[Ecommerce] CPT letter on UCITA
Vergil Bushnell
vbushnell@cptech.org
Wed, 12 Apr 2000 20:44:22 -0400
Consumer Project on Technology
P.O. Box 19367, Washington DC 20036
Phone: 202-387-8030 Fax: 202-234-5176
www.cptech.org
April 11, 2000
Governor Parris N. Glendening
State House
Annapolis, MD 21401
My name is Vergil Bushnell. I work for the Consumer Project on
Technology (CPT) as an e-commerce policy analyst. CPT is a non-profit
research and advocacy organization created by consumer advocate Ralph
Nader in 1995. Our webpage can be found at www.cptech.org.
I was born in St. Agnes Hospital in Baltimore, attended Catonsville High
School and recently earned a Bachelor of Arts degree from the University
of Maryland, Baltimore County. Although I commute to work in
Washington, D.C., I live and vote in Maryland.
I am writing to express my grave concerns as a Maryland resident and
consumer advocate about Senate Bill no. 142 and House Bill no. 19, also
known as the Uniform Computer Information Transactions Act (UCITA). CPT
is opposed to UCITA because of the risks it poses to consumers. I have
attempted to illustrate the threats UCITA poses to consumers of software
products and services by including relevant excerpts from current
software license agreements (or terms of use agreements, if from an
Internet-based service) that may become enforceable under UCITA.
I would like to point out that despite my use of legal terminology
throughout this letter, I am not a lawyer.
1. UCITA effectively weakens important warranties.
Consumers of goods and services in the United States are able to make
purchases with a certain degree of confidence. Such confidence is based
on a set of simple, straightforward assumptions so intrinsic to the
consumer's concept of what constitutes a sale that most take them for
granted. For instance, a consumer purchasing a new toaster oven can
safely infer that the appliance heats bread until it is brown; in other
words, functions as a toaster ought to function. These expectations are
clearly defined and guaranteed by state and federal warranty laws
governing the sale of goods and services to consumers.
Under UCITA, a consumer purchasing a software program (or subscribing to
an Internet-based service) may not be able to seal the transaction with
the same degree of certainty that he would have when purchasing a
toaster.
UCITA's proponents are fond of claiming that UCITA doesn't weaken
existing consumer protection laws. This is technically true. UCITA
doesn't adulterate existing consumer protection laws -- it removes
software products and Internet based services from the jurisdiction of
these laws and applies a new set of comparably weaker regulations.
Current state and federal consumer protection provisions govern the sale
of goods and/or services. UCITA and its advocates contend that software
programs and Internet-based services are not goods and services, but
"computer information." Under UCITA, a consumer transaction involving a
software program or Internet-based service isn't defined as a sale, but
the grant of a license. Therefore, federal and state warranty laws that
provide much needed protections to consumer aren't applicable to
transactions covered by UCITA.
The federal Magnuson-Moss Warranty Act (15 U.S.C. Section 2301) is a
cornerstone consumer protection law that regulates the use of warranties
relevant to the sale of new goods to consumers. The tenets of
Magnuson-Moss rest on the simple premise that, in order for a consumer
to make an informed purchase, he must be aware of information pertinent
to the purchase prior to plunking his money down. Magnuson-Moss
requires manufacturers of consumer goods to make warranty terms
available to consumers before purchase (15 U.S.C. Section 2302). The
Federal Trade Commission's Understanding the Magnuson-Moss Warranty Act
webpage
(http://www.ftc.gov/bcp/conline/pubs/buspubs/warranty/undermag.htm)
explains why the timely consideration of warranty terms is so crucial to
the consumer.
"To understand the Act, it is useful to be aware of Congress'
intentions in passing it. First, Congress wanted to ensure that
consumers could get complete information about warranty terms
and conditions. By providing consumers with a way of learning
what warranty coverage is offered on a product before they buy,
the Act gives consumers a way to know what to expect if
something goes wrong, and thus helps to increase customer
satisfaction.
"Second, Congress wanted to ensure that consumers could compare
warranty coverage before buying. By comparing, consumers can
choose a product with the best combination of price, features,
and warranty coverage to meet their individual needs.
"Third, Congress intended to promote competition on the basis of
warranty coverage. By assuring that consumers can get warranty
information, the Act encourages sales promotion on the basis of
warranty coverage and competition among companies to meet
consumer preferences through various levels of warranty
coverage."
UCITA operates on a diametrically divergent premise. Under UCITA,
important warranty terms may be swathed in shrink-wrap and sealed inside
a box -- invisible to the consumer until after he has made his purchase
-- and still be "conspicuous" (according to UCITA's unique definition of
conspicuous [Section 105(d), Section 112(e)(3)]).
