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<nettime> US lawmakers take a stab at e-commerce

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Net Skink
By Rebecca Lynn Eisenberg
San Francisco Examiner
May 3, 1998

**2B OR NOT 2B**

Ever read those long blocks of legalese that pop onto your computer screen
each time you install new software? Chances are, you scroll past the words
"license," "contract" and "restrict" to click on the words at the bottom:
"I accept."

Bad idea. If a proposed addition to the Uniform Commercial Code (UCC), the
set of model, standard commercial laws that govern trade in virtually all
50 states, is enacted, you could be giving up a lot more than you bargained
for with that click.

In fact, if UCC 2B is enacted, you could potentially lose your rights to
criticize or analyze the product you purchased -- rights currently
protected by federal law.

These rights hang in the balance as the two groups of legal experts
responsible for drafting the proposed amendment finish their job: That of
writing (on a national level) a set of rules for state governments to
adopt, providing predictability in business laws from state to state. The
drafters hope to offer UCC 2B for state approval this fall. If all goes as
planned, each state will adopt it, and governments of other countries will

Why new laws? The current UCC, drafted in the 1950s, governs the "sales of
goods," but does not translate well to intangible digital products like
software, which are not sold but licensed.

In other words, when you purchase software, you only purchase a set of
rights to use it -- e.g. for personal use -- but not the underlying
"information" itself, which remains the property of the publisher or
author, according to copyright and patent law. This limited set of rights
is a license, not a sale.

These licenses drive today's digital economy -- a global information
marketplace with trillions of dollars changing hands each day. It includes
workplace business databases and subscription pornography Web sites -- as
well as books, magazines, movies and even newspaper articles.

UCC 2B creates standards for licensing these information products --
including background rules for interpreting warranties, legal remedies, and
whether or not an electronic "signature" is binding. By codifying current
industry standards, lawsuits, lawyer-hours and transaction costs would be
reduced, and we all would benefit with lower prices and more predictable

Unfortunately, few in the e-commerce industry find UCC 2B's rules standard.
Last week, 300 lawyers, academics, businesspeople and advocates met at
UC-Berkeley for a conference to discuss them.

Whether representing large companies like Intel, consumer groups or
libraries, almost every speaker implored UCC 2B's drafters to put their
quest on hold. Although they agreed that a uniform code for licenses would
be helpful, fostering efficiency and clarity, it is too early to decide
what is uniform, and what seems right for now will not seem so in a few
years. It's like trying to nail a target moving 900 miles per minute.

Of particular contention was 2B's approach to "shrink-wrap licenses" --
those lengthy legal forms that you don't read when installing software.
Calling them "mass market licenses," the draft makes them binding, even if
they restrict rights of users currently protected by copyright and patent

For this reason, developers and consumers are taking notice. Over the past
week, e-mails about UCC 2B flew on Net mailing lists. Although publishers
need protection from piracy and misuse, many shrink-wrap licenses give them
too much power.

These licenses could pose serious threats to libraries, said Peter Lyman,
university librarian and professor at UC-Berkeley. If UCC 2B would let
publishers restrict "fair use" rights protected by copyright, libraries
could be forced to charge borrowers "per use" each time a book was checked
out, a page was photocopied, or a work was cited by a student doing

Cem Kaner, an attorney and former programmer, described a typical
shrink-wrap license on-line (

Attention, Please Read: Installing this software constitutes your
acceptance of the terms and conditions of the license agreement. Other
rules and regulations of installing this software are:

1. The product cannot be rented, loaned or leased. 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

Other licenses go much further, prohibiting programmers from analyzing
source code through decompiling and reverse engineering -- research
protected by patent law to foster progress and innovation. Or, they
disallow users from describing the product in reviews -- a right protected
by the "fair use" copyright doctrine to promote research and the free flow
of information. Some licenses disclaim all warranties -- even those that
always accompany sales of goods -- and others establish "choice of forum"
rules, requiring customers to file their grievances in, say, Shreveport, no
matter where they made the purchase.

Some licenses even allow software publishers to use "electronic self-help"
when users don't comply. For example, remotely disabling or deleting their
product through the Net, even if disabling that one application brings down
your network or your business.

Although many of these terms will likely be invalidated as "unconscionable"
(grossly unfair) or else struck by federal courts, nothing is certain until
lawsuits are filed and decided. Meaning more work for lawyers, and less

It's a result nobody favors -- and it is not clear whom to blame. Not even
software giants.

"The Software Industry did not ask for this law," said Holly K. Towle,
counsel for the Business Software Alliance, a powerful group that includes
IBM, Microsoft and a dozen other big players. "I was told that this law was
going to be developed. If someone is going to write a law that affects your
industry, do you just say, 'OK, write it; tell us when you are done?' Or do
you go to the meetings and say, 'Do you understand what kind of impact that
rule would have?' "

What kind of impact would it have? Many are pessimistic.

"UCC 2B allows software publishers to sell software with serious known
defects without fear of any significant consequences," explained Kaner.
After all, "it would be malpractice for a licensing lawyer not to disclaim
all warranties, prohibit reverse engineering, and take advantage of all of
the many things you can do in 2B to eliminate accountability."

Kaner points in particular to UCC 2B's potentially disastrous effects on
consumers. "When the software companies then charge $3 a minute for
customer support, these laws let companies turn a defect into a profit

Enforcing shrink-wrap licenses would cause "lower quality products, lower
customer confidence, and a weaker domestic industry," said Kaner. In other
words, bad software. "UCC 2B," Kaner insisted, "takes away the pressure
from companies to do good work."

Kaner is not alone in the fear that 2B threatens innovation. "We represent
start-up companies, companies in growth mode, companies that are inventing
things every day, and we want them to have an ability to do that without
being suffocated by a property regime that prevents them from innovating
and growing," said Hank Barry, a business lawyer at the Palo Alto high-tech
firm of Wilson, Sonsini, Goodrich and Rossatti.

"In the name of efficiency and low-transaction costs," said Barry, Article
2B "would shift the balance of power from a balance dictated by copyright
to a balance dictated by contract," to the detriment of innovation and
invention -- and consequently to our economy in general.

"Article 2B is confused and confusing," stated Michele Kane, vice president
for computer law for Walt Disney Co.

And to the extent that anyone can interpret its provisions, they stand in
stark contrast to laws currently existing in Europe and East Asia,
complained law professors from the University of Amsterdam and Hitotsubashi
University, in Tokyo. It even risks dividing "world society into haves and
have-nots" warned Adnan Hassan of the World Bank, an international
development bank that serves primarily developing countries.

Ironically, if hastened to passage, the proposed laws regulating software
licensing of software may fall prey to the problem endemic in software
publishing itself: In the rush to publish something, the result is nothing

"The software industry is very young," explained Ron Epstein, senior
counsel in charge of licensing at Intel. "How can you look at an industry
which is at most 15 years old and say that you can codify existing industry

"Each month, a few more of us wake up and say, 'What the heck is going on
here, and how can we stop it?' " said Epstein. "Now we know that we can
just leave that to the Consumers Union."

Haste makes waste -- in both software and law.

Copyright 1998 San Francsico Examiner and Rebecca Lynn Eisenberg
All rights reserved.
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