UCITA focuses on software licensing. In particular, it entitles a softwareprovider to include specific contractual rights as part of their licence terms.Although intended to be fair and balanced, such rights have been severelycriticised by the software user community as strongly favouring softwareproviders. These criticisms have been publicly voiced in a lobbying campaign andthere is now growing concern in the United Kingdom that licence agreementsproposed by US companies will start to incorporate UCITA-style provisions.
One of the key provisions in UCITA which has fuelled such criticism is theendorsement of a right for software providers to remotely, and without a courtorder, disable software if they consider that the user has committed a materialbreach of the licence agreement. Supporters of UCITA see ‘electronic self-help’as an efficient means to enforce rights which may be vital to smaller softwarecompanies who lack a deep pocket to fund legal action. However, the reality isthat, if exercised, this right could have disastrous consequences for a user,who may find key networks shut down. The purpose of this article, therefore, isto take a brief look at the right of electronic self-help in light of therestrictions that UCITA places on the exercise of this right, to considerwhether there is a real cause for concern.
The Key Elements of the ‘Self-Help’ Provisions
In brief, the key elements of the ‘self-help’ remedy authorised by UCITAinclude:
- a requirement of assent by the user to the term authorising self-help
- a need for the user to have committed a ‘material’ breach of the licence agreement before the right is exercised
- a requirement on the software provider to give notice of its intent to exercise self-help
- a prohibition on any exercise of self-help in specific cases – these include where a breach of the peace would result or there is a threat of personal injury or severe harm to the public interest
- damages for any wrongful use.
- These elements are discussed in turn below.
Assent
The premise which underlies UCITA is that parties have freedom of choice. Itassumes that the terms and effect of a contract are determined by agreementbetween the parties. Thus, the electronic self-help remedy is not permittedunless authorised in the licence agreement. It is questionable, however, whetherthis offers the user any real protection given that quite often a user willgenerally have little or no opportunity to negotiate revisions to a standardsoftware licence, especially if downloaded from the Internet via a click-wrapagreement.
Under the current law, there is no express requirement for a user to have toread the licence terms so as to be bound by them, so long as the user has atleast been given an opportunity to read them. UCITA seeks to address thispossibility by introducing the concept of ‘manifest assent’. As yet, it is notclear what this means but the official comments that have been published on theAct suggest that a user only assents to electronic self-help if action has beentaken with respect to the self-help term itself and not merely where a generalassent has been given to the licence as a whole. The reason for this requirementis to ensure that the term is brought to the attention of the user. In practice,this could simply mean that a software provider only needs to direct the usersattention to the existence of the term in the licence agreement. It is, however,in line with the UK authorities which suggest that particularly onerousprovisions should be given special prominence.
It will be interesting to see how the courts interpret this requirementparticularly in relation to shrink-wrap licences where the user does not see thelicence terms until after the software has been purchased. However, under UCITA,such licences will only be enforceable if users are given a right to return thesoftware if they don’t like the terms. Presumably, if a user fails to exercisethis right and provided the software provider has highlighted the self-help termin the written licence agreement, it could be argued that the user has acted insuch a way as to infer that he assents to self-help.
Material breach of contract
Although UCITA is not clear on this point, it would seem from the officialcomments published on the Act that electronic self-help may be exercised only oncancellation of the licence agreement due to the user having committed amaterial breach. It would not apply, therefore, when the licence agreementexpires or is terminated for any other reason.
Ideally, the definition of a material breach should be negotiated between theparties but, in the absence of agreement, UCITA states that a breach of contractis material if:
- the breach is a substantial failure to perform a term that is an essential element of the licence agreement
- the circumstances, including the language of the licence agreement, the reasonable expectations of the parties, the standards and practices of the business, trade, or industry and the character of the breach indicate that (a) the breach caused or is likely to cause substantial harm to the software provider or (b) the breach substantially deprived or is likely substantially to deprive the software provider of a significant benefit reasonably expected under the licence agreement.
In these circumstances, electronic self-help is simply a means of enforcingvital rights of the software provider. In any event, most licence agreements aredrafted to give the user a period of grace before the licence is cancelled,other than perhaps when the breach is irremediable.
