Support for Software Law Eroding

After more than a year of conflict, a campaign by America Online, Microsoft and other powerful software companies to pass legislation dramatically limiting the rights of software buyers appears to have stalled in the face of growing opposition.

Half a dozen states this year have considered the controversial legislation, which would allow software companies to ban the sale of used software, avoid fixing software bugs and even block the publication of critical reviews of their products.

But concerns about the unprecedented power the law would give software firms has gradually eroded support in legislatures that had hoped passing the bills would attract high-paying technology companies to their states.

So far, versions of the law have been passed only in Maryland and Virginia. Although software industry groups expect similar bills to be considered in a dozen more states next year, they have already watered down the proposal under pressure from consumer organizations, federal regulators and a growing number of blue-chip companies including Sun Microsystems, Caterpillar and Boeing.

“A lot of industries that purchase mass-market software are waking up to the expense this law will have for them,� said Gail Hillebrand, a senior attorney at Consumers Union, which opposes the law.

Consumers Union, the Consumer Federation of America and the attorneys general of more than 20 states have objected to the proposed law.

Known as the Uniform Computer Information Transactions Act, or UCITA, the proposed law evolved over a 10-year period as legal experts grappled with updating copyright, contract and consumer statutes to handle the surging sales of software.

The software industry and many outside experts believe that software transactions need to be treated differently under the law because, unlike such products as soap or books, software can be copied perfectly and distributed across the planet in an instant.

The industry has pushed the concept that sales of computer programs should be treated as a license to each buyer, rather than as a purchase that allows the buyer to treat the product like any other piece of property.

The problem is that rules governing licensing give manufacturers far more control over their products, even after a transaction.

Many legal experts, including several law professors who had worked on UCITA, say the software act goes well beyond regular licensing rules.

One major issue is that UCITA would allow software distributors to reveal the terms of their license agreements after a sale. The rules might even apply when the software is purchased as part of something tangible, such as a digital camera or a car.

“UCITA is a radical departure from the current state of law,� said Sun Microsystems attorney Adam Cohn, who spoke against the initiative on his own behalf. “What UCITA does is it takes some really important, crucial policy issues . . . and it lets software producers answer those questions individually for each piece of software.�

The model UCITA bill was hammered out by an organization called the National Conference of Commissioners on Uniform State Laws. That bipartisan group consists of appointees from various states who devise proposals for legislatures aimed at smoothing out differences in state business laws.

The commissioners have worked for half a century with a sister organization called the American Law Institute, which consists of judges, lawyers and academics. Typically, the two groups work together to develop new proposals for the Uniform Commercial Code. The changes are then suggested as legislation to every state.

In this case, after years of debate, the ALI panelists walked out, refusing to support the proposed software bill. But the Conference of Commissioners proposed the bill to the states anyway.

The Federal Trade Commission has helped put the brakes on the campaign by voicing concerns about the measure and holding public hearings.

“We’re trying to figure out how this affects consumers,� said Daniel Salsburg, an FTC attorney.

The FTC could issue a report critical of the laws, recommend federal legislation that preempts them, or draft its own rules on disclosure of software licensing terms.

AOL and industry groups argue that the FTC should do nothing. They say consumers will benefit if enough states pass the bills and a uniform legal standard emerges.

Requiring disclosures similar to those for used cars or other hard goods “would create tangible harm through increased costs, litigation and a likely decrease in competition and product choice,� wrote the Commerce Coalition, whose members include AOL, Microsoft and Intel.

But the software companies have already begun a small retreat. They point to changes this summer that would ensure that the act would not supersede some existing consumer protection laws.

When Maryland passed its version of the law, it barred a section that would have allowed software makers to assert after a sale that there was no product warranty.

So far, only Maryland’s law has taken effect.

“It’s definitely going to be a lawyers’ boondoggle, sorting out how all the provisions interact,� said Maryland Assistant Atty. Gen. Steven Sakamoto-Wengel.

More recently, the plan has been attacked by Richard Stallman, a pioneer in the “open-source� movement to develop free software in collaboration, and by Red Hat and other companies that sell or support Linux, a computer operating system that is available at no charge on the Internet.

Those foes say that if UCITA is modified to require warranties, there had better be an exception for open-source efforts, whose software developers earn no money.

And they want to make sure that the licensing terms can’t prohibit software buyers from tinkering with the code to figure out how it works and adapt it.

Some software sellers are already trying to insert clauses in contracts saying that Maryland UCITA rules will govern any disputes.

But word of the strategy has spread among information technology managers who buy software.

Arne Larsen, director of information systems at Horizon Blue Cross in Newark, N.J., said his company’s software buyers have already rejected one contract clause that would have invoked UCITA and will keep on fighting it when it reappears.

“We might as well start building the ramparts around us,� he said.