(a) Except as otherwise provided in this section, an agreement is not enforceable by way of action or defense unless:

(1) there is a record authenticated by the party against which enforcement is sought, or to which that party manifested assent sufficient to indicate that a contract has been made and reasonably to identify the copies or subject matter of the agreement; or

(2) the agreement contemplates

(A) there be requires no or nominal consideration for the rights acquired; or

(B) the total requires value of any payment of to be made and any other affirmative obligations incurred is less than [$20,000], excluding payments for options to renew or buy; or

(b) A record is not insufficient under subsection (a)(2) even if merely because it omits or incorrectly states a term, but the contract is not enforceable beyond the copies or subject matter or copies shown in the record.

(c) An agreement that does not satisfy the requirements of subsection (a), but which is valid in other respects, is enforceable to the extent that:

(1) if it is a license for a term of less than 90 days; (2) a performance has been tendered by one party and accepted by the other; or

(d) Between merchants, if within a reasonable time a record in confirmation of the contract agreement and sufficient against the sender is received and the party receiving it has reason to know its contents, the record satisfies the requirements of subsection (a) against the party receiving it unless notice of objection to its contents is given in a record within 10ten days after the confirming record is received.

(e) The rules set out in The provisions of Sections 2B-307 or 2B-502 may not be varied except by a record that is:

(1) sufficient to indicate that a contract has been made; and

(2) authenticated, or prepared and delivered to the other party, by the party against which enforcement is sought.

(f) The parties may waive the requirements of this section as to future transactions by an agreement that is enforceable under this section.

Committee Votes:

1. In Article 2 at the Annual Meeting, repeal of the statute of frauds sustained by a narrow vote (65-52). Subsequently, the Article 2 drafting committee voted to include a statute of frauds.

2. Voted to retain a statute of frauds. Vote: 10 -4 (September, 1996)

3. Rejected a motion to remove the dollar limitation in then subsection (e)(1). Vote: 5 - 8 (September, 1996)

4. Rejected motion to exclude mass market licenses from statute of frauds. (September, 1996)

5. Consensus to move former (f) on enforceability without filing into another section in part 5.

6. At the 1997 Annual Meeting, the sense of the house motion passed to harmonize the three articles with respect to the judicial denial requirement. Passed

7. At the 1997 Annual Meeting, a sense of the house motion to harmonize by deleting the "denial of agreement" exception was rejected.

8. After extended discussion, the Committee did not include a requirement that the party asserting the statute plead the non-existence of a contract. (September, 1997)

9. Deleted rule allowing manifest assent to satisfy statute of frauds. Vote: 10 - 0 (Feb. 1998)

10. Adopted a motion to reset dollar limit and expand length exclusion to one year. Vote: 6- 4.

This Draft retains the original $20,000 figure arrived at by reference to modernization of the $5,000 rule in Article 1. The Draft does not present a one year standard with the $20,000 based on the conclusion that the retention of the $20,000 rule rather than a lower figure makes this further change not necessary.

1. General Policy and Background. A statute of frauds provides important protections in commerce focused on intangible subject matter. This is true because of the character of the subject matter, the threat of infringement, and the split interests involved in a license with ownership of intellectual property rights in one party while rights or privileges to use or to possess a copy vest in another party. These considerations augment arguments that propose that providing some protection against fraudulent practices and unfounded claims justify the cost of the statute.

Current law imposes a statute of frauds in all Article 2 and 2A transactions as well as under the law of forty-seven states for transactions outside the UCC. Restatement (Second) of Contracts ch. 5, Statutory Note, at 282 (1979). The rules for compliance and scope vary. Copyright law requires a writing for an enforceable transfer of a copyright. 17 U.S.C. § 204. A similar rule applies for patents. 35 U.S.C. § 261. A transfer of property rights occurs when there is an "assignment" or an "exclusive license." The federal writing requirement does not apply to rights in data or to non-exclusive licenses. However, in copyright law, a nonexclusive license that is not in writing may lose priority to a subsequent transfer of the copyright.

