UCITA Revealed

After losing ALI's support, the National Conference of Commissioners on Uniform State Laws adopted the proposed new article as a freestanding uniform act (UCITA), rather than as a new article to the UCC, and proposed the uniform law be passed in all 50 states.

Why UCITA is Important

Operation of nearly all business depends on computer technologies. These technologies control, among other things, the calculation and disbursement of employee benefits, management of payroll, and the processing, compliance and payment of suppliers. Because of its broad scope, UCITA would affect every facet of business.

As the business world continues to embrace technology as an integral operations component, UCITA becomes an ever more important issue. UCITA's importance is derived from the fact that it is a new body of law concerning governance of:

• computer software transactions
• online databases and information
• digital multimedia products
• computer games
• online journals and magazines
• CDROMs
• videos
• e-books and other products

UCITA's two main purposes are to 1) clarify the law governing computer-information transactions and 2) make the law uniform among various jurisdictions. Section 102(a)(11) of UCITA defines computer information transactions as 'an agreement or the performance of it to create, modify, transfer or license computer information or informational rights in computer information.'

This model law would govern all contracts involving computer information products and services, and provide uniform commercial standards for these transactions.

By creating one body of law dealing with all computer information transactions, licensing entities and consumers will finally have one source that details how these transactions should be handled. Even if all provisions are not enacted, it is important that lawyers be familiar with UCITA because it is the most comprehensive attempt to date to standardize law concerning computer information transactions.

UCITA's Impact on e-Commerce Law

The number of small businesses conducting e-commerce has been steadily rising in recent years. And as more consumers conduct business over the Internet, it is increasingly difficult to know where one is doing business and which state laws apply to particular transactions.

A few examples of how UCITA directly addresses some key e-commerce issues are listed below.

Many e-commerce transactions involve so-called online shrink-wrap licenses. This is a mass-market type of license not revealed until after an agreement has been made to acquire a product or service. One major issue that sparked drafting of UCITA was enforceability of shrink-wrap licenses under various state laws.

UCITA addresses enforceability of shrink-wrap licenses by stating that a person can manifest assent to terms of an agreement in whole or in part by acts or failure to act. This is important in electronic commerce, where most interactions involve conduct rather than words such as clicking an I accept button on a Web site before entering the main forum.

UCITA also allows for parties, by prior agreement, to define what constitutes assent with respect to future conduct in ongoing relationships. For example, a consumer can agree to a license and sign up for Internet service. If the license specifies all future amendments to the license shall appear on the licensor's Web site, and that the licensee's continued use of the service after any such amendment shall constitute assent to any amended terms, then such agreement is enforceable under UCITA.

UCITA's Impact

UCITA supporters argue that it brings uniformity to an otherwise ambiguous body of law. Opponents complain the act is overreaching and limits valuable consumer protections. Many law practitioners have criticized UCITA as vague and difficult to comprehend. Many state attorneys general have stated UCITA will lead to a flood of litigation in an effort to sort out the exact meaning and enforceability of its rules.

As of February, only two states, Virginia and Maryland, had adopted UCITA. UCITA may, nevertheless, have an impact on states that don't yet have the legislation in place because UCITA contains provisions that might govern transactions of a forum in which it has not been adopted. Some states such as Iowa, North Carolina and West Virginia have enacted bomb-shelter provisions to override the enforcement of UCITA in their jurisdictions. Such legislation passed in North Carolina states that 'a choice of law provision in a computer information agreement which provides' the agreement 'is to be interpreted pursuant to ' a state that has enacted the Uniform Computer Information Transactions Act ' is voidable.' (N.C. Gen. Stat. '66-329 (2002).

UCITA has three rules that govern which law will apply to a particular contract or transaction if the parties have not specifically addressed such an issue in their agreement:

1. In an Internet transaction for electronic transfer of information, the transaction is governed by the law where the licensor is located;
2. In a transaction for physical delivery of a tangible copy or deliverable of information to a consumer, then the law of the state where the delivery was to be made shall govern the transaction; and
3. In all other cases, a transaction is governed by the law of the state with the most zsignificant relationship to it.

In February, the American Bar Association (ABA) decided to withdraw a resolution that recommended approval of UCITA. ABA delegates were asked to vote on a resolution approving UCITA's readiness for consideration by state legislatures. The withdrawal of the resolution indicates UCITA lacks consensus and support for successful passage of uniform state law. UCITA's failure in the ABA will probably deter its passage in other states.

But this does not mean UCITA is dead. The National Conference of Commissioners on Uniform State Laws (NCCUSL) plans to continue efforts to promote UCITA.

'The NCCUSL has invested 15 years of work, sweat and negotiation in UCITA ' [The] [NCCUSL] ' [is] too proud to start over again,' Computerworld Senior News Editor Frank Hayes wrote in February in an article titled 'UCITA: Not Dead Yet' (see www.computerworld.com/softwaretopics/software/appdev/story/0,10801,78567,00.html).

For more information on which states are considering UCITA, see www.ala.org/washoff/ucita/news.html.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.

UCITA (the Uniform Computer Information Transactions Act) was drafted as a revision to the Uniform Commercial Code (UCC) ' a body of law adopted in almost every U.S. state that aims to ensure consistency in rules governing contract laws.

Drafters of the UCC have spent the last several years attempting to amend the code to provide uniform rules for intangible products involved in computer-information transactions. The American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws must jointly adopt any changes to the UCC.

