A Leap Forward: Why States Should Ratify the Uniform Computer Information Transactions Act.

• Author: Neboyskey, David A. P.

1. INTRODUCTION

   As a new century dawns, the American economy continues to evolve. Long gone are the days when the United States dominated the world economy by manufacturing goods. Today, our economy depends much more on services and information.(1) As the dominant players in our economy shift, the law needs to follow suit and deal with new issues. One recent piece of legislation attempts to bring the law in line with the developing information industry.

   The Uniform Computer Information Transactions Act (UCITA or Act) has been drafted to address questions regarding contracts covering computer information. Patterned after the Uniform Commercial Code (UCC or Code), the UCITA actually began as a new article to the UCC.(2) However, the drafters realized that the specifics of an information product could not match the legal specifications of the sale of a good from Article 2. Accordingly, the drafters renamed the statute the UCITA to denote the Act's narrow focus to computer information. Originally known as proposed Article 2B, the drafters revised the Act, although much of the terminology remains the same.

   The UCITA is not yet law. The National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Act. NCCUSL also drafted the UCC.(3) The 107-year-old organization attempts to bring uniformity to state laws by drafting legislation and then lobbying each state to pass the law.(4) NCCUSL designs its commercial law statutes to "codify established commercial practice and its reflection in the decided cases."(5) NCCUSL completed its final draft of the UCITA in the summer of 1999 and then voted on the enactment on July 29, 1999. The Act passed by a vote of forty-three to six.(6) As of the publication date, only one state has voted on the UCITA. Virginia adopted UCITA as law and the governor signed the bill on March 14, 2000.(7) The Act has been introduced to the legislatures in Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Maryland, and Oklahoma.(8)

   Despite the fact that a large majority of NCCUSL members voted to approve the UCITA, the Act is not without critics. Several organizations have stepped forward to voice their opposition to the Act and asked state legislatures to not approve the law.(9) Parties opposing passage of the UCITA include consumer groups,(10) library associations,(11) writers' groups,(12) academics,(13) state attorneys general,(14) and the Federal Trade Commission (FTC).(15) Although these organizations oppose the Act for various reasons, one common thread that emerges is that the UCITA favors software producers to the detriment of software users.(16)

   This Comment discusses the support and opposition to the UCITA. In Part II, this Comment examines the Act. This Comment compares the UCITA to Article 2 of the UCC. The UCITA and Article 2 share several similarities, as the Act began as an addition to Article 2. However, the UCITA also contains several innovations that distance it from the sale of goods provisions of Article 2. As a number of commentators have lined up on both sides of the Act, Part III of this Comment views the support for and opposition to the UCITA. After reviewing the commentary, this Comment concludes that state legislatures should enact the UCITA.

2. WHAT IS THE UCITA AND HOW DOES IT FUNCTION?

   The UCITA began as Article 2B of the UCC. The UCC originated as a project to create uniformity in commercial law. The Code has emphasized freedom of contract and adherence to business standards.(17) These factors differentiate the UCC from regulatory statutes that place more restrictions on parties. Despite several revisions of the major Code sections, the UCC has been a remarkable success. Two prominent commentators describe the UCC as "the most spectacular success story in the history of American law."(18) With the desire to enact a statute true to the commerce-friendly UCC, NCCUSL commenced drafting Article 2B.

   NCCUSL decided that a new law for information transactions was needed because courts sought guidance to resolve disputes in software transactions by applying rules from Article 2.(19) Article 2 could not provide the answers for these questions, as the sale of goods involved a tangible item (e.g., a toaster), while software transactions involved a tangible item (e.g., a CD) and the information contained within the item.(20)

   NCCUSL and the American Law Institute began drafting UCC Article 2B several years ago.(21) However, after years of attempts to integrate information transactions with the sale of goods, the drafters realized that the proposed Article 2B could not be integrated into the UCC Article 2 and 2A framework.(22) Despite the conclusion that information transactions could not mesh into the UCC, the drafters recognized the importance of creating the information act.(23) The drafters decided that the act would embody relevant UCC principles, including freedom of contract and use of custom and practice to give the statute flexibility, while also taking note of the specifics of the information industry.(24) As a result, NCCUSL renamed Article 2B as the Uniform Computer Information Transactions Act.

