[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
A Bad Law for Bad Software
The Uniform Commercial Code is the dominant commercial law in the US. It is
also much of the basis of the Convention for the International Sales of Goods.
We're drawing to the end of a many year process of writing a large (currently
217 page) amendment to the UCC that will cover all contracts for the
development, sale, documentation, licensing, support, or maintenance of
software, and for the licensing of most other types of information (movies,
cable tv, etc.)
I've been active in the process for the last 2.5 years. Other software
developers and software quality advocates who have come with me to these
meetings include Watts Humphrey, James Bach, Doug Hoffman, Brian Lawrence,
Melora Svoboda, David Pels, Sharon Marsh Roberts, Clark Turner, and other
people whose names (I'm sorry) I forget at the moment.
I started out favoring the adoption of a uniform software law -- I still think
we need one. But I don't think that this one will develop into a law that I
can support. I could use help figuring out how to fight this thing, state by
state. I am not an experienced politician and very much inexperienced as a
lobbyist.
Your advice and your support (I'm asking for help, not money) would be
welcome.
A letter to your state's governor and or to your state legislator would be
useful. Such letters will be especially useful before July 15, 1998, but if
you don't see this memo until after that, send a letter anyway. The
May/June/July
letters will put pressure on the Article 2B drafting committee to clean up its
act before submitting a bill to the state legislatures. Later letters will
influence the legislatures in terms of whether they'll adopt the bill (or even
consider it). The organization drafting Article 2B is prestigious and
politically effective. This is a serious effort. Without serious opposition,
Article 2B will become law. For more information on the 2B process, see Kaner,
C. & B. Lawrence (1997). UCC Changes Pose Problems for Developers. IEEE
Software, March/April, 139-142, or Kaner, C. (1996). Uniform Commercial Code
Article 2B: A new law of software quality. Software QA, 3, #2, 10.
Available at
<http://www.badsoftware.com/uccsqa.htm>www.badsoftware.com/uccsqa.htm.
The next meeting of the 2B drafting committee will be May 1-3 in St. Louis.
After that, there is a national UCC meeting in Cleveland at the end of July.
That might be the last open-to-the-public meeting (it's the last one currently
scheduled). Some private meetings are scheduled for the fall, followed by a
scheduled introduction into state legislatures in January, 1999.
-- Cem Kaner
========================================
This memo includes my speaker's notes from my talk at the
Conference on the Impact of Article 2B of the UCC
on the Future of Transactions in Information and
Electronic Commerce
at UC Berkeley, Center for Law & Technology, April 25, 1998.
The remarks were accompanied by four handouts:
-- Kaner & Paglia (1997) (Consumer Issues & Article 2B,
included here as Appendix A)
Paglia works for Ralph Nader, but he and I have worked incredibly hard
to develop a position that would not harm the software publishing
industry. My biggest challenge over the first 2 years that I worked on
2B lay in explaining the inherent difficulties of the software industry to
consumer protection advocates, in a way that would encourage them
to avoid making demands that would unfairly burden the industry. This
letter shows that progress.
In comparison, check out the recommendations made by the IEEE.
<http://www.softwareindustry.org/issues/guide/docs/ieee2b.html>http://www.S
oftwareIndustry.org/issues/guide/docs/ieee2b.html
Some of these map onto Paglia's and my recommendations, while
others are distinct. At this point, the Article 2B committee has
accepted none of them and rejected or expressly refused to
vote on 4 of them. One is still under discussion.
-- Kaner (1998) (Article 2B and Quality/Costs Analysis, included
here as Appendix B)
-- portions of McAfee's license for Viruscan (quoted in the text) and
-- Kaner (1998) (Bad Software--Who is Liable, Invited Address to the
American Society for Quality, May 1998. Available from the author.
To request it, send a note to kaner@kaner.com.)
Additional papers of mine are available at http://www.badsoftware.com.
Before I go to the talk, which was written for lawyers, here's some
background.
===========================
SUMMARY
This talk makes two points:
1. This bill is so biased against small customers that it will become a public
embarrassment for ALI (the American Law Institute) and NCCUSL (National
Conference of Commissioners on Uniform State Laws) if it reaches the
legislatures.
2. In its zeal to protect the worst software publishers from consequences
arising from their worst products, Article 2B will change the economics of
mass market software publishing as a whole. The effect will be increasing
pressure
on publishers, especially mid-size publishers, to ship product prematurely.
