Applying the UCC to Software License Agreements

The Uniform Commercial Code is a commercial set of laws that apply in most states. The UCC covers a number of commercial transaction like sales, notes, letters of credits and security interests. While UCC Article 2 applies to the sale of goods, the common notion is it only applies to tangible things like wheat, pigs and shoes. Since software is normally licensed and is intangible technology, many people will not even consider the UCC in resolving software license issues. 

So, what law applies. Initially, the thought is that copyright law controls a software license agreement. But there is really little contract law in the copyright laws. For contract law, the courts look to the applicable state law. And, when there is a license, copyright laws and remedies often do not even apply. The relationship is controlled by contract law.

Most states will have several areas of contract law. Article 2 of the UCC will apply to the sale of goods and other cases or statutes will apply to services, real estate and other contracts. But when a software license has all the underpinnings of a sale, the UCC will apply. See RRX Industries, Inc. v. Lab-Con, Inc.  772 F.2d 543 (9th Cir.1985). The key is the good or services analysis. The court will look at the deal and determine if it more of a sale of a good or a service. A software licenses can be a good, a good with services, or pure services. For example a custom software development is probably treated as a service so the UCC would not apply. Software Distribution or reseller agreements are more likely to be treated as a sale of software for purposes of the UCC.  

In the negotiation process of entering a software license agreement, the parties may agree the UCC applies. When an issue arises, the parties may also agree that the UCC applies. See Lockheed Electronics Company, Inc, v. Keronix, Inc. (1981) 114 Cal. App.3d 304. Ordinarily, this takes great effort after the fact because both sides will have to figure out whether they do better applying the UCC or not.

If the UCC applies, remember the key to the UCC is notice and communication. If a party is not paying its bills, demand adequate assurance of payment. When there is a defect claim, make it in a detailed writing and the licensor should demand an itemization of defects. While exclusions of implied warranties are common practice in software license agreements, an overlooked provision is the warranty of title and against infringement (UCC §2312). As a result, some software license agreements have no infringement indemnities provisions. But if the UCC applies, they do. So consider the UCC in software license agreement issues and the parties may actually have an easier time resolving problems. At least they will have a solid framework to work with.     

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