Ixquick Metasearch


"A commercial contract code for computer information transactions"

Prefatory Note

Once land ownership and agrarian production were primary sources of wealth and income in our economy, and contracts for the exchange of horses and grain dominated the commercial landscape. Following the industrial revolution, manufactured goods assumed center stage. In the 1930s Llewellyn recognized that this change required revisions to the law of sales, so that its rules were relevant to the new economy. The result was UCC Article 2. Despite initially strong resistance, Article 2 won universal acceptance, for it reflected the reality of economic change and its implications for contract law.

Our economy has experienced another fundamental change, with information products and services now driving increased productivity and growth. Accompanying this change is a widely diverse and rich array of methods for distributing and tailoring digital information to the modern marketplace. Contracts underlie both the creation and distribution of such information. However, legal rules that are not relevant to commercial practice or that are uncertain in application inhibit contracting or raise transaction costs. UCITA was drafted in response to this fundamental economic change and need for clarity in the law.

Article 2 served as both a model and a point of departure for UCITA. Like Article 2, UCITA covers a variety of transactions, many of which take place solely between merchants. Article 2 governs sales of jet planes as well as toasters, not to mention the large-scale acquisition of jet and toaster parts. UCITA governs access by Fortune 500 businesses to sophisticated databases as well as distribution of software to the general public; it also covers custom software development and the acquisition of various rights in multimedia products.

Both UCITA and Article 2 are based upon the principle of freedom of contract: with limited exceptions, the terms and effect of a contract can be varied by agreement. Most provisions of both statutes are default rules, applicable only if the parties do not specify some other rule. Although one could try to fashion a contract code that regulates comprehensively rather than permitting such flexibility, it is hard to imagine such an approach being compatible with a vibrant market economy. Even if one succeeded in making the regulations stick, the effect would be to hinder rather than facilitate commerce. On the other hand, as noted, without certain default rules, contracting and thus legal rights remain unclear.

To be sure, not every term of a contract should be enforced. UCITA follows Article 2 in providing a standard of unconscionability for courts to employ in policing contract terms. UCITA goes beyond Article 2 in authorizing courts to strike down over-reaching language that conflicts with fundamental public policy. It also goes beyond Article 2 and other existing law in furthering licensee interests by prohibiting electronic self-help under this statute (Section 816) and by excluding enforcement of "no-reverse-engineering" clauses in some cases. See Section 118. Compare Bowers v. Baystate Technologies, Inc., 302 F.3d 1334 (Fed Cir. 2002).

UCITA provides that common law doctrines such as fraud and duress remain effective and that applicableconsumer protection law governs. UCITA does not alter competition or antitrust law. It does not change trade secret law, intellectual property law, or substantive consumer law. It deals only with contracts.

As Llewellyn recognized in drafting Article 2, contract law must be tailored to the type of transactions that it covers. Just as a body of law based on images of the sale of horses was not relevant a half century ago to sales of manufactured goods, so today a body of law based on images of the sale of manufactured goods ill fits licenses and other transactions in computer information. Rules based on an antiquated view of the transactional world do not give coherent guidance to courts or to transacting parties.

UCITA is the first uniform contract law designed to deal specifically with the new information economy. Transactions in computer information involve different expectations, different industry practices, and different policies from transactions in goods. For example, in a sale of goods, the buyer owns what it buys and has exclusive rights in that subject matter (e.g., the toaster that has been purchased). In contrast, someone that acquires a copy of computer information may or may not own that copy, but in any case rarely obtains all rights associated with the information. See DSC Communications Corp. v. Pulse Communications, Inc., 170 F.3d 1354 (Fed. Cir. 1999), cert. den. 528 U.S. 923 (1999). What rights are acquired or withheld depends on what the contract says. This point only is implicit in Article 2 for goods such as books; UCITA makes it explicit for the information economy where, unlike in the case of a book, the contract (license) is the product. See Specht v. Netscape Communications Corp., - F.3d -, 2002 WL 31166784 n. 13 (Fed. Cir. 2002); SOS, Inc. v. Payday, Inc., 886 F.2d 1084 (9th Cir. 1989).

Licensing is one way in which computer information is tailored to the information marketplace. Courts have enforced contract terms that, among other things:

preclude commercial use

permit commercial use

preclude making copies

permit making multiple copies

grant access

limit access

allow use throughout a site

limit use to a specific computer

preclude distribution of copies for a fee

allow distribution of copies

preclude modification

allow modification

allow distribution only in specific way

limit use to internal operations

Such contract terms have helped to create the wondrous array of products and services that characterizes our modern economy. Whether specific terms are appropriate for a given transaction or set of parties is fundamentally a marketplace issue.

As noted, in computer information transactions, license terms often define the product. A software product may be provided in the same form in two transactions, but in one case the user is authorized to make 100,000 copies and in the other merely to use a single copy at home. The value of the transaction inheres not in the tangible medium (if, indeed, any is used), but rather in the license grant terms. UCITA does not require that computer information products and services be licensed; it covers sales as well. But UCITA provides a coherent contract law framework for analyzing a license, which has been the dominant contractual framework for commerce in computer information.

Up to this point, a complex mix of common law and Article 2 has governed computer information transactions. The common law is frequently difficult to ascertain, and it varies widely among states. In addition, differences in the legal norms that have developed in different areas of information practice are producing unpredictable results as those areas converge. Article 2, while uniform, does not properly apply to many issues involved in transactions in computer information, and when it applies, it often does not provide appropriate guidance because of differences in subject matter and transactional frameworks.

The need for a coherent, uniform body of law has never been greater. Revolutions in telecommunications and computer technology have made geography increasingly irrelevant to modern commerce. The Internet enables small firms as well as large ones to provide products and services throughout the country and around the world. Even as online systems have altered how many information transactions are performed, however, fundamental issues associated with contracting online remain unanswered. A modern contract law must give guidance on those issues. Failure to do so does not foster but rather impedes commerce in computer information.

The liberating promise of technology cannot be fully realized unless there is predictability in the legal rules that govern such transactions. This is the need that UCITA addresses. It clarifies and sets forth uniform legal principles applicable to computer information transactions. UCITA is a statute for our time.

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