To: Article 2B Drafting Committee and Reporter
From: Gail Hillebrand
Date: April 9, 1997
Re: Comments of the March 1997 Article 2B Draft
This memo identifies some of the issues I see for
consumers in the new draft. As it will reveal,
we remain very concerned that the draft is harmful
to consumers and other small users.
Mass market license is the key defining term which
determines whether the general approach of
the broadest possible deference to the contract language
will be given, even if drafted by only one party.
Retail market required: The definition of mass-market
in Section 2B-102(25) may be unrealistically
narrow because it is limited to licenses used in a "retail
market" The comments imply that a "retail market"
will include software downloaded from the
Internet, but a court might disagree. If the definition
does not cover Internet delivery, it will soon be outdated.
Little protection for small business: Small business
users licensing software will receive very
little protection from the mass-market concept. All
of their transactions of over $500 will be excluded. Software
makers could bundle small business software
so that it is priced high enough to escape
the mass-market category, even though the licensee has no ability
to negotiate the terms of the license. Section
A small business user also could be deprived of all
mass-market protections if the license permits
the software to be used by two users at the same time,
even if the price of that software was only $100. Section 2B-102(25)(D).
Effect on state consumer protection law: Section
2B-104(b) interferes with existing state consumer
protections statutes which may require actual signature,
consent or agreement. For example, it would eliminate the
application to software and on-line contracts of
any existing state consumer protection statute
defining conspicuous differently than it is defined in
Article 2B. The interference with existing state
consumer protection laws might undermine any
state law requiring true consent, not just "manifest
assent" before personal information (including
credit card information) could be sold or
given to third parties. Although the commentary asserts
that state privacy laws are preserved, Section 2B-104(b)
subjects all consumer protection statutes
to trumping by Article 2B.
Definition of manifest assent: The draft defines
a manifestation of assent to include any conduct
that the record conspicuously states will constitute acceptance.
This could include not undertaking to seek a refund. Section
Weakening of general restraint on waiver of the duty
of reasonable care: The draft appears to weaken
the general rule contained in Article 1 of the UCC
that obligations of reasonable care may not be varied by agreement.
Compare Section 2B-115 with Section 1-102.
The draft widely validates pre-printed terms in shrink-wrap
licenses and other terms which are discovered
only after purchase: The draft validates shrink-wrap
licenses, in which the user learns of the terms only after
purchase, in at least three ways:
In Section 2B-308, every term in a license becomes
part of the agreement "without regard
to the knowledge or understanding of individual terms by the
party assenting to the form," unless the term
either conflicts with previously negotiated
terms of agreement or is so extreme that the party preparing
the form would know that a reasonable ordinary user would refuse
the entire license if it knew about the terms. Section
2B-308(b)(1) and (2).
Even a term so extreme that a licensor should know that it would cause an ordinary licensee to refuse the whole license, it becomes part of the contract if the user "manifests assent" to the term. Manifesting assent, however, can include any conduct defined by the license to equal manifest assent. See Section 2B-308(c) and Section 2B-112(a)(1). Extremely limited protection against viruses: Section 2B-313 appears to recognize a duty of reasonable care to avoid undisclosed viruses. However, it proposes several extremely easy ways to satisfy that duty. First, in any transaction involving on-line contracts or software delivered by electronic delivery (including downloading over the Internet), the duty of reasonable care is completely satisfied by language in a contract stating that no action was taken to insure exclusion of viruses. Section 2B-313(c)(2).
Second, negligent introduction of viruses by a licensor
is protected if the licensee "failed
to exercise reasonable care to avoid or prevent loss."
Section 2B-313(d). Contributory negligence doctrines
are generally discredited in other areas of
the law. This section is highly likely to mean
that any licensee who does not back up his or her data will have
no claim for losses caused by a virus which
destroys that information. It may also be
read to say that a party who does not regularly use a virus-finder
program has no claim even if the virus was caused
by professionally developed and marketed software.
This section also prevents any claim that the
absence of viruses is an element of merchantability of software
under the implied warranty of merchantability.
No warranty to users that the licensor's software
does not infringe on intellectual property
rights: The draft presents two forms of the basic warranty
of title and noninfringement, but then states that the warranty
may be entirely eliminated by language in
the record provided to a licensee which states
"There is no warranty of title or authority." It seems
highly unlikely that an ordinary consumer
will know that this legal jargon means that
the licensor who is selling access to the software may not in
fact have the right to do so. Section 2B-401(e).
Implied warranty of merchantability does not include
any warranty that the program will not damage
ordinarily configured systems: The notes to Section 2B-403,
which govern the implied warranty, indicate that the drafting
committee rejected a motion to define this warranty
to include a promise that a program would
not damage ordinarily configured systems.
Easier to disclaim implied warranty of merchantability:
It is significantly easier to eliminate the
implied warranty of merchantability under draft Article
2B than under current Article 2. The implied warranty of
merchantability is the basic warranty that the goods
will be fit for their ordinary purposes. Under
current Article 2, that warranty may be eliminated by
language which "in common understanding" calls attention
of the buyer to the absence of warranty. While
that standard is repeated in the Article 2B draft,
it is no longer required in every case. Instead, the Article 2B
draft provides in Section 2B-406(b)(2) that language
which mentions "warranty of merchantability"
or is of similar import is sufficient. The general
requirements of the language in "common understanding call
attention" to its effect in Section (e)(4) applies
only where Section (2) has not been satisfied.