And let the customers eat the cost. This is bad policy and it will damage our
industry severely over the long term.
________________________________________________
I favor the adoption of a uniform law for software. I've invested a huge
amount of time and money over the past 2.5 years trying to improve 2B so
that it
could become a uniform law for software. My legal client base is dominated
by small
developers and authors. My technical client base includes several large
publishers. I live in this industry and I want laws that will do well by it.
I've made ongoing attempts to propose or to broker compromises to strengthen
this bill. Another speaker referred critically to attempts to turn Article 2B
into a "Uniform Consumer Code." Before you form a judgment, please read Todd
Paglia's and my paper on the consumer position. (Paglia represents Ralph
Nader's Consumer Project on Technology.) These points are hardly extremist
demands. It has taken me a tremendous amount of work with the consumer
protection community to come up with a balanced set of
proposals--characterizing them as extremist doesn't help the negotiations go
forward.
A speaker earlier today talked at length about the need for a more
apppropriate implied warranty of merchantability. I agree. Bob Gomulkiewicz
(Microsoft's
lawyer) and I worked together on the warranty of merchantability. Our goal was
to write something that consumers could support and that Microsoft would
actually be willing to offer. WE SUCCEEDED.
It wasn't easy. It took a long time. I don't know about Bob's efforts with his
constituency. I worked with mine on it, on and off, over a period of one and a
half years.
Now, when I say we succeeded, I mean that Bob and I came up with a proposal
that we both signed and that we jointly submitted to the Article 2B drafting
committee nearly a year ago.
You can find a modified version of our proposal--and I don't think that either
of us did the modifying--in the March 1998 Article 2B draft, in the Reporter's
Notes to the Implied Warranty of Merchantability.
The Committee finally considered that proposal last month. I corrected the
revision in the discussion. The Committee chose not to vote on the proposal,
even in the face of repeated advice that if they left the current implied
warranty alone, no sane software publisher would provide it.
The Committee chose not to vote on that compromise. It chose not to vote on
another compromise (Paglia/Nader's motion on documentation, which the Software
Publishers Association was willing to live with), and it has chosen to not
vote on, or to reject, several other proposals that I and others have made
in the
spirit of compromise and accommodation for all sides.
People at this conference have asked whether consumer advocates have attended
the Drafting Committee meetings. Yes we have. And we have succeeded in getting
some of the worst pieces of 2B out. But in terms of positive changes to
balance out the major shifts from Article 2 to Article 2B, we have achieved
nothing. My average is 0.000, even on compromise proposals. I don't know of
a way to make
progress with this Committee.
I'd love to expand on that, but I've set aside the rest of my time for this
talk for a discussion of law and economics, in particular about the economics
of defective software. So let's move to that now.
Software publishers are under constant pressure to ship products quickly,
whether they're any good or not. One of the pressure factors is the problem of
path dependence, all those network effects. The first company to market
with an idea is the one most likely to become dominant. Later products in
the same
category, such as the fifth or sixth on the scene, are unlikely to catch any
measurable market share even if they're much better. That creates a constant
risk vs. risk tradeoff.
Against this pressure to ship early is the risk of shipping a product with
serious defects, and of facing serious costs associated with the defects. The
quality control community calls these external failure costs--the costs
associated with putting a defective product into your customer's hands.
The economics of quality are driven by a balance of costs of investment in
making a good product against the risk of external failure costs.
Article 2B drives external failure costs down, independently of product
quality. It keeps these costs low even when quality declines. That distorts
the risk/benefit analysis because you have less pressure to improve the
product.
Let's look at these costs more carefully:
EXTERNAL FAILURE COSTS can be categorized as (see Appendix B):
-- Customer support costs
-- Lost sales
-- Legal costs.
On the customer support side, we find that software publishers can charge for
support. $3 per minute is a common charge. Suppose that a publisher ships a
product with hundreds of known bugs -- this is common. They don't document
them. They include the 2B-permitted warranty disclaimers and damage
limitations.
Now suppose that you pay $50 for this program, that you get bit by some of
these known bugs, and you lose time and money as a result. Eventually you call
for support. You pay $3 per minute, eventually racking up $100 in support
charges. Eventually the publisher agrees to give you a refund. You get $50.
Congratulations. You still lose the $100 because these are excluded incidental
expenses. Even if the publisher knew about the defect when it sold the
software, you will have to pay for the support for this defect.
