Public Forum: Warranty Protection for High-Tech Products and Services

AGENCY:

Federal Trade Commission.

ACTION:

Initial notice requesting academic papers and public comment and announcing public forum.

SUMMARY:

The Federal Trade Commission plans to hold a public forum to examine warranty protection for software and other computer information products and services that are marketed to consumers, and seeks academic papers and public comment to inform this examination.

DATES:

Papers and written comments are requested to be submitted on or before September 11, 2000. The forum will be held during the fall of 2000.

ADDRESSES:

Six hard copies of each paper and written comment should be submitted to: Secretary, Federal Trade Commission, Room H-159, 600 Pennsylvania Ave., NW., Washington, DC 20580. Alternatively, the Commission will accept papers and comments submitted to the following e-mail address: “software-comments@ftc.gov.” The content of any papers or comments submitted by e-mail should be organized in sequentially numbered paragraphs. All submissions should be captioned “High-Tech Warranty Project—Comment, P994413.”

Form and Availability of Comments: To enable prompt review and accessibility to the public, papers and comments also should be submitted, if possible, in electronic form, on either a 51/4 or 31/2 inch computer disk, with a disk label stating the name of the submitter and the name and version of the word processing program used to create the document. (Programs based on DOS or Windows are preferred. Files from other operating systems should be submitted in ASCII text format.)

Papers and written comments will be available for public inspection in accordance with the Freedom of Information Act, 5 U.S.C. 552, and Commission regulations, 16 CFR Part 4.9, on normal business days between the hours of 8:30 a.m. and 5:00 p.m. at Room 130, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580. The Commission will make this notice and, to the extent possible, all papers or comments received in electronic form in response to this notice available to the public through the Internet at the following address: http://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT:

The exact dates, location, and information about public participation in the forum will be announced later by Federal Register notice. For questions about this request for academic papers and comments, contact either:

Adam Cohn, Attorney, Division of Marketing Practice, Bureau of Consumer protection, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, telephone 202-326-3411; or

Carole Danielson, Senior Investigator, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, telephone (202) 326-3115.

SUPPLEMENTARY INFORMATION:

Background: Magnuson-Moss Warranty Act

In 1975, Congress passed the Magnuson-Moss Warranty Act (“Act”) in response to a number of widespread problems consumers encountered when the products they purchased were defective. First, warranties were often very vague or extremely technical and thus difficult to understand and interpret. Second, companies often gave a narrow written warranty, but then disclaimed all implied warranties in the same document, thus providing the consumer with little or no recourse if the product turned out to be defective. Third, some manufacturers restricted the warranty and limited its remedies to such an extent that the warranty proved to be useless to consumers. Finally, the lack of privity with a distant manufacturer often precluded the consumer from seeking a remedy in court.

In addressing these problems, the Congress did not mandate that manufacturers or sellers provide written warranties on consumer products, nor did it mandate substantive warranty terms for consumer products. Rather, Congress mandated that any company that chooses to give a written warranty on a consumer product must follow some basic ground rules. As set forth in the Magnuson-Moss Warranty Act and in the regulations promulgated under the Act, these basic ground rules were designed to ensure: that warranties for consumer products be clear and understandable; that warranties not become vehicles to disclaim or otherwise restrict substantive consumer rights provided by state law; that warranties be available prior to sale so consumers could know the warranty terms before buying the product and could compare the warranties of different sellers; and, that sellers and manufacturers honor the terms of their warranties. Finally, the Act gave consumers the right to sue for any violation of the Act, including breach of express or implied warranty.

Software and Other Computer Information Products and Services

Today, many of the issues that were important three decades ago in the context of written consumer product warranties are being debated in the context of mass market “shrinkwrap” or “clickwrap” software licenses. For example, software licenses may be written in technical, or otherwise complicated language that some consumers might find difficult to understand. Additionally, just as written warranties prior to 1975 were sometimes used to disclaim substantive implied warranty protections provided by state law, some of today's mass market software licenses contain provisions that seek to disclaim similar state-implied warranty protections (e.g., fitness, merchantability). Moreover, some mass market software licenses may not be available for consumers to review until after the consumer has paid for the software. Thus, consumers may be unaware of the terms and conditions until after the product is purchased.

In seeking public comment and holding a public forum, the Commission hopes to facilitate discussion of how government, private industry, and consumer advocates can work together to ensure that consumers receive adequate information when purchasing software and other computer information products and services. Additional concerns include how to ensure that consumers are able to retain existing protections afforded by state law and compare warranty protections when shopping for software and other computer information products and services.

