A Setback for E-Consumers

While the Microsoft antitrust case attracts big headlines, a proposed law with potentially huge adverse consequences for competition and consumer welfare is quietly making headway in a few states, promoted by none other than Microsoft, along with some other software and on-line service companies.

The Uniform Computer Information Transactions Act (UCITA), as the law is called, was signed by the governor of Maryland last month and will become effective in October in that state and possibly elsewhere (under form contracts "choosing" the law of Maryland).

UCITA covers contracts for "computer information," a neologism that masks conceptual chaos, including software, on-line access services and content, books and databases on CD-ROM, and even the digital information on silicon chips in your car or oven.

Virginia also has enacted UCITA, but with an effective date of July 1, 2001, to allow a commission to study the concerns of consumers, business users and libraries.

UCITA validates holding back the terms of a deal until after a customer has paid, making clicking through legal terms while installing software or accessing content a legally airtight form of assent. Furthermore, it allows software, access and content companies to write their own intellectual property law, using "licenses" rather than sales to, for example, eliminate rights to transfer a copy or to develop products that work with other products.

UCITA thus addresses two legal controversies, in each case tipping the balance in the law in favor of producers. Click-through licenses allow producers to draw attention away from nasty, brutish and long standard form terms that deprive users of remedies for defective products and eliminate protections of intellectual property law.

Much litigation will be needed before we know whether UCITA's attempted end-run around intellectual property law will be accepted by the courts. Customers now have the right to transfer a purchased copy, and developers have the right to "reverse-engineer" purchased products to make others that operate with them. These rights are not clear when a "license" rather than a "sale" is used, an uncertainty that UCITA exploits.

Here are some examples of what UCITA could be used to do:

Eliminate the used digital book market. Instead of buying a digital book, you'll find yourself licensing use of it, with no right to transfer your copy. A store that attempted to sell used copies could be put out of business with an infringement action. Without competition from the used market, prices for new digital books would rise.

Burden or even eliminate the second-hand computer and automobile markets. If the operating system of a computer or the anti-lock braking software in a car is "licensed," licensors will be able to extract a pound of flesh for the privilege of transferring the software. As more and more goods have programs in them, UCITA will have great potential for harm.

Turn product defects into a profit center. UCITA fails to promote disclosure of known defects in software. A producer can take your money and only then tell you that the product is "licensed" as is, with all faults, and that there will be a charge for "service" to tell you how to deal with flaws the producer knew about.

These and other problems with UCITA are why every major consumer organization has opposed UCITA, including the National Consumer Law Center, the Consumer Federation of America and Consumers Union. Twenty-four state attorneys general and the Federal Trade Commission senior staff have also expressed concerns.

Yet the sponsor of UCITA, the National Conference of Commissioners on Uniform State Laws (NCCUSL), seeks UCITA's enactment in every state, even though the law's original co-sponsor, the American Law Institute, withdrew from the project because of poor policy choices and disapproval of the law's drafting.

Business customers are waking up to UCITA's flaws. UCITA authorizes software companies to give themselves the right under artfully drawn "termination" clauses to turn off products remotely, without advance notice to the customer or recourse for files lost as a result. This right has caused leading companies such as Prudential, John Hancock, Caterpillar and Walgreens to join the opposition.

UCITA's enactment in Maryland is unfortunate, but it is not too late to contain the damage. The Virginia process--enact first, study later--is far from ideal, but at least the study allows an opportunity for second thoughts.

Other states are not rushing into this legal thicket. UCITA has not been introduced in California or Massachusetts, both high tech centers. Illinois and New Jersey have it on hold. Iowa is even considering "bomb shelter" legislation that would make contract clauses valid under UCITA ineffective against Iowa customers.

The law's proponents have used myths to promote it in state legislatures; they say that UCITA will bring in high-tech businesses, that it is necessary to prevent software piracy, and that it will promote legal certainty. But industry experts say an educated workforce is the key to drawing high-tech businesses. Piracy is already subject to stiff civil and criminal penalties. And far from creating certainty, UCITA will increase tensions between high tech producers and customers, adding legal planning and litigation costs. Consumers will not benefit from this law: the only clear winners will be lawyers.

Jean Braucher is a law professor at the University of Arizona.