Not many statutes invite companies to make a profit center out of their
defects. 2B is special.
I've repeatedly proposed a rule that doesn't allow companies to exclude
incidental expenses (such as the cost of making phone calls for support) that
are caused by genuine defects. The proposal has gone nowhere.
Now let's consider lost sales by looking at a couple of competition examples.
First, Article 2B lets publishers hide their terms inside the box. It lets the
online seller wait before telling you the terms of the deal until after you've
downloaded the software and paid for it and started installing it. So when you
buy it, you don't know it'll cost you $3 a minute for support. Or that someone
else charges $2.
One of the publisher's lawyers told us yesterday that the product people
buy is not the software. Nope. Instead, he said, "the product is the
license." When
software customers go shopping for a word processor, they aren't shopping
for a product that will do wordprocessing things for them, they're shopping
for a
bundle of rights. OK, if the product is the license, then we should understand
that 2B puts software publishers in the business of selling grab bags. You
never know what you're going to get until after you buy it. And you don't know
what's in the competing grab bags. For a law that relies on competition to
police the market, you'd think it would foster free disclosure of information,
not help publishers prevent it.
One of the publisher's lawyers said that they want customers to know the terms
of software licenses. Of course they do. That's why they tell you those terms
very precisely. But they only tell you after the sale, when it is nearly
impossible to check the terms of competing licenses.
You'd think that the federal Magnuson-Moss Warranty Improvement Act would
require publishers to reveal their warranties and other significant terms
before the sale, at least for consumer goods. But under 2B, the customer only
buys a license, not goods. Mag-Moss and many of the state-level consumer
protection statutes, apply specifically to sales of goods. Publisher's lawyers
will therefore argue that it doesn't apply to software. Courts routinely find
that packaged software is goods today. But that goes away under 2B. We've all
heard that Article 2B doesn't override any consumer protection laws. And it
doesn't. Any consumer protection laws that used to apply to sales of licenses
will still apply to licenses. Any consumer protection laws that apply to sales
of goods will still apply to goods--we just take software out of the list of
goods, which is where the most famous consumer protection laws apply. If this
isn't what's intended in 2B, and I've been repeatedly told that it is not
what's intended, we can fix it easily enough by saying in the statute that
packaged software is intended to be treated as "goods" for the purpose of
consumer protection laws. Paglia and I have made that proposal. It has gotten
nowhere.
Publishers also get to create use restrictions. 2B's definition of contractual
use restrictions includes nondisclosure agreements. Let's look at
nondisclosure terms from a significant and reputable publisher.
- "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."
How do you get competition if information doesn't and can't flow freely in the
market? If you don't have this type of information flow, how many sales will a
company lose because of bad software?
Today, such clauses seem ludicrous. One of 2B's proponents told us that
clauses like this would be entirely unenforceable, and that federal courts
would stike
them from contracts. But isn't that what used to be said about the post-sale
warranty disclaimer, that the customer couldn't see before the sale? Who would
have thought that this could be called "conspicuous" and would be binding? No
court has ever said that a company could get away with this and many have
rejected it. But 2B makes this black letter law. These licenses are full of
ludicrous terms and 2B has given effect to a remarkable number of them. The
justification for this is "common practice in the industry." So how many
licenses like McAfee's will it take before mass-market nondisclosure terms are
validated as common practice in the industry?
Fair use restrictions should be banned from the start, not permitted under 2B
unless a federal court declares them unenforceable. And remember,
TO GET THESE TERMS DECLARED UNENFORCEABLE,
THE CONSUMER HAS TO SPEND A FORTUNE IN COURT.
Federal rules are based on the U.S. Constitution, which allows Congress to
create patent and copyright rights in order to promote the development of the
arts and sciences. There is a balance between the property rights of the
artists and inventors and the purpose behind creating those rights, which
is to encourage the development of intellectual material that can be used
by all of
us.
Article 2B calls itself "neutral" on these issues of conflict between
aggressive licensing practice and federal intellectual property law. But it
creates a presumption that restrictive clauses are valid. It resets customer
rights to zero and says, "Hey, we're neutral. If you can win your rights back
in federal court, you just go ahead."
Some people say that "unconscionability" will protect consumers from these and
many other abuses. The Article 2 drafting committee looked at the actual
use of unconscionability in UCC cases since 1980. They found that about 12
contracts
that had been declared unconscionable. This doctrine is not actively enforced.
