Users look to FTC for help on reigning in UCITA

Computer World –

WASHINGTON -- Horizon Blue Cross/Blue Shield of New Jersey is located in a state that hasn't adopted the new UCITA software licensing law, but that doesn't mean the Newark-based insurer doesn't have to deal with the controversial measure.

An unnamed software vendor that the insurer is currently negotiating with over a licensing deal is adamantly insisting that a version of the law enacted in Maryland at the start of this month be applied to the contract. Arne Larsen, information systems director at the 5,000-employee insurer, said the vendor is an anomaly among the many he deals with on software licensing. But that's of little comfort to him, he added.

UCITA -- the Uniform Computer Information Transaction Act -- is "a one-sided law," Larsen said this week. "It protects the software vendors. It does nothing for us." Such sentiments are among the reasons why Larsen and other users support the U.S. Federal Trade Commission's (FTC) decision to begin exploring software-licensing practices at a two-day workshop that began here today.

The FTC is making a broad-brush examination of common software licensing practices, looking at such questions as whether the lack of disclosure of warranty and licensing terms until after a sale gets made is fair to users. It's also exploring whether embedded computer systems found in products such as automobiles will have the liability-limiting warranty terms allowed by UCITA, a state-level law that strengthens the ability of software vendors to enforce the warranty provisions in licensing agreements.

"We really have much to learn," said Eileen Harrington, associate director of the division of marketing practices at the Bureau of Consumer Protection, during today's FTC hearing. "We certainly don't feel yet that we have a deep enough grasp of all the different points of view that exist around high-tech warranty issues,"

Industry representatives invited to speak at the workshop said they credited current software licensing approaches with giving vendors the flexibility to tailor software to specific end-user needs, as well as with helping to foster the growth of the market.

Mark Bohannon, general counsel at the Software & Information Industry Association in Washington, argued that licensing is the only means of providing continued services, such as those established by an application service provider (ASP). "There is no one-time sale," he said, adding that a deal between a vendors and a user "is in fact an ongoing subscription relationship."

Bohannon and other software-industry members also defended UCITA, which has been adopted in Maryland and Virginia and is being considered by other states. The proposed law sets a series of default software-licensing rules -- for example, it includes prohibitions on reverse engineering and transfers of software licenses while giving vendors the ability to remotely disable software if users allegedly violate their contracts.

Software vendors insist that UCITA simply provides the freedom to negotiate contracts, and they say that companies buying products can seek to include or exclude various terms during the negotiatinng process.

However, corporate users are less sanguine about UCITA.

Gordon Pence, an attorney at Caterpillar Inc. in Peoria, Ill., said he hopes the FTC looks at federal regulations that could preempt state laws such as UCITA. "I would encourage [the FTC] to fight adoption of UCITA on the grounds of fairness," Pence said. "It only benefits one party to the transaction."

Randy Roth, director of corporate purchasing at Principal Financial Group in Des Moines, Iowa, said he also hopes the FTC comes out strongly against UCITA. That would give opponents of the law "that much more to stoke the ... fire with," he said.

As Horizon Blue Cross/Blue Shield of New Jersey found out, it may not matter where a vendor or user is located when it comes to applying the provisions of UCITA. Legal experts say vendors can still cite Maryland's version of the measure as their "choice of law" in a licensing contract, no matter where the two parties to a contract are based.

Larsen said he believes the size of his company will give it leverage in negotiations. But whether he deals with a vendor that wants to impose the terms of UCITA will depend on how badly he wants the software in question. "If you need it, you need it, and then you just hopefully negotiate your way out of some onerous clauses in the contract," Larsen said.

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