Broader effectiveness of "as-is" disclaimers
even for new software: The draft would also
broaden the ability to eliminate all implied warranties by
language such as "as is." Under current
Article 2 law, expressions such as "as
is" or "with all faults" eliminate implied warranties
"unless the circumstances indicate otherwise."
UCC Article 2-316(3)(a). Under Section 2B-406,
by contrast, those phrases will eliminate implied warranties
regardless of the circumstances. Section 2B-406(b)(4).
In addition, the terms "as is" and
"with all faults" have long been criticized by consumer
advocates as not communicating that an item might
not work even for their ordinary purposes.
Reasonably foreseeable modifications void warranties:
Any modification, even if reasonably expectable
by the licensor, eliminates all warranties. Section
2B-407 provides that any modification by a licensee, except a
modification made using the capabilities of the program
intended for those purposes or one agreed
to by the licensor, eliminates all warranties. This is
true even if the modification had nothing to do with the defect
for which a claim is being made under the
warranty. Section 2B-407.
No right to refuse inadequate software delivered
by electronic transmission: The Article 2B
draft preserves an important right available to buyers of
goods known as the perfect tender rule. Under this
rule, a buyer of goods can reject goods if
they do not fully comply with the contract. The Article
2B draft appropriately preserves the concept of the
perfect tender rule, using the notion of refusal
as a substitute for rejection. However, Section 2B-601(c)
restricts refusal to software which is delivered "on a physical
medium." This limitation on the right of refusal
appears to be a very serious narrowing of
what would be available under current Article 2. Section
Licensee right to inspect before payment is limited
by licensor determination of what is confidential:
Section 2B-609 of the draft recognizes the
right to inspect before payment, but narrows that right by
stating that a licensee may not inspect before payment
in a manner which would disclose or jeopardize
any information which the licensor has designated
to be confidential or a trade secret. There appears to be little
in the draft to prevent the licensor from designating
all of its code as involving confidential
information. Section 2B-609(a)(4).
Risk of loss on the buyer: If a software user pays
a license fee and receives an access code
to download software, the user and not the licensor bears
the loss if the software is destroyed or damaged before the consumer
uses the access code to get the software. Section
No notice to users before termination of on-line
service: Consumers and other persons using
on-line services must give reasonable notice before they
can end their access contracts, but the on-line service
provider can end these contracts at any time
without notice. Section 2B-627(a) and (b).
Easy to eliminate vendor responsibility in standard
form licenses: Article 2B appears to set up
a method for permitting a consumer to refuse to agree with
the term of a license, but it places the burden on the consumer
both to read the license and to take back
the software and demand a refund if the license
terms are not acceptable. Section 2B-308. However, even that very
weak standard does not apply to terms eliminating
responsibility to consequential or incidental
damages. Those are enforceable if merely conspicuous,
which is defined elsewhere to be quite meaningless (for
example, under Article 2B small print capital letters,
LIKE THIS, are legally conspicuous). Section
2B-703(d); Section 2B-102(a)(6).
No protection from elimination of liability for personal
injury: Current contract law for the sale
of goods, which some courts have treated as applying
to licensees of software (especially shrink-wrap software) protects
consumers from contract terms that say that the maker
is not responsible for personal injury caused
by the product. UCC Section 2-719(3). Article 2B apparently
has no such provision. The draft's silence on this issue will
make it easy for software makers to escape all contractual
responsibility for harm that their software
does to property (such as causing a systems crash)
and to people (such as causing a fire that injures someone, or
such as foreseeable personal injury from a
software program which is supposed to manage
medications, monitor a pacemaker, or a similar program).
No requirement for a minimum adequate remedy: Article
2B rejects the approach being taken in the
revisions of Article 2 (on the sale of goods) to require
at least a minimum adequate remedy in each transaction. See notes
to Section 2B-703.
No fall-back to all remedies if a limited remedy
such as repair or replace doesn't work: The
draft eliminates the ability of a court to find, even in a
consumer case, that limitations on other code remedies
(excluder clauses) are dependent upon a failed
remedy and therefore fail if the limited remedy fails.
Section 2B-703(c) makes these exclusions of remedy per se
independent unless the license expressly states otherwise.
Since licensors are unlikely to draft their
exclusions to give consumers or others rights when
a limited remedy fails, this leaves consumers with few remedies.
Apparent shortening of statute of limitations: Although
not entirely clear, Section 2B-705 appears
to shorten the statute of limitations period when a warranty
extends to future performance. Section 2B-705 and notes.
Licensor may discontinue access to software without
notice for material breach or without breach
if contract so provides: A licensor may discontinue access
for a material breach of the contract without notice. Under this
section, for example, a licensor could deprive a
small business of its mailing list without
notice for missing a single payment. See Section 2B-714,
discontinuance for material breach; Section 2B-108(a), making
every breach material if the license says
so. The right to discontinue without notice
is also given to the licensor if the license agreement so provides,
even if there has been no breach.
Licensor may remove software: The draft authorizes
a software maker to remove software from a
user's machine without notice under certain conditions.
Since a software maker might add a "back door" to the
software to do this, a consumer or business
might be using its computer system at one moment
and at the next moment find that the crucial software in that
system no longer works. Section 2B-716.
* The Article 2B draft is a highly technical and
complex statute. This list does not reflect
all of its impacts on consumers and other licensees, and
the summaries provided here are based upon our reading
of the provisions. As with any complex law,
some provisions may be susceptible to more than one interpretation.
This analysis is based on the draft dated March 21, 1997.
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cc: Fred Miller
Prepared by: Gail Hillebrand
Consumers Union West Coast Regional Office
1535 Mission Street
San Francisco, CA 94103
Current as of: 4/9/97