To: UCC Article 2B Drafting Committee and Reporter
From: Todd J. Paglia
Date: April 9, 1997
Re: Comments on the March 1997 Article 2B Draft

The following outlines some of the Consumer Project on Technology's concerns regarding Article 2B. Please note that this is by no means a comprehensive review of the entire Article. Where appropriate, specific statutory language has been suggested in order to provide a concrete proposal for improving the draft of Article 2B.

While we understand the quick turn around time required by Article 2B Reporter Ray Nimmer in getting the draft ready for each successive meeting, and we applaud him for his diligent efforts, it is our opinion that more attention must be paid to consumer/purchaser issues in order to create a more balanced draft. Time is growing short, at least for this Summer's NCCUSL meeting and vote on the draft law, and we hope these comments will assist in providing much needed consumer/purchaser protections.

Section 2B-308 Shrinkwrap Licenses

As CPT has stated previously, we are extremely concerned about the validation of shrinkwrap licenses which are viewed by us and other critics as contracts of adhesion. The state of the law on this issue - the enforceability of all shrinkwrap license terms - is undetermined.[1] Nonetheless, the 2B draft leans quite far in the industry's favor to validate these controversial licenses. If shrinkwrap licenses are a required component of 2B, and this is not self evident, purchasers should at the very least be entitled to adequate protection in the terms of those licenses and to effective pre-sale notice of key terms.

In addition, CPT objects to the overinclusiveness of the shrinkwrap license section (2B-308). It is apparent that it applies to a wide array of information products. Others have commented on the problems in 2B's handling of intellectual property law as it applies to software. CPT shares these concerns and also believes that the draft's applicability to additional information products, including on-line publications as well as books and other non-digital collections of information, presents significant dangers.

The world wide web is the most democratic form of communication ever developed. Original content is increasingly provided on the world wide web in the form of on-line magazines, newspapers, and journals as well as research sites and other massive collections of data. In addition to the wealth of publications that appear exclusively on- line, many well established news organizations use web pages to publish material made available solely through that medium. 2B-308 seems to validate almost any term, so long as the licensee "assents" to that term. 2B-308 (c). That could include "assenting" to a term that requires the user to forgo quoting any portion of the page. Article 2B must ensure that it does not become a vehicle for the restriction or elimination of fair use privileges in this new medium.

Most of the Observers and Drafting Committee Members I have spoken to at the 2B meetings also seem to agree that 2B will permit shrinkwrap licenses to apply to books. This possibility is downplayed due to claims that 2B-308 is unlikely to be used in this fashion, and it is therefore not a problem. This situation is not satisfactory because the participants in this process appear to assume something - that 2B-308 will not be used for books - without specifically eliminating that possibility in the draft. If shrinkwrap licenses are applied to books there is the possibility that infringement of the first sale doctrine and fair use principles will result. This section also raises the possibility that 2B will provide a means to circumvent the decision in Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 111 S. Ct. 1282 (1991) which invalidated the "sweat of the brow" theory of copyright. If these consequences are to be avoided 2B must be modified.

In addition, 2B-308 (b)(1) relies upon the software companies' perspective to determine whether a license term is objectionable. A simpler and fairer approach, rather than having the vendor determine what a reasonable purchaser would find acceptable, would be to have this section rely upon the reasonable purchaser's expectations. 2B-308 (b)(1) should also be eliminated because it provides a loop hole whereby a vendor can have any license term validated, even if a reasonable person would "refuse the license if that party knew that the license contained the particular term," as long as the person clicks an "I Agree" icon for that term. This allows the drafters of the licenses, that already are able to dictate favorable license terms, make extremely onerous terms binding with the click of a mouse.

2B-107 Choice of Forum

The choice of forum section has been improved since the last draft but it could be strengthened by applying the elimination of such clauses not just to consumers but to the mass market. Now that mass market is fairly limited in its application (too limited in fact), the draft should permit sole proprietorships and small businesses to pursue legal claims in a convenient forum. By forcing these small businesses to bring suit in a forum selected by the licensor, the ability to obtain legal redress is essentially eliminated. The current draft requirement, applicable only to consumers, necessitates that in addition to a forum not otherwise having jurisdiction, the forum must also "unfairly inconvenience" the consumer before it is inapplicable. This provision would provide protection to vendors from having to defend themselves in a forum selected by a large mass market purchaser (the example of a Dupont Corp. or other large licensee), because what is unfairly inconvenient for such an entity is quite different from what is convenient for a small business.

