UCC 2B: The New Law of Shrink-Wrap
April 19, 1999

UCC 2B: What's Wrong and What's Right
Article 2B of the Uniform Commercial Code seeks to enforce the often-ignored boilerplate in shrink- and click-wrap software licenses. The items listed below look at controversial assertions about 2B from the standpoint of many users (What's Wrong) versus a software-industry perspective (What's Right).

Assertion: Publishers can shut down business software--shrink-wrapped or negotiated--without a court order.

What's Wrong
· The mere threat of shutdown can ratchet down a business' negotiating power.

· 15-day shutdown notice to one person leaves room for surprise if he or she misses the notice.

· Difficult to ascertain the risk that shutdowns will result in injury or death.

· No guarantee that publisher can pay damages caused by wrongful software shutoff.

What's Right
· 2B offers more protections in this area than existing court decisions provide.

· Shutdown can only occur if there is a material breach of contract or expiration.

· Publishers need such recourse to collect unpaid fees and prevent piracy.

· Businesses must agree separately to license provisions for shutdown.

Assertion: Software companies can walk away from damages their products inflict on business without informing users about disclaimer until after purchase.

What's Wrong
· Software publishers need not label buggy software "sold as is" and can wait until after sales to present disclaimers.

· Businesses that agree to a disclaimer typically can't recoup support costs to diagnose, remove or recover from faulty software.

· 2B trades users' diminished negotiating power for publisher-dictated terms.

· Damage limitations foster quick-to-market, buggy software.

w 2B doesn't permit capped damages for known but concealed bugs.

What's Right
· Without special liability carve-outs for publishers, software costs will rise, innovation will fall and class-action suits will proliferate.

· Users can refuse post-sale disclaimers and obtain a refund for software.

· Fraud laws may help businesses recover damages for concealed bugs.

· Free-market economies rely on freedom to contract, not such regulation as capped damages for concealed software bugs.

· 2B won't change the law in those states that prohibit warranty disclaimers.

Assertion: 2B ensures that state courts, which favor free-market contract law, will handle most license disputes. In that realm, many public interests (freedom to critique, review, reverse-engineer and transfer products) of intellectual property and other federal laws may be considered unnecessary regulation.

What's Wrong
· Courts regularly enforce contractual restraints on speech.

· Many businesses will honor anticriticism terms to avoid suit.

· 2B uses notes, which may be dropped or never adopted, to clarify what terms are counter to "fundamental public policy"--making it likely this vague phrase will lead to contradictory state rulings.

· Users losing in state courts can only look to expensive, and unlikely, U.S. Supreme Court resolution.

What's Right
· Courts have never limited speech for publicly distributed information, and 2B does nothing to encourage this. Those who argue otherwise are using scare tactics.

· 2B's "fundamental public policy" language provides better guidance for uniform decision-making than exists in the states today.

· 2B's notes recognize intellectual property law, though the text (what is known as the black letter of the law) doesn't.

Assertion: 2B will make it impossible for most companies to transfer huge shrink-wrap software investments upon merger, acquisition or dissolution.

What's Wrong
· Businesses might find it less expensive to strip PCs of shrink-wrap software than invest in lawyers and technicians to renegotiate and isolate licenses.

· Transfer restraints (on software sold anonymously to a mass market) are designed to prevent product reuse rather than protect legitimate interests, such as trade secrets.

What's Right
· 2B trusts the market, not regulation, to arrive at workable contracts.

· Existing state and federal laws allow restrictions on contract transfers for legitimate reasons.

· Several cases say software transfer restrictions are enforceable; however, none say they aren't.

· It's easier to prevent piracy if software isn't reused.

Assertion: 2B greatly increases the odds that restraints on reverse-engineering will be enforced, harming software interoperability.

What's Wrong
· Innovation and interoperability will take a hit as developers avoid engineering efforts considered legitimate today, because they see 2B increasing their risk of being sued.

· Some developers will move to locales outside the United States, where restraints don't exist.

What's Right
· 2B remains neutral on reverse-engineering because the law in this area is unclear--even though 2B opponents claim otherwise.

· Good legislation doesn't enumerate federal rights (even if they are labeled illustrative) because courts might conclude rights are limited to those specified.

Assertion: Software publishers can specify the forum for a legal dispute, reducing the odds that some businesses will ever bring suit.

What's Wrong
· Even large companies may decline to sue a software company if the business is forced to bring suit at a far-flung location to collect minimal damages.

· Unlike consumers of other products, mass-market software users aren't guaranteed a right to bring suit in a local court.

What's Right
· Why waste money deciding on a forum if contracts already specify this?

· Without forum selection, publishers could be forced to litigate in virtually any country or locale, or pay huge legal bills to avoid doing so.

· 2B includes explicit language saying users are protected from unreasonable and unjust forum choices.

Assertion: Mass-market software licenses will be enforceable even though many businesses won't see the terms until after a purchase.

What's Wrong
· Post-sale licenses reduce publishers' incentive to offer competitive support and warranties.

· Click-wrap software need not make license terms available online.

· Federal law (Magnuson-Moss Act) prohibits merchants from avoiding damages by issuing post-purchase disclaimers on goods unfit for ordinary use.

What's Right
· It's convenient for many customers to assent to license terms after a purchase.

· Online publication of terms would require dealers to track thousands of licenses, locking out smaller publishers.

· Online retailers could introduce errors into licensing.

· States already enforce post-sale terms routinely.