(a) In this section, a "restraint" means a program, code, device, or other similar electronic or physical limitation that restricts use of information.

(b) A party entitled to enforce a limitation on use of information or restriction that that does not depend on the existence of a breach of contract may include in the information and utilize a restraint if:

(1) a term in the agreement authorizes use of the restraint;

(2) the restraint merely prevents uses of the information that are inconsistent with the agreement, or with a licensor's rights under informational property rights law which were not granted to the licensee;

(3) the restraint merely prevents use of the information after expiration of the stated duration of the license [[not more than 90 days] or stated number of uses; or

(4) the restraint prevents use when the license terminates, [other than on expiration of a stated duration or number of uses,] and the licensor gives reasonable notice to the licensee before further use is prevented.

(c) Subsections (b)(2), (3), or (4) does not authorize a restraint that affirmatively prevents a licensee's access to its own information from its own resource without use of the licensor's information or informational property rights.

(d) A restraint authorized under subsection (b) is not a breach of contract, and the party that included or used the restraint is not liable for any loss created by it. A restraint that prevents use permitted authorized by the agreement is a breach of contract.

(e) This section does not preclude electronic replacement or disabling of an earlier copy of information by the licensor in connection with delivery of a new copy or version under an agreement with the licensee to replace or upgrade the earlier copy.

"Agreement": Section 1-201. "Contract": Section 2B-102. "Delivery": Section 2B-102. "Electronic": Section 2B-102. "Information": Section 2B-102. "License": Section 2B-102. "Licensee": Section 2B-102. "Licensor": Section 2B-102. "Notice": Section 1-201. "Party": Section 1-201. "Rights": Section 1-201. "Term": Section 