FTC to study software-licensing practices

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by Patrick Thibodeau

(IDG) -- The looming state-by-state passage of the controversial UCITA software-licensing law is prompting the U.S. Federal Trade Commission (FTC) to take a hard look at the software industry's bedrock practice of selling software through licenses instead of an outright purchase of the product.

The FTC plans to hold a two-day forum in Washington October 26th and 27th on software warranty and licensing practices. Among the issues that will be examined are warranty protections offered in "shrinkwrap" or "clickwrap" licensing agreements, the use of those warranties to limit the liability of vendors' protections and the whole approach of selling software in the form of license, according to the FTC.

"There is a concern that some of the practices that you see in some of the license terms are problematic," said Dan Salsburg, an attorney in the FTC's division of marketing practices, in an interview today. "The purpose of the hearing is to educate us."

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Although concerns about these licensing practices have been around for a while, Salsburg said UCITA -- formally known as the Uniform Computer Information Transaction Act -- is bringing them to the forefront. "I think the advent of UCITA helped us to focus in on what some of these [issues] were," he noted.

The FTC already has criticized UCITA, which strengthens the ability of software vendors to enforce the warranty provisions in licensing agreements. In a letter that it sent last year to the National Conference of Commissioners on Uniform State Laws, the Chicago-based group that drafted UCITA for consideration by the states, the FTC cited several potential problems with the law. For example, the commission said UCITA would allow a vendor to restrict a user's right to sue over product defects or even to publicly discuss or criticize the product in question.

Jean Braucher, a University of Arizona law professor who will speak at the FTC's forum, said the commission's power to seek better warranty safeguards than those provided through UCITA rest in the ability of federal law to pre-empt state regulations.

But the FTC's consumer-protection powers may not help protect businesses from some of UCITA's terms, Braucher added. She said that includes restrictions that can be imposed on the transfer of software licenses to another company during merger and other business deals, as well as the so-called "self help" provision -- a controversial clause that gives vendors the ability to remotely disable a user's software.

UCITA has been adopted in two states thus far: Maryland and Virginia. The law took effect in Maryland at the start of this month, while Virginia's state legislature approved UCITA last spring but delayed implementation until next July to give a study committee time to complete a review of the law.

In advance of next week's forum, the FTC has requested public comments on UCITA and software licensing practices. Submissions from more than 90 individuals, trade associations and companies already have been posted on the commission's Web site.

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Federal Trade Commission
Uniform Computer Information Transactions Act

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