Uniform Law Source: None

Committee Action: Reviewed several times with no substantive changes.

Note to this Draft: Subsection (c) was deleted based on discussion at the meeting and the ABA committee meeting that the reimbursement obligations are properly questions of express contract and that the solution here was too simplistic to function in context of complex and divergent distribution systems.

1. Scope and Context: Three Party Relationship. This section deals with a three party relationship common in information transactions, especially for digital products. The three party transaction involves a publisher, distributor, and end user. While the end user acquires the copy of information from a distributor, whether the distributor has authority to convey a right to use the work or the right to transfer title to the copy is determined by its contract with the publisher. That contract often precludes conveyance of rights without compliance with specified conditions. In such cases, the end user's right to "use" (e.g., copy) arises by a separate agreement between the end user and the producer (party with or control of the copyright). Often, in retail markets, this latter agreement is an on-screen license or a shrink wrap license.

2. Distributor and End User. While there are three parties and three separate relationships, the relationships are linked. Subsection (b) deals with that relationship from the perspective of the distributor's contract with the end user.

a. Contracts are Separable. The basic principle in subsection (b)(3) is that a distributor is not bound by nor does it benefit from any contract created by the producer with the end user. This mirrors modern law and limited case law dealing with sales of goods where manufacturer warranties and warranty limitations do not bind the distributor, but also do not benefit that distributor. This means that the distributor does not have the benefit of warranty disclaimers made in a publisher's license. That can be changed by contract, of course. However, it gives the end user two different points of recourse - distributor and publisher.

b. Distributor is a Licensor. Subsection (d) confirms that warranties exist on the part of the distributor by stating that the distributor is a licensor with respect to its licensee.

c. Conditional Rights. Subsection (b)(1) and (b)(2) deal with the reality that performance of the distributor's relationship with the end user hinges on the end user's ability to make actual use of the information supplied by the distributor and that this depends on the license between the producer and the end user. The effect is to give the end user who declines a license a right to refund. and to not being forced to pay the purchase price to the distributor. This creates a refund right, rather than an option. It reflects the conditional nature of the transaction with the end user. It differs from the publisher's option to provide a refund opportunity as a means of enabling the effective assent to the publisher's license terms. While they are distinct, however, a refund made by the distributor under the conditions of subsection (b) satisfies the refund opportunity required under 2B-112 for creating an opportunity to review.

There are several ways to view the relationship. One treats the publisher's license as part of the distributor's contract, understood as present by both the distributor and the end user from the outset, even if the precise terms are not yet known. See ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). An alternative treats the distributor's commitment as being to deliver the copy and to convey the right to use (e.g., copy into a machine). It cannot do the latter until the end user assents to the publisher's license if, as in most cases, the distributor's contract with the publisher authorizes only distributions subject to end user licenses. The end user's assent to the producer's license is then, as to the distributor, either a condition precedent (no final agreement until the end user assents to or rejects the license) or a condition subsequent (agreement subject to rescission if the license is unacceptable). In either case, if the end user declines the license, it can return the product to the distributor and obtain a refund or, if it has not already paid, avoid being forced to pay the contract fee.

Subsection (b)(1) and (b)(2) create this latter result. See Beta Computer (Europe) Ltd. v. Adobe Systems (Europe) Ltd. The contract between the distributor and end user is a license in that the end user's use rights are subject to assent to and the terms of the publisher's license. When the end user assents to the license, the publisher's license in effect replaces the distributor-end user license except as to obligations expressly created and earmarked as continuing on the part of the distributor (such as a services or support obligation). Of course, if the information breaches a warranty, the right to recover from the distributor remains present unless it was disclaimed by the distributor's contract.

3. Distributor and Publisher. In most cases where an end user license is intended, the publisher's arrangement with the distributor is a license that retain ownership of copies in the publisher and permits distribution only subject to an end user license. The legislative history of the Copyright Act indicates that, whether there was a sale of the copy or not, contractual restrictions on use are appropriate under contract law. "[The] outright sale of an authorized copy of a book frees it from any copyright control over ... its future disposition.... This does not mean that conditions ... imposed by contract between the buyer and seller would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright." H.R. Rep. No. 1476, 94^th Cong., 2d Sess. 79 (1976).

4. Subsection (d) sets out a basic default rule that corresponds with current law. The distributor is bound in its distribution by the terms of the contract with the producer and, as a default assumption, must redistribute in a form and subject to the conditions contained in the materials as received by it from the producer.