Ladas & Parry - Domain Names & E-Commerce - Overview of U.S. Laws Relating to E-Commerce

Domain Names & E-Commerce / E-Commerce / Overview of U.S. Laws Relating to E-Commerce

4. Contracts Relating to the Supply of Computer Information

As noted above, the National Conference of Commissioners on Uniform State Laws has proposed a model law covering contracts for the supply of computer information - the Uniform Computer Information Transactions Act (UCITA). To date, Virginia and Maryland are the only two states that have adopted the UCITA. Originally, it was envisaged that much of what has become UCITA would form a new Article 2B of the Uniform Commercial Code, but late in the proceedings, it was found preferable to draft a separate model law.

The UCITA defines a "computer information transaction " as "an agreement ... to create, modify, transfer, or license computer information or information rights in computer information or informational rights in computer information." [27] "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." The term is specifically stated to include a copy of any information and any documentation or packaging associated with the copy. "Informational rights" means "all rights in information created under laws governing patents, copyrights, mask works, trade secrets, trademarks, publicity rights or any other law that gives a person, independently of contract, a right to control or preclude another person's use of or access to the information on the basis of the rights holder's interest in the information."

Contracts covered include those to license software, create a computer program, distribute information on the Internet, and gain access to online databases. Mass market transactions include all consumer contracts as well as transactions involving other end-users if the transaction is directed to the general public or conducted under terms consistent with an ordinary retail transaction. [28] All transactions and licenses are limited by unconscionability, fundamental public policy, and express agreements between the parties. [29]

There has been some discussion as to whether some aspects of UCITA may be preempted by the Federal Copyright statute. Under this, copyright certainly exists for compilations of data as long as there has been some element of creativity about the selection or organization of the data. Section 301(a) of the Copyright Act preempts any "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright." However, the better view seems to be that the two are complementary, one relating to whether or not rights exist and the other to how they may be used.

As might be expected from its history, the UCITA has much in common with Article 2 of the UCC, including the basic approach that its role is to provide default rules that the parties can, if they wish, modify or ignore to meet their particular circumstances. The UCITA deals with this issue specifically in Section 104, which provides that for contracts falling within its ambit "the parties may agree that this Act, including contract-formation rules, governs the transaction in whole or in part or that other law governs the transaction and this Act dos not apply." [30]

Interesting features of the UCITA include the following:

4.1 Manifestation of Assent and Authentication

Section 112 provides that one may assent to a record or term by conduct or by authenticating a record or term with the intent to adopt or accept it. In both cases, however, it is necessary that the party who is to be bound by it must have knowledge of or the opportunity to review the record or term in question. Certain rules prescribe what is meant by having an opportunity to review the relevant record or term. Additionally, for transactions involving the Internet, Section 211 provides that the requirement to provide an opportunity to review terms may be met by, before the earlier, the user obtaining the information requested or being obligated to pay:

(A) Displaying prominently and in close proximity to a description of the computer information, or to instruction or steps for acquiring it, the standard terms or a reference to an electronic location from which they can be readily obtained or

(B) Disclosing the availability of standard terms in a prominent place on the site from which the computer information is offered and promptly furnishing a copy of the standard terms on request before transfer of the computer information.

Sections 107 and 108 provide that authentication may be effected electronically, including by an electronic agent as is provided for in the UETA but go on to provide that:

Authentication may be proven in any manner, including a showing that a party made use of information or access that could have been available only if engaged in conduct or operations that authenticated the record or term.

The effect of this is seen, for example, in Section 201 (UCITA's Statute of Frauds provision), where it is provided that enforcement of certain contracts requiring payment of a contract fee of $5,000 or more may require that the party against which enforcement is sought, authenticate a record sufficient to indicate that a contract has been formed.

4.2 Choice of Law

Section 109(b) provides:

In the absence of an enforceable agreement on choice of law the following rules determine what jurisdiction's law governs in all respects for purposes of contract law:

(1) An access contract or a contract providing for electronic delivery of a copy is governed by the law of the jurisdiction in which the licensor is located when the agreement is made;

(2) A consumer contract that requires delivery of a copy on a tangible medium is governed by the law of the jurisdiction in which the copy is or should be delivered to the consumer;

(3) In all other cases, the contract is governed by the law of the jurisdiction having the most significant relationship to the transaction.

