• Summary of the Key Provisions of the Uniform Computer Information Transactions Act
  • April 29, 2003 | Author: Marc S. Berger
  • Law Firm: Fenwick & West LLP - Mountain View Office
  • In September 2000, the National Conference of Com- missioners of Uniform State Laws ("NCCUSL") approved a set of proposed regulations designed to establish uniformity in the treatment of information technology transactions and to foster the continued growth of electronic and other forms of digital commerce. These transactions are currently governed by complex and often inconsistent state regulations with varying interpretations and practices throughout the 50 states. This article addresses the scope of these proposed regulations and provides a brief overview of key terms applicable to electronic commerce transactions.

    If enacted by the individual state legislatures, the Uniform Computer Information Transactions Act (UCITA) would apply to transactions that involve the creation, use or distribution of computer information. A computer information transaction is defined as "an agreement a primary purpose of which is to require a party to create, modify, transfer, or license computer information or informational rights in computer information." Examples of computer information transactions include:

    • Contracts for the development or creation of soft- ware and computer databases;
    • Transactions involving the distribution, or grant of a right to use, a computer program; and
    • Transactions involving access to or information from a computer system, such as access to the Internet or online information distribution.

    A transaction would not fall within UCITA merely because information related to a transaction is communicated as computer information. The UCITA drafters use the example of a commercial contract for airline transportation, or an "e-ticket," to clarify this point. While the transaction may be conducted electronically or occur entirely over the Internet, the underlying subject matter of the transaction is for a service-air transportation-and not for computer information. Therefore, UCITA would not apply.

    UCITA also excludes transactions within industries whose commercial practices differ from those in the computer software, online and data industries. These industries primarily fall within two sectors-financial services and the entertainment/broadcast industries. UCITA does not apply to core banking, payment or financial services functions such as fund transfers or money deposits. These core services are already regulated under various federal and state banking statutes. UCITA would apply to banks engaged in offering noncore services, such as online shopping or database access-services that banks have not traditionally offered but are beginning to undertake. Finally, UCITA does not apply to a compulsory license or a contract of employment of an individual other than as an independent contractor. While these forms of transactions are currently excluded from UCITA, the lines that have been drawn to exclude them are becoming less clear. As information technologies continue to converge, electronic commerce applications will blur these lines even further.

    One of the major drivers in the enactment of UCITA is the desire to promote the continued growth and development of electronic commerce by establishing uniform guidelines for electronic contracting. When conducting transactions electronically, three threshold issues must be addressed: authorization, attribution and acceptance. Authorization-whether a transaction has been properly authorized by a party-is a procedural issue. Many state legislatures have already adopted legislation recognizing digital signatures as a form of authorization, and UCITA incorporates these principles. Attribution is the ability to identify a party responsible for the electronic signature. UCITA provides that the attribution procedures must be commercially reasonable, with the party relying on the attribution having the burden of proving the reasonableness of the procedures.

    Acceptance is the issue of whether a party has agreed to the terms of an electronic agreement or computer information transaction. UCITA provides an objective standard for determining assent. The standard is whether a reasonable person would know that particular conduct will indicate agreement with the posted terms and conditions. A party has accepted the terms of a transaction if:

    • the party had knowledge of the terms and the opportunity to review them prior to assent;
    • the party indicated assent through authentication, express assent, or implied conduct with reason to know under the circumstances that these actions indicated assent; and
    • the conduct or authentication is attributed to the party.

    In addition to acceptance by "people," UCITA recognizes the growing importance of electronic agents in the development of electronic commerce and provides that a party (or both parties) can be bound through the actions of its electronic agents under similar circumstances as acceptance by a person. An electronic agent is a computer program, or other electronic or automated means, used independently to initiate an action or respond to electronic messages or performances without intervention by an individual at the time of the action, response or performance.

    UCITA also applies to mass-market licenses of computer information. A mass-market license is a standard form that is prepared and used in a consumer contract or transactions with an end-user licensee directed to the general public or within a retail market. An example of a mass-market license is a "shrink-wrap" license typically contained in a commercial software package. The drafters of UCITA took a different approach for acceptance of the terms of these mass-market licenses. If the terms of the license are available prior to a party's paying for the license, and the party has had the opportunity to review the terms, then standard contract rules of acceptance apply. However, if the terms are only available after assent (i.e., after purchase and delivery) and a party has not had an opportunity to review the terms, the party may return the product and receive full reimbursement if he or she does not wish to accept the terms of the license. This "right of return" provides for greater protection for the party obligated to pay for the license without having the opportunity to review its terms. This right of return provides strong incentives for licensors to make these terms available to consumers prior to distribution or licensing.

    The next step in the enactment of UCITA will be for the individual state legislatures to review the Act and vote on whether to adopt it as state law. Certain states may decide to modify particular areas of UCITA prior to enactment. Both Maryland and Virginia have enacted versions of UCITA. Maryland's law has an effective date of October 1, 2000, and Virginia's law goes into effect in July 2001. In addition, Delaware, the District of Columbia, Hawaii, New Jersey and Oklahoma have begun the process of introducing the Act into their state legislatures.

    Other states are taking a wait-and-see approach in order to determine what other states are doing. Key states in this process are New York, California, Texas, Massachusetts and Illinois. If these states take the lead in enacting this Act, the rest of the country should follow suit. Using this process, it may take a number of years to develop a uniform body of law governing computer information transactions. However, UCITA does provide a "snapshot" of current legislative interpretations of computer transactions and can be used as a guide for structuring electronic contracts prior to the introduction of a uniform national law.