Maryland's Year 2000 Technology Initiative: June 2000

On April 25, 2000, Maryland Governor Parris N. Glendening signed into law multiple pieces of legislation designed to develop, promote, regulate, study and manage technology. The combined effect of this legislation is to make Maryland more attractive to technology businesses.

This package of new laws includes the Uniform Electronic Transactions Act ("UETA") and Uniform Computer Information Transactions Act ("UCITA"). These two statutes, which are the focus of this Update, will have far reaching implications for Maryland businesses operating in a global digital economy. While UETA and UCITA are the most significant of the new technology legislation, ten other new "technology" related laws were enacted. A brief explanation of these other laws can be found in section III of this Update.

If you are presently using, or have plans to use, electronic records or other electronic systems to conduct business, it is important for you to understand how UETA affects your business. Likewise, whether you are a provider or user of software, you will need to understand the implications of UCITA for your software licensing arrangements.

  1. Uniform Electronic Transactions Act

    1. UETA's Purpose and Basic Rules. UETA's primary objective is to ensure that electronic records are recognized as the legal equivalent of paper documentation and that contracts made electronically have the same legal effect as those made by conventional means. UETA is procedural in nature; without changing any substantive rules of law, UETA gives legal effect to electronic records and electronic signatures by applying four basic rules. The first, and most fundamental, rule is that no record or signature may be denied legal effect or enforceability solely because it is in electronic form. Second, UETA provides that no contract may be denied legal effect or enforceability solely because an electronic record was used in its formation. Third, if any law requires that a record be in writing, the rule of UETA is that an electronic record satisfies the legal requirement. Fourth, UETA provides that if a law requires a signature, an electronic signature satisfies the legal requirement.
    2. UETA Recognizes the Uniqueness of Electronic Transactions. What is an electronic signature? As defined by UETA, it is "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." This definition is technologically neutral; it simply means a method of encryption that utilizes a specific technology. Thus, parties to an electronic transaction may choose to rely on advanced digital technology or other methods such as passwords and PIN numbers.

      Who made the electronic record or electronic signature? Recognizing that most electronic transactions are made without direct personal interaction, UETA provides that an electronic record or electronic signature is attributable to a person if it was the act of the person. Attribution may be shown in any manner, including a showing that a security procedure used is effective to verify that electronic signature or record is that of a specific person.

      Who is responsible for errors in the electronic record or electronic signature? As a general rule, the risk of a change or error in the transmission of an electronic record rests with the party who deviated from any agreed upon security procedure employed to verify that an electronic record or electronic signature is that of a specific person or for detecting changes or errors in the information in the electronic record. In the case of an automated transaction, UETA specifically gives individuals the right to avoid the effect of an error in an electronic record if the electronic agent did not provide an opportunity to prevent or correct the error and the individual gives prompt notice of the error and takes certain other steps.

      When is an electronic record sent and delivered? Because traditional rules governing the mailing of paper documents are not applicable to transmitting records electronically, UETA establishes when electronic delivery occurs. Unless otherwise agreed between sender and recipient: (a) an electronic record is considered sent if it is properly directed to an information processing system that the recipient has designated outside the sender's control and the record is in a form capable of being processed by the system; and (b) an electronic record is received when it enters the receiver's information processing system in a form capable of being processed by the system and from which the recipient is able to retrieve the record.

      Does retention of an electronic record substitute for paper documentation? As a general rule, if a law requires that a record be retained, the requirement is satisfied by retaining an electronic record that is accurate and accessible for later reference. UETA also expressly provides that if a law requires a check to be retained, the requirement is satisfied by retaining an electronic record containing the information on the front and back of the check. However, UETA permits government agencies to specify additional record retention requirements.

      Can contracts be formed by electronic agents? UETA validates contracts formed by electronic agents; that is, a person is bound by an agreement made by a computer program designed to operate automatically without human intervention.

    3. Scope and Applicability of UETA. The fundamental rule of UETA is that it applies only to transactions between parties who have agreed to conduct transactions by electronic means. Nothing in UETA compels any party to conduct an electronic transaction. Moreover, even if the parties agree to conduct transactions electronically, the parties may vary, waive or disclaim most of UETA's provisions.

      UETA's coverage is also notable in several other respects. First, it expressly permits the electronic notarization and acknowledgment of signature or record. Second, it permits negotiable instruments to be maintained and transferred electronically provided a single authoritative copy of that record exists and is unalterable by the holder or person "in control." Third, UETA applies to sales and leases under Articles 2 and 2A of the Uniform Commercial Code ("UCC"), although most other transactions under the UCC (including commercial paper and secured transactions) are excluded from its coverage. Fourth, UETA expressly excludes laws governing the creation and execution of wills, codicils and testamentary trusts; UCITA; laws governing utility services; laws governing foreclosure of an individual's primary residence; and the cancellation or termination of health and life insurance benefits; court orders (except as provided in the Maryland Rules); and certain transferable instruments of rights and obligations (including instruments of title where possession confers title). Lastly, governmental agencies may require that specific notices be made in writing if it is determined to be necessary for the protection, public health or safety of consumers.

