38 Amendments May Be Recipe For Success

Published in the Richmond Times-Dispatch
August 26, 2002

Success rarely happens overnight, but with a little work, innovators can reap great rewards.

Colonel Harland Sanders, for example, first served his chicken at a gas station he owned in Corbin, Ky. After 13 years of tweaking his chicken recipe numerous times, Colonel Sanders finally sold his first franchise to Salt Lake City’s Pete Harman in August 1952.

Sanders’ chicken, coated with a blend of 11 herbs and spices, eventually gained national acceptance. Now, Kentucky Fried Chicken has 11,815 restaurants worldwide, does annual retail sales of $9.7 billion and serves nearly 8 million customers a day.

The Uniform Computer Information Transactions Act, known by the acronym UCITA, has experienced a similar slow start. Virginia became the first state to approve UCITA, 10 years after it was first conceived. It turns out, though, that UCITA has not quite found its recipe for success. Thus far, Maryland is the only other state to adopt UCITA. In fact, three states have passed anti-UCITA legislation.

Its opponents complain that UCITA lacks appropriate consumer protections and condones “buggy software.” Of course, all software will have some bugs. As UCITA points out, Microsoft Word had about 10 million lines of code in the mid-1990s, compared with about 7 million parts in a commercial airliner, many of which don’t move.

To mollify those who had stymied UCITA, its drafters passed 38 amendments that may prove to be UCITA’s secret recipe for success.

What is UCITA?

UCITA covers contracts that create, modify, transfer or license computer information, as well as online access contracts. Thus, when a consumer signs up for services with America Online or purchases a computer game, the transaction is subject to UCITA.

UCITA’s purpose is to provide a uniform contract law that answers questions that are unique to the computer information world. For example, if a software maker is flying on an airplane from Washington to Los Angeles and he transacts a deal on his laptop, what state’s law applies? UCITA answers that question by allowing contracting parties to pick the state’s law that they want to apply to their transaction, as long as the law chosen is commercially reasonable.

Consumer protection

UCITA concerns contract law. It’s not a consumer protection statute, and UCITA (in a so-so fashion) has always stated that it does not displace any existing consumer protection statutes, albeit not clearly enough for its critics.

Indeed, UCITA offers some consumer protections above and beyond existing contract law. For example, UCITA provides consumers with a cost-free right of return of the software if the consumer does not approve of the license terms.

Various consumer groups have criticized UCITA for not being sufficiently protective of consumers. These critics assert that UCITA doesn’t adequately protect the applicability of existing consumer-protection laws. Yet UCITA always has made plain that it does not displace any such laws. If anything, these consumer-protection laws need to be updated to cover the Internet age.

Still, to put the issue to rest, UCITA’s framers recently amended the act to make the applicability of consumer-protection laws clearer. UCITA now states beyond equivocation that consumer-protection laws trump any substantive provisions in UCITA.

Critics also complain that UCITA doesn’t prevent software makers from imposing terms strongly slanted toward the software company. That’s true, but unless we are going to legislate away the ability of parties to negotiate contracts, that’s how the world works.

Changes made

On Aug. 1, the framers of UCITA approved a list of 38 amendments written to clarify and fix some of the problems with UCITA. Because Virginia has enacted UCITA already, so the General Assembly will have to consider whether to adopt the changes.

UCITA previously may have allowed software companies to restrict criticism of their software by its nonconsumer users. Many complained that this stifled competition and raised First Amendment concerns. An amendment now precludes software companies from restricting criticism.

Previously, UCITA appeared to cover open-source software. If covered under UCITA, makers of open-source software would be required to supply warranties for their free products. Many worried that this would increase the cost for the software makers, thus discouraging free software distribution. UCITA now expressly eliminates noncontractual, open-source software from the scope of the act.

Another amendment prohibits electronic self-help after contract breach in all circumstances. Electronic self-help is when software companies write programs to automatically shut down or destroy computer information after a contract is breached. Previously, software companies could use post-breach electronic self-help in some nonconsumer transactions.

The remaining amendments add other consumer options, such as limited reverse engineering, and clarify hard-to-understand concepts in UCITA.

Will these 38 amendments be the 11th ingredient in UCITA’s recipe for success? That remains to be seen. If so, Virginia could be the next Pete Harman. He now owns 307 KFC stores in Utah, Colorado, Washington state and California.

By John B. Farmer

© 2002 Leading-Edge Law Group, PLC. All rights reserved.