AAI Pleased That Problems with UCITA Restrictions on Software Agreements Being Recognized

The Alliance of American Insurers said it is pleased by growing recognition within the National Conference of Commissioners on Uniform State Laws (NCCUSL) that the Uniform Computer Information Transactions Act (UCITA) may have to be scrapped.

“The Alliance has been fighting bills seeking to implement this overly restrictive measure for several years now, and is gratified that regulators are beginning to see how damaging UCITA can be to the free flow of commerce,” John Lobert, senior vice president of state regulations for the Alliance, said.

“Although benign in name, UCITA would have a debilitating effect on companies’ ability to use computer technologies by shifting significant economic risks onto licensees,” Lobert said. “It gives computer software vendors an inordinate and unprecedented amount of control over the number of people using their products and creates uncertainty over the duration of a licensee’s right to use software, while relieving vendors of their obligation to deliver a working product.

“Worst of all, the act would validate ‘shrink-wrapped’ licenses-agreements that are enclosed with the software product in cellophane. This would handcuff insurers when negotiating software agreements, enabling vendors to dictate terms and hold customers hostage to their unilaterally written sales contracts. This, in turn, would dramatically increase insurers’ cost of doing business, impacting employment, tax revenues and the competitiveness of products.”

UCITA was created by NCCUSL in 1999 and deals with several matters relating to the creation and enforcement of contracts and licenses for computer information transactions. These include formation of contracts, construction of contracts, warranties, performance of contracts and remedies. UCITA tilts the bargaining for software licenses in favor of software manufacturers and vendors by legitimizing software license provisions that favor software manufacturers and vendors.

Lobert’s comments came after NCCUSL president King Burnett announced at the organization’s annual meeting in Tucson, AZ, earlier this month that UCITA is not being widely enacted and faces an uphill battle to get approval from the American Bar Association (ABA). It is traditional for the ABA to review NCCUSL uniform laws and give them a stamp of approval. Burnett said that if there is no progress in the next year on these two fronts, NCCUSL would have to consider a different approach to the subject matter.

“Apparently, a large group of commissioners have signed a petition urging the NCCUSL leadership to downgrade UCITA from a uniform law to a model act, which would mean that ABA approval would not be necessary and that the organization would not push for uniform enactment,” said Lobert, who monitors this subject closely for the Alliance.

Another indication that NCCUSL was moving away from UCITA, Lobert noted, came in the group’s approval of a new approach to Article 2 of the Uniform Commercial Code, which the commissioners also develop. This article governs transactions in goods and has been widely used in litigation over software. The new Article 2 scope proposal, approved by the NCCUSL membership in Tucson, uses different terms than UCITA (in particular, it does not use the term “computer information”) and puts more trust in courts’ ability to decide disputes of contract language.

“The Article 2 scope proposal is a positive development that indicates UCITA’s approach may soon be retired,” Lobert said. However, he cautioned that, “While it is heartening to see that the commissioners who make up NCCUSL seem to be grasping the problems UCITA causes and are thinking of amending it, even in a downgraded status the measure still would continue to be a roadblock to economic development. The Alliance will not rest until all attempts to enact UCITA are defeated.”