WHY THE PRESS SHOULD OPPOSE UCITA;
Prepared by David McMahon
What is UCITA?
The Uniform Computer Information Transactions Act (UCITA) is a proposed new law to govern contracts for software and access to digital information, including on-line services. It is sponsored by the National Conference of Commissioners on Uniform State Laws (NCCUSL). NCCUSL commissioners in each state are asking states to adopt it so that it will become uniform state law.
UCITA is controversial. Originally, it was supposed to be part of the Uniform Commercial Code (UCC). The UCC has been adopted in all states for many years, but is now in the middle of revisions. However, NCCUSL's UCC co-sponsor, the American Law Institute, withdrew from the project because of policy disagreements and the judgment that the law is poorly drafted. NCCUSL proceeded anyway, over the objections of 24 attorneys general, all major library organizations, media organizations, consumer advocates, and a number of large commercial users of software. The biggest supporter of UCITA is Microsoft, through an industry trade organization it heavily finances, the Business Software Alliance.
UCITA characterizes contracts for software and other digital material as "licenses," rather than sales of copies. This has the effect of throwing in doubt federal law that protects use of copyrighted material after sales of copies. Federal intellectual property law protects rights of quotation and criticism of copyrighted material, including software.
What provisions of UCITA should cause the Press to oppose UCITA?
UCITA on its face allows software publishers to include provisions in the boilerplate fine print of the software license that prohibits newspaper and magazine writers from writing reviews of software or publishing the results of tests of software without getting the permission of the software publisher. (Actually the prohibition is not fine "print". It is at the bottom of one of those windows the purchaser has the option of clicking on after purchasing the software, taking it from a store or downloading it, and beginning the installation of the software on the purchaser's computer at the time the purchaser is ready to use it.) These reviews by the press are important for consumers to be able to shop knowledgeably for software. They are important to force software publishers to compete on quality and not based on market share and marketing.
Publishers are already including these prohibitions in their licenses. The following restrictions were downloaded on July 20, 1999 from www.mcafee.com, the website for VirusScan, a mass-market software product. "The customer shall not disclose the results of any benchmark test to any third party without McAfee's prior written approval." "The customers will not publish reviews of the product without prior consent from McAfee." And software publishers do use the prohibitions to block magazine reviews. ("The Test That Wasn't," August 1999 PC Magazine 29. According to that article, Oracle, "Formally declined to let us [PC Magazine] publish any benchmark test results.")
Clauses like these might be enforceable for Beta software that is still being tested. There is an argument it should be enforceable in arms length negotiated licenses in, for example, custom software. But not for off the shelf licenses purchased by the public, for personal or business use.
UCITA on its face extends the apparent enforceability of such clauses to the mass market, as defined by UCITA, which does not even include some transactions with small businesses! The First Amendment does not override contractual restrictions between private parties. On the other hand, federal intellectual property law has protected rights to quote and criticize intellectual property.
Perhaps the prohibitions authorized by UCITA will eventually be found by the courts to conflict with public policy or free speech. There is no guarantee the courts would rule they are not enforceable. And the enactment of this statute with its apparent permission to have these clauses will give additional weight of authority for courts to allow them to be "enforceable".
Unless and until courts declare these restrictions unenforceable, the plain language of UCITA will have a chilling effect on criticism of mass-market products. Writers will be denied permission by well-financed software publishers. Editors and owners will be unlikely to risk major litigation against the Microsofts of the world when there are other things to write about. This lack of a guaranteed win is something else to give owners and editors pause in deciding whether to test the issues in court. Many reviews are done by small web site owners or by free lance writer who write a story and then try to sell it. The chilling effect of these clauses will be even stronger on these important segments of our publishing industries who do not have even the resources of a newspaper or magazine to pay the legal fees.
It is also important to note that the statute states that courts may "refuse to enforce" a provision if it is against a fundamental public policy. So UCITA does not prohibit such clauses from being in the contracts even if the courts find they are not enforceable. It just says that if they are in the contracts hey are not enforceable. (And to be unenforceable in every state there would have to be a case in every state or in all of the Federal Circuit Courts of Appeal or the United States Supreme Court.) A software publisher can still try to care reporters and customers by putting unenforceable clauses in a license.
So the lawyer drafting up the software publisher's boiler plate is given permission by UCITA to mislead. He could put in the prohibition knowing it is not enforceable. Perhaps it would be an unfair trade practice to put a provision in the boiler plate that a court has ruled to not be enforceable, but that's another law suit with lots of room for unfavorable judicial interpretation and no guarantees of the outcome.
A statute that is supposed to modernize our law to accommodate e-commerce should specifically catch the law of e-commerce up to the law already in place that permits reviews of copyrighted materials and so on. Such a new law should not foster litigation and help chill competition on quality.
What is the actual language of UCITA that causes these problems?
UCITA section 102(a) (20) says "'contractual use restriction' means an enforceable restriction created by contract which concerns the use or disclosure of, or access to licensed information or informational rights, including a limitation on scope or manner of use. [Emphasis added.]"
