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The chips are down for software manufacturers. What once seemed a sure bet — passage of a controversial bill that would give the industry almost absolute power in determining the terms of product sales — is languishing in statehouses across the country. Now major software manufacturers and computerized information companies, including Microsoft, America Online, Intel, and the Nasdaq stock exchange, are quickly mobilizing to push for the law, known as the Uniform Computer Information Transactions Act (UCITA). The Business Software Alliance, the Software and Information Industry Association, and the Digital Commerce Coalition are also gearing up to wage a major lobbying war in the states — a war they didn’t think they would have to wage. “There is a natural euphoria whenever you draft a bill like UCITA,” says Daniel Duncan, executive director of the Digital Commerce Coalition. “We thought, ‘We’ll take it to the states and they’ll see the wisdom of our work.’” The coalition, which was formed last March to advocate the passage of UCITA in the states, is focusing its efforts in as many as 10 states in hopes of helping to pass the legislation in five states by year’s end. Ultimately, the goal is to have all 50 states adopt uniform measures. “The job that we have now is to explain that this is not the death knell of consumer rights,” says Emery Simon, a lawyer with the Business Software Alliance, which is a member of the Digital Commerce Coalition. “We have done a fair amount of public education. Maybe it hasn’t been as effective as we would have liked.” Meanwhile, a host of consumer groups and corporations are lobbying hard against passage of UCITA. The Americans for Fair Electronic Transactions Association, for example, which counts Caterpillar Inc. and the Prudential Insurance Co. as members, is planning a national grass-roots campaign to drum up public opposition to the bill. “It’s unconscionable that software companies can take no responsibility for the quality of their products,” says Mark Pullen, a computer science professor at George Mason University in Fairfax, Va., and a member of the Institute of Electrical and Electronics Engineers, which also opposes UCITA. UCITA is now pending before six states and has already been adopted by Virginia and Maryland. It proposes a set of rules governing the licensing of everything from software to online music databases. The bill establishes that consumers purchasing software are not buying a copy of the software, but a license to use the software according to the terms of the agreement. The distinction allows software and online database companies greater power to write agreements restricting the use of their products — restrictions that may not be enforceable under intellectual property or contract laws. The stakes are high: If the legislation doesn’t gain momentum in the states this year, its passage across the United States could drag on interminably, which would open the door to significant changes in the language of the law. Moreover, if there is too much variation in the legislation among the states, not only would the software industry find it more difficult and costly to operate, but the federal government would be more likely to step in and write its own regulations, which may not offer the industry the same level of protection. Indeed, the states may not even get the chance to deliberate over the licensing bill before the federal government jumps in. LIKE BUYING A TOASTER? This week, the Federal Trade Commission is holding a public forum on high-tech warranty issues. On the agenda is the unavailability for pre-sale review of so-called shrink-wrap licenses, which are usually inserted inside the packaging containing software, or click-wrap licenses, which are embedded inside the installation procedures of the software. “We need to understand why software should be treated differently,” says April Major, a lawyer with the FTC’s Bureau of Consumer Protection. “The consumers should have the same kind of protection as if they are going out and buying a toaster.” Last year, the heads of the FTC’s bureaus of Consumer Protection and Competition and the Office of Policy Planning wrote letters to the National Conference of Commissioners on Uniform State Laws, which drafted UCITA. Some of the agency’s concerns were reflected in the final draft, but Major says FTC staffers continue to have reservations about the law. Critics say UCITA validates the use of shrink-wrap and click-wrap licenses, which they contend are unfair. But the National Conference of Commissioners on Uniform State Laws argues that retail consumers of software, including businesses buying on the mass market, would have the right to return the goods “if, upon review, the licensee does not like the license contract.” Jonathan Band, a partner in the D.C. office of San Francisco’s Morrison & Foerster who represents the American Library Association, says that the problem with computer information agreements extends beyond the inability of a consumer to review a license before laying money down for the product. Sometimes, he adds, there is only one software product that fits a company’s needs. “You as a consumer have to accept the crummy terms because there is no competition as to terms, since there is no competition as to products,” says Band. Adding to the problem, Band says, is that the law would permit vendors to circumvent fair-use provisions in copyright law. For example, a music label could include, as a licensing requirement, limitations on the circulation of a compact disc beyond a certain number of people. “They could, in effect, put the libraries out of business,” he says. But the Digital Commerce Coalition’s Duncan says that issue is moot. He says that legislative history attached to the Copyright Act of 1976 endorsed a company’s right to prevent unauthorized mass circulation of its products without catastrophic effects on organizations such as libraries. He adds that UCITA wouldn’t change the status quo. BACKDOOR TECHNOLOGY Opponents of the new legislation are also concerned that, under UCITA, software companies can write into licenses “self-help” provisions that give them the right to remotely turn off computer programs if terms of a contract are broken. Pullen, the George Mason professor and chairman of the board of ClassWise Inc., a Virginia start-up company that provides online business education, says that the so-called backdoor technology places a security risk on a company’s internal computer systems because hackers often can use it to break inside. Pullen wants software companies to be held liable for damages for security breaks resulting from the backdoor technology — as well as damages from known glitches in software. “Our argument comes from the heart of professional ethics,” Pullen says. But Simon of the Business Software Alliance says that holding manufacturers liable for software flaws will slow down innovation. Consumer demand for cutting-edge technology often means that new products are rushed onto the market — sometimes before they’ve been shown to be foolproof. “Because of the rapid development cycle of the software industry, we will often sell [products] in development,” says Simon. “Customers want the new, hot stuff.” Keith Kupferschmid, intellectual property counsel for the Software & Information Industry Association, says that while software companies should provide reliable goods, they shouldn’t have to bear potentially enormous risks associated with the use of their products. “How many companies are there who would undertake that risk?” Kupferschmid asks. “No one would. It’s just too great.” Meanwhile, corporations spending millions of dollars annually in software to help them run their businesses don’t want to be forced to bear all the risk either. Although the pro-UCITA lobby claims that it won’t be able to sell software to consumers if they aren’t happy with licenses, corporations claim that once the bill is passed they won’t have the bargaining power to negotiate for more favorable terms. These corporations also fear that under UCITA they won’t be able to transfer software licenses from a company being acquired to a new owner. “Business is going to find out that all the software that runs the company is going to have to be relicensed and paid for again,” says Gordon Pence, intellectual property counsel for Caterpillar Inc. “I actually tried to negotiate amendments during the committee drafting [of UCITA] but didn’t get anywhere. The meetings were dominated by major software vendors and their interest lobby.” Most critics say that the state commissioners who drafted UCITA agreed to language extremely favorable to the software industry to lure high-tech companies — and their jobs and revenue — to their respective states. However, Carlyle Ring Jr., who chaired the committee that drafted the bill, says the software lobby didn’t have any more sway over the committee than consumer groups: “Everyone had a chance to have their say.” Now Ring and his colleagues are trying to ensure that state legislatures see it that way.

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