Surely a judge will find it hard to declare practices unconscionable that are
widespread and specifically authorized by statute.
And again remember -- unconscionability is a judicial remedy. You want
something declared unconscionable, you go to court. That's not cheap, it's not
fast, and it's fact specific. We heard an excellent idea yesterday--a new and
broader version of unconscionability. Contract clauses would sort themselves
into three bins--green bins (approved and valid), red bins (courts will
routinely strike them from the contract or cancel the contract) and yellow
bins (not yet settled). I like the idea and I like the thinking behind it.
But it
will take years--and much worse, it requires the steady accumulation of
precedent setting court decisions. Gateway 2000 v. Hill teaches us that some
courts will enforce compulsory arbitration clauses in mass market licenses
even when the arbitration costs are excessive and the cause of action involves
widespread public interest (in this case, alleged consumer fraud). How will be
assured of the steady pace of development of the common law that would be
required to make this new unconscionability provision fair?
And this takes us to the final area of concern as far as external failure
costs--legal expense. 2B drops Article 2's notion of the minimum adequate
remedy and it drops Article 2's statement of policy that courts should
administer remedies liberally to put the nonbreaching party in the position it
would have been in had the other party performed its duties under the
contract.
This policy is abandoned in favor of a stated policy of freedom (for the
seller) of contract. 2B lets publishers declare that customers are entitled to
no damages--just a rescission (refund in which you return the merchandise). 2B
lets publishers choose their forum (where they can be sued) in ways that make
it way too expensive to bring a suit. There is new limiting language on the
choice of forum in the latest drafts of 2B but don't be fooled by it--it comes
directly from a line of cases starting with Carnival Cruise Lines v. Shute
--all of them cases that made consumers travel across the country or out of
the country to sue.
In creating a new law for software, Article 2B is stepping into territory that
involves passionate debates in every software company during almost every
software release. When can we ship? What is our minimum quality to ship? How
much do we have to invest in processes to improve quality and customer
satisfaction? Article 2B is putting its position into these debates, in a
fundamentally important way, without considering the effects on good practice
in good companies. The results will not be favorable.
===================================================
APPENDIX A
CONSUMER ISSUES AND ARTICLE 2B
Cem Kaner & Todd Paglia
ORIGINAL DRAFT SENT TO ALI, DECEMBER 5, 1997
I am submitting this to the ALI on behalf of Todd Paglia of Ralph Nader's
Consumer Project on Technology and myself.
It is our understanding that the ALI is interested in hearing a short list of
proposed changes to Article 2B that would make it more palatable to consumers
and small business customers. We are submitting this prioritized list in that
spirit.
We are deeply concerned about Article 2B. We believe that it is seriously
flawed, and that little has been done to correct its biases despite strong and
detailed opposition from consumer and small business representatives. Our
concerns run deeper than the 12 items listed in this memo. We are, for
example, fundamentally in opposition to the position taken by the drafting
committee
that it is desirable to simultaneously recognize the validity and
respectability of adhesion contracts and to declare that they should be
completely unregulated on the grounds of freedom (for the drafter) of
contract.
We believe that the committee is giving software publishers significantly more
power to set their terms than they have under current law, and we see no
public interest in support of this.
Here is our list.
1. Consequential damages
Article 2B makes it easy for the mass-market software publisher to escape
liability for incidental and consequential damages. We understand the policy
tradeoffs inherent in this, but protest that this is outrageous in an adhesion
contract when it is applied to a defect that was known to the licensor at the
time of sale or was not known only because of gross negligence on the part of
the licensor.
Depending on the balance of the rest of the draft, we are willing to
consider a reversal of the default rule for consequentials, eliminating
them (unless
provided for in the contract) except when the damage was caused by a known
defect or a defect that was not known only because of gross negligence on the
part of the licensor.
We are also willing to see a cap on these non-excludable consequential damages
in the mass-market. Kaner has suggested a maximum per license of $500 or five
times the license fee, whichever is greater. This will probably not fully
compensate the customer, but it will provide a needed incentive for publishers
to fix their more serious defects.
We are also willing to see an exclusion of consequentials for a known defect
if, at or before the time of contracting, the licensor supplies to the
licensee a record that:
- Describes the defect in a way that is understandable
to a typical member of the market for this product,
- Explains how to work around the defect, in a way
that is understandable to a typical member of the
market for this product,
- Explains how to avoid the defect, in a way that is
understandable to a typical member of the market
for this product,
- and that explains how to recover from the defect, in a
way that is understandable to a typical member of the
market for this product.
