SECTION 2B-308. DURATION OF CONTRACT. If an agreement is does not specify indefinite the duration of the license, in duration, except as provided by other applicable law, the following rules apply:

(1) Except as to the extent otherwise provided in paragraph (2), the agreement , it is enforceable for a reasonable time in light of the commercial circumstances, but may be terminated as to future performances at will by either party during that time on reasonable notice to the other party. The effect of termination is determined under Sections 2B-624 and 2B-626.

(2) Subject to cancellation for breach and except as to services, the duration of a license is perpetual as to the rights and contractual use restrictions, on use of the information, subject to cancellation for breach, if:

(A) the agreement is a software contract and transfers ownership of a copy, or provides for delivery of a copy on a physical medium for a single fee fixed at the outset of the contract; or

(B) the license authorizes the licensee to integrate the licensed information or informational property rights into a product or on a physical media intended for distribution or public performance by the licensee.

"Agreement". Section 1-201. "Rights". Section 1-201. "Cancellation". Section 2B-102. "Contract". Section 2B-102. "Copy". Section 2B-102. "Delivery". Section 2B-102. "Information". Section 2B-102. "License". Section 2B-102. "Notice". Section 1-201. "Party". Section 1-201. "Termination". Section 2B-102.

1. The Committee voted to approve this section in principle.

Edited for clarity. Subsection (2) was focused on software contracts and expanded to include any delivery of a copy as a precondition for the perpetual license.

1. Basic Scope and Theme. Paragraph (1) follows current Article 2, but contains provisions tailored to licensing issues that are not addressed in Article 2.

The section applies to agreements that do not specify their duration. The basic policy in such cases is that the person making an open-ended commitment should be held to performance over a time that is reasonable in light of the payment and the type of commercial setting, but would typically not be placed in a position of perpetual servitude without a very clear indication that should be the case. Consistent with Article 2 and common law, this section makes the contract in such cases subject to termination at will on reasonable notice.

The section assumes that there is an agreement. In some cases, a failure to agree on duration will, like failure to agree on any other scope provision, indicate that no contract exists. In addition, the section does not apply simply because a record that documents the agreement is silent. Agreement refers to the entire bargain of the parties. This includes oral agreements, trade use, and the entire commercial setting as relevant. This section applies only if the total of all of the circumstances defining the bargain yield no understanding about duration. Thus, for example, a license reached in an industry setting where, for the particular information, licenses are typically for hourly, daily, weekly, or monthly terms, would typically not fall within this section because the ordinary term for licenses of the type would supply the duration.

The Section does not deal with contracts that contain provisions defining their term, even if those terms do not specify a fixed date. Thus, a contract providing that a license continues for "the life of the edition" or "for so long as the work remains in print" defines the term of the license in the same manner as does a contract term of, for example, ten years. The contract terms control. On the other hand, decisions interpreting the analogous Article 2 rule for cases where there are commitments to "lifetime" service or "perpetual" maintenance, would provide guidance on whether language of that sort in a services obligation creates a definite term.

2. Standard for Termination: Reasonable Time. The basic rule is that in the absence of terms in the agreement referring to the duration of the contract, the duration of a contract is presumed to be a "reasonable" time. This follows both existing Article 2 and common law.

The follows current common law which makes indefinite contracts subject to termination at will on reasonable notice to the other party. This is an important method of implementing the "reasonable time" duration concepts since it allows a non-judicial method of ending the contract. As indicated in Section 2B-624, termination does not end all obligations or rights. Thus, it does not end rights that have become vested based on prior performance. Which rights these include in a given transaction, of course, depends on the terms of the agreement.

The reasonable time presumption is an important base for dealing with myriad types of transactions involved in this field. Thus, for example, consider a situation in which X obtains an exclusive license to distribute the motion pictures of Y Corporation in the United States. A presumption that makes this license perpetual would bind the licensor and licensee over an extended term where the business context might not justify the presumption. The reasonable time standard allows the parties and the court, if needed, to make determinations of what duration is appropriate in light of the commercial context.

In some cases, what constitutes a reasonable term can be determined by reference to other law. In this field, there are various federal policy considerations that impinge on the duration of licenses and which may have an impact here. This occurs either by direct application of the other law or by its influence on determining what is a reasonable time. Thus, a patent license that does not state its term can reasonably be presumed as extending for no more than the life and validity of the patent. A similar premise exists for an indefinite copyright license. It is important, however, that the reasonable time presumption only applies if the contract calls for successive performances. This is consistent with existing Article 2. This rule is limited to cases where a party has on-going, affirmative performance obligations to be rendered to the other party. These obligations may include payment obligations (e.g., royalties) or affirmative conduct (e.g., repair or maintenance). The premise here is identical to current Article 2.

3. Effect of Termination. This Section clarifies that termination occurs under and with the limitations indicated in 2B-624 and 2B-626. Specifically, termination cancels executory obligations, except for contractual use restrictions. It does not end or otherwise affect rights that are vested based on prior performance. Thus, for example, assume a license for software that would be perpetual under subsection (2), but with respect to which the licensor agrees to an indefinite obligation to provide telephone support to the end user. The successive performances in that support obligation create a situation to which subsection (1) applies. Assuming that the license and the support obligation are separable, if the support provider properly terminates that obligation, it can end the executory obligation to provide support. That does not, however, alter the rights to use that are vested in the underlying license.

3. Perpetual Licenses. Paragraph (2) differs from Article 2 and common law, creating a potentially important right or presumption favoring the licensee by presuming a perpetual term for two types of licenses.

The first involves a license associated with the sale or delivery of a copy of software. This rule corresponds to software licensing practice in general. The perpetual term assumption does not apply to services, such as ancillary support obligations, which when separable from the underlying license, are governed under the general reasonable time presumption. It also does not apply where the licensee has an on-going obligation to deliver affirmative performances to the other party. This language clarifies a result that, under current Article 2, would occur with reference to a contract that does not entail "successive performances." A rule analogous to that in Paragraph (2) is applied to intellectual property releases in another section.

The second situation deals with cases where the licensed information is intended to be incorporated into a product for third parties. The rule recognizes the reliance concerns that would be affected by a termination right.