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Software Development
May 2003

Taking License

Some companies are stooping to temptation with draconian legal code, but in the face of looming litigation and wised-up consumers, a more equitable approach is in order.

When lawyers at Network Associates got a little overzealous with the verbiage in the end-user license agreement for their shrink-wrapped software, it seemed harmless enough. After all, weren’t software publishers everywhere grafting increasingly tortuous legalese to such agreements? Weren’t most users simply scanning the paragraphs of unintelligible uppercase text and then cavalierly clicking “I accept” before installing an application? Then, in July 1999, Network World magazine published a firewall comparison review that ranked Network Associates’ Gauntlet product in second-to-last place (IBM’s offering made the bottom of the list). In a series of angry missives to the editors, Network Associates demanded a retraction—using words that the company would later regret.

“They complained extensively. One e-mail to one of the reviewers mentioned, almost in passing, that perhaps we had violated the shrink-wrap policy against benchmarking or reviewing the software without the permission of the company. Ultimately, they didn’t follow through on any threat,” recalls John Gallant, Network World president and editorial director. “But when the New York attorney general built the case against them, Network Associates claimed they’d never followed through on their shrink-wrap policy. The attorney general learned about the e-mail and contacted us to support their argument. We were only tangential to the case, but we’re in agreement with the [March 2003] ruling that such strictures are a violation of free speech.”

Software vendors have only just begun to grab the legislative limelight. In the past five years, a number of industry-sponsored laws—DMCA, UCITA, CBDTPA—and lawsuits—New York v. Network Associates, Lexmark v. Static Control Components—have made it clear that protecting intellectual property and consumer rights comprises two threads of a tangle that extends far beyond the interests of entertainment purveyors. On one hand, software developers seek to safeguard their work and reap a just reward for it. On the other, corporate and mass consumers alike want to know that their rights to privacy, security and a fair price for a nondefective product are protected. One thing is clear: As the economy shrinks, software vendors are hoping to glean revenue from creative licensing arrangements—and purchasers are finally reading the small print.

Keeping Business in Business
“In today’s climate, you’ve got to provide the product in the form that the customer wants to buy it. You can’t go to the CIO and get a $5 million license up front—you’ve got to charge a lower fee or go to a pay-per-usage model,” says Dan Stickel, senior vice president and general manager for Macrovision in Santa Clara, Calif. “The economy of the 1900s was all about physical goods, but now we get a container ship from China filled with things that cost less than a dollar. The 21st century is about virtual goods—IP is where the value is.” For such customers as Aspen Technology, IBM, Agilent and Schlumberger, Macrovision provides packaged solutions for managing licensing terms and billing, and software evaluation, distribution and protection. Unintentional license violations and outright piracy are eating away at ISV profits, says Stickel, noting that Intuit found that TurboTax-generated tax returns numbered two to three times more than copies of the software sold.

But rectifying those licensing lapses takes more than technological solutions—a coordinated public relations effort is essential. In a sign that users aren’t taking license agreements lying down, in February, Intuit released a third-party test of its usage of Macrovision’s SafeCast product activation technology in TurboTax desktop software products. A flood of complaints and proliferating urban myths about the way product activation works forced Intuit to commission the test to prove that product activation doesn’t send any personal information to Intuit or monitor computer activities, that only files and registry entries relating to TurboTax and SafeCast are installed, that it doesn’t disable a user’s CD-RW drive, that SafeCast uses less than 1MB of RAM, and that tax data isn’t held hostage if the user changes computers or hard disks.

Even with the PR stopgap, Intuit’s experience during this year’s tax season has shaken it sufficiently to focus on improving product activation for 2004. “We’re looking at a number of things, but I can say with certainty that next year, we’ll implement product activation that has no memory-resident component when TurboTax isn’t in use and that completely uninstalls when TurboTax is uninstalled,” says Tom Allanson, senior vice president of Intuit’s Consumer Tax Division. “This is our first year out of the gate, and we’ve learned a lot. For the majority of our customers—98 percent activate via Internet or automated phone system without needing to speak to a support representative—activation is a non-issue.”

Indeed, Microsoft, IBM, Oracle and Computer Associates are among the many large software vendors that have tinkered extensively with their licensing initiatives in recent years and months, re-jiggering usage-based and subscription plans for mainframe and legacy customers, and discreetly renegotiating contracts to include new fees for upgrades and service. In February 2003, Sun Microsystems announced “Project Orion,” a strategy to bundle all its software—including programs for application servers, messaging, portals and data center provisioning—into a quarterly-updated version of its Solaris operating system. The purpose? Streamline pricing and combat developer assimilation by Microsoft’s MSDN borg. And, ostensibly, Orion will reduce licensing confusion for those who currently buy directories by the entry, messaging systems by the mailbox, application servers by the CPU and file systems by the terabyte, according to Jonathan Schwartz, executive vice president of Sun’s software group.