When dealing with an industry that ships products with known defects as a
matter of course, customers should at least be given a fair chance to mitigate
their losses.
2. Choice of forum
The effect of Article 2B will be to provide small customers with no forum for
their disputes with a publisher.
We recommend that if (a) the contract is mass-market and (b) the amount in
controversy is within the customer's home state's small claims court
jurisdictional limit, then the customer can bring an action in his home state
or, if he cannot obtain personal jurisdiction over the defendant in his home
state, then anywhere where he can obtain jurisdiction over the defendant. The
adhesion contract can specify a choice of forum, and it will be enforced if
the amount in controversy (aggregated over all plaintiffs, in a class
action suit)
is greater than the small claims court jurisdictional limit.
3. Express warranty
We recommend:
Statements, descriptions or affirmations of fact in the
hard copy or online documentation or on the packaging
or in other statements made by the publisher to the public
at large should be express warranties, whether or not the
licensee was aware of their content at the time of contracting.
Our rationale for including statements made to the public at large is that
these are restated in trade publications that circulate widely to the general
public. They become part of the basis of the bargain in fact, but the chain
from the public statement through the magazine to the customer is too hard to
prove.
4. Intellectual property
Mass market licenses should not be allowed to include prohibitions against
reverse engineering, decompilation, and other similar use restrictions. Nor
should they be allowed to declare the observable behavior of the product a
trade secret and they should not be able to impose restrictions that conflict
with the first sale doctrine.
We agree that a publisher can and should be able to impose restrictions in a
license that go beyond those available to a seller of goods (books or
merchandise containing patented technology) but it should not be allowed to do
so in adhesion-contract-based transactions conducted in the mass market.
We propose:
A term restricting the use of a mass-market product is
not valid in a mass-market license unless it (a) would be
an enforceable term in a contract for the sale of the
product or (b) is a conspicuous restriction on the number
of times the product can be used, the length of time that
the product is licensed for, or the number of people who
can simultaneously use the product.
5. Incidental damages
Many of the incidental damages involved in mass-market software are imposed by
the publisher or as a consequence of delays created by the publisher. For
example, the Software Support Professionals Association reports that it
takes,
on average, 30 minutes for a customer to reach an appropriate person to ask
about a problem with a software product. Most of the rest of the time is spent
sitting on hold, burning through long distance charges. Many publishers now
charge complaining customers a fee per minute or per call and some charge the
fee even if the customer is reporting or complaining about a defect that was
known to the publisher at the time of the sale.
We recommend:
A mass-market publisher should not be able to exclude incidental
expenses that are incurred in reporting the defect, in returning the
defective product, or in seeking support from the publisher for the
defect or its consequences.
6. Consumer protection
Under the Magnuson-Moss Warranty Improvement Act and the associated FTC
regulations, customers are entitled to see the warranty of any goods sold for
$15 or more. As the Software Publishers Association’s own Model PC Software
License Agreement (and Explanatory Comments) states (p. 35), “It is reasonable
to assume that software purchased for home computer use would be covered by
thec Act.”
Yet software customers are rarely able to see the warranties provided with
software until after the sale. This makes it difficult for individuals and
reporters to compare the extent to which competing companies will stand behind
their products. Article 2B characterizes mass-market sales of software as
licenses, which might not be covered by the Magnuson-Moss Act, and blesses the
practice of refusing to allow customers to see the contracts until after the
sale is complete.
We recommend:
Warranty rules and other consumer protections should
be the same for mass market software products and
goods.
Article 2B should explicitly state that, for purposes of
state statutes and other state law concerning contracts
for consumer goods, and for purposes of all other
consumer protection statutes of the state, a mass
market license is a “good.” Also, Article 2B should
state that the provisions of the Magnuson-Moss Act
apply to mass market software, to the extent that
other state law does not cover the same area.
7. Material breach
A breach should be considered material if it would be material under the
Restatement of Contracts or if the breach caused or may cause substantial harm
to the aggrieved party, including imposing costs that exceed the contract
value.
8. Mitigation of damages
2B-707 requires the customer to maintain backup systems just in case of breach
of contract by the software publisher. The customer cannot recover
compensation for losses that could have been avoided if the customer
regularly backed up
her data.
