InformationWeek

December 8, 1997

Buyers Beware: New Software Laws Proposed

Vendors could win legal rights to controversial practices

S managers may soon have to be even more careful about entering binding relationships with their IT vendors. Proposed revisions to a document that's used as the basis of commercial law cover such areas as the ability of vendors to repossess software, and the ability to resell custom-developed code.

Some experts say the proposals are heavily biased in favor of vendors, not users. The American Legal Institute Council will vote on whether to make the proposed changes this week to the document, which is called the Uniform Commercial Code.

It could take years before those changes become state laws. Nevertheless, "Users should be worried," says Esther Roditti, editor of Computer Law & Tax Report in New York. The proposed changes are "broad, sweeping, and some of the proposals are extremely contro versial," she says. Many parts put the burden on customers to act to protect their rights, she adds-and not many companies have sophisticated software license negotiators.

Among the most controversial items, Roditti says, is the self-help provision that would make it legal for vendors to repossess software-say by disabling or deleting it from a user's machine-without first going to court. "The danger of self-help," she says, "is when you excise a program, it might affect other things-including data in the computer-which doesn't belong to any vendor, or another vendor's products."

The issue of self-help repossession gained notoriety in 1990 when Logisticon Inc., a small software developer, shut down Revlon Inc.'s shipping operations for three days by remotely disabling the software because of non-payment. Revlon had with- held part of its payment because of problems with the software; it lost $20 million because of the shutdown.

UCC revisions are not laws until adopted by state legislatures, a pr ocess that can take years, but most revisions are adopted as state laws with little change, according to experts. The ALI Council vote itself is far from final; there could be further changes as a result of the vote.

But if the revisions become state laws, users will have to be doubly careful. If a controversial area is covered by law, vendors won't need to mention it in contracts-so users may be unaware of the potential impact, experts say.

Some observers and participants say that in the drafting of the UCC meetings, software vendors, represented by industry associations, including the Business Software Alliance and the Software Publishers Asso-ciation, have kept the scales tipped heavily in their favor-though a BSA spokeswoman claims, in contrast, that the revisions will actually benefit consumers in areas such as electronic commerce.

To bring the voice of corporate customers to the UCC drafting meetings, a team of IS professionals was organized by Susan Nycum, a partner in the Palo Alto, Cal if., office of Baker & McKenzie and a pro-bono attorney for the Society for Information Management. From the beginning, says Nycum, the proposals have been heavily biased toward the vendors, and the struggle to draft laws that represent a fair balance of interests has been like "a muddy football game."

Nycum originally assembled a group of seven companies-American Airlines, DuPont, Elf Atochem, Georgia Pacific, Hoescht Marion Roussel, Principal Financial Group, and SmithKline Beecham. But only three active participants remain, due to the drain on time and resources.

In addition to the remaining representatives from DuPont and Hoescht Marion Roussel, there is Randy Roth, assistant director of the IT purchasing group at Principal Financial Group in Des Moines, Iowa. The grueling schedule of meetings requires commitment as well as an understanding of what's at stake. Roth says he's attended six meetings this year, each one lasting three to four days, to work on draft revisions of the proposed article, wh ich runs more than 300 pages.

It's hard-and occasionally dispiriting-work. "Coming out of the last meeting, we don't feel very good about it at all," says Roth. While there are meetings in February and April that are open for public comment, as well as ample opportunity for corporate customers to write ALI and express their concerns, Roth doubts there's enough time left to accomplish his goal of striking a fair balance between vendors and customers. His top priority is the self-help provision. "Unless we are reasonably sure we can get injunctions before a licensor comes in and turns the software off," he says, "we aren't willing to agree to anything."

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