A user faced with the threat of critical software being disabled may react inone of three ways. First, they may decide to solve the situation by negotiatingwith the software provider irrespective of whether they had ‘genuinely’committed a material breach. Secondly, the user may decide to go to court toseek an interim injunction to constrain the software provider from exercisingits self-help remedy, although this will largely depend on the resourcesavailable to the user. Thirdly, the user may do nothing and later pursue a claimfor breach of contract (see below).
None of the above options are particularly attractive for a user, who will,in any event, be concerned about the impact that non-availability of thesoftware will have on its business. Accordingly, save in relation to licencearrangements with larger users who have the wherewithal to resort to the courtsto protect their interest, UCITA will inevitably tilt the balance of power infavour of software providers.
Notice
Before resorting to the self-help remedy, a software provider must give theuser at least 15 days’ notice. The notice must state the nature of the breachand provide the user with the details of whom to contact within the softwareprovider’s organisation. The purpose of this requirement is to ensure that theuser is aware of the risk of self-help being exercised and therefore, hasadequate time to react. However, if the software provider does not hold thelicensee’s current address, the notice may never actually be received and thereis always the possibility that it is sent to a specified individual who has leftthe company. In practice, this places the onus on users to adopt a robust andproactive internal policy to ensure that software providers hold at all timesup-to-date contact details or otherwise risk their software being disabledremotely without effective prior notice.
General exclusions
The self-help remedy may not be exercised where this would result in a breachof the peace, a threat of foreseeable damage of personal injury or significantphysical damage to property. Also, it may not be exercised if it will causesubstantial injury or harm to public health or safety, or grave harm to thepublic interest substantially affecting third parties not a party to thedispute. As expected, these circumstances are of limited application, although,if relevant, the user’s remedy is to seek an interim injunction. However, it isworth noting in this context that the costs of seeking such an injunction couldbe prohibitive for smaller users.
Damages for wrongful use
Under UCITA, a user may recover direct and incidental damages caused by thewrongful use of the self-help remedy. However, the licence agreement is likelyto try to restrict liability in these circumstances and therefore the prospectsof the user making a recovery commensurate with its actual loss, may be limited.In any event, a user would be well advised to negotiate an indemnity provisioninto the contract giving a right to full recovery in the specific circumstancesof a wrongful use of the self-help right.
Other issues raised by electronic self-help
There is a possibility that the self-help remedy may breach UK dataprotection legislation. The Data Protection Act 1998 requires appropriatetechnical and organisational measures to be taken against the accidental loss ordamage of personal data. If software can be remotely switched off by a thirdparty causing such loss of data, a user may be placed in breach of thisrequirement.
Also, the Federation Against Software Theft has publicly stated their view thatthe self-help remedy may fall foul of the Computer Misuse Act 1990, whichcreates an offence of obtaining unauthorised access and causing an unauthorisedmodification of the contents of any computer. However, given that in order forthese offences to bite, access must be ‘unauthorised’, it is difficult to seehow the self-help remedy falls foul of these offences as, to be enforceable, theuser must give their manifest assent.
Regardless of the financial harm that may be caused if software is remotelydisabled, there are also serious security issues. If disabling codes are writteninto software, this acts as an invitation for outside hackers or aggrievedemployees to locate these codes and disable software. This makes the uservulnerable to security attacks, which creates a weakness in their systemsecurity.
Conclusion
Carlyle C. Ring, JR, who served as chair of the UCITA drafting committee, hasbeen keen to emphasise his view that when the restrictions outlined in thisarticle are taken together it is unlikely that any software provider will beable to use self-help effectively except in the most serious cases, for example,where a user has improperly disclosed confidential proprietary information.However, one suspects that the mere threat of the exercise of the remedy mayoften be enough to get the software provider what it wants, without the need forit to take any risk in actually exercising the right.
To avoid the risks outlined above, the software user community must, as of 1October of this year, be on their guard as to the inclusion of this right in anysoftware licence which may be subject to the laws of any one of the US stateswhich has adapted UCITA. Ideally, the user should always insist that theapplicable law of the contract is English. Failing this, however, the usershould seek to introduce a blanket exclusion of UCITA. If all else fails, theuser should, at the very least, try to negotiate the circumstances under whichthis right will be exercised, and, indeed, proactive negotiation seems to beenvisaged by the Act.
Kit Burden and Creole Palmer are from Barlow Lyde & Gilbert’s IT andIP department.