    4. Maryland Change to Uniform Law. Maryland made one significant change in this otherwise uniform law; that is, an agreement to conduct a transaction electronically may be set forth either in a separate and optional agreement the primary purpose of which is to authorize the transaction to be conducted electronically, or in a standard contract if it is conspicuously displayed and separately consented to. The agreement to conduct a transaction electronically may not be inferred solely from the fact that the party used electronic means to pay an account or register a purchase warranty.

      UETA is effective October 1, 2000 and does not apply to any electronic record or electronic signature created, sent, communicated, received or stored prior to the effective date.

  2. Uniform Computer Information Transactions Act

    1. UCITA's Purpose. The principal purpose of UCITA is to establish a uniform set of legal rules for licensing computer information from formation through performance, including warranties, both express and implied, and remedies for breach of contract. These rules, derived from traditional contract principles, are adapted to the special nature of computer information. It is the ability to make infinite identical copies of computer information (e.g., computer software, a computerized data base or information on the internet) that makes computer information unique and gives it economic value. The licensing of computer information under UCITA is therefore intended to control the transfer of copies.

    2. Licensing Computer Information. A license under UCITA is a contract, wholly independent of intellectual property law. UCITA neither varies nor extends informational rights rooted in intellectual property law, and is preempted by federal intellectual property law such as patent or copyright law.

    3. Basic UCITA Contract Principles. Under UCITA, the parties are free to select UCITA or some other substantive law to govern a computer information contract. The basic principle is that a party enters into a computer information contract by manifesting assent to its terms. This occurs when, having an opportunity to review the record or term, (a) the party authenticates the record or term with intent to adopt or accept it, or (b) the party intentionally acts or makes statements with reason to know that the other party will infer from the conduct or statements that there is an agreement on the record or term. The second fundamental principle is that a record or authentication may not be denied legal effect or enforceability solely because it is in electronic form. UCITA defines a "record" as "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form." The term "authenticate" means a signature or its electronic equivalent and is the basis for verifying that an electronic record or electronic signature is that of a particular person.

      Authentication of an electronic signature may be accomplished by an attribution procedure that uses codes, identifying words or numbers, encryption or other procedures to verify the identity of the person.

    4. Mass Market Licenses. UCITA recognizes that the retail sale of software to consumers and businesses should be treated somewhat differently than other commercial information transactions. For this purpose, the statute employs the concept of a mass market license; that is, a standard form of license used in retail transactions with the general public.

      These types of licenses are enforceable only if the licensee manifests assent to it, after having an opportunity to review the terms of the contract, and provided the terms are not unconscionable, do not violate fundamental public policies, and do not contravene the actual agreement of the parties.

    5. Shrinkwrap or Click-On Licenses. The terms "shrinkwrap" or "click-on" license refer to those computer information contracts that the purchaser or licensee does not have an opportunity to review until after initially agreeing to acquire the product. UCITA allows such licenses within limits. In a mass market transaction, a shrinkwrap or click-on license is unenforceable unless the licensee (a) has reason to know that more terms will be forthcoming; (b) is afforded a right to return the product cost free if the terms are unsatisfactory; and (c) is reimbursed the reasonable costs for restoring the licensee's system if it was altered when attempting to review the license terms.

    6. Duration of License. Under UCITA, the parties are free to contract as to the duration of a license. However, subject to two exceptions, if a license does not specify its duration, the license may be terminated at any time by either party. The first exception is that a court may find an agreement on duration based on trade use or course of dealing. The second exception applies to a license that is normally perpetual; the duration for such licenses will be whatever is reasonable. UCITA also adopts a rule that where title to a copy is transferred or where the license is for a single fee, the license is presumed to be perpetual even though the contract does not so specify.