Whither Warranties?
The complexity of software licensing hasn’t escaped the attention of the Federal Trade Commission, which held a workshop in October 2000 to better understand why software is marketed in the form of a license rather than a sale of goods. The forum also focused on protections afforded to purchasers of shrink-wrapped software, circumvention of warranty protections in state law via shrink-wrap or click-wrap warranties, the role that 1975’s Magnuson-Moss Warranty Act should play in software licensing, and the way the Uniform Computer Information Transaction Act would enforce mass-market software licenses. Public comments gathered at that time, which included testimony by Free Software Foundation founder Richard Stallman, were overwhelmingly against UCITA. Nonetheless, the effort to pass the law in state legislatures persists.

Inspired by the “veggie libel laws” that were used to take talk-show host Oprah Winfrey to court for swearing off beef on television, UCITA’s architects have included just the type of product disparagement clauses that New York Attorney General Eliot Spitzer lambasted in his successful case against Network Associates. According to “Consumers STILL Oppose UCITA in 2003,” an essay by David B. McMahon posted on the National Consumer Law Center’s website, UCITA generally allows a software license to say that a magazine or newspaper cannot publish a review of the software without the publisher’s permission unless and until the courts find such a provision to be unenforceable. It’s unclear whether the Network Associates case is sufficient legal precedent to kill this language in future drafts of UCITA. Further, McMahon explains, “The 2002 amendments don’t solve UCITA’s fundamental problems … Only two states have adopted UCITA. Three other states have adopted ‘bomb shelter’ legislation attempting to shield their state’s residents from UCITA being applied to their contracts. UCITA continues to be opposed by consumers, computer professionals, librarians and even insurance companies and ‘brick and mortar’ companies like Caterpillar and Boeing.” Finally, in 2001, 32 state attorneys general declared that UCITA was fundamentally flawed.

If UCITA proponents have a tough row to hoe in tacking their software vendor-friendly provisions onto state commercial codes, Digital Millennium Copyright Act pushers have already won the fight with its 1998 passage by the U.S. Congress. Nearly five years later, as opponents feared, it’s clear that DMCA-fueled lawsuits aren’t pretty. Among other things, the DMCA criminalizes the circumvention of antipiracy measures in commercial software and the distribution of code-cracking devices for illicit software copying. While the first famous cases focused on DVD decryption, printer manufacturer Lexmark stretched the DMCA’s coverage into a new arena in late 2002, when it sued Static Control Components, a small Sanford, N.C.–based printer parts supplier. Static Control Components’ Smartek chip allows otherwise recalcitrant Lexmark printers to use cheaper recycled toner cartridges—thus, Lexmark claims, circumventing a ploy to protect the intellectual property in their carbon black dispensing system. But if comments on Slashdot.org are any indication, most red-blooded printer purchasers don’t see how such a case could hold water unless buyers sign an up-front, exclusive toner contract with Lexmark. However, revealing that he may not be a Slashdot sympathizer, Judge Karl Forester of the U.S. District Court for the Eastern District of Kentucky issued a pretrial injunction in February, blocking Static Control from selling the chips.

Selling Free Software
As the restrictive terms and conditions that accompany software licenses continue to multiply, some vendors and prominent developers have famously jumped off the legal bandwagon and thrown in their lot with the free software and open-source movements. And since Big Blue and others have waded into those waters, more developers understand their options in choosing between free software—reciprocal, copyleft-based licensing such as the GNU Public License—or open source—nonreciprocal licensing, such as the BSD License, that allows some protected intellectual property to be included with the source code.

“Adherents of the free software model feel strongly that what they’re selling is expertise, not code,” says Danese Cooper, San Francisco-based “open-source diva” for Sun Microsystems and a volunteer Open Source Initiative board member. “People who choose free software licenses either feel a religious connection with Stallman’s freedom concept, or they can see getting engagement from their expertise.” But with either free or open source, “Little ISVs can get engagement, or use it as a loss leader and make a ubiquity play. In an asymmetrical warfare situation, if you don’t have 1,000 lawyers behind you, sometimes an open-source strategy can disrupt the market, avoid vendor lock-in and force down everyone else’s base price.”

Companies such as Red Hat, Collabnet and Ximian are beginning to “shelter value,” according to Cooper, under licenses other than free software. “Collabnet created the glue that makes free tools work better together. Now they’re using BSD to take these pieces and add more on top. You have to create abstraction layers because the reciprocal piece makes it hard to set up a business where some charge is for access to code you’re hiding,” she says. Not surprisingly, at the Free Software Foundation, on the other hand, “They do believe there’s such a thing as too much money.” However, FSF Executive Director Bradley Kuhn insists, “We’re not against a commercial environment or capitalism at all; in fact, we find that most companies, when they understand free as in freedom and free markets, see that free software creates a true competitive market.”

While open-source and free software efforts are often seen as representing single-digit market share, it’s a truism that the Apache Web server has well over 50 percent market penetration. That bodes well to Cooper, who predicts that, unlike vertical market applications, most infrastructure software—protocols, productivity suites, operating systems and Web servers—will soon be pervasively available without cost. “I think end-user license agreements will disappear,” she argues. “It’s inevitable: For a whole class of software that companies have made fortunes charging for, people will have to stop trying to make new and interesting lock-in methods.”

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