2B-102 (6) Conspicuousness

The draft still allows important license terms to be hidden from the purchaser until after purchase. This creates a situation in which onerous license terms are not revealed until the licensee has invested significant time and money into the purchase, thus dramatically reducing the possibility that the purchaser will seek a refund in anything but the rarest circumstances, i.e., the purchaser in a retail transaction pays for software, travels to her home, begins installation of the software, notices that the "I Agree" icon has an icon next to it that says "Read Now," understands that this refers to a license agreement, chooses to read said license, actually finishes reading the license and understands it, decides that one or more of the license terms is unacceptable, despite significant investment of time, money, and effort, purchaser packs up software, returns to the store, and pursues a refund by explaining to the cashier that she discovered an offending license term.

If all warranties are being disclaimed, this should be included on the front of the software package. In addition, more understandable and accurate language should be required so consumers can make informed decisions. For example, rather than "with all faults," language such as "This product may not work as intended" or simply "This product may not work," would be preferable. It seems fair to have vendors say what they mean. These phrases convey something that purchasers are likely to understand, and if it is on the front of the software package, purchasers might actually read it.

2B-703 Disclaimer of Consequential Damages

Software companies can avoid paying any damages beyond a refund or partial refund, even for known defects, by including numerous disclaimers in the license agreement. This includes damage to the customer's computer caused by the defective software and charges for technical assistance. In recognition of the industry practice to charge its customers a significant per call or per minute fee for technical assistance, and the other expenses that defective software would otherwise impose on purchasers with impunity, 2B-703 should be modified to prohibit disclaimer of consequential damages for known defects in mass market licenses.

Such a rule is also supported by the claim (which should be confirmed for the drafting committee by persons with a technical background), that many software defects are known when products are shipped or become known and the shipment of the product is continued. Liability for consequential damages caused by known defects will not unduly burden the software industry, but it will be a step in the direction of not having purchasers assume almost every risk when purchasing software and other information products.

2B-313 Viruses

The distinction drawn in this and other sections between online and retail purchases will soon be outdated if it is not already. Several technology proficient individuals have indicated to me that it is possible and feasible today to ensure that whatever was transmitted in the online setting is exactly what was received. Obviously we need to have direct input from experts on this matter and I would encourage the drafting committee to request such. Reasonable virus prevention efforts should be required of all vendors whether online or in the retail context (excepting, as 2B-313 does, cases in which no duty of care could be expected, for example a hobbyist's web site), and this duty should not be discharged by language in a shrinkwrap license that will seldom be read by anyone but the software company's lawyer. 2B-313 (c)(2) should be deleted. Holding vendors to a duty of reasonable care in virus elimination is reasonable.

In addition, this section should be more focused upon the vendor's duties and should not impose requirements on the purchaser. The current draft endorses a fact intensive investigation into the purchaser's culpability for failing to take reasonable virus detection measures or file backup, even where the vendor failed to act reasonably and transferred a virus to the purchaser's computer. This will allow software companies to go on the offensive by trying to prove that the purchaser should have done more to prevent the virus or create back-up files, and possibly escape liability despite wrongdoing. 2B-313 (d) should be revised by eliminating everything after "completed its performance .."

2B-608 Perfect Tender

The perfect tender rule in 2B is too narrow. As the draft stands, it seems that a purchaser may refuse defective tender sometime after the purchase but not much beyond that, perhaps not even beyond the first 12-24 hours. The problem is that due to software's complexity and intangible nature, a purchaser may not have adequate information to make an informed decision on whether to accept. The stakes for purchasers are high because once this period of time expires, they will have to prove a material breach of the contract in order to get a refund for software that does not function properly. Far more is immediately known of a tangible item than can be ascertained when installing software. A purchaser may not even get beyond the most remedial functionality during the first 24 hours. 2B-608 should recognize this reality by extending the time before acceptance occurs. One week would be insufficient but it seems to balance the software companies' needs for closure while giving the purchaser some opportunity to determine whether the software should be accepted.


[1] The ProCD and Gateway decisions, both written by Judge Easterbrook of the Seventh Circuit, are the most recent but certainly not the only authority in this area, as some seem to believe. Contrary authority is found in Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91 (3rd Cir. 1991); Arizona Retail Systems, Inc. v. The Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993); Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988). See also Mark Lemley, Intellectual Property and Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239 (1995).

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