   1. Overview of the Act

      The UCITA is divided into nine parts: (1) General Provisions, (2) Formation and Terms, (3) Construction, (4) Warranties, (5) Transfer of Interests and Rights, (6) Performance, (7) Breach of Contract, (8) Remedies, and (9) Miscellaneous Provisions. Each part is divided into subparts and sections. The format of the UCITA matches that of individual articles from the UCC, especially Article 2. The drafters designed the Act to work as a "commercial code, not a regulatory code. It provides a series of default rules that operate unless the parties agree otherwise."(25) The default rules allow the parties to negotiate among themselves to develop a deal most favorable to both.

      NCCUSL lists four purposes for the UCITA, to: (1) "support and facilitate the realization of the full potential of computer information transactions in cyberspace;" (2) "clarify the law governing computer information transactions;" (3) "enable expanding commercial practice in computer information transactions by commercial usage and agreement of the parties;" and (4) "make the law uniform among the various jurisdictions."(26)

      To achieve these purposes, NCCUSL has identified five themes that frame many of the terms of the UCITA. First, "the paradigm transaction is a license of computer information, rather than a sale of goods."(27) Second, "innovation and competitiveness have come from small entrepreneurial companies as well as larger companies."(28) Third, "computer information transactions engage free speech issues."(29) Fourth, "a commercial law statute should support contractual freedom and interpretation of agreements in light of the practical commercial context."(30) Fifth, "a substantive framework for Internet contracting is needed to facilitate commerce in computer information."(31)

      NCCUSL drafted the UCITA to govern transactions dealing with computer information and goods.(32) The Act defines "computer information" as "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. The term includes a copy of the information and any documentation or packaging associated with the copy."(33) The Act defines "information" broadly as "data, text, images, sounds, mask works, or computer programs, including collections and compilations of them."(34)

      The Act only governs transactions that include an agreement to create, modify, transfer, or license computer information.(35) If a contract involves both computer information and another product, the UCITA "applies only to the part of the deal that involves computer information."(36) For instance, if an individual buys a computer, the sale of the computer falls under Article 2 of the UCC because a computer is a good; however, the software embedded in the computer would be governed by the UCITA.(37)

      Although NCCUSL wrote the UCITA as a contract statute, property issues also come into play. As stated, computer software consists of both a tangible and intangible good. A consumer buys a software package to use the information contained within the software. Information is subject to intellectual property law. The creator or publisher of information is entitled to a copyright of its work. Copyright violations fall under the provision of federal law. The Copyright Act and other federal statutes govern conflicts between creators and users.(38)

      The UCITA pays heed to federal intellectual property law. Section 105(a) states that a provision of the Act preempted by federal law is unenforceable to the extent of the preemption.(39) This section may be applied to the federal Copyright Act.(40) Therefore, if a provision of the UCITA happens to interfere with a requirement of federal intellectual property law, the federal law would govern.

      In addition to raising questions of intellectual property, information transactions also present concerns due to the importance of licensing in such transactions. One of the themes of the UCITA states that the paradigm transaction is a license of computer information, not a sale.(41) The UCITA characterizes a license by "the conditional nature of the rights or privileges conveyed to use the information and the focus on computer information, rather than on goods."(42) Subject to public policy constraints, courts enforce most license restrictions. These restrictions may (a) limit the right of access, (b) prevent distribution of copies for a fee, or (c) preclude modification of computer information.(43)

      The UCITA recognizes the prominence of licenses in computer information transactions. An entire part of the Act is devoted to Transfer of Interests and Rights.(44) This part is necessary because licenses often contain restrictions on transfer. The sections within this part help clarify the rights of each...