Contract, not Regulation: UCITA and High-Tech Consumers Meet Their Consumer Protection Critics
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Description
The question of how the rules of consumer protection law apply to the digital marketplace has been the subject of protracted disputes for many years now, given the effort to apply and extend the principles of Article 2 of the Uniform Commercial Code to the novel situation of digital consumer transactions. I first became involved in this issue some years ago when I was hired as a consultant to write on behalf of the Uniform Computer Information Technology Act (UCITA) for the Digital Commerce Coalition. My task was to respond to the Federal Trade Commission’s Initial Notice Requesting Academic Papers and Public Comment regarding Warranty Protection for High-Tech Products and Services. Thereafter I commented on various issues concerning UCITA in two letters that I wrote in my individual capacity in defense of UCITA when the issue came before the American Bar Association in 2003. The question I addressed then—and the one I address now—is: to what extent do the rules found in Article 2 of the Uniform Commercial Code (UCC) carry over to the world of transactions in high-tech computer products? In an ideal world, that transfer of legal rules—insofar as they relate to contract formation, express or implied warranties, and unconscionability—to this new context should be total. In both areas the purpose of the law is to facilitate voluntary transactions, whether by sale or by license, for the benefit of both parties. In the present situation, however, some deeply embedded conceptual weaknesses of the UCC on these critical issues make any such carryover problematic. The effect of bad rules should not be inflated by expanding their reach. My analysis, therefore, often proceeds at two levels. First, it offers a critique of some of the basic UCC rules as they apply to ordinary transactions in goods. At other times, it acknowledges that the adverse impact of these unsound rules is not disastrous to commercial success when confined to the sale of goods. However, my analysis then explains why carrying over these rules into the markets for high-tech computer information products is likely to produce greater dislocations. My main purpose is not to propose any fundamental reform of Article 2. Nonetheless, any effort to ask how the old UCC rules apply to the licensing of computer information technology necessarily entails some review of the basic UCC rules from which UCITA derived. My objective in writing this chapter is not to treat the law of contract as though it were a zero-sum game, such that any advantage gained by a high-tech company is followed by an equal disadvantage to the consumers who buy its goods. Quite the opposite, any transaction that produces no gain will quickly disappear as no one will wish to incur the positive transaction costs to no avail. Similarly, transactions that produce winners on one side and losers on the other will have a very short half-life: the losers do not need market power to abstain from the market altogether. Over the long haul, therefore, the only viable markets are those which generate gains to both parties, giving each side an incentive to participate. In the first instance, the goods and services themselves drive this success. But in many cases, the size of the joint gain depends on the contractual provisions under which these products are licensed or sold. The better the practices, the greater the velocity of the transactions, and the larger the overall gains.
Source Publication
Consumer Protection in the Age of the ‘Information Economy’
Source Editors/Authors
Jane K. Winn
Publication Date
2006
Recommended Citation
Epstein, Richard A., "Contract, not Regulation: UCITA and High-Tech Consumers Meet Their Consumer Protection Critics" (2006). Faculty Chapters. 392.
https://gretchen.law.nyu.edu/fac-chapt/392
