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States Weigh New Rules for E-Commerce
Va., Md. at Forefront of National Effort; Some Experts See Consumers Losing

By Matthew Mosk and Craig Timberg
Washington Post Staff Writers
Sunday, February 13, 2000; Page C01

Maryland and Virginia are racing to become the first states in the nation to approve new rules governing electronic commerce, despite growing fears among legal experts that the laws could strip away several basic consumer protections.

Microsoft Corp. and other leading software firms have been aggressively lobbying for the legislation and have locked up support from both states' governors and a roster of top lawmakers. The measure is scheduled to come to a vote before the Virginia House of Delegates tomorrow.

The push is the start of a national effort by a number of leading software manufacturers to get states to make legally binding the terms companies set on the use of their products--even though most consumers would not know what those conditions are until after they had spent their money and read the fine print. Given the ease with which software can be copied or change hands, many companies attempt to restrict how their programs are used once they have been sold.

The proposed set of rules, called the Uniform Computer Information Transactions Act (UCITA), would allow companies to reach into a customer's computer and "repossess" a product if the purchaser had fallen behind on payments. And the law would permit them to send legal notices about new restrictions by e-mail without any proof that the e-mail had reached its destination.

In Maryland and Virginia, the fervor surrounding the proposal has been fueled by the hope that progressive laws on electronic commerce will attract more high-tech companies to the region and bring the tax dollars and lucrative jobs that typically follow.

"There are a lot of good reasons for doing it," said Virginia Gov. James S. Gilmore III (R). "We ought to act right away."

But critics of the proposal fear that, in their rush to bring about the next Silicon Valley, state politicians have become so mesmerized by the software giants that they now risk trading away important, long-standing consumer rights.

The law essentially would put teeth behind the small print found in licensing agreements that consumers typically agree to when they rip open the shrink wrap on a software product or click the "I accept" button on a program downloaded from the Internet. Under UCITA, consumer advocates say, people would be bound by those agreements even though they had not had a chance to try out the product. Some high-tech companies, such as Sun Microsystems Inc., also say states should not tinker with time-tested contract and copyright rules.

"Technology advances are wonderful and should be strongly supported," said Maryland Attorney General J. Joseph Curran Jr. (D), one of two dozen attorneys general across the country who signed a letter voicing concerns about UCITA. "But we want to make sure individual consumers are protected, and right now, we have some serious concerns about that."

The Maryland and Virginia legislatures are among the first in the country to consider the changes. Illinois also is debating the issue, and legislation is to be introduced in California this year. State legislatures have become the forum for this national campaign because commercial transactions are a matter of contract law, which typically has been a matter for states to resolve, said Carlyle C. Ring Jr., a Washington, D.C., lawyer who chaired the committee that drafted UCITA.

The committee, part of the National Conference of Commissioners on Uniform State Laws, is a group of legal experts responsible for developing laws to help interstate commerce work smoothly.

But there is also a strategic reason that this fight is starting in such states as Maryland and Virginia: Political leaders here have been champions of the software industry, and the relatively short 90- and 60-day legislative sessions give little chance for opposition to grow.

And once UCITA is passed in one state, softwaremakers potentially could exercise the right to have disputes over license agreements resolved there--effectively setting a national standard.

Supporters of the measure say such concerns are overblown.

"There is clear language in this law that says if the consumer buys some software, sees the agreement and doesn't like the deal, they can get their money back," said Bob Gomulkiewicz, a senior corporate attorney for Microsoft. "UCITA actually makes that law."

Gomulkiewicz said software companies have long sought to back up licensing agreements in law because digital transactions are so difficult to monitor. Having UCITA offers real safeguards for companies selling products that can be pirated in a keystroke and distributed around the globe.

Moreover, he said, some of the perceived problems with the legislation are unenforceable. Critics, for example, have said the law would allow companies to suppress critical reviews of their projects.

But Gomulkiewicz said judges would consider such conditions "unconscionable," which in the language of contract law means they would never stand up in court.

Still, because of the skittishness, the head of the Maryland House of Delegates' technology committee has held weekly work sessions at which he and other delegates have been plowing through the 82-page bill to peel away provisions that threaten consumer rights.

By the time it's up for a vote, says Del. Kumar Barve (D-Montgomery), the bill will do nothing to upend existing consumer protection laws.

But Barve's assurances are little comfort to the bill's opponents, including a number of legal scholars, insurance groups and the National Consumer Law Center, among others.

On Feb. 3, Vance Kochenderfer, an engineer from a Newcastle, Del., company that designs air masks for firefighters, testified in Maryland to voice his dismay.

Kochenderfer said he first read about UCITA on the Internet and realized it could have dramatic consequences for his company, which uses a single software package to manage everything from bookkeeping to inventory control.

"We depend so heavily on that one package that if the software publisher decided to reach in and shut it down remotely, it would basically shut down our business," he said. "I'm not a lawyer or anything, but it seems that there ought to be something wrong with that."

Several librarians also turned up at legislative hearings in Maryland, including Sharan Marshall, director of the Southern Maryland Regional Library, a public library in St. Mary's County.

Unlike a printed book, which can be loaned or copied easily, information collected on computers could come attached with license agreements that limit how it can be shared.

"We contract with database vendors for pretty much all of our magazines," Marshall said. "If this measure passes, we're concerned that it would limit our control over how we can use them."

But the motivation to move ahead with UCITA is strong.

In Virginia, where the General Assembly typically treats complicated new issues with caution, the law could pass before the legislative session ends next month because of the strong backing of Gilmore, the Northern Virginia high-technology community and several prominent lawmakers.

Already, more than half of the world's Internet traffic passes through Virginia, and the state has taken the lead on many technology issues, passing laws banning junk e-mail, giving tax breaks to America Online and increasing the penalty on the creators of computer viruses.

Gilmore has heavily courted high-technology leaders, including AOL Chairman Steve Case, and created a Cabinet-level post of technology czar. Gilmore also is chairman of a national commission studying electronic commerce.

"In a relatively short period of time, Virginia has proven itself to be on the leading edge of technology policy," said James W. Hazel, one of Richmond's leading technology lobbyists. "Something such as UCITA gives us an opportunity to continue our leadership."

In the Maryland State House, that alone may be enough reason to get UCITA passed. Maryland legislators see Virginia as their chief rival for the thousands of jobs being generated by the explosive growth of the computer industry.

"The idea is to try to stay out in front of this whole revolution, this whole new economy that we're so rapidly going into," said Maryland House Speaker Casper R. Taylor Jr. (D-Allegany), one of the bill's sponsors. "It's extremely advantageous if we could do it, for competitive reasons."

Staff writer John Schwartz contributed to this story.

© Copyright 2000 The Washington Post Company

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