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22 June 1998
Source: Hardcopy The New York Times, June 22, 1998, p. D5

### Technology

Denise Caruso

## DIGITAL COMMERCE

### A commercial code revision tries to take on the task of legislating the Internet.

In a climate where any regulation of the Internet in its commercial infancy is considered high treason, many law experts are dismayed at the tidal wave of restrictive legislation--governing everything from software filters to digital copyrights and public domain information--being drafted and enacted by states and the Federal Government.

Currently these experts find themselves battling yet another "solution in search of a problem" in the form of a far-reaching revision to the Uniform Commercial Code--the body of law, mostly common to all 50 states, that governs a broad range of commercial transactions, including the sale of goods.

The revision, a 200-page epic called Article 2B, would legislate on the sale of virtually all kinds of digital information, including data, text, images, sounds, computer programs, software and data bases.

When work on 2B began in the early 1990's, "our primary concern was software," said Gene Lebrun, the president of the National Conference of Commissioners on Uniform State Laws (www.nccusl.org). The conference is a volunteer group responsible for revising and updating the code in conjunction with, and monitored by, the American Law Institute (www.ali.org).

"But as technology changed," Mr. Lebrun said, "we figured that eventually software would go the way of the 78-r.p.m. record, and the law would probably be outdated." So instead, he said, "we started working on contracts governing all copyrighted information."

And that, many critics say, was the first step down the wrong path. Article 2B is so overbroad and complex, the critics say, that it threatens to bury in legalese the very electronic commerce industry that it was created to encourage.

As its foundation, the Article supports the controversial "shrink wrap" license, used for years by software companies, which asserts that consumers do not "buy" a software product, but merely buy a license to use the software in limited ways.

Most courts have refused to uphold these licenses for many reasons--not the least of which, they say, is that buyers cannot be held to a contract that they only see after they have already paid for the product.

Even so, the enormously complex Article 2B was built around the shrink-wrap premise.

It renames this shrink-wrap license a "mass-market contract"-- a term that many lawyers consider an oxymoron, since one party to the contract, the buyer, is not free to negotiate its terms in advance. What is more, it details a complex legal and technical infrastructure for governing and enforcing these contracts for all digital information sold.

As a result, some legal scholars assert there can be little argument that Article 2B is bound to run into trouble as the commercial Internet continues its chaotic development.

For example, jurisdictional problems abound. The Uniform Commercial Code's provisions become law in any given state only after they are adopted by that state's legislature. So what happens when an information product--software, music, whatever--is purchased in a state that has not signed on to Article 2B but was sold in a state that does?

And how does one apply the rules when a single purchase buys both information and more traditional goods--say, for example, a WebTV system? What parts of the law apply to which parts of the same transaction?

As it is written today, Article 2B is so convoluted that even those who are intimately involved have difficulty answering such questions.

"What does the text say? It is difficult to follow in many respects," said Geoffrey Hazard, the director of the American Law Institute and a law professor at the University of Pennsylvania. "When I'm talking to you on the telephone, for example, we're exchanging information--we're even doing it electronically. Is that governed by this law? They say no but I say why not? It's not clear."

Article 2B even tries to legislate in territory that does not yet exist. For example, it would make legally binding any transaction made by an "electronic agent" that acts on behalf of a buyer. Such a law seems more than premature when this kind of "agent technology," although anticipated, has not yet made a successful foray out of the laboratory.

Yet those who support Article 2B are convinced that new laws are necessary.

"Understanding and resolving some of these issues is essential to making the Internet work," said Holly Towle, a partner with Preston Gates & Ellis L.L.P., who was hired to represent the Business Software Association on the Article 2B committee. (The association's guide to 2B is at www.softwareindustry.org/issues/guide/index.html.) "You have to solve some of these things or companies will be reluctant to put their information onto the Internet."

But her point of view has some powerful opposition.

"Contract law that's stated in terms of regulating information is just unfeasible and therefore undesirable," Professor Hazard said. "I do think changes could be helpful in defining electronic contracting. I think there's potential in governing software to some extent. Beyond that, I'd like to feel that I understand the text of the Article. And we're still engaged in that process."

Such strong sentiments seem to be having an effect. The final draft of Article 2B was scheduled for consideration by state law commissioners at their annual meeting in July; instead, the group will keep hearing opposing arguments and working with Professor Hazard to modify Article 2B.

"People say to us, 'Don't you know how important this is?' We say, 'You bet we do, and that's why we won't support a statute that will create a lot of problems,' " Professor Hazard said. "This legislation would govern an enormous amount of commerce, and a set of difficult-to-understand rules of uncertain scope wouldn't be helpful. We'd be back to square one."

[End]