Announced Action for July 16, 1999

The staff of the Federal Trade Commission's Bureau of Consumer Protection, Bureau of Competition, and Office of Policy Planning have filed a comment with the National Conference of Commissioners of Uniform State Laws (NCCUSL) as NCCUSL prepares to consider adoption of the Uniform Computer Information Transactions Act (UCITA). In its comment, FTC staff expressed the same consumer welfare concerns that it raised in an October 30, 1998, letter about UCITA's predecessor, Uniform Commercial Code Article 2B. Those concerns, with one exception, have not been addressed in any significant respect in UCITA, according to staff.

UCITA is a proposed law that would create a new legal structure to govern what UCITA terms "computer information transactions." UCITA would establish a licensing model for these transactions. For example, under UCITA a license to use software would allow the licensor to limit or control how the licensee uses the software, even where the software has been mass-marketed to consumers. UCITA does not require that consumers be informed of licensing restrictions in a clear and conspicuous manner prior to the consummation of the transaction, but would allow licensors of software to disclose these restrictions after the transaction has been completed, such as when the licensee opens the software box and discovers the terms of the license.

"Unlike the law governing sales of goods, UCITA departs from an important principle of consumer protection that material terms must be disclosed prior to the consummation of the transaction," the FTC staff letter said. "Although the actual provisions of UCITA itself do not expressly preempt or supplant any existing federal or state consumer protection laws and policies, the effect of these provisions is to allow licensors to enforce contract use restrictions in a mass market license that supplant many traditional terms of a contract that ordinarily are set by state and federal law."

The staff letter also noted that if a state were to adopt UCITA, state law could, for example, permit licensors to include anticompetitive grantback terms in a license that reduce the licensee's incentive to engage in research and development, unless the licensee took on the uncertain task of challenging the term subject to UCITA Section 105. "By doing so," staff said, "this could upset the delicate balance between intellectual property and competition policy, which has been carefully calibrated to recognize certain limits on intellectual property so as not to stifle competition or innovation. By allowing licensors of computer information to expand their rights, there is a possibility that these state-enforced contracts could restrain trade in violation of the antitrust laws, constitute misuse of intellectual property, and/or violate state trade secret statutes." As a result, UCITA may not have a neutral effect on competition policy.

The staff letter concluded by questioning whether it is appropriate to depart from these consumer protection and competition policy principles in a state commercial law statute, especially since many of these same principles are now being included as core elements in international e-commerce discussions. "If this is the case," according to staff, "we believe it would be more appropriate to seek a change to the underlying laws that are deemed to be inappropriate to software and other UCITA products. If a license model is deemed most appropriate nonetheless, the FTC staff in its October 30, 1998 letter recommended a number of changes to an earlier draft of UCITA which would help alleviate the staff's concerns."

This letter represents the views of the Bureaus of Consumer Protection and Competition and of the Policy Planning office and does not necessarily represent the views of the FTC or any individual Commissioner. The FTC, however, has authorized the staff to submit this letter, and the Commission vote to do so was 4-0.

Copies of the staff letter are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.