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A Clash Between Free Speech and Software Licensing

By Jay Hollander

Jay Hollander, Esq. is the principal of Hollander and Company LLC, www.hollanderco.com, a New York City law firm concentrating its efforts in the protection and development of property interests relating to real property, intellectual property and commercial interests, as well as related litigation.

The content of this article is intended to provide general information relating to its subject matter. Providing it does not establish any attorney-client relationship and does not constitute legal advice. Personal advice in the context of a mutually agreed attorney-client relationship should be sought about your specific circumstances.

Introduction

Many cases have been reported in the press where courts have been called upon to decide whether software code was constitutionally protected as free speech. In all these cases, the distributors of the software generally argued in favor of broad access to, and commentary on, software in the interest of the public's right to know.

However, a case filed by New York State against Network Associates, the owner of the popular McAfee anti-virus and security software programs, presents a classic "man bites dog" scenario, because the suit claims that the software publisher is curbing its customers' free speech rights and engaging in deceptive sales practices in violation of public policy.

The box or the label on the installation diskette of many popular programs sold under the McAfee brand contain warning messages prohibiting anyone from publishing any review of the product without prior consent, as well as warnings stating that unspecified "rules and regulations" prohibit consumers from releasing the results of any product performance test absent the company's "written approval."

In State of New York v. Network Associates d/b/a McAfee Software, the attorney general of New York sued Network Associates and asked for money damages and an injunction preventing the company from continuing to sell products that carry these messages on the ground that they amount to deceptive, fraudulent and illegal acts or business practices in violation of New York state law.

While the case is still in its early stages, and while not every state may have statutes identical to those of New York, let's examine the claims up close to see what lessons can be drawn for software developers and distributors to stay clear of similar litigation in the future.

New York Sues McAfee for Its "Censorship Clause"

The provisions on the McAfee boxes or diskettes that led to New York's claims read as follows:

Installing this software constitutes your acceptance of the terms of the license agreement in the box. Please read the license agreement before installation. Other rules and regulations of this software are:

The customer shall not disclose the results of any benchmark test to any third party without Network Associates' prior written approval... and

The customer will not publish reviews of this product without prior consent from Network Associates, Inc.

According to the New York state petition, the equivalent of a complaint, these warnings also appear on a web page when the software is downloaded instead of purchased in a box.

So what are the problems with these clauses? According to the New York attorney general, they amount to nothing less than censorship. So much so that, in its court papers, the New York attorney general's office characterized these restrictions as the "Censorship Clause."

As noted in the Memorandum of Law filed by the attorney general: "The Censorship Clause restricts consumers and the media alike from reviewing the software or disclosing important design or product flaws... [and] ... is also a deceptive practice" all in claimed violation of certain provisions of New York State law.

According to the attorney general, the clauses amount to censorship because they tie the hands of the media and the public while serving "no legitimate purpose, such as protecting trade secrets or confidential material." What's more, the clause, to the extent it refers to certain "rules and regulations" as justifying its prohibition, is claimed to be deceptive because it allegedly "misinforms" consumers since "no 'rules and regulations' actually exist under federal or state law."

What New York Law Says

But are these clauses really illegal under New York State law? And does the attorney general have the right to bring a civil action for money damages and an injunction because of it? Here's where close attention to the laws is vital.

Pertinent provisions of the laws of the State of New York give the state's attorney general broad powers to bring suit for what it perceives to be illegal or fraudulent business practices.

For example, Section 63(12) of New York's Executive Law specifically allows the attorney general to bring suit regarding cases of "persistent fraud or illegality in the carrying on, conducting or transaction of business". The statute says, "[t]he term 'persistent fraud' or 'illegality'... shall include continuance or carrying on of any fraudulent or illegal act or conduct ". In fact, under the section, the term "fraud" includes "any... deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual clauses" and does not necessarily require wrongful intent.

In the Network Associates case, the claimed fraudulent conduct is that the Censorship Clause refers to allegedly non-existent rules and regulations. Even more so because the actual license agreement inside the box mentions nothing about this clause and otherwise makes clear that the four corners of the license agreement represent the entire agreement with the purchaser. Such conduct is claimed to be "illegal" because it is an "unenforceable covenant, invalid as against public policy," according to the complaint.

In other words, according to the New York attorney general, Network Associates' warning was fraudulent not only because it wrongly referred to non-existent rules and regulations, but also because the plain terms of the license agreement would have excluded such a clause, found only on the box, label or download page of the software, from even being enforceable and because the restriction violated public policy by creating a "chilling effect" on legally permitted speech that would be beneficial to the consumer.

Interestingly, under cited case law interpreting this statutory section, proof that Network Associates actually intended to defraud or mislead isn't necessary. Yet, according to the attorney general, Network Associates has shown this intent anyway.

In its legal memorandum, the attorney general said that Network Associates tried to use the Censorship Clause to kill an unfavorable review of its "Gauntlet" firewall software by Network World magazine, allegedly invoking the clause to threaten the magazine with legal action if the review was not taken down from the magazine's web site and otherwise retracted.

Under the terms of this New York State law provision, when the attorney general finds such conduct, it has the right to seek broad relief, including financial damages and injunctions to stop the practice from continuing.

Similarly, Section 349 of New York's General Business Law makes unlawful "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this State" and allows the attorney general to file suit for an injunction and for restitution, that is, the return of money wrongfully given.

As set forth in the attorney general's memorandum, the disputed Network Associates clauses "unfairly chill the consumer's enthusiasm to enforce" their rights.

What is particularly alarming about this statute, from the point of view of a defendant like Network Associates, is that it also authorizes a private right of action, allowing any individual harmed by the practice to sue for as much as $1,000 and recovery of counsel fees based upon deceptive practices prohibited by the law. So, if New York state were to be successful on this claim, a multitude of individual suits might be in the offing, perhaps even a class action.

Lessons for Software Developers and Distributors

To be sure, there are many more salvos to be fired in this case and Network Associates has still to be heard from in its own defense. But the existence of the case should ring a warning bell to all software developers and distributors for a variety of reasons:

First, since this case has been brought by a state agency, the potential exists for similar suits to be brought by the attorneys general of other states, greatly exposing a defendant to potentially staggering costs.

Second, to the extent that other states' laws similarly convey private rights of action, allowing individuals to sue, the sheer potential number of such lawsuits could overwhelm even the most stable and profitable company.

Third, when and if a case like this succeeds, the possibility exists that liability could be sought against third-party distributors of the software that continue to market and sell it, notwithstanding notice of the claimed deceptive practices.

Fourth, and, in some ways the most important, the inevitable sullying of the reputations of the developer and/or its distributors may be irreparable.

 

While it's too soon to know what the ultimate disposition of the Network Associates case will be, responsible software developers and distributors should run -- not walk -- to their legal counsel for review of their license agreements' contractual terms, web sites and packaging to make sure that, however innocently, nothing allows the conclusion that consumers are being misled, warned or guided against the exercise of their rights, or that free speech, by consumers or the media, is being curtailed.

Additionally, a thorough review of the applicable law in the states where the software is distributed certainly would be warranted, as the wording of the statutes is likely to differ in important ways, even when covering the same basic legal terrain.

Of course, fixing the problem may not stop a suit for damages based upon previous actions, but it will no doubt be a powerful disincentive against state action aimed at restricting a company's business practices and also may garner good publicity for a company's its civic-minded attention to self-improvement.

Copyright © Jay Hollander, 2007. All Rights Reserved.

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