RE: A Bad Law for Bad Software

["David E. Y. Sarna" <David@ObjectSoftCorp.com>]

Perhaps I missed part of this thread; what is the nature of the
objection to the work of this prestigious group?

Regards,
David E. Y. Sarna	david@objectsoftcorp.com
ObjectSoft Corp. (NASDAQ: OSFT)
433 Hackensack Ave., Hackensack, NJ 07601 	
201 343-9100 (voice) 	201 343-0056 (Fax)

> -----Original Message-----
> From:	Cem Kaner [SMTP:kaner@kaner.com]
> Sent:	Thursday, April 30, 1998 9:13 PM
> To:	Multiple recipients of list AM-INFO
> Subject:	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/u
> ccdef
> 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/uccr
> em.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.