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PROPOSED UCITA-RELATED LEGISLATION

While UCITA is increasingly being perceived as a failed attempt to modify the law to meet the demands of the Digital Age, other more narrow efforts to modify the Uniform Commercial Code (UCC) have been simultaneously underway. AFFECT is concerned that certain proposed amendments to UCC Article 1 and Article 2, if adopted, would create changes to the law that would negatively impact business and consumer transactions and create fertile ground for a renewed interest in UCITA in the future. AFFECT has followed these issues for several years and the coalition has filed comments with both NCCUSL, the American Law Institute (ALI) and several state legislatures. AFFECT will continue to oppose the adoption of these proposed amendments in state legislatures.

PROPOSED ADMENDMENT TO UCC ARTICLE 1-SECTION 301: CHOICE OF LAW

When an employee clicks "I agree" upon installing software you would expect the law governing the contract would be determined by either the software licensor’s or the licensee’s home state. However, under proposed changes to Article 1 of the Uniform Commercial Code (UCC), that practice would change. Instead a software licensor could choose the law of any state to apply to the software license.

In the past, the UCC, which has been adopted in all states, sensibly required that a choice of law provision had to bear a "reasonable relation" to the contract. AFFECT still favors this approach and disagrees with the current recommendation to amend Article 1, section 301 to eliminate such a requirement. Small businesses, Fortune 500 companies and non-profits all have to enter into electronic contracts or other types of standard form contracts in which the licensor unilaterally determines the terms. The proposed revision would place everyone who agrees to these contracts at the mercy of those who are drafting them, provided that a court considers the software contract to be within the UCC. Many courts have so ruled and there is little reason to think that this will change any time soon.

Even though consumers are excluded from this provision, if a consumer agrees to such a contract and then uses the software in a home office, it is unclear if the consumer protection would continue to apply. If a corporation, a mom and pop business and a consumer purchase the same software and are forced to agree to the same contract, why should the small business be forced to have the least favorable law in America apply in the event of a contractual dispute?

AFFECT, whose primary concern is preventing the further adoption of the Uniform Computer Information Transactions Act (UCITA), is greatly troubled by this proposed amendment to the UCC. In effect, passage of this revision would remove any legal obstacle to the application of UCITA in states that have never passed it. Consequently, Massachusetts residents, for example, could be subject to software vendors’ imposition of the law of Virginia (hence UCITA) even if the Massachusetts’s citizen’s own legislature has rejected UCITA. Such a change to the UCC opens the door for one state’s law to supersede the other forty-nine states, destroying the relatively level playing field that currently exists and overcoming citizens’ choices (through their elected representatives) of the law that should apply to them.

From a practical perspective, AFFECT opposes the removal of the “reasonable relation” language because it will make contract review a more complicated and hence more costly process. Currently, contract drafters can choose from three or four states—those states that have a “relationship” to the parties and the contract-- in a choice of law clause. With the proposed changes, a licensee would not be able to presume that “reasonable relation” and would have the impossible job of figuring out what the vendor’s choice of unexpected law means to the risks she takes in her contract.

AFFECT does not believe there is a need for this modification to the UCC. To permit – as proposed UCC Article 1 does -- two entities in the same state to choose the law of a distant state, unrelated either to them or the subject of their contract, injures not only the party that did not have the ability to draft or negotiate the contract, but also the rule of law and democratic values of the state in which both the parties reside.

Related Documents

AFFECT Opposes Changes to UCC Article 1 Choice of Law Section (one page brief) [pdf] Professor William Woodward, Temple University • Top 12 Problems with 1-301, • UCITA Imperialism

PROPOSED ADMENDMENTS TO UCC ARTICLE 2

While continuing to oppose UCITA, AFFECT must also speak out against proposed amendments to Article 2. Existing law, including Article 2, contract law and federal intellectual property law, has proven sufficient to address legal issues regarding computer information transactions and to balance the interests of producers and users. Explicitly stating that software is not goods covered by Article 2 would cause courts to turn to UCITA as persuasive authority, even in states where legislatures have declined to enact UCITA. However, simply deleting the new exclusion of “information” in the definition of goods would not be an adequate solution to our objections to Amended Article 2. Unfortunately, other proposed amendments would make Article 2 less clear and less balanced when applied to software transactions.

1. The amendments exclude “information” from the definition of goods in Article 2, increasing uncertainty and non-uniformity in the law of software and in the law covering products that include software. Section 2-103(1)(k). There is no definition of information. A confusing new comment suggests that the undefined term refers to at least some software, particularly downloaded software and possibly other software as well. The comment also indicates that the concept of “information” has been left vague, deliberately leaving courts to determine the scope of Article 2. This approach is inconsistent with the UCC goal that seeks to clarify the law and make it more uniform.

Most existing case law concerning software transactions cites Article 2. The amendments would invite re-litigation of all this case law. Consequently, software contracts could be treated as governed by non-uniform common law of contract. In any software dispute, there would be an initial issue about whether Article 2 applies, before getting to the merits of the case. In addition, the exclusion of information would create a new argument for UCITA, which is unacceptable in myriad ways explained in AFFECT materials that can be found on its website. www.ucita.com

2. Amended Section 2-207 concerning form terms is even less clear than the existing provision and more likely to be interpreted as authorizing delayed material terms, even in consumer transactions. Section 2-207 is another section that has been deliberately left vague, a point underscored in a new comment stating that the intent is to give courts greater discretion to determine what terms have been agreed to. It could be argued that the amended section approves of delayed “click-wrap” and “shrink-wrap” terms, even in consumer transactions. The provision fails to clearly require pre-transaction disclosure of terms so that business and consumer customers can avoid terms that they would not agree to if known to them.

3. In electronic contracting, a new subsection underscores the idea that clicking forms a contract even if the terms weren’t available until after payment or delivery. Section 2-204(4)(b). This is another provision that undermines the norm of pre-transaction disclosure, even in consumer contracts.

4. Amended Article 2 would confuse the law of electronic transactions. Electronic contracting is already authorized by federal law, the E-Sign Act, and also, in most states, by the Uniform Electronic Transactions Act (UETA). Amended Article 2 repeats, in slightly different language, points already made in these pieces of legislation. The result would be added confusion. These Article 2 provisions are not only unnecessary but counterproductive if the aim is to facilitate electronic commerce. See Sections 211-213.






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