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A new body of contract law was recently adopted in the United States by the National Conference of Commissioners on Uniform State Laws (NCCUSL) entitled the Uniform Computer Information Transaction Act (UCITA) for consideration and adoption by the legislatures in the fifty states of the United States as well as Puerto Rico, the District of Columbia, and the U.S. Virgin Islands. The UCITA could have a significant impact on international contract law, because the drafters envision the UCITA as the first step towards an international body of contract law that applies to computer information, and the Internet. Within the next couple of years, the international legal community could adopt a contract law very similar to the UCITA. This international contract law would stand in conjunction with the United Nations Convention on Contracts for the International Sale of Goods (CISG) to regulate international transactions.

The NCCUSL and the American Law Institute (ALI), whose joint approval is necessary for uniform laws to be placed within the Uniform Commercial Code (UCC), discussed and debated UCC Article 2B, the predecessor to the UCITA, over the past eight years. UCC Article 2B was originally intended to be placed along with UCC Article 2 related to the sale of goods and UCC Article 2A related to the lease of goods. However, UCC Article 2B was changed to the UCITA, because the ALI was not ready to adopt UCC Article 2B until Spring 2000 or even later while the NCCUSL was ready to adopt the UCC Article 2B at its annual meeting in July 1999. The NCCUSL also expressed a desire to deviate from the constraints of harmonizing UCC Article 2B with the rest of the UCC. So, the NCCUSL changed the name, adopted the UCITA, and will submit the UCITA to the legislatures for debate and adoption by January 2000 once the Reporter’s Notes are finalized.

The UCITA applies to computer information transactions, which are generally defined as “an agreement or the performance of it to create, modify, transfer, or license computer information or informational rights in computer information.” Computer information is defined as “information in electronic form which is obtained from or through the use of a computer or which is in a form capable of being processed by a computer.” Information is defined as “data, text, images, sounds, mask works, or computer programs, including collections and compilations of them”. So, for example, the UCITA would apply to all software, online publications and other online text, digital multimedia works, access contracts via the Internet, and other similar transactions for computer information.

The UCITA fills a gap in the United States uniform contract laws created by the invention and development of the computer and the Internet. The existing contract laws divide the world into a contract for the sale or lease of goods, or for services. Understanding the nature of software is necessary to understand why the current contract laws are insufficient to address computer information transactions. With the creation of computer software, the information industry was created where the item being contracted for was not a tangible good and was not an individual service. The item being sought is the right to use an intangible property that performs certain functions when run inside of a computer, i.e., software. The nature of software does not require that the software exist in a tangible form. Further, software is not an individual service provided to a particular person; instead, most software is made generally available to the public without any individual service being offered. Thus, software exists in a separate world that does not clearly fit into the category of a good, or a service.

The existing uniform contract laws in the United States also fail to expressly recognize licensing and the nature of the rights transferred with licensing. Due to the nature of the intellectual property rights behind software, a practice has developed in the software industry where the software is not sold to the end user. A software company is simply granting the end user the right to make certain uses of the software but with certain restrictions applied to the end user in order to protect the underlying intellectual property rights. A license has become a form of a contract. Even though courts in the United States have applied UCC Article 2 to license agreements, Article 2 does not recognize or address the unique issues related to software licensing and protecting intellectual property.

Software and the Internet also have created gaps in the uniform contract laws in the United States, because of the electronic nature of the medium. Contracts are being negotiated and concluded between computers without the signature of or even final approval of a person. Further, rules for the delivery, conformance, breach obligations, and other provisions related to the sale of goods provide little guidance to the parties when dealing with computer information transactions. For example, a licensor’s (seller’s) remedies under UCC Article 2 or the CISG for a licensee (buyer) breaching a software or access contract are meaningless when the licensee (buyer) has already benefited from access to the software or the information and also may easily retain a copy of the software or the information.

The UCITA was created to recognize the unique nature of computer information, and attempts to codify the existing practices in the software and Internet industries. On the international level and within most if the not all countries, the above issues have not been adequately addressed. With the eventual adoption of the UCITA and the dominance of United States companies in the software and Internet industries, the international community should be familiar with the UCITA, because a United States software company will likely choose the UCITA as the applicable law.

For more information on the UCITA including a link to the text of the UCITA, please see: www.2bguide.com.

Published in the MAA News Bulletin, 1999
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