Managing E-Commerce and the Digital Content Dilemma

The rise of electronic commerce, for all its benefits, has created problems for state and local IT procurement officers.

The question has been how to properly structure an agreement to purchase rights involving such nontangible products as software programs, databases and other electronic content-subject matter involved in the millions of electronic transactions that occur daily.

The good news is that a new set of rules that govern the buying and selling of computer information promises to make the process easier.

Adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in July, the Uniform Computer Information Transactions Act (UCITA) is designed to provide clear and consistent rules for contracts to create, modify, transfer or license digital information.

"IT transactions often involve a bit of contract law and a bit of intellectual property law," said Lane Kneedler, an attorney with the law firm Hazel & Thomas, Richmond, Va., and a former Virginia gubernatorial appointee to NCCUSL. "UCITA is a recognition that there are some things that are different about the transfer of goods and services in the IT market vs. other types of goods and services."

The act covers agreements as diverse as contracts to license or buy software, create programs and provide online access to databases. It provides a framework for addressing such issues as warranties, mass-market licenses, shrinkwrap licenses, electronic self-help, duration of license and transferability.

Acts promulgated by NCCUSL do not have the force of law, but, like the Uniform Commercial Code, which defines terms for granting credit and enforcing creditors' rights, they are intended to serve as models that states can adopt.

At various points during the long process of defining the act, NCCUSL considered folding its provisions into the UCC but ultimately decided that the unique nature of "computer information" required a separate set of unique rules. The decision was one of many points of disagreement during the approval process.

"We would have preferred that these provisions were made part of the UCC because we feel that it would have enhanced their prestige and made the act easier to pass at the state level," said Mark Nebergall, vice president and counsel for the Software and Information Industry Association (SIIA), the principal trade association for the software and digital content industry, with 1,400 member companies throughout the United States.

Despite its reservations, the SIIA has approved the ratified version of UCITA and will support its adoption by the states.

The conference's ratification of UCITA clears the first hurdle for the act. Next up, the act goes before the American Bar Association for approval and then to several state legislatures early next year, eventually to be codified in state laws across the country.

"It might be introduced in six or eight states in January, and probably four or five will enact it during the first year," said Gail Jaspen, also an attorney at Hazel & Thomas. She expects Virginia to be an early adopter of the UCITA provisions because the state's joint committee on technology and science already routinely addresses technology issues.

"Some consumer groups feel that UCITA doesn't do as much as they would like to ensure consumer protection," Kneedler said. "But the

NCCUSL commissioners felt that existing consumer protection laws in each state already provide the appropriate amount of protection."

But as the debate is settled in each state, there is one certainty about UCITA: It will affect the future of digital commerce between and among states.

"This is a complex act, and there is a need for uniformity in state laws," Kneedler said. "If states don't address this issue, Congress will. As the need for uniform rules builds, so will the momentum for congressional acts. But as most states act on UCITA, most federal efforts to regulate these types of transactions will go away."