranty protections available to licensees under current law by limiting the vendors implied warranty that it has not infringed another companys patent, copyright, trade secret, trademark or other intellectual property rights to rights under United States law, even if the license were granted worldwide.

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Below is a partial listing of websites, including the NCCUSL site, which discuss UCITA.

4CITE.org

nccusl.org

badsoftware.com

nwu.org/pic/ucchome.htm

infoworld.com

uab.edu/lister/ucita.htm

cnn.com/TECH/computing/9908/02/ucita.idg/

2Bguide.com

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