Uniform Law Source: Section 2A-303(2)(3)(4)(6)(8).

"Contract". Section 2B-102. "Financier". Section 2B-102. "Information". Section 2B-102. "License". Section 2B-102. "Licensor". Section 2B-102. "Money". Section 1-201. "Party". Section 1-201. "Rights". Section 1-201.

"Term". Section 1-201.

a. Voted 8-0 to delete provision that invalidated a prohibition on transfer in a mass market license.

At the March meeting, the committee voted to delete former section 502 which contained rules on transferability in the absence of contractual restrictions. If applied literally, this would also mean that Article 2B would delete basic materiality standards found in current Article 2, even though these considerations are far more relevant here than in Article 2. The bracketed language in (a) raises the question of whether the vote intended this result or intended merely to take no position on the issue of transferability of non-exclusive licenses that have no contractual terms on the matter. Deletion of the language that is proposed for reinstatement in the bracketed language may create an inference that the current law relating to contract in goods is not applicable to limit transfers of information contracts.

1. General Enforceability. Bracketed subsection (a) generally provides that interests in a contract can be transferred, but limits that principle by reference to standards that protect the non-transferring party's interest. The language generally follows existing Article 2 and, therefore, represents current law with respect to those software licenses that have been held to be within Article 2. The concepts here seem especially relevant to licensing where, in many transactions outside retail markets, important reliance and confidentiality interests are involved that may be compromised by a transfer of the contract.

2. Transfer. This section, and other sections of Part 5 use the word "transfer" to what in many contexts is described as an "assignment of a contract." The term here does not refer to a "transfer of a copyright" or similar intellectual property interest. It does not refer to delegation of performance under a license. Delegation, which is covered in a later section, occurs when a third party performs the duties or rights of the licensee, while transfer (assignment) involves conveying those contract rights to the third party.

3. Contractual Restrictions. Subsection (b) validates contractual restrictions on the transfer of a contractual interest. This is consistent with both the underlying theme of this article recognizing contractual choice and with the importance of the retained interest of the licensor in a license arrangement. It is also consistent with Article 2A on contract restrictions of the transfer of a lease. In practice, under federal and general law, many licenses may not be transferable without licensor consent even in the absence of a contract provision to that effect. Except for the general law provisions in bracketed subsection (a), Article 2B takes no position on when or whether this is true. The bracketed provisions follow long-standing state law policy in Article 2.

A transfer in violation of the contract restriction is ineffective. This rule is appropriate as a general principle, rather than merely allowing the term to create a breach, because of the important interests involved in the licensor's position in a license. If the rule were otherwise (e.g., the prohibited transfer is effective, but a breach of contract), this would create a significant period in which the transferee would be protected by the license before it could be cancelled in litigation against the licensee. For example, assume a license for $5,000 that allows licensee (ABC, a small company) to make as many copies as needed for use in the licensee's enterprise for employees. ABC has ten employees and the license is expressly not transferable. ABC transfers the license to AT&T, a much larger company with 50,000 employees. If it had requested an enterprise license, the fee would have been $10,000,000. If the transfer is merely a breach, ATT may be licensed to make as many copies as it needs for its (as licensee) employees. Until licensor sues and obtains cancellation of the license against ABC, all copies made are non-infringing. In contrast, a rule making the prohibited transfer ineffective precludes the licensee from without permission going into competition with its licensor, having obtained a license based on the lower use expectations associated with the original licensee.

4. Financier Interests. A contract restriction on transfer is not fully enforceable with respect to creation of some financing arrangements. Contract terms that to limit the transfer cash flow are not enforceable, unless of course, they fall within the terms of bracketed subsection (a) if adopted. The preclusion on enforcement is consistent with current Article 9. Additionally, subsection (b) allows the creation of a security interest in a license despite a contract provision precluding that if the interest could be created under Section 2B-502. This does not authorize or all enforcement of the interest. Additionally, the other party to the contract is entitled to enforcement of its contract terms in the sense that creation of an interest in violation of a contract clause barring it constitutes a breach.