The Politics and Promise of Ucita

• Jurisdiction: United States,Federal
• Citation: Vol. 36
• Publication year: 2001

36 Creighton L. Rev. 643. THE POLITICS AND PROMISE OF UCITA

Creighton Law Review

Vol. 36

NIM RAZOOK(fn*)

INTRODUCTION

Woe is UCITA! Despite rather grandiose language by the National Conference of Commissioners on Uniform State Laws ("Conference") labeling the Uniform Computer Information Transactions Act ("UCITA") a "statute for our time,"(fn1) the Act has weathered the pull-out by the American Law Institute's contributing drafters'(fn2) concerted and well-organized efforts to contest its passage(fn3) and a very cold reception by the states.(fn4) And, despite a Conference initiative to address the concerns by UCITA opponents,(fn5) influential organizations including the American Bar Association ("ABA") have officially suggested that UCITA be scrapped in favor of a new start with new ideas,(fn6) and most state legislatures have decided not to consider UCITA in upcoming legislative sessions.(fn7)

This essay offers substantive and political reasons for UCITA's discouraging reception and suggests a solution. It first argues that the opposition mounted against UCITA as originally drafted was different from and measurably more formidable than that mounted against many other Conference promulgations, including the Uniform Commercial Code ("UCC"), itself the object of strong initial opposition.(fn8) Some suggest congruency between the initial receptions of UCITA and the UCC, claiming that these two significant Conference works will have similar fates.(fn9) While they offer useful comparisons, they also ignore differences between the two Acts and their respective constituencies.

The differences between UCITA as first proposed to the states and the UCC are fundamental. They lie in the Conference's decision for UCITA to accept a UCC-like freedom of contract norm for software contracts and to apply this norm to either one-size-fits-all, standard contracts or at least a cadre of standard contract provisions for more customized contracts.(fn10) In either case, the licensing contract fails adequately to consider how potential licensees might perceive the importance of key licensing terms, especially those involving proprietary and quality issues. UCITA's freedom of contract theme embraces these contracts and, by doing so, the Conference has alienated a diverse constituency which included powerful business and commercial interests - a crucial constituency that played an important, supporting role in the adoption of the UCC.

Despite these problems, the Conference's response to detractors offers a path to a solution. At its 2002 annual meeting, the organization voted to amend UCITA and thus to make it more palatable to its opposition,(fn11) especially large and powerful commercial interests alienated by the original Act.(fn12) However, the ABA's opposition appears to persist despite these amendments, suggesting that UCITA's opposition continues to be entrenched and formidable.(fn13)

This essay, divided into two additional parts and a conclusion, traces the political origins of UCITA's opposition, identifies three potential paths for the future regulation of software transactions, and concludes that one of these alternatives, adoption of UCITA as amended by the Conference, represents an acceptable middle ground. Part I generally surveys UCITA's treatment of freedom of contract in light of the proprietary, quality and other concerns of the contracting parties. While licensors seem to have solidified their positions on contract terms, licensees and their contracting needs are diverse, thus inspiring a range of UCITA opposition from consumers to multinational corporations. UCITA's tacit acceptance of standard contracting for all has therefore angered a well-organized and formidable crowd. Part II searches for some resolution. Proposing three different paths - maintenance of the status quo, a wholesale redraft with a decidedly more regulatory rather than commercial theme, or adoption of UCITA as recently amended - Part II argues that an amended UCITA is the most desirable and flexible alternative.

I.The substantive and political problems facing the Conference in its proposal of the original UCITA are important. The primary source of these problems lies in UCITA's acceptance of freedom of contract, one of commercial law's most revered and workable constructs, as an organizing principle.

A. FREEDOM OF CONTRACT FOR DIGITAL PRODUCTS

The drafters' decision to accept freedom of contract as an overarching norm for UCITA would seem to be a natural and predictable extrapolation of existing law. The freedom to structure agreements that jointly serve contracting parties is a central principle of contract law.(fn14) Indeed, existing contracts for digital products, whether shrink-wrapped and available at retail stores or "click-wrapped" and available via the Internet, appear to depend on contracting freedom as a central tenet. The prevailing trend among courts is to yield to the parties' software contracts in cases involving assent,(fn15) product quality(fn16) and proprietary rights.(fn17)

The general basis for UCITA's opposition is its application of freedom of contract to both traditional contracts issues, especially those involving product quality, and to those associated with a licensor's desire to retain intellectual property rights in its software. UCITA's default rules, like those in the UCC, apply only if the parties have not otherwise agreed on a subject.(fn18) If the law supports standard contracts based loosely on a freedom of contract principle, then the terms of that contract will tend to favor the drafter over the other side,(fn19) unless a court adjudges the contract or provision unconscionable.(fn20) Once again, UCITA is ostensibly doing what has previously been done and often endorsed.

The problems associated with software contracts arise because software producers want both to limit and retain full title to the licensee's use of the product. Producers have predictably and naturally used the licensing model as a means to retain legal rights over digital products that can be, for little cost, copied and transferred globally millions of times each day.(fn21) Added to their battery of standard protective provisions are reverse-engineering proscriptions that restrict licensees from identifying and using a program's sources code.(fn22) The licensor also may include self-help terms that empower the licensor to reclaim electronically licensed software if the licensee violates any of the contract provisions.(fn23) As originally enacted, UCITA's freedom of contract theme would enforce contract provisions that support these and other proprietary interests of the licensor.(fn24)

Relying heavily on a UCC template, UCITA additionally allows software producers and sellers to limit or disclaim liability for product defects.(fn25) Disclaimers have long played a central part in contracts in-volving the sale and lease of goods.(fn26) Once again, licensees predictably would desire the opportunity to use contracting freedom to include disclaimers in their licensing contracts.

B. WHY NOT FREEDOM OF CONTRACT FOR DIGITAL GOODS?

This section examines generally why freedom of contract poses more problems for UCITA and software contracts than for the UCC and contracts for the sale and lease of goods. Section C will then review the political fallout occasioned by these differences.

1. Receptivity to Contract Provisions

In general, freedom of contract works for the UCC because contracting parties - sellers, buyers, lessors and lessees - embrace freedom of contract as an overarching norm for a variety of reasons. Many licensees, however, do not. For example, in commercial settings, freedom of contract principles may inspire seller or even buyer-dominated agreements, but parties to such contracts routinely change roles and thus often have a bilateral perception of contract terms. Commercial buyers understand arbitration provisions and warranty disclaimers because they incorporate these same provisions in their resale contracts. The parties to UCITA contracts tend to have static roles. Licensors are typically software producers and licensees are not. Rather, licensees are multinational corporations, small entrepreneurial firms, professionals, educational institutions, not-for-profit organizations and consumers. Their primary interest is utilitarian - obtaining functional software to improve their lot. While some of these licensees may support the ex ante facto arrangements of contract, others, as section C suggests, would prefer some regulatory control over software production and sales.

2. Tangible versus Digital Products

Another difference that challenges UCITA's reliance on freedom of contract arises because of the fundamental differences between tangible and digital products. In sales and lease contracts, parties almost invariably have the opportunity to inspect the tangible subject matter either in advance of the contract or, at least, before accepting and being required to pay for tendered goods. Licensees of digital products usually have nothing to inspect. Their license describes the "product," and their opportunity to discern that product's quality happens only after they have paid for it.(fn27) This use of a UCC template, some claim, is "goodcentric," based on an incorrect assumption that the governing rules including freedom of contract are as apt for digital as for...