The Virtual Lawyer - The Train in the Tunnel

by David Crocker

Published 1998-06-01    Printer-friendly version

You all know the story about the guy walking along the railroad track in a tunnel. He sees a light down the line and just figures it's blessed daylight at the end. Unfortunately for our gruesome hero, the light is really an approaching locomotive that flattens him before he can scream for mama. So much for visions of daylight. I'm sure we can all point to locomotives that appear to be daylight at first glance. In the world of law, however, the American Law Institute might be building another such fast-mover for folks in the information business. This particular express goes by the innocuous-sounding title of "Article 2B of the Uniform Commercial Code." Now, what in blazes is this Uniform Commercial Code anyway?

Law School Slumber Party

Every first-year law student studies the Uniform Commercial Code as part of a contracts or sales course. I did, and I must confess that it made my feet fall asleep. Truth to tell, it still does, although constant experience has taught me just how important the UCC really is. For you non-lawyers, the UCC is a draft statute created by ALI and approved by individual state legislatures to govern a wide range of commercial matters, including sales of goods (Article 2), commercial paper (Article 3), bank deposits (Article 4) and secured transactions in personal property (Article 9). The key words here are "voluntary" and "uniformity": forty-nine states have voluntarily adopted the UCC and it provides rationality and predictability in commercial transactions from state to state. As a model statute, the UCC has been amended any number of times over the last fifty years or so. So what about this new article?

A Very Broad Reach

The short answer is that Article 2B governs contracts dealing in "information." Now, the drafters have covered a lot of ground here, going way, way beyond mere software. "Information" covers "data, text, images, sounds and works of authorship, including computer programs, databases, literary, musical or audio visual works, motion pictures, mask works . . . or any intellectual property or other rights in such information." The draft article also creates a new "mass market" transaction, ratifies "point and click" software licenses and legally recognizes digital signatures. Although there are exceptions carved out of the definition of information, critics wonder whether is it is necessary to force various markets (publishing, for instance) into a new legal framework, where the good old common law has functioned just fine, thank you very much. The short answer is that lots and lots of people might be looking at a locomotive. Here's why.

Going My Way

If you fiddle with a computer, you know what a "default" is: it's a setting that applies unless you actively decide to change it. Well, Article 2B works kinda like that: if the parties to a contract don't specify one way or the other, then the default provisions set by the article apply automatically. So far so good, but whom do the "defaults" favor? The answer will not please the consumer: it is the vendor that usually wins by default. A few nasty examples:

Warranties: Unlike usual contracts, where the seller's performance must conform exactly with the contract to avoid breaching it, Article 2B only requires "substantial" performance. What's substantial? You'll be fighting that one out in court.

Software Development Contracts: Article 2B generally provides that unless there is an "authenticated record" to the contrary, a developer owns IP rights in the developed software unless the customer would be considered a co-owner under some other law.

Canceled Licenses: If a license is canceled, the vendor gets to possess the licensed information and to prevent the customer's use of the information. It gets worse: the vendor is permitted to accomplish this by "self-help" whereas the customer can only assert its rights through a court.

Information Access Contracts: Vendors may simply discontinue access upon a "material" breach of contract. Again, what is "material" is in the eye of the beholder.

Self-Help: The self-help provisions certainly give me a nosebleed: imagine a customer getting cut off or disabled from accessing mission critical data or other "information" that winds up crippling the business or offending third parties.

When a Short Contract is Bad, Bad, Bad

You now understand how the defaults work. If you are a crafty vendor, simply lay a short and sweet agreement in front of a customer. Anything left out (like warranties), will default in your direction. The customer, on the other hand, thinks you're a real mensch for avoiding a knotty contract. So, who's getting the shaft here? Obviously the customer, who must now both understand and negotiate uphill against the defaults that run against him. For once, a short contract is a bad one.

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Clarion Magazine ISSN 1718-9942