a. Rejected a motion to limit scope to "coded", "digital", "electronic" or similar concept. Vote:10 - 3.

b. Adopted a motion to limit scope to licenses of all information and software contracts. Vote: 10 - 0.

c. Rejected a motion to include all patent and trademark licenses in the Article. Vote: 9 - 3.

d. Rejected a motion to include all patent licenses. Vote: 8 - 4 (Feb. 1997)

e. Rejected a motion to delete exclusion of trademark and patent licenses. Vote: 7 - 4. (Feb. 1997)

f. Adopted the financial process exclusion in principle. Vote: 8 - 0 (Nov. 1997)

g. Accepted subsection (c)(3) by consensus. (Feb. 1998)

1. General Premise. This article deals with licenses and software contracts in the copyright and information industries. It does not cover sales of books, newspapers, or magazines, or personal or entertainment services contracts; these are not licenses. The transactions with which the article deals involve value that lies in the intangibles and the rights to use them. However, this is a contract statute. It deals with contractual relationships. This Article does not concern, and does not alter any law creating or limiting intellectual property rights or privileges in information.

The Article does not deal with all licensing transactions in industries, but focuses on a limited, but important subset of transactions. These deal primarily with software and multi-media contracts, access contracts involving on-line and Internet transactions, and transactions involving licenses of data, text, images, and related information.

The scope of this Article is defined by the provisions of this Section and the exclusions stated in Section 2B-103A. Because of the rapidly converging nature of technology and commercial practice in the information area, the scope has been implemented by promulgation of a broad focus in subsection (a), coupled with the specification of a number of exclusions in Section 2B-103A. This parallels the approach taken in Article 9. See Section 9-102; 9-104 (listing 13 exclusions from the that Article).

2. Basic Scope. Subsection (a) states the basic scope of Article 2B. That scope is subject to the limitations in Subsection (b) and Section 2B-103A. Subsection (c) deals with mixed transactions and the parties' right to opt in to Article 2B. Subsection (d) confirms an opt-in rule for excluded transactions.

a. License. Article 2B applies to licenses. A "license" is a contract for conditional rights, privileges, or permissions to use information, an information processing resource, or an informational property right. A license exists only if the contract expressly conditions the rights or permissions conveyed or expressly grants less than all rights in the information. Section 2B-102. Except for computer software, this Article thus does not deal with unrestricted sales of copies of information even though sales of copies are subject to restrictions under copyright or patent law. However, a license can coexist with a sale of a copy of the information. See Applied Information Management, Inc. v. Icart, 1997 WL 535813 (E.D.N.Y. March 3, 1997).

b. Software Contracts. A "software contract" is a (1) license of software, (2) a sale of a copy of software, or (3) a contract to develop software. For computer software, rather than a focus on express contract terms, the more important focus is the nature of software. Except for some software contained or embedded in another product, all software contracts are included.

3. UCC Articles. As a general principle, Article 2B does not apply to the subject matter, rights and remedies, covered in other articles of the UCC. This principle would be implicit, but has been made explicit in Subsection (b) to avoid unnecessary uncertainty. There are two primary exceptions. One deals with the limited treatment in this Article of the relationship of financier interests and contracts to the subject matter of this Article, licenses and software contracts. See, e.g., Section 2B-503. In these contexts, Article 2B provisions control over other articles of the UCC that would otherwise be applicable. Secondly, as stated in Section 2B-103(c)(1), this Article applies to goods that comprise copies of covered information or related documentation.

5. Transactions Covered / Transactions Excluded. Because of the convergence of information technologies and diverse range of modern commercial uses of information, implementing the scope of this Article inevitably involves some areas in which the applicability of coverage will be uncertain. This has also been true, of course, with respect to the scope of application of Article 2 where the scope-defining term "transactions in goods" has created extensive litigation and numerous reported decisions.

a. Computer Programs. This Article applies to computer software transactions, whether the programs are sold or licensed. This Article covers both software that is provided as a separate and independent product (e.g., word processing software acquired in the mass market or specially developed for a licensee) as well as software provided in a transaction in which the program is part of a multi-faceted product. The vast majority of all software contracts do not occur in the mass market. The Article covers those transactions and also information licensed for inclusion in software (e.g., images or text for digital inclusion).

In mixed transactions, in allocating among the aspects of contract law that might apply, Article 2B adopts two rules. First, as a general principle, other law (e.g., Article 2 and Article 2A) applies to the goods involved in a transaction. See Section 2B-103(b). Article 2B applies to the program and the materials that comprise the copy of the program. Section 2B-103(c). This adopts a gravamen of the action test holding that, in the case of a dispute, a court must determine in reference to which aspect of the mixed deal the issue arise. Thus, Article 2B applies to software provided in a transaction in which the purchaser also leases a computer (Article 2A property).

