FTC to Review Software Licensing Practices

Computerworld - Washington
Horizon Blue Cross/Blue Shield of New Jersey is located in a state that hasn't adopted the UCITA software licensing law. But a software vendor is adamantly insisting that Maryland's UCITA law, which was enacted Oct. 1, applies to a licensing contract it's currently negotiating with the Newark, N.J.-based insurer.
Arne Larsen, information systems director at the 5,000-employee insurer, said the situation with this vendor, which he declined to identify, is an anomaly among the many software licensing contracts the company is dealing with. But that's of little comfort, he added.
Support from Users
UCITA is "a one-sided law: It protects the software vendors; it does nothing for us," said Larsen. That's one of the reasons why he and other end users interviewed support the U.S. Federal Trade Commission's (FTC) decision to begin exploring software licensing practices, an effort launched at a two-day workshop last week.
The FTC is making a broad-brushed examination of common software licensing practices, such as whether the lack of disclosure of warranty terms until after a software sale is made is fair to end users. It's also exploring issues like whether embedded computer systems found in many products such as automobiles will have the liability-limiting warranty terms allowed by UCITA, formally known as the Uniform Computer Information Transaction Act.
Software industry representatives invited to speak at the workshop credited established licensing practices with giving vendors the flexibility to tailor software to end users' needs, such as those met by application service providers.
"There is no one-time sale. It is, in fact, an ongoing subscription relationship," said Mark Bohannon, general counsel at the Software & Information Industry Association in Washington.
UCITA, which has been adopted in Maryland and Virginia and has been sent to other states for consideration, sets a series of default rules in software licensing, allowing things such as remote disabling of software. Software industry groups, however, say that all UCITA allows is the freedom to contract. Companies can include or exclude whatever terms they like in a contract negotiation.
If the FTC "comes out strongly against it, which I hope they do, then that will be that much more to stoke the opponent fire with," said Randy Roth, director of corporate purchasing at Principal Financial Group in Des Moines, Iowa.
As Horizon Blue Cross/Blue Shield of New Jersey found, however, it doesn't matter where a vendor or end user is located for UCITA to apply to a contract. The vendor can still cite Maryland law as its "choice of law" in a licensingcontract, no matter where the vendor and licensee are located, legal experts say.
Larsen said he believes the size of his organization will give it leverage in negotiations. But whether or not he deals with a company that wants UCITA terms will depend on how badly he wants the software. "If you need it, you need it, and then you just hopefully negotiate your way out of some onerous clauses in the contract," he said.

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