4.3 Formation of Contracts by Electronic Agents

Section 206 provides:

A contract may be formed by interaction of electronic agents. If the interaction results in electronic agents engaging in operations that under the circumstances indicate acceptance, a contract is formed, but a court may grant appropriate relief if the operations resulted from fraud, electronic mistake or the like.

Similarly an electronic agent may also form a contract with a human.

4.4 Mass Market Licenses

Under Section 208, one can, in general, adopt the terms of a record, including standard forms by, for example, manifesting assent. This provision is, however, modified for mass market licenses to provide that such adoption only occurs if the assent is manifested before or during the party's initial performance, or use of, or access to the information. Additionally, terms are not part of the license if unconscionable, preempted by federal law or contrary to public policy.

4.5 Electronic Errors

Under Section 214, consumers, but not persons involved in B2B transactions, may be excused from the consequences of electronic error in an automated transaction if no reasonable means to detect and correct or avoid the error is provided. To do this, however, the consumer must not have used or received any benefit from the information that was supplied as a result of the error and must promptly notify the other party of the error and deliver up or act, pursuant to reasonable instructions, to another person or destroy all copies of the information in question.

4.6 Warranties

The warranties under the UCITA are similar to those relating to the sale of goods under the UCC. Although the UCC's warranty of title becomes a simple warranty when the licensor of information is a merchant, "the information shall be delivered free of the rightful claim of any third person by way of infringement or misappropriation" unless the licensor is operating in accordance with detailed specifications provided by the licensee.

4.7 Electronic Self-Help

Two provisions of the UCITA which have been subject to criticism as possibly making life easier for hackers, relate to the authorization of means for enabling licensors to disable computers at a distance if the contract is terminated. Some computer software experts have expressed the view that the incorporation of a code to permit this in original downloads of information would provide additional ways for unauthorized intrusion by others. The provisions in question are Sections 605, 815 and 816.

Section 605 authorizes the supplier of computer information to include an automatic restraint in the information or a copy of it and to use that restraint to prevent misuse of the information supplied if:

(1) a term in the agreement authorizes the use of the restraint;
(2) the restraint prevents a use that is inconsistent with the agreement;
(3) the restraint prevents use after expiration of the stated duration of the contract or a stated number of uses; or
(4) the restraint prevents use after the contract terminates, other than on expiration of a stated duration or number of uses, and the licensor gives reasonable notice to the licensee before further use is prevented.

Any such automatic restraint must not prevent the user from using his own or some other person's information as long as this is accessed without use of the information supplier's information or informational rights. However, the information supplier is not to be held liable for any loss caused to the user by any permitted use of an automatic restraint.

Section 814 provides that a party may discontinue all contractual rights of access if the other party to the agreement is in material breach. Sections 815 and 816 provide that on cancellation of a license covered by the statute, the licensor has a right to the return of all licensed information in the possession or control of the licensee and to prevent any continued use in the licensed information under the license. To enforce these provisions, the licensor may, as long as the licensee has manifestly assented to a term permitting it, exercise electronic self-help. Before exercising electronic self-help, the licensor must give notice to the licensee of its intention to proceed in this way. Licensees who are subject to wrongful exercise of self help are entitled to direct and consequential damages from any harm done. Furthermore, electronic self-help is not to be used if the licensor has reason to know "that its use will result in substantial injury or harm to the public health or safety or grave harm to the public interest substantially affecting third parties not involved in the dispute."

[27] UCITA 102 (a) (11)

[28] UCITA Section 102(a)(44).

[29] See id. 209(a), 105(b).

[30] Section 113, however, provides that one cannot opt out of obligations of good, faith, diligence, reasonableness and care imposed by the act and that limitations on enforceability imposed by rules on unconscionability and fundamental public policy may not be varied by agreement. Furthermore, certain other provisions may be modified only to a limited extent.

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