The Uniform Computer Information Transactions Act
Efforts have been made over the past decade to devise uniform rules that would govern software licensing and, as technology advanced, other electronic products and services – including the means of contracting itself. In July 1999, the National Conference of Commissioners on Uniform State Laws approved and recommended for enactment in all states the Uniform Computer Information Transactions Act. UCITA governs software licensing and most electronic transactions; it provides standards applicable to contracts for software, multi-media products, on-line database access, computer games, and the like.
Critics generally assert that the software industry benefits under the draft law to the detriment of consumers, while proponents express relief at finally having clear, consistent rules to give both licensors and licensees commercial predictability in their information development and licensing contracts. Most agree that a nationwide uniform law governing these transactions is desirable, even if some particulars of UCITA are not agreeable to all. Many commentators believe that UCITA will be quickly adopted by a majority of states. Less than a year from its issuance, two states have already enacted UCITA (Virginia and Maryland), six have introduced bills to adopt UCITA (Delaware, District of Columbia, Hawaii, Illinois, New Jersey, and Oklahoma), and many others have the topic under discussion.
UCITA is important to all practitioners who deal with electronic, computer information, or software contracts, no matter in what state they practice. Even if UCITA is not adopted by all states, it is certain to have significant influence on states' laws that will be developed. More importantly, as increasing numbers of states enact UCITA, it is ever more likely that UCITA will apply to a transaction between one's client and a contracting party from another state in which UCITA is adopted. Connecticut practitioners should be familiar with the draft law so their clients can intelligently adopt or opt out of the law (or certain of its provisions) when the opportunity arises. Further, UCITA is a useful tool for drafting and negotiating software and electronic information contracts, even when they are not governed by UCITA – it can be a reference tool, identifying issues to be addressed that might otherwise have been overlooked, and providing language for arguably standard provisions.
So, what does UCITA provide?
UCITA extends Uniform Commercial Code ("UCC") Article 2-type protections to "computer information transactions" – transactions to create, modify, transfer, or license information in electronic form that is obtained from or through the use of a computer, or that is in a form (e.g., digital) capable of being processed by a computer. UCITA also endorses mass market licenses ("shrink-wraps" and "click-wraps"), creates a right to return a product for refund plus expenses, conditions acceptance of an agreement upon the opportunity to review its terms, and extends certain warranty rules to these transactions. UCITA also creates implied warranties of the accuracy of information content, quiet enjoyment, non-infringement, fitness for licensee's purpose, and system integration, and permits disclaimers and modifications of these implied warranties and certain other provisions.
UCITA makes electronic records and signatures as effective as written records and signatures. It permits a contract to be formed by any means, including conduct that sufficiently indicates assent (e.g., clicking on an "I agree" button below the displayed contract terms will ordinarily suffice). UCITA also acknowledges the validity of e-agents (computer programs used to create and perform contracts) and provides basic rules and limitations for e-agents in creating binding obligations. This is revolutionary: traditional contract law had not recognized, but UCITA now confirms, that two parties to a transaction can have their computers enter into and execute a contract and perform the transaction for them. For example, parties to a transaction may use a computer program to buy and sell products at a certain price or under certain market conditions; the transaction occurs and is effective without the parties actually participating at the time it occurs.
A major point of contention in the drafting and approval process of UCITA, as well as in current criticism of the draft law, is the licensor's right to electronic self-help. Without UCITA, software licensees are vulnerable to electronic shut-off devices, and often negotiate protection from them in their contracts. UCITA constrains licensors' potential abuses of a self-help remedy by, among other things, requiring: (i) the licensee's separate assent to a contract term authorizing the use of electronic self-help; (ii) fifteen days notice before exercising the self-help remedy; and (iii) prompt judicial review. The conditions for exercise of this remedy may not be waived or varied.
UCITA does not apply to all things electronic. It excludes financial services transactions; audio or visual programming provided through broadcast, satellite, or cable; and motion pictures, sound recordings, and musical works.
This overview does not address many of the provisions, exceptions, and variable applications of the draft law. The Act is lengthy and complex, but merits reading. The following list highlights some of the unique and significant sections of the Act:
UCITA Section Description
112 Manifesting assent to contract
206 Contracts formed by electronic agents
210 Mass market licenses; right of return for refund and expenses
212 "Click-wrap" disclosures in Internet transactions
216 Electronic error (avoiding contract)
401 Warranties of quiet enjoyment and non-infringement (of U.S. rights)
402 Express warranties
403 Implied warranties of merchantability of computer programs (not information), to end users and to distributors
404 Implied warranty regarding informational content
405 Implied warranties of fitness for licensee's purpose and system integration
406 Disclaimers and modifications of warranty
802 Cancellation (including licensee's right to continued use for transition period in certain circumstances)
816 Electronic self help.
To read the Act, the draft Official Comments, and related materials, go to www.law.upenn.edu/bll/ucl/ucl_frame.htm.