Article 2b

Article 2B A new law will probably be introduced into state legislatures which will govern all contracts for the development, sale, licensing, and support of computer software. This law, which has been in development for about ten years, will be an amendment to the Uniform Commercial Code. The amendment is called Article 2B (Law of Licensing) and is loosely based on UCC Article 2 (Law of Sales), which governs sales of goods in all 50 states. A joint committee of the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute is drafting the changes to the UCC. The UCC was drafted in the 1950s and currently governs the sales of goods but not products like software, which are licensed, not sold. Basically, when you purchase software, you are purchasing the information and rights to use the software. Article 2B creates standards for licensing these information products, including rules for interpreting warranties, legal remedies, liability and risk.

This project began to give consideration to instituting a separate article of the UCC for software and related contracts. Article 2B is designed to bring uniformity across states and across the goods vs. services issue. It is intended to make software contract laws more consistent and clear among states. If laws are consistent from state to state it makes it easier for buyers and sellers to understand how to do business with each other.

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There is a great benefit in creating a uniform system for software products and services, however, this proposal for Article 2B does have major flaws. Article 2B employs a contracting model that excludes negotiation and that doesnt reveal terms of the contract to the customer until after the sale is complete. It also adopts a licensing model that says when you buy software, you are really only buying the right to use it. Consumers also have little or no opportunity to read warranties and disclaimers before purchasing the product. The draft of Article 2B eliminates some of the legal protections that software buyers currently take benefit from.

For example, it reduces vendor liability for software defects and viruses and allows vendors to charge separately for software licenses, maintenance and support. Critics say that Article 2B is biased in favor of software vendors. While this is the dominant issue for this paper, there are some positive ideas proposed in the amendment. It creates balance and structure, reduces uncertainty and non-uniformity of licensing law, sets performance standards, and innovates the concept of mass-market transactions. The Mass-Market License is a standard-form, non-negotiable, license. Companies use standard-form contracts instead of trying to negotiate a separate contract for each buyer, or licensee.

The lengthy legal forms that most dont read when installing software are shrink-wrap licenses. These mass-market licenses restrict rights of users. Licenses involve restrictions on the use of intellectual property. They can have nondisclosure provisions, restrictions on how the product is used and who can use it, and restrictions on transfer of the licensed product. Software companies solely benefit from this where they can not only dictate the terms of the agreement, but they can also avoid consumer defect and privacy protections laws that apply to a sale of goods. An example of a typical shrink-wrap license on-line is as follows: Attention, Please Read: Installing this software constitutes your acceptance of the terms and conditions of the license agreement.

Other rules and regulations of installing this software are: 1. The product cannot be rented, loaned or leased. 2. The customer shall not disclose the results of any benchmark test to any third party without Network Associates prior written approval. 3.

The customer will not publish reviews of the product without prior written consent from Network Associates. By loading any software, you may be inadvertently entering into a contract. Software publishers claim that these one-sided contracts are legally binding, but American courts disagree. Article 2B says that the publisher doesnt have to show software customers the terms until after the sale, when its too late to do comparison shopping. By then, the consumer has already started installing the software.

The customer is deemed to have accepted the terms of the contract if he/she uses the product instead of returning it. All of the terms of the agreement are now fully enforceable as if the consumer had reviewed, discussed, and signed a paper contract before the sale. Many of the shrink-wrap software licenses say that once you break the seal and use the software, youre releasing the vendor from all warranties. Basically, the software has been sold as is and youve given up your legal recourse if it doesnt perform as claimed, damages your computer, or has bugs that lead to errors. Under the Magnuson-Moss Warranty Improvement Act customers are entitled to see the warranty of any goods sold for $15 or more. It is not unreasonable to assume that software purchased for home usage would be covered by the Act.

But software customers rarely get to see the warranties provided with software until after the sale. Article 2B characterizes mass-market software sales as licenses, which may not be covered by the Magnuson-Moss Act. Products normally come with an implied warranty of merchantability, which states that the product will be fit for ordinary use, it will conform to the claims on the packaging and in the manual, and it will pass without objection in the trade. An implied warranty comes with a product at the time of sale unless it is conspicuously disclaimed. Implied warranties are so easy to disclaim as long as they are conspicuous in the sense that you know the terms. For instance, you buy a software program from a store, take it home and install it and a License Agreement is displayed.

It says that there are no warranties, express or implied, and that incidental and consequential damages are excluded. You have a chance to click on I accept these terms or I want a refund. If you choose the latter, you take the product back to the store and get a full refund. Express warranties cannot be disclaimed. An express warranty is any statement of fact by the seller to the buyer about the product that becomes part of the basis of the bargain.

This phrase generally means that if a reasonable customer would interpret the sellers statements as factual descriptions of the product that the customer has bought, and would be even slightly influenced by the statements in deciding whether to buy or keep the product, then they are considered basis of the bargain statements. Article 2B allows the seller to exclude incidental damages and consequential damages. These exclusions do not have to be conspicuous. Publishers are allowed to put damage limitation clauses in the license that excludes these expenses. Incidental expenses can include all costs of reporting a defect and returning the product. Software support is increasingly being done on a fee-basis where you pay for a support contract, you pay per call, or you pay per minute. A customer who spends money on support calls to report defects that were known to the publisher at the time it shipped the product, isnt entitled to a refund of these charges. The unethical publisher basically gets to profit from its own defects.

So not only dont you get reimbursed for incidental damages, but the cost of contacting the Customer Service Rep to report a legitimate problem becomes the profit of the software publisher. The public does not benefit from a law that cuts off their right to know before the sale what guarantees the product comes with. Article 2B will help publishers reduce their customer support costs in ways that dont improve the quality of their products. A company spends money on prevention of problems, appraisal (looking for problems), internal failure costs such as cost of bug fixes or lost time due to bugs found before the product is shipped, and external failure costs which include tech support costs, lost customer goodwill, and warranty costs. This analysis encourages employees to think about their companies costs as opposed to their customers costs.

The Article will substantially reduce a sellers legal and competitive exposure for shipping bad software. Companies should and will spend less than they do now to prevent, find, and fix bugs because it will now cost them less when they ship defective products to consumers. Article 2B allows software publishers to sell software with serious know defects without fear of any significant …