2. Basic Rule: Subject Matter and Value. The requirements of the statute must be tailored to the subject matter and transactions involved. Article 2B focuses on a core requirement that the record, when required, must reasonably describe the subject matter and copies involved in the contract. This leaves significant elements of scope of a license not required in the required documentation. Disputes about these other elements of scope, however, may indicate that no contract exists. See Section 2B-202. Obviously, if not contained in the record and not subject to dispute, the remaining elements of scope must be proven by parol evidence, as must other terms of the agreement.

3. Basic Rule: Transactions Covered. A record is required only if the transaction requires payments in excess of $20,000 and is a license whose duration exceed ninety days.

The dollar figure applies to required or fixed payments, not to potential payments. The $20,000 amount excludes from coverage the large number of small value transactions which in ordinary practice frequently do not entail contractual formalities and do not present the same level of risk in the event a fraudulent claim is made. It compares to the $5000 limitation in current Article 1, a $500 limit in current Article 2, and a $1,000 limit in Article 2A.

Illustration 1: Booker acquires releases from various parties to enable completion and publication of its books. The releases are often not acquired for any payments to the releasing party. This section allows enforcement without a record because total payments were less than $20,000, i.e., no payments.

In addition to the dollar limitation, a contract is enforceable if the license has a duration of less than ninety days [or one year]. This is a partial reflection of the general "one year" rule found in common law rules about the statute of frauds. In context of information transfers of the various types encountered in Article 2B, a one year provision is too long and the ninety day rule is the preferred alternative to cover truly short term licenses.

In reference to both the $20,000 and the ninety day rules, the reference is to what the contract specifically requires. Thus, an indefinite term contract which can be terminated at will does not require a writing since the term is not in excess of 90 days [one year]. A contract calling for royalty payments whose value entirely hinges on the success of a product does not exceed the $20,000 amount.

4. Basic Rule: Record and Assent. There is no requirement that the record be retained. Obviously, on questions of proof, retaining a record of a contract is good practice, but this Act merely requires that the record exist at one point in time. In electronic systems, a "record" requires that information be in a form from which it can be perceived. This section does not take a position on how long the information must be in this form. In copyright law, the cases do not impose a minimum time period, but do distinguish between a copy and an ephemeral manifestation of information. That distinction carries forward into Article 2B.

The record must be authenticated by the party to be bound. The basic theme of a statute of frauds is that there be a record that documents the existence of a contract. A party can prove prior existence of an authenticated record by showing that a procedure exists by which an authenticated record must necessarily have been made in order for the party to have proceeded in use of the information or another activity.

5. Transactional Exceptions: Performance and Admissions. There are several circumstances in which the requirements of subsection (a) are moot because of other events in the transaction or the litigation. Two are described in subsection (c). The first, which is a variation of current Article 2, obviates the requirements of the statute of frauds to the extent that performance has been offered and accepted. This event adequately documents the existence of the contract to the extent of the performance and the minimal record required under the statute is not necessary. The second, also derived from Article 2, supplants the statutory requirements to the extent a person admits the existence of the contract in a sworn statement in connection with litigation. Here, again, the statement confirms the existence of the contract and supplants the writing requirement.

6. Transactional Exceptions: Confirming Memoranda. As in Article 2, this Section provides that, as between merchants, confirming memoranda satisfy the statute if the receiving party does not object within ten days after their receipt. This validates practice in a number of industries where the volume of transactions make it impossible to prepare and receive assent to records as part of making the initial agreement. The confirming memorandum can be in various forms, but it serves to place the other party on notice that a contract has apparently been formed. This memorandum has a validating effect only as between merchants.

7. Transactional Exceptions: Other Agreements. Subsection (f) makes clear that trading partner or similar agreements are enforceable to alter the statute of frauds issue. The parties can agree to conduct their further business without there being a need for additional, authenticated writings. That prior agreement satisfies the statute and the policies of requiring that there be some indication that a contract was formed.

8. Other Rules. The statute of fraud provisions here supplant all other existing statute of fraud provisions pertaining to Article 2B subject matter. Thus, the one year of performance rule found in many state common law rules does not apply to Article 2B transactions.