Invitation To Comment

The Commission requests that interested parties, including academics, industry members, consumer advocates, and government representatives, submit academic papers or written comments on any issue of fact, law, or policy that may inform the Commission's examination of warranty protection for software and other high-tech consumer goods and services. Please provide copies of any studies, surveys, research, or other empirical data referenced in responses.

The questions set forth below are intended only as examples of the issues relevant to the Commission's examination. Commenters are invited to discuss any relevant issue, regardless of whether it is identified below.

General

1. What warranty protections exist for consumers who purchase software and other computer information products and services?

2. What expectations do consumers have about reliability of software and other computer information products and services? Are these expectations met?

3. What remedies are typically available to consumers if software or another computer information product or service fails to perform as the consumer expected?

a. What warranty remedies are available to purchasers of such products and services?

b. What remedies are supplied by state or federal law?

c. Do consumers seek to invoke these remedies, and if so, how often are they successful?

4. Are consumers able to comparison shop for different computer information products or services based on the terms of warranty coverage? Are consumers interested in doing so? Do manufacturers or sellers of software and other computer information products and services compete with each other on the basis of warranty coverage?

5. Do the current protections encourage efficiency in the timing, selection, and amount of detail in information conveyed to consumers?

6. Do existing laws and industry practices protect consumers in the event that software and other computer information products or services are defective? How often does this occur?

7. What developments are underway by private or public entities at the international, national, state, or local levels that would have an impact on consumer's rights in the context of transactions involving software or other computer information products and services?

a. How would the proposed Uniform Computer Information Transactions Act (UCITA) affect consumers?

b. What role, if any, would be appropriate for the federal government with respect to protecting consumers who purchase software or other computer information products and services? What role, if any, would be appropriate for state and local government? Consumer groups? Private industry?

c. Are there international developments prompting uniformity of software or other computer information products and services?

Effect of Mass Market Licenses on Warranty Protection

8. What is the impact of characterizing a mass-market software transaction as a license as opposed to a sale of goods?

a. What is the rationale for such a characterization?

b. What are the legal implications of this characterization?

c. How does this affect consumers?

d. To what extent, if any, should software transactions be treated differently from transactions involving other intellectual property, such as the sale of compact discs, videocassettes, and printed books?

e. Are some types of products involving intellectual property better suited to be distributed to consumers in license transactions as opposed to a sale of goods? Why?

9. To what extent, if any, do mass market licenses for software typically create express warranties?

10. To what extent, if any, do implied warranties arise in the context of mass market licenses for software?

11. To what extent, if any, do mass market licenses for software typically disclaim express or implied warranties?

12. How are consumers affected by the use of “shrinkwrap” or “clickwrap” licenses in mass market purchases of software?

a. How are these licenses treated under existing law—that is, to what extent are these licenses enforceable?

b. What types of terms are typically included in a software license?

c. What types license of terms are beneficial to consumers? What types of terms may cause consumer harm? What legal recourse do consumers have in such circumstances?

d. To what extent are the terms of shrinkwrap or clickwrap licenses currently available to interested consumers prior to purchase?

e. What is the impact of license terms mandating certain types of alternative dispute resolution, such as arbitration? How frequently, if at all, are such terms enforced by licensors?

f. Do shrinkwrap or clickwrap licenses discourage firms from competing on the basis of licensing terms? If so, which terms would be more likely to change if there were full prior sale disclosure? Why?

13. What role, if any, does the Magnuson-Moss Warranty Act play in the marketing, sale, or licensing of software or other computer information products or services to consumers?

a. Is it appropriate that software be treated as a “consumer product” subject to the Act?

b. Is it appropriate that software be treated as “tangible personal property” subject to the Act?

c. Is it appropriate for the typical consumer transaction to acquire software to be treated as a “sale” of software subject to the Act?

d. Is it appropriate that software licenses be treated as a “warranties” subject to the Act?

Future Trends: High-Tech Legal Theories in the Low-Tech Marketplace

14. Recent proposed revisions to UCC Article 2 (sale of goods) suggest that post-sale disclosure of terms may become acceptable in the sale of goods content. What would be the costs and benefits of applying a licensing model to goods covered by UCC Article 2? Does this suggest the importation of a licensing model into such sales of goods? If so, what effect, if any, will this have on consumers?

Public Forum

15. What should be the primary focus and scope of the Commission's initial public forum on “Warranty Protection for High-Tech Products and Services?”

16. Which interests should be represented at the Commission's initial public forum on “Warranty Protection for High-Tech Products and Services?”

Authority: 15 U.S.C. 41 et seq.