    7. Warranties. UCITA recognizes express warranties and the following implied warranties: Non-interference: A merchant licensor warrants that, for the duration of the license, no person has a rightful claim to the information which will interfere with the licensee's enjoyment. Merchantability: Unless disclaimed or modified, a merchant licensor warrants to: (a) the end user that the computer program is fit for the ordinary purposes for which such computer programs are used; and (b) the distributor that the program is adequately packaged and labeled, and copies of the program are within the variations permitted by the agreement, of even kind, quality and quantity, and conforms to any promises or affirmations of fact made on the container or label. Informational Content: Unless disclaimed or modified, a merchant that, in a special relationship of reliance with a licensee, collects, compiles, processes, provides or transmits informational content (excluding published informational content) warrants that there is no inaccuracy caused by the merchant's failure to perform with reasonable care. Fitness for Particular Purpose: Unless disclaimed or modified, a licensor warrants that the information is fit for any particular purpose for which the computer information is required if the licensor has reason to know of that purpose and the licensee is relying on the licensor's skill or judgment. System Integration: Unless disclaimed or modified, a licensor warrants that components provided or selected will function together as a system if the agreement requires the licensor to provide or select a system and the licensor has reason to know that the licensee is relying on the licensor's skill or judgment.

    8. Self-Help Repossession. UCITA permits self-help repossession of computer information provided the contract contains a conspicuous self-help clause, the license requires 15-days prior notice of the breach, the licensor has reason to know there is a substantial risk to public health or safety or grave harm to third parties, and a court gives prompt consideration to an application for injunctive relief against the self-help notwithstanding the licensee's agreement to permit its use.

    9. Special Rules. UCITA contains special rules governing access, support and service contracts. UCITA is effective October 1, 2000.

  3. Other Technology Legislation

    Courts (House Bill 15): Under this law (effective July 1, 2000), a task force will study whether a business and technology division should be created in certain circuit courts in the State. Based on the task force's report, to be completed by December 1, 2000, the Chief Judge of the Court of Appeals will determine the feasibility of establishing a division to handle business and technology matters.

    Electronic Government Initiative (House Bill 274): This statute (effective July 1, 2000) gives the State Secretary of Budget and Management responsibility over all units of the executive branch of State government other than the University System of Maryland for (a) developing, maintaining, revising and enforcing information technology policies and standards, (b) developing a statewide information technology master plan, and (c) implementing a statutorily prescribed time line to make information and services available to the public over the internet.

    eMaryland Initiative (House Bill 276): This law (effective July 1, 2000) establishes a CEO Board of Advisors for E-Commerce and an "EMaryland" ASP Consortium, the purpose being to assist the State in creating "the most advanced electronic business environment in the nation and [becoming] an international leader in the deployment of new internet technologies." The CEO Board of Advisors - - 12 members appointed by the Governor - - is charged with (a) advising on economic development policies and initiatives to advance the promotion, deployment and use of e-commerce in the State, (b) recommending ways to improve the State's position in e-commerce, and (c) providing policy guidance to the "EMaryland" ASP Consortium. The "EMaryland" ASP Consortium - - four State government technology officers - - has the task of developing pilot models for deploying internet based applications, promoting application service provider technologies in Maryland, and assisting in the research and development of emerging e-commerce technologies. This law also establishes an Information Technology Investment Fund to be used for educationally related technology projects and various types of State information technology projects.

    Computer Crimes (House Bill 278): This law (effective October 1, 2000) makes it unlawful to intentionally, willfully and without authorization access, attempt access, cause access or exceed a person's authorized access of computer hardware or software. The law permits fines of up to $10,000 and imprisonment of up to 10 years.

    Tax Exemption for Digital Telecommunications Equipment (House Bill 794): This law (effective July 1, 2000) grants an exemption from Maryland sale and use tax for sales of machinery or equipment occurring between January 1, 2000 and December 31, 2007 if the machinery or equipment (a) enables a television or radio station to originate and broadcast or receive and broadcast digital signals, and (b) was or is purchased to comply with or to facilitate compliance with the Telecommunications Act of 1996.

    Maryland Technology Development Corporation (House Bill 1209): This statute (effective July 1, 2000) changes the name of the Maryland Science, Engineering, and Technology Development Corporation to the Maryland Technology Development Corporation, and makes minor changes in the composition of the corporation's Board of Directors. The corporation assists in transferring technology to the private sector, commercializing technology of the private section and commercializing the results and products of scientific research and development conducted by colleges and universities.

    Drivers Licenses (House Bill 1274): Under this law (effective October 1, 2000), the Motor Vehicle Administration is authorized to renew drivers' licenses one time without requiring the individual to appear in person.

    State Information Technology Board (Senate Bill 198): This law (effective June 1, 2000) changes the membership of and the terms of membership on the State Information Technology Board.

    Public Records - Privacy Policies (Senate Bill 199): This law (effective October 1, 2000), which specifies the conditions under which units of State government create and maintain personal records, requires each unit of State government to post its privacy policies with regard to the collection of personal information on its internet web site.

    Public Libraries - Internet Access by Minors (Senate Bill 522): This law (effective July 1, 2000) requires each county public library to adopt and implement policies to prevent minors from obtaining access to obscene materials by means of the internet or other interactive computer services.

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