CPT's Letter to Maryland Governor Parris Glendening Opposing UCITA

Consumer Project on Technology
P.O. Box 19367, Washington DC 20036
Phone: 202-387-8030 Fax: 202-234-5176

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.


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.


(signed) 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

Comments and suggestions to Vergil Bushnell vbushnell@cptech.org

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