There are many ways that any prudent person can protect herself against the
possibility of breach of contract by any other party. The point of a contract,
though, is that it lays out the duty of the publisher to not breach. The
customer should not have to spend time, effort and money on defensive steps,
before a breach, to minimize the damages that will be incurred if the
publisher should happen to breach.
It is frequently reported that individuals and small businesses rarely back up
their hard disks. At a Law Practice Management session at the August 1997 ABA
meeting in San Francisco, only half the attendees reported that they backed up
their hard disks. This might not be wise on their part but it is the current
situation. Why should the law grant contract-breaching publishers a special
deal by requiring a higher standard of self-protective care from customers
than customers currently afford themselves today?
The requirement in 2B-707 that customers must back up their data should be
struck.
9. Internet rules
Customers who purchase a product or license over the Internet or through some
other electronic transaction shall have the same rights as if they
purchased or licensed it by any other means.
10. Electronic Commerce--attribution
2b-116(a) unfairly allocates risk of loss onto customers. If the security of
the customer's computer is compromised, then messages can be sent that appear
to be coming from the customer but do not. The customer has to prove
non-negligence to avoid paying for all of the losses caused by the ensuing
fraudulent transactions. The overall security of the system, however, is
heavily under control of the other parties (see Kaner, Article 2B is
Fundamentally Unfair to Mass Market Software Customers, submitted to ALI for
the October meeting and available at http://www.badsoftware.com/ali.htm).
This risk allocation is inappropriate for this emerging technology. Kaner
recommends that the presumption that a message came from the apparent
sender be very
weak, a bursting bubble.
A more traditional consumer requirement would be a limit on consumer
liability, to $50 or $100.
11. Electronic commerce - risk of error
2B-117's restriction to consumers is too narrow. The problem is that user
errors are heavily determined by the designer of the system, and the system
design is fully under the control of the seller. Computer systems are not
fully familiar to the average customer, whether that person is a consumer,
a lawyer,
or another non-software-merchant.
2B should provide the seller with reliance damages in the event of an error by
the customer, but should otherwise allow the mistake-making customer to escape
liability.
12. Arbitration clause
A compulsory arbitration clause in a mass market license should not be binding
if the dispute involves fraud or defects that could threaten the health or
safety of customers or the general public.
A compulsory arbitration clause in a mass-market license should not be binding
unless it provides for arbitration in the home state of the customer.
Yours truly,
Cem Kaner signing on behalf of himself and Todd Paglia, Esq.
=============================
Appendix B
ARTICLE 2B AND QUALITY/COST ANALYSIS
Presented at The Impact of Article 2B conference, Berkeley, CA, April, 1998.
This summarizes Bad SoftwareWho is Liable?, provided in your conference
materials.
Businesses spend fortunes on quality-related costs. Traditionally, quality
engineers categorize these:
-- Prevention costs: costs of avoiding making defects, e.g. worker training.
-- Appraisal costs: costs of finding defects pre-sale, e.g. inspections.
-- Internal failure costs: costs caused pre-sale by defects, e.g. scrap and
rework.
-- External failure costs: costs caused by defects in products that have
reached the customer, e.g. cost of handling customer complaint calls.
Note that these are all costs of the seller. There are also externalized
costs, costs paid by the customer and not by the seller. Customer costs are
partially
and indirectly reflected when they bounce back as external failure costs.
External failure costs include:
-- Customer support costs
-- Lost sales
-- Legal costs.
Article 2B is a multi-pronged assault on external failure costs. It drives
these costs way down in mass-market cases, and keeps them low even when
quality declines. This reduces the economic pressure on software publishers
to improve
their products, resulting, I believe, in a weaker domestic industry over the
long term. And, of course, in crummier products. The table on the next page
provides examples of the costs that are driven down. Article 2B authorizes
these measures, and in this world of
you-can’t-see-the-terms-until-after-you-buy-it contracting, we should
expect to routinely see terms like these.
Here are examples of 2B's impacts on the 3 classes of external failure costs:
CUSTOMER SUPPORT
Reduce net support costs and obligations
-- Charge customers for all calls for support,
even for defects. No refund for these calls
even if the customer returns the software.
2B-703(a)(2) allows refund of purchase price
after return of the software as the sole remedy.
-- No implied warranties. 2B 406 allows
post-sale disclaimer with no opportunity
pre-sale for customer to discover the
disclaimer. CAPS make the post-sale
disclaimer “conspicuous.