Presentation of terms aside, UCITA allows the software publisher broad
leeway to disclaim or otherwise limit the utility of basic warranties.
Consider the following excerpt from the End User License Agreement from
GlobalSCAPE's CuteFTP version 3.5, a popular file-transfer program
purchased for $39.95.
"8. NO WARRANTIES. GlobalSCAPE expressly disclaims any warranty
for the SOFTWARE. THE SOFTWARE AND ANY RELATED DOCUMENTATION
IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
OR NONINFRINGEMENT. THE ENTIRE RISK ARISING OUT OF USE OR
PERFORMANCE OF THE SOFTWARE REMAINS WITH YOU."
In this example, GlobalSCAPE disclaims all warranties for its CuteFTP
program -- warranties that would ordinarily ensure a program or service
is merchantable, fit for a particular purpose, matches a demonstration,
is compatible with other programs and/or hardware, and contains accurate
information -- by placing the entire risk of a program's quality and
performance on the consumer.
In Maryland, business-to-consumer transactions of consumer goods are
governed by certain fundamental implied warranties. One key example is
the implied warranty of merchantability, which essentially warrants that
a product is fit to be sold, and functions as it is supposed to. In the
case of software, the implied warranty of merchantability would also
guarantee that a program sold to a consumer is free from viruses.
Maryland's Uniform Commercial Code (section 2-316.1) prohibits
disclaimers and limitations of all implied warranties in sales of
consumer goods and services. Additionally, the federal Magnuson-Moss
Warranty Act (15 U.S.C. Section 2308) prevents the disclaimer of all
implied warranties if any written warranty is offered by the
manufacturer of a consumer good worth more than $15.
UCITA (Sections 403 and 406) permits software publishers to disclaim the
implied warranty of merchantability (and several other implied
warranties), even if the disclaimer is contained in a software license
agreement inside the program's box and only visible to the consumer
after the sale.
In the above EULA, GlobalSCAPE also disclaims all express warranties
applicable to its CuteFTP program. An express warranty is formed when
the seller of a product makes a promise or factual assertion about the
product to a buyer. Promises and statements of fact made by a software
publisher that appear in advertisements, packaging, software manuals and
other documentation may form express warranties. Simply put, the
express warranty ensures that a product conforms to such affirmations.
UCITA does not allow express warranties to be disclaimed. Nevertheless,
UCITA would harm consumers of software products by enacting a set of
ambiguous, loophole-ridden standards governing the creation of express
warranties.
According to current Uniform Commercial Code (2-313.1c), a
representation of a product forms an express warranty that the actual
product will conform to the representation.
Article 2-313.1c (UCC)
"Any sample or model which is made part of the basis of the
bargain creates an express warranty that the whole of the
goods shall conform to the sample or model."
UCITA's Section 402(a)(3) would replace the straightforward standard of
UCC 2-313.1c with a much weaker provision that replaces "conform" with
"reasonably conform."
Section 402(a)(3) (UCITA)
"Any sample, model, or demonstration of a final product which is
made part of the basis of the bargain creates an express
warranty that the performance of the information will reasonably
conform to the performance of the sample, model, or
demonstration, taking into account differences that would appear
to a reasonable person in the position of the licensee between
the sample, model, or demonstration and the information as it
will be used."
Additionally, UCITA defines several situations that specifically do not
create express warranties. UCITA's Section 402(b)(2) states that an
express warranty is not formed by
"a display or description of a portion of the information to
illustrate the aesthetics, appeal, suitability to taste,
subjective quality, or the like of informational content..."
This particular provision substantially undermines the value of an
express warranty to a consumer, and may inadvertently sanction a number
of shady practices. University of Arizona Law Professor Jean Braucher
described the effect of this exemption in a recent memorandum, "Proposed
Uniform Computer Information Transactions Act (UCITA): Objections From
The Consumer Perspective."
"In other words, the licensor can show or describe the
information, but the information doesn't have to fully
live up to that display or description ... No similar
restriction is found in UCC Article 2."
CPT believes that existing state and federal warranty laws provide
comprehensive consumer protections. Although UCITA's advocates may
claim that licenses of computer information necessitate a unique set of
rules, we see no reason why mass-market transactions of such information
should not benefit from the fundamental consumer protections offered by
the Magnuson-Moss Warranty Act, and Maryland's implementation of UCC
Article 2.
CPT believes that any consumer benefits received from the formation of
express warranties are lost in Section 402's abundance of conditional
vagaries and unneeded exceptions. We feel that it would be a small
imposition to ask responsible software publishers to stand by all of
their statements of fact. Factual assertions and promises made by a
software publisher should been enforceable as express warranties without
condition or exception. This is a negligible price to pay for consumer
confidence.