In 1994, the National Conference of Commissioners and ALI began working jointly to create a new UCC article titled Article 2B. But a rift developed as the drafting process neared its end. The National Conference and ALI couldn't agree on language for numerous code sections, so ALI withdrew support of the legislation in 1999. The proposed article also drew protest from many consumer groups who felt the draft didn't provide sufficient consumer protections and gave software licensing companies too much power.

After losing ALI's support, the National Conference of Commissioners on Uniform State Laws adopted the proposed new article as a freestanding uniform act (UCITA), rather than as a new article to the UCC, and proposed the uniform law be passed in all 50 states.

Why UCITA is Important

Operation of nearly all business depends on computer technologies. These technologies control, among other things, the calculation and disbursement of employee benefits, management of payroll, and the processing, compliance and payment of suppliers. Because of its broad scope, UCITA would affect every facet of business.

As the business world continues to embrace technology as an integral operations component, UCITA becomes an ever more important issue. UCITA's importance is derived from the fact that it is a new body of law concerning governance of:

• computer software transactions
• online databases and information
• digital multimedia products
• computer games
• online journals and magazines
• CDROMs
• videos
• e-books and other products

UCITA's two main purposes are to 1) clarify the law governing computer-information transactions and 2) make the law uniform among various jurisdictions. Section 102(a)(11) of UCITA defines computer information transactions as 'an agreement or the performance of it to create, modify, transfer or license computer information or informational rights in computer information.'

This model law would govern all contracts involving computer information products and services, and provide uniform commercial standards for these transactions.

By creating one body of law dealing with all computer information transactions, licensing entities and consumers will finally have one source that details how these transactions should be handled. Even if all provisions are not enacted, it is important that lawyers be familiar with UCITA because it is the most comprehensive attempt to date to standardize law concerning computer information transactions.

UCITA's Impact on e-Commerce Law

The number of small businesses conducting e-commerce has been steadily rising in recent years. And as more consumers conduct business over the Internet, it is increasingly difficult to know where one is doing business and which state laws apply to particular transactions.

A few examples of how UCITA directly addresses some key e-commerce issues are listed below.

Many e-commerce transactions involve so-called online shrink-wrap licenses. This is a mass-market type of license not revealed until after an agreement has been made to acquire a product or service. One major issue that sparked drafting of UCITA was enforceability of shrink-wrap licenses under various state laws.

UCITA addresses enforceability of shrink-wrap licenses by stating that a person can manifest assent to terms of an agreement in whole or in part by acts or failure to act. This is important in electronic commerce, where most interactions involve conduct rather than words such as clicking an I accept button on a Web site before entering the main forum.

UCITA also allows for parties, by prior agreement, to define what constitutes assent with respect to future conduct in ongoing relationships. For example, a consumer can agree to a license and sign up for Internet service. If the license specifies all future amendments to the license shall appear on the licensor's Web site, and that the licensee's continued use of the service after any such amendment shall constitute assent to any amended terms, then such agreement is enforceable under UCITA.

UCITA's Impact

UCITA supporters argue that it brings uniformity to an otherwise ambiguous body of law. Opponents complain the act is overreaching and limits valuable consumer protections. Many law practitioners have criticized UCITA as vague and difficult to comprehend. Many state attorneys general have stated UCITA will lead to a flood of litigation in an effort to sort out the exact meaning and enforceability of its rules.

As of February, only two states, Virginia and Maryland, had adopted UCITA. UCITA may, nevertheless, have an impact on states that don't yet have the legislation in place because UCITA contains provisions that might govern transactions of a forum in which it has not been adopted. Some states such as Iowa, North Carolina and West Virginia have enacted bomb-shelter provisions to override the enforcement of UCITA in their jurisdictions. Such legislation passed in North Carolina states that 'a choice of law provision in a computer information agreement which provides' the agreement 'is to be interpreted pursuant to ' a state that has enacted the Uniform Computer Information Transactions Act ' is voidable.' (N.C. Gen. Stat. '66-329 (2002).

UCITA has three rules that govern which law will apply to a particular contract or transaction if the parties have not specifically addressed such an issue in their agreement:

1. In an Internet transaction for electronic transfer of information, the transaction is governed by the law where the licensor is located;
2. In a transaction for physical delivery of a tangible copy or deliverable of information to a consumer, then the law of the state where the delivery was to be made shall govern the transaction; and
3. In all other cases, a transaction is governed by the law of the state with the most zsignificant relationship to it.

In February, the American Bar Association (ABA) decided to withdraw a resolution that recommended approval of UCITA. ABA delegates were asked to vote on a resolution approving UCITA's readiness for consideration by state legislatures. The withdrawal of the resolution indicates UCITA lacks consensus and support for successful passage of uniform state law. UCITA's failure in the ABA will probably deter its passage in other states.

But this does not mean UCITA is dead. The National Conference of Commissioners on Uniform State Laws (NCCUSL) plans to continue efforts to promote UCITA.

'The NCCUSL has invested 15 years of work, sweat and negotiation in UCITA ' [The] [NCCUSL] ' [is] too proud to start over again,' Computerworld Senior News Editor Frank Hayes wrote in February in an article titled 'UCITA: Not Dead Yet' (see www.computerworld.com/softwaretopics/software/appdev/story/0,10801,78567,00.html).

For more information on which states are considering UCITA, see www.ala.org/washoff/ucita/news.html.

Marie Flores, J.D., is assistant vice president and contracts department manager at Southwest Bank of Texas, N.A., in Houston.