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Major New Computer Law Statue

Unknown to most lawyers, a new comprehensive statute on licenses of information and software contracts is coming. It will arrive as a new Article 2B to the Uniform Commercial Code (UCC). When enacted, it will rewrite everything that we know about information licensing and software contracting.

For the benefit of you non-lawyers, the UCC is a body of business law most of which is common to all 50 states. It covers several areas of business law including the sale of goods, commercial paper like promissory notes, and leases of personal property. Two legal think tanks propose additions and revisions to the UCC, the National Conference of Commissioners of Uniform State Laws (NCCUSL) and the American Law Institute (ALI).

UCC provisions become law in a particular state only when adopted by that state's legislature. It's during this part of the process that variations in this "uniform" code develop.

The Reasons for a New Article 2B

The UCC originated during the 1950s. Then, the American economy was primarily a goods-based economy and the UCC thus focused on the sale of tangible goods. Tangible goods are things that you can see and touch.

Information and software are different. Sure, you can see and touch the media, such as a CD-ROM, on which information resides, but that tangible CD-ROM is incidental to a transaction. The value of a transaction is found in the information held by the CD-ROM. The "information" is intangible in that you can't wrap your arms around it.

The purpose of new Article 2B is to somewhat comprehensively create uniform American law concerning information and software related contracts. It's an area fraught with controversy, but nonetheless must be settled quickly. We inevitably hamper commerce when we have unsettled basic business law.

Benefits of Article 2B

As with any lawmaking, compromises are a part of the process. Sometimes commercial expediency supports law favoring one side of a transaction over another.

In creating an Article 2B, legislators have to balance the interests of licensors (those who own information or software and license it to others to use) and licensees (those who use the information or software subject to a license). Article 2B's development is now well along and the side it will take on different issues is beginning to emerge. The caveat is that new drafts appear regularly and there continue to be twists and turns in the road to fruition. (Just to clarify, a license is not a grant of ownership, but rather a contractual right to do something. For example, a software license gives you the right to use the software in a way consistent with the license. Common terms would be that you can use it on only one computer and may not make copies for resale.)

One thing that Article 2B will do is create a balanced structure for electronic contracting. This will encourage Internet-based commerce by reducing the uncertainty and non-uniformity of individual state laws as they apply to electronically-created contracts. (By definition, a contract created over the Internet is "electronically-created.")

It will create default contract rules which will govern a deal unless the parties expressly change them. "Default rules" are gap fillers which provide contract terms when the parties are silent on how they want to handle a particular point.

A traditional purpose of business law is to provide default rules. Not having them for information and software contracts makes it difficult for those of us that practice law in this area. Often, we're forced to look to analogies from traditional tangible goods law, but then the question always is, "Will the law apply in this context?" (And don't you just hate it when your lawyer says "The law here is unclear.") Intangible goods are different and need their own default rules. Article 2B provides them.

Article 2B will once and for all validate shrinkwrap agreements. A "shrinkwrap" agreement is what you see when you buy new off-the-shelf software like Quicken. It's that agreement that interrupts your installation of the software until you press the "Yes, I Agree" button.

The software industry has relied on shrinkwrap agreements since there has been a mass market software market. The truly amazing part is that an entire multibillion dollar industry relies on agreements that are of questionable validity. Some recent case law says that these agreements are enforceable, but Article 2B eliminates all doubt by saying that they definitely fly.

It will create workable choice of law rules which will often favor the licensor. "Choice of law" rules deal with issues of whose law applies. For example, the vendor is in Florida. The user downloads information via the Internet to his computer in Kansas. Somehow a lawsuit develops over the transaction. Does Florida or Kansas law apply? "Choice of law" rules answer this question.

Article 2B will create some law that benefits mass market software users. For example, software vendors will have a duty of reasonable care to prevent their software from harboring computer viruses. (A "computer virus" is essentially a maliciously destructive computer program that causes damage to data on a computer.) Vendors won't be able to contractually limit their responsibility for computer viruses in mass market software.

Timetable for Passage

Right now, the schedule for passage of Article 2B looks like this. In May 1998, the ALI membership will vote on the "final" text. During the summer of 1998, the NCCUSL annual conference will vote on the final text. Finally, they will reconcile the ALI and NCCUSL final versions before submission to the states. There is no timetable for the reconciliation yet. Then it must still go to the 50 states for passage. My crystal ball says that now we're several years into the next century.

A Call for Computer Law Leadership

While the think tanks are thinking, let's give the Florida economy a jolt. Let's take the lead in the areas covered by Article 2B and in computer, information and Internet law generally. I'd like to propose that Florida do everything possible to make it a haven for the information, software and Internet industries. Let's try to dominate these areas like Delaware has dominated corporate law.

For those of you that don't know, Delaware law dominates corporation law because Delaware has done everything reasonably possible to make its law favor corporations. Most large corporations like General Motors and Boeing are incorporated there because of Delaware's favorable laws.

I'd like to see Florida be the Delaware-South of the information, software and Internet industries. I'd like to see Florida take a current draft of Article 2B and turn it into law. That is after we modify it to make changes that favor the information, software and Internet industries. Let's make them a legislative offer that they can't refuse.

We don't have smokestack industries here. Computer-related industries are naturals for Florida. Nonetheless, we're floundering and often losing out to other states. Let's take the lead and make this the best place to headquarter companies in these industries. Think of the opportunities for explosive economic growth. There's no limit. Think about it.



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