2. UCITA allows software publishers to enact unreasonable restrictions
that would adversely affect consumers
Strictly speaking, a consumer of a software product or an Internet-based
service under UCITA is a licensee granted a license to use the program
or service by the software publisher or Internet-based service
provider. This framework allows the licensor to impose restrictions
upon the licensee's use of the program or service. These contractual
use terms may limit in what manner the consumer uses the program or
service, and even what the consumer may do with information produced by
the program or service.
UCITA defines "Contractual use term" in Section 102(a)(19) to mean "an
enforceable term that defines or limits the use, disclosure of, or
access to licensed information or informational rights, including a term
that defines the scope of a license."
There are many possibilities for contractual use terms to be used to the
detriment of consumers.
A. Contractual terms under UCITA may stifle free expression
For example, UCITA's Section 307(b) states "If a license expressly
limits use of the information or informational rights, use in any other
manner is a breach of contract." Section 307(b) and Section 102(a)(19)
might justify the presence of a mass-market license term that limits
criticism of a software program.
Consider the following excerpt from the license of McAfee's Virus Scan
4.0 program.
"2) The customer shall not disclose the results of any benchmark
test to any third party without Network Associates' prior
written approval.
3)The customer will not publish reviews of the product without
prior consent from Network Associates."
Consumers benefit greatly from thorough critiques of software programs
published in newspapers, magazines and other accessible forums.
Benchmark tests that compare and rate the performance of different
programs are particularly valuable to the consumer, and may serve as a
deciding factor in his purchase.
UCITA's catchall contractual use term allowances might also be used to
stifle the free speech of individual consumers. Say a consumer wished
to set up a free webpage. A number of firms such as Geocities and
Xoom.com provide such services. Angelfire is another one of these free
webpage providers. If the consumer decided to go with Angelfire, he
would have to agree to the service's "Rules and Regulations." These
terms specify a "list of actions and content that are prohibited on the
Site." Such prohibitions include:
"Conduct that is deemed by Angelfire, in its sole and absolute
discretion, harmful to Angelfire, any third party content
provider, or other individuals."
Angelfire would be acting well within the scope of UCITA if it yanked a
consumer's webpage that featured criticisms of Angelfire.
It is uncertain whether clauses that might restrict the free speech of
consumers and journalists would be enforceable under UCITA. What is
clear is that these types of clauses already exist in software license
agreements. Unfortunately, the drafters of UCITA chose not to include a
provision in the Act that would expressly prevent journalistic
censorship or free speech limitations. The enforceability of such
license terms would have to be determined by litigation, applying
Section 105(b) of UCITA.
B. Contractual terms under UCITA may unduly restrict reverse engineering
Unreasonable contractual terms can harm the consumer in other ways,
too. Consider, for example, contractual provisions on reverse
engineering.
The copy of Microsoft Word 97 that came pre-installed on my computer
comes with an End User License Agreement with the following condition.
"Limitations on Reverse Engineering, Decompilation and
Disassembly. You may not reverse engineer, decompile, or
disassemble the SOFTWARE PRODUCT, except and only to the extent
that such activity is expressly permitted by applicable law
notwithstanding this limitation."
Prohibiting reverse engineering is akin to preventing an automobile
mechanic from opening the hood of a car, learning about its internal
apparatus, fixing mechanical problems and swapping existing parts for
more efficient components.
For software, reverse engineering means taking apart a program to figure
out how it works. Using reverse engineering, a skilled programmer can
look into the inner workings of a program, fix bugs, test for security
concerns, foster compatibility between different programs and operating
systems and improve on existing designs. This is particularly important
in the market for software programs, where consumers want programs to
work together (to be interoperable with each other).
The ability of software developers to use reverse engineering is
traditionally determined by federal laws on copyright and trade
secrets. When UCITA was being studied, software engineering, consumer,
library and academic groups asked that UCITA specifically indicate that
it would not affect the balance struck in the federal copyright laws.
The UCITA backers refused to make such changes because they sought to
permit software publishers to use UCITA to create new private copyright
laws through contract, that go beyond the protections offered by federal
copyright law.
UCITA's Section 105(b), presently allows a court to nullify a contract
or term that "violates a fundamental public policy, …in each case to the
extent that the interest in enforcement is clearly outweighed by a
public policy against enforcement of the term."
CPT believes that Section 105(b) would be more useful if it clarified
the "fundamental public policy" standard with examples of terms that
would not be sanctioned by UCITA. We feel that UCITA should explicitly
exclude contract terms that constrain free speech or prevent reverse
engineering. In our view, mass-market contracts of adhesion should not
permit the wholesale changes in user rights in copyright laws that would
occur under UCITA.