--Goods-based consumer protection laws
(such as Magnuson-Moss and California’s
Song-Beverly Act) become inapplicable
because their scope is goods and 2B
transactions are transactions in an
intangible (a license to use IP).
--No duty to mass-market customers or
consumers (only to big customers) to
cure defects. 2B-605.
--Lesser right to a refund. (Perfect tender
rule available only to mass market. 2B
material breach definition is much more
publisher-friendly than Restatement of
Contracts'. See 2B-109.)
LOST SALES
Reduce effects of competition
--No pre-sale disclosure of terms, so there’s
no competition on quality-related promises.
2B-208.
--License agreements prohibit disclosure of
details of the product, including banning
writing magazine reviews without publisher’s
permission. Some publishers already have
such terms, though they probably don’t work
in mass-market today. 2B-102(12) includes
nondisclosure in “contractual use restrictions”,
which are deemed as OK in contracts.
--No reverse engineering (harder to compete,
and harder to do 3rd party maintenance).
(Use restriction.)
-- No reverse engineering for interoperability,
to make two products compatible. (This is
just another use restriction.)
LEGAL RISKS
Reduce probability and cost of lawsuits
--Seller chooses its favorite state or country,
for its choice of law. 2B-107.
--Seller chooses its favorite forum. 2B-108
(but choice can’t be “unfair & unjust” as term
is used in Carnival Cruise Lines. This line of
cases has provided little or no consumer
protection.)
--No damages. Rescission is the only remedy,
and rescission doesn’t include repayment of
fees for “support” (such as the call to ask for a
refund.) 2B-703(a)(2)
--Eliminates the concept of the “minimum adequate
remedy” which was an influential comment in
Article 2.
-- Eliminates the Article 2 policy section
saying that aggrieved party should be entitled to
full recovery.
-- There are, of course, no damage limitations
available to mass market customer with respect
to vendor’s recovery from the customer. Vendor
is exclusive definer of what constitutes a breach
on the customer’s part.
====================================
For more details on 2B and mass-market customers:
-- Kaner, C. (1997a). What is a Serious Bug? Defining a "Material Breach" of a
Software License Agreement. (unpublished.) Meeting of the NCCUSL Article 2B
Drafting Committee, Redwood City, CA, January 10-12, 1997. (abbreviated
version, Software QA, 3, #6.) Available at
<http://www.badsoftware.com/uccdefect.htm>http://www.badsoftware.com/uccdef
ect.htm.
-- Kaner, C. (1997b). Remedies Provisions of Article 2B. (unpublished.)
Meeting
of the NCCUSL Article 2B Drafting Committee, Redwood City, CA, January 10-12,
1997. Available at
<http://www.badsoftware.com/uccrem.htm>http://www.badsoftware.com/uccrem.htm.
-- Kaner, C. (1997j) Restricting Competition in the Software Industry: Impact
of the Pending Revisions to the Uniform Commercial Code. Proceedings of Ralph
Nader’s conference, Appraising Microsoft, Washington, DC, November, 14, 1997.
Available at
<http://www.badsoftware.com/nader.htm>http://www.badsoftware.com/nader.htm.
-- Kaner, C. & T. Paglia, (1997) Letter to American Law Institute outlining
the consumer community’s priorities for its Executive Council meeting,
December,
1997. (unpublished.) (Included here as Appendix A)
-- Kaner, C. & D. Pels (1997). Article 2B and Software Customer
Dissatisfaction. (unpublished.) Meeting of the National Conference of
Commissioners on Uniform State Laws' Article 2B Drafting Committee,
Cincinnati, OH, May 30, 1997. A shorter version of this paper, for the
software community,
was published as Software Customer Dissatisfaction, Software QA, 4, #3, 24.
Available at <http://www.badsoftware.com/stats.htm>.
_______________________________________________________________________
Cem Kaner, J.D., Ph.D. Attorney at Law
P.O. Box 1200 Santa Clara, CA 95052 408-244-7000
Author (with Falk & Nguyen) of TESTING COMPUTER SOFTWARE (2nd Ed, VNR)
This e-mail communication should not be interpreted as legal advice
or a legal opinion. The transmission of this e-mail communication
does not create an attorney-client relationship between me and you.
Do not act or rely upon law-related information in this communication
without seeking the advice of an attorney. Finally, nothing in this
message should be interpreted as a "digital signature" or "electronic
signature" that can create binding commercial transactions.