Maryland Adopts Uniform Computer Information Transactions Act


On April 25, 2000 Governor Glendenning signed into law the Maryland Uniform Computer Information Transactions Act, or UCITA. The need for a uniform act arose from perceived problems in applying the Uniform Commercial Code's provisions dealing with the sale of goods to computer software sales and licensing agreements. Many observers felt that UCC rules controlling the sale of, for example, a lawnmower, are unworkable when the item sold or licensed is a Windows operating system.

UCITA took effect on October 1, 2000, and made Maryland the first state in which the law applies. Virginia passed a similar law earlier that same year but postponed its effective date until 2001. By becoming the first state in the nation with a law dedicated to regulating computer information transactions, Maryland hoped to send a signal to the high tech industry that Maryland is a hospitable place to conduct business.

Maryland's Uniform Computer Information Transactions Act

The law is complicated and comprehensive. It is less of a technology statute than a contract construction and interpretation statute. It applies to all "computer information transactions," which is defined as all agreements "to create, modify, transfer, or license computer information or informational rights in computer information." The legal rights and obligations of most dealings in software by consumers and businesses will now be determined under UCITA. Everything from buying a Windows Operating System CD at a retail outlet, to designing a web site under a software development contract, to even signing up with an internet provider, is now controlled by UCITA.

In general, UCITA divides the world between consumer transactions (involving software used primarily for personal, family or household purposes or directed to the general public as a whole) and those taking place between businesses. The law sets "default" rules in areas such as warranties and terms of use that apply to all information transactions, consumer or not. However, the law lets businessmen negotiate around some of the default rules when dealing with other businessmen, while restricting their right to veer from the mandated warranties and terms of use when selling to consumers and the general public.

One of the consequences of allowing more flexibility in business-to-business transactions is that larger vendors with greater bargaining power can negotiate around obligations that apply to consumer transactions. For example, the law provides that a contract term which allows future changes by the vendor is valid even without the purchaser's consent. Let's assume an accounting firm signs up for an online referral system at $100 per month for two years. Somewhere on the referral system's web site there's a statement that "terms may be changed as to future performance." After a year, the referral service notifies the accounting firm that the price for the second year referrals is $200 per month. The accounting firm is subject to the higher charges without the right to cancel the contract.

For consumer transactions, the law, in general, makes enforceable those contract terms and licensing agreements that are included inside the box when you purchase a software CD, or are available when you "click" the accept button on an Internet purchase. Purchasers will, in most cases, be bound by these terms even if the purchaser was unable to view the terms before paying for the software. For example, assume you buy a program that computes your taxes and prints out an IRS form. A statement on the box cover says that the company has available a 24-hour assistance hot line.

When you get home you have problems loading the program. You call the hot line, and two hours later you're up and running. But you haven't read all the small print in the license agreement that was in the box because you're still just trying to get the program running, and that license agreement says hot line assistance costs $100 per hour. You get billed $200 for two hours of hot line assistance. The law says you could have returned the program for a refund if you didn't want to be bound by the license agreement after you read it. Unfortunately, you had to make the return before calling the hot line.

Although the purpose of the law is to bring certainty into computer information transactions, in some situations the net effect is to cause confusion. Let's say you buy a mail order computer from a company in Texas. The computer comes with software from a company based in Washington. The purchase of the computer comes under the Uniform Commercial Code but the software is controlled by UCITA. It's possible that litigation related to the software would have to be brought in Maryland but that litigation related to the hardware would have to be brought in Texas. This creates a problem if you don't know whether the hardware or software is causing your problem.

Controversy and the UCITA

The UCITA was intended to be enacted in all fifty states, making a uniform approach to the purchase and sell of technology and software, but it did not work out that way. Only Maryland and Virginia ever passed the UCITA into law.

The UCITA was written by the National Conference State Legislatures and sought to clarify and codify rules for the use, engineering, consumer protection and interpretation of licenses and contracts for the computer industry. It was controversial from the start, as many believed it weakened consumer protections and was too favorable to software producers.

As soon as the act was introduced opposition groups arose. Several states enacted an Anti-UCITA stating that the act was null and void in their state (Iowa, North Carolina, West Virginia, Vermont and Idaho). Other states including the California, Massachusetts and Texas opposed the statute, but took no formal action on it.

Conclusion

The UCITA remains the law in Maryland and will continue to govern technology and software contracts in the state. Perhaps one day a uniform system to address technology contract will be implemented and most likely it will have several of the elements codified in the UCITA.