In 1998, The National Conference of Commissioners on Uniform State Laws
(NCCUSL) adopted an amendment to Section 105(b) proposed by Commissioner
H. Perlman. Unfortunately, the current draft of UCITA does not preserve
the original language of the Perlman Amendment. CPT recommends the
inclusion of the Perlman Amendment in any version of UCITA. The Perlman
Amendment reads as follows.
"If a court as a matter of law finds the contract or any term of
the contract to have been unconscionable or contrary to public
policies relating to innovation, competition, and free
expression at the time it was made, the court may refuse to
enforce the contract or it may enforce the remainder of the
contract without the impermissible term as to avoid any
unconscionable or otherwise impermissible result."
3. UCITA allows a software publisher to unilaterally determine
applicable law and forum
UCITA permits a software publisher to define the laws governing its
license agreement and choose the venue of future litigation involving
the publisher's product or service, regardless of the software
publisher's or consumer's actual location. Under UCITA, the software
publisher can determine which state - or, in certain circumstances,
country -- has jurisdiction over its terms. The software publisher may
even insert a mandatory arbitration clause into the license agreement.
In such a manner the software publisher can make litigation unfeasible
for most consumers.
Suppose, for example, a consumer living in Maryland downloaded Real
Jukebox, a popular music player offered free over the Internet by
RealNetworks. The following clause from Real Jukebox's End User License
Agreement would be legally enforceable under UCITA.
"This License Agreement shall be governed by the laws of the
State of Washington, without regard to conflicts of law
provisions, and you hereby consent to the exclusive jurisdiction
of the state and federal courts sitting in the State of
Washington. Any and all unresolved disputes arising under this
License Agreement shall be submitted to arbitration in the State
of Washington. The arbitration shall be conducted under the
rules then prevailing of the American Arbitration Association.
The arbitrator's award shall be binding and may be entered as a
judgment in any court of competent jurisdiction. This License
Agreement will not be governed by the United Nations
Convention of Contracts for the International Sale of Goods, the
application of which is hereby expressly excluded."
By installing Real Jukebox, the consumer automatically agrees that the
laws of the State of Washington have sole jurisdiction over this End
User License Agreement, regardless of Maryland's conflict of law
provisions (designed to protect the consumer from just this sort of
arrangement). Furthermore, the consumer not only gives up the right to
have his day in a Maryland court, but also waives the right to have his
day in court at all. Instead, the consumer must submit to arbitration
in a location and manner pre-selected by and most convenient to
RealNetworks. Even in the highly improbable chance this consumer
residing in Maryland became familiar with the laws of Washington State,
believed he had a legitimate grievance against RealNetworks, could
afford to travel across the nation and eventually prevailed against
RealNetworks; the rules of arbitration would prevent other consumers
from hearing about and benefiting from the decision. The consumer has
one other alternative (other than abandoning litigation) according to
UCITA. He can prove RealNetworks' choice of an exclusive judicial forum
is "unreasonable and unjust."
UCITA will undermine the sovereignty of the Maryland legislature by
permitting a software company to declare, by contract, that Maryland
consumer protection laws do not apply. This undermines our ideas of
democracy. We vote for lawmakers in Maryland, not in Washington State,
Utah or Ontario, Canada.
Also, not only should consumers be protected by state consumer
protection laws where they live, but they should be able to sue in their
state of residence, and not be required to be bound by mandatory
arbitration clauses that eliminate recourse under Maryland law.
These are only a few of UCITA's anti-consumer effects. Although we
cannot address all of the Act's other flaws in this letter, we feel that
these examples are sufficient to illustrate the pervasive bias
characterizing UCITA.
Companies such as Microsoft have argued that the passage of UCITA in
Maryland will be a prelude to a statewide boom in high-tech investment,
infrastructure and jobs. However, CPT believes that legislation such as
UCITA that trades away basic consumer protections come at a tremendous
price. For the only uniformity created by UCITA will be a one-sided
standard of disparity -- legally justified loopholes and bare minimums.
Also, UCITA will likely spawn a legacy of litigation as consumers and
courts attempt to construct a coherent interpretation of its convoluted
provisions. Perhaps the conclusion of a July 23, 1999 letter endorsed
by 24 state Attorneys-General (including Maryland's) best describes the
opportunity cost of UCITA.
"The overriding purpose of any commercial code is to facilitate
commerce by reducing uncertainty and increasing confidence in
commercial transactions. We believe that UCITA fails in this
purpose. Its rules deviate substantially from long established
norms of consumer expectations. We are concerned that these
deviations will invite overreaching that will ultimately
interfere with the full realization of the potential of
e-commerce in our states."
As a citizen of Maryland, I urge you to carefully review the text of
UCITA before making any decisions.
Sincerely,
Vergil Bushnell
E-commerce Policy Analyst
Consumer Project on Technology
P.S. This letter is on the web at
http://www.cptech.org/ecom/MD-ucita.html