Second, the scope rules deal with use of computer programs or chips to create more "intelligent products." In this context, Article 2B applies to a program that is part of a computer system or peripheral, but only applies to programs contained in other products if giving the purchaser access to the program's capabilities is a "primary purpose" of the transaction and the program is not merely incidental to the product. Section 2B-103A(1)&(3)(C). Thus, Article 2B does not apply to the computer program that operates the brakes in a motor vehicle and is sold along with the automobile. While the brakes are important to the vehicle, the purchaser acquires a motor vehicle and not the processing power of the program. This is entirely an Article 2 transaction. On the other hand, further up the manufacturing system, the transaction by which a vendor develops and provides the brake software to the manufacturer is an Article 2B transaction. Similarly, while a home air conditioning system has some functions that may be operated by a computer program, the program if any is either merely incidental to the overall system or, as an embedded program, is not included because acquiring it was not a primary purpose of the transaction for the purchaser. The transaction is within Article 2. The upstream development or supply contract for the program, however, is an Article 2B transaction.

b. Books, Newspapers, Magazine, Videos and Records. Article 2B does not apply to ordinary transactions in the mass market by which users acquire books, videos, and records. Except with respect to computer software, the coverage of the Article is limited to licenses. Licenses are contracts that expressly restrict or limit information use, rather than transactions that make an unrestricted distribution of the information, but the distribution is implicitly subject to retained intellectual property rights. The Article does not alter the contract law principles that apply to mass distribution of these traditional works. In addition to being outside the affirmative scope of Section 2B-103(a), traditional videos and records (CD's and tapes) are excluded by Section 2B-103A(6).

Works similar to these, however, are increasingly made available through Internet and similar on-line systems. While Article 2B does not apply to broadcasts of information, it does cover on-line access contracts such as interactive systems and other systems where the information is made available at a time and place of the licensee's choosing. See Section 2B-102(a)(1). Transactions involving electronic newspapers and texts, access to which is provided in this manner, are included in Article 2B.

Modern technology has enabled the development of interactive products providing information of a type found in a less interactive manner previously in books and magazines. These multimedia products include, for example, a digital encyclopedia or a baseball dictionary that shows text, images and gives access to online updates of performance. These multi-faceted products are software products with the software-created capabilities and information central to the product; they are in Article 2B. Article 2B applies to the transactions that bring information (e.g., text and images) into these products, that provide for their development, and that deal with their distribution.

c. Patent and Trademark Licenses. This Article does not apply to most licenses of a patent or a trademark not associated with an access contract or a software contract. See Section 2B-103A(2). Thus, for example, a license of a biotechnology patent and associated know how, or a license of a trademark as part of a franchise agreement for a popular food store are not Article 2B transactions. In the case of the patent, the basic judgment is that the areas of general patent licensing do not involve the same commercial law concerns that are central to transactions covered in Article 2B. In fact, many pure patent licenses are primarily intended to settle or avoid litigation. In reference to trademarks, licenses often fall under state and federal franchise laws and are covered by principles unrelated to the commercial issues treated here.

Access and software contracts, however, also involve licenses of a trademark or a patent. These are included in Article 2B. Thus, a license of Windows 98 will include not only a copyright license, but also a right to practice the various technologies covered by a patent held by the software provider. The entire license is covered under Article 2B.

d. Access Contracts and Broadcasts. Article 2B applies to access contracts. This term includes Internet and on-line services. Thus, for example, a contract with an information provider such as Westlaw is within this Article, as are the various specific access events that occur pursuant to the contract. Also included are cases where information is available for a fee at a Website and obtained by contractual access to the information electronically. Of course, however, since this is a contract statute, it does not cover situations where information is simply made available and no contract is involved, even when this occurs on Internet.

While Article 2B applies to access contracts, the term is limited to electronic access. Thus, for example, a contract giving a person a right to enter and use a physical library facility, or a motion picture theater, is not within Article 2B. What law applies to such contracts is not clear.

Similarly, Article 2B does not apply to regularly scheduled broadcast or cable programs or contracts related to access to such programming. These regulated activities involve long-established contracting practices. Differentiating between this type of information distribution and on-line systems is based on both the regulated status of the broadcast and cable industries and the fact that they provide regularly scheduled programs, while on-line systems make information available at a time and place of a user's choosing. This latter differentiation is used in regulatory definitions and in an international copyright treaty.

While the access contracts are covered, the subject matter of the contract may not be within Article 2B. For example, if through an access contract a customer purchases a new television set, the access contract is within Article 2B, but the characteristics of the purchase are an Article 2 transaction. See Section 2B-103(b). Similarly, while an access contract is in Article 2B, use to order a transfer of cash deposit to pay a utility bill involves subject matter excluded from the Article. The access conduit is in Article 2B; the excluded transaction is not.

5. Formation Rules. Subsection (c)(2) addresses an effect created by Article 2B contract formation rules and the fact that Article 2B validates electronic commerce practices that may not be effective under common law or under current Article 2 or 2A. The subsection applies Article 2B formation rules to the entire transaction if Article 2B subject matter constitutes the predominant purpose of the transaction itself. This allows maximum scope to the contract formation rules and electronic commerce.

6. Opt-In Rules. Subsection (c)(3) allows the parties in a mixed transactions to elect full coverage under either Article 2B or other applicable law. This states a rule that would most likely be applicable in any event under general contract law principles. Similarly, subsection (d) provides for a comprehensive right of opt in related to transactions excluded by other provisions of this article.