Section 307(b) states that "If a license expressly limits use of the information or informational rights, use in any other manner is a breach of contract. [Emphasis added]" A breach of contract is obviously a grounds for a law suit.
So, under the statute's own definition, a non-disclosure clause is a contractual use restriction. And under Section 307(b), such a restriction is enforceable.
The only limitation is the language in Section 105(b) which is set out below. It says that a court may refuse to enforce a contract against a fundamental public policy. Again note that the reference to federal law should be interpreted with caution. Software contracts are "licenses" under UCITA and not "sales" contracts, so the traditional federal limitations on copyrights, such as "fair use" are not directly applicable.
SECTION 105. RELATION TO FEDERAL LAW; FUNDAMENTAL PUBLIC POLICY; TRANSACTIONS SUBJECT TO OTHER STATE LAW.
How do knowledgeable commentators explain this -- Official comment; Professor Braucher?
1. Official Comment:
The "Official Comment" to UCITA tries to make the point that the courts would probably not "enforce" a provision in a contract that would allow a software publisher to get an injunction against a review of bad software. Again, how much intimidation of review writers and how many law suits with the parties paying their own attorneys' fees will it take before this obviously important and sound fundamental public policy is recognized in all of the states, if it is, that enact this uniform state law? The emphasis in bold was added by this author.
Below the Official Comment is a short reply by Professor Jean Braucher of the University of Arizona a member of the American Law Institute who has followed UCITA since it was first proposed as part of the Uniform Commercial Code.
SECTION 105. RELATION TO FEDERAL LAW; TRANSACTIONS SUBJECT TO OTHER STATE LAW.
Uniform Law Source: Uniform Commercial Code §§ 9-104(1)(a); 2A-104(1) (1998 Official Text)
Definitional Cross References: Section 102: "Agreement"; "Authenticate"; "Conspicuous"; "Consumer"; "Contract"; "Electronic"; "Information"; "Informational Rights"; "Record"; "Term".
. . .
3. Public Policy Invalidation. . . . In addition, subsection (b) acknowledges the general legal principle that, in certain limited circumstances, terms may be unenforceable because they violate a fundamental public policy that clearly overrides the policy favoring enforcement of private transactions as between the parties. The principle that courts may invalidate a term of a contract on public policy grounds is recognized at common law and in the Restatement (Second) of Contracts § 178 et. seq. [See Professor Braucher below on "fundamental" public policy.] It is a supplementary legal principle incorporated under Section 1-103 and applies to all contract law and all articles of this Code. Subsection (b) is designed to clarify the nature of the policies that have particular relevance to the subject matter governed by this Act.
Fundamental state policies are most commonly stated by the legislature. In the absence of a legislative declaration of a particular policy, courts should be reluctant to override a contract term. In evaluating a claim that a term violates this subsection, courts should consider a variety of factors including the extent to which enforcement or invalidation of the term will adversely affect the interests of each party to the transaction or the public, the interest in protecting expectations arising from the contract, the purpose of the challenged term, the extent to which enforcement or invalidation will adversely affect other fundamental public interests, the strength and consistency of judicial decisions applying similar policies in similar contexts, the nature of any express legislative or regulatory policies, and the values of certainty of enforcement and uniformity in interpreting contractual provisions. Where the parties have negotiated terms of their agreement courts will be even more reluctant to set aside terms of the contract. In light of the national and international integration of the digital environment, courts should be reluctant to invalidate terms based on purely local policies. In applying these, courts should consider the position taken in the Restatement (Second) of Contracts § 178, comment b ("In doubtful cases a decision as to enforceability is reached only after a careful balancing, in light of the circumstances, of the interests in the enforcement of the particular promise against the policy against the enforcement of such terms. Enforcement will be denied only if the factors that argue against enforcement clearly outweigh the law's traditional interest in protecting the expectations of the parties, its abhorrence of any unjust enrichment, and any public interest in enforcement of the particular term.").
The public policies most likely to be applicable to transactions within this Act are those relating to innovation, competition, and fair comment. Innovation policy recognizes the need for a balance between conferring property interests in information in order to create incentives for creation and the importance of a rich public domain upon which most innovation ultimately depends. Competition policy prevents unreasonable restraints on publicly available information in order to protect competition. Rights of free expression may include the right of persons to comment, whether positively or negatively, on the character or quality of information in the marketplace.
In practice, enforcing private contracts is most often consistent with these policies, largely because contracts reflect a purchased allocation of risks and benefits and define the commercial marketplace in which much information is disseminated and acquired. Thus, a wide variety of contract terms restricting the use of information by one of the contracting parties present no significant concerns. For example, contract restrictions on libelous or obscene language in an on-line chat room promote interests in free expression and association and such restrictions are enforced to a much broader degree arising out of contractual arrangements than if imposed by governmental regulation. However, there remains the possibility that contractual terms, particularly those arising from a context without negotiation may be impermissible if they violate fundamental public policy.
Contracting parties may have greater freedom contractually to restrict the use of confidential information than information that is otherwise publicly available. While a term that prohibits a person from criticizing the quality of software may raise public policy concerns if included in a shrink-wrap license for software distributed in the mass-market, a similar provision included in an agreement between a developer and a company applicable to experimental or early version software not yet perfected for the marketplace would not raise similar concerns. Trade secret law allows information to be transferred subject to considerable contractual limitations on disclosure which facilitates the exploitation and commercial application of new technology. On the other hand, trade secret law does not prohibit reverse engineering of lawfully acquired goods available on the open market. Striking the appropriate balance depends on a variety of contextual factors that can only be assessed on a case-by-case basis with an eye to national policies.
A term or contract that results from an agreement between commercial parties should be presumed to be valid and a heavy burden of proof should be imposed on the party seeking to escape the terms of the agreement under subsection (b). This Act and general contract law recognizes the commercial necessity of also enforcing mass market transactions that involve the use of standard form agreements. The terms of such forms may not be available to the licensee prior to the payment of the price and typically are not subject to affirmative negotiations. In such circumstances, courts must be more vigilant in assuring that limitations on use of the informational subject matter of the license are not invalid under fundamental public policy.
Even in mass market transactions, however, limitations in a license for software or other information such as terms that prohibit the licensee from making multiple copies, or that prohibit the licensee or others from using the information for commercial purposes, or that limit the number of users authorized to access the information, or that prohibit the modification of software or informational content without the licensor's permission are typically enforceable. See, e.g., Storm Impact, Inc. v. Software of the Month Club, 13 F.Supp.2d 782 (N.D. Ill. 1998) ("no commercial use" restriction in an on-line contract). On the other hand, terms in a mass-market license that prohibit persons from observing the visible operations or visible characteristics of software and using the observations to develop non-infringing commercial products, that prohibit quotation of limited material for education or criticism purposes, or that preclude a non-profit library licensee from making an archival copy would ordinarily be invalid in the absence of a showing of significant commercial need.
Under the general principle in subsection (b), courts also may look to federal copyright and patent laws for guidance on what types of limitations on the rights of owners of information ordinarily seem appropriate, recognizing, however, that private parties ordinarily have sound commercial reasons for contracting for limitations on use and that enforcing private ordering arrangements in itself reflects a fundamental public policy enacted throughout the Uniform Commercial Code and common law.
In part because of the transformations caused by digital information, many areas of public information policy are in flux and subject to extensive debate. In several instances these debates are conducted within the domain of copyright or patent laws, such as whether copying a copyrighted work for purposes of reverse engineering is an infringement. This Act does not address these issues of national policy, but how they are resolved may be instructive to courts in applying this subsection. The most recent national statement of policy on the relationship between reverse engineering, security testing, and copyright in digital information creates an express treatment of reverse engineering and security testing in connection with circumventing technological measures that limit access to copyrighted works. It recognizes a policy to not prohibit some instances of reverse engineering in cases where it is needed to obtain interoperability of computer programs. 17 U.S.C. § 1201 (f) (1999) ("a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title."). It further recognizes a policy to not prohibit security testing where it is needed to protect the integrity and security of computers, computer systems or computer networks. 17 U.S.C. § 1201(j)(1999) ("the term `security testing' means accessing a computer, computer system, or computer network, solely for the purpose of good faith testing, investigating, or correcting, a security flaw or vulnerability, with the authorization of the owner or operator of such computer, computer system, or computer network [It] is not a violation for a person to develop, produce, distribute or employ technological means for the sole purpose of performing the acts of security testing "). This policy in many circumstances may outweigh a contract term to the contrary.
With reference to contract law policies that regulate the bargain of the parties, this Act makes express public policy choices. Contract law issues such as contract formation, creation and disclaimer of warranties, measuring and limiting damages, basic contractual obligations, contractual background rules, the effect of contractual choice, risk of loss, and the like, including the right of parties to alter the effect of the terms of this Act by their agreement should not be invalidated under subsection (b) of this section. This subsection deals with policies that implicate the broader public interest and the balance between enforcing private transactions and the need to protect the public domain of information.
The court, if it finds a particular term unenforceable under this section, may enforce the remainder of the contract if it is possible to do so. In considering this issue the court should consider the factors described in Restatement (Second) of Contracts §184.
2. Professor Braucher:
UCITA requires a balancing test when a contract term violates fundamental public policy: UCITA limits the common law discretion of a court to refuse to enforce a contract or a portion of a contract when the contract violates public policy. This doctrine is limited in UCITA to cases where the court finds that the public policy is "fundamental," and then only "to the extent that the interest in enforcement is clearly outweighed by a public policy against enforcement of the terms." Section 105(b). If a term violates a fundamental public policy, should the court also have to engage in a process of balancing the interest in enforcing that term against the public policy? The Restatement (Second) of Contracts, in Section 178, calls for balancing, but does not require that the public policy be "fundamental." A further objection to this provision is that it will require decades of litigation to find out what sort of license terms are unenforceable. The provision should be clarified with a list of examples of unenforceable terms (for example, terms that prohibit reasonable quotation of digital works, restrictions on public comment on mass-market products).