58 Uniform Commercial Code & Uniform Computer Information Transactions Act

Context

What is a “code” and how does it apply to contracts? As Corbin writes, “Except in a few American jurisdictions the basic law of contracts is not codified [i.e. the subject of state statutes or codes]. Contract law is thus primarily common law, embodied in court decision.”^[1].

While the basic rules and law of contracts may not be codified in many places, specialized contracts like sales agreements are subject to codes. And it is important to understand how these code provisions may differ from the common law.

Uniform Commercial Code

The most relevant such code for our purposes is the Uniform Commercial Code (U.C.C.).

The U.C.C. was first published in the United States in 1952 and is now the law in 49 states. ^[2]. It derives historical origins in the separate development of law governing merchants from other areas of contract law (like contracts for labor, services, and land). Relevant for our purposes is Article 2 of the U.C.C., which governs the (a) sale of (b) goods—that is, both conditions (a) and (b) need to be true for the U.C.C. to apply. When a contract is for the sale of goods, a state’s implementation of the U.C.C. takes precedence, though the state’s common law principles and other statutes may supplement the provisions of the U.C.C.^[3]

If the U.C.C. applies, how different is it from a state’s common law or other statutes? In many respects, the U.C.C. simply draws from common law contracts principles, so you may not notice a substantive difference in contracts cases applying the U.C.C. vs. common law. ^[4] In addition, the U.C.C. may be an instructive “gap filler” for non-U.C.C. agreements where the case law lacks clarity, or the issue has not yet been decided. ^[5] As Corbin has explained:

[T]here is a marked tendency [for courts dealing with non U.C.C. cases] to employ the Code by analogy, to transactions outside its coverage. In addition, the Restatement Second has recast many of the provisions…to harmonize them with the Code. The foreseeable result is that in future decades many of the principles underlying the contract provisions of Article 2 will be the law of the land even for contracts not governed by the Code.

^[6]. The interplay between case law (common law) and the U.C.C. is a bit of a recurring loop because many common law contracts principles were integrated into the U.C.C., and then subsequent non-U.C.C. cases have cited the U.C.C. for those very principles. ^[7].

But there are some distinctions, particularly as to the imposition of various implied warranties about the licensed products, that can benefit you as licensee and that make it important to consider whether the U.C.C. applies to e-resource agreements. Which begs the ultimate questions: Are e-resource agreements—typically framed as licenses—considered  “sales”? And are e-resources considered “goods”? Courts have not expressly addressed this question, but there is reason to believe from other cases involving commercial software licensing that e-resources are considered digital “goods,” and that the licensing of such digital goods can be considered a “sale” for U.C.C. purposes under certain conditions.

Digital materials can be considered “goods”

The U.C.C. applies to agreements for goods, not for services. A “good” for purposes of the U.C.C. includes all things which are “movable” at the time of contract, other than money, investment securities, or as-yet-unresolved legal claims (i.e. “things in action”) ^[8]. Courts have generally treated software as digital “goods” under the UCC, despite the inclusion of ancillary services ^[9]. When there are mixed goods and services in a software license agreement, courts look to whether it is the goods or the services that predominate (or neither)—recognizing that some servicing may be essential for supporting software. ^[10]

License agreements can be considered “sales”

The U.C.C. generally does not apply to license agreements because licensing agreements typically do not involve the transfer of title, which is a key element in what constitutes a “sale” under the code. ^[11]. When the type of license at issue is for commercial software, many courts have found the specific nature and terms of the licensing agreement constitute a sale for Article 2 purposes. This result may be more likely in transactions that resemble traditional sales (i.e. no recurring payments; no ability to retain dominion over the software; no expiration of the licensed right. ^[12].

The outcome for e-resource agreements has not been decided

Are e-books or e-journals license agreements sufficiently similar to the commercial software licenses to constitute a “sale of goods”?

For the reasons and sources cited above, we think there would be little dispute over e-books or e-journals being treated as “goods,” but there could be issues surrounding whether the agreements are “sales” depending on how the agreements are structured and what they include. One court made a point of noting that the software license at issue was more like a sale of goods than a license because it was a one-time payment, the software company does not retain a security interest in the goods, and there was no expiration for the licensed right ^[13] Most e-resource license agreements present opposite facts.

While there may be uncertainty as to whether the U.C.C. and its various implied warranties and protections govern e-resource agreements, in practice vendors/publishers and libraries operate presuming that the U.C.C. could apply—which is why you see vendors including provisions like the following that expressly disclaim any implied warranties that the U.C.C. would offer:

Except for the express warranties stated elsewhere in this Agreement,  Licensor disclaims any and all other warranties, conditions, or representations (express, implied, oral or written), relating to the Licensed Materials or any part thereof, including, without limitation, any and all implied warranties of quality, performance, merchantability, or fitness for a particular purpose.

^[14]. If you want U.C.C.-like protections, it is best to spell them out or they could be excluded by provisions like the above.

Uniform Computer Information Transactions Act

There’s one more “model” law worth familiarizing yourself with (at a high level) for e-resource licensing, and that’s the Uniform Computer Information Transactions Act (UCITA), announced in 1999. As its name suggests, UCITA applies to transactions involving “computer information” and unlike the U.C.C., we with much greater clarity it also applies to transactions that are licenses. UCITA has been adopted as law by only two states (Virginia and Maryland), but courts in other states look to it for guidance on technology-related license agreements—even if it is not technically the law. ^[15].

We mention UCITA because, although it is not codified (i.e. statutorily in force) in most states, courts in many states may reference its principles. Some courts also apply its principles to license agreements with subject matter beyond “computer information” or technology, merely because they believe the reasoning is sound. We have illustrated in a few clauses in this book (such as the Survival provision) where we think reference to UCITA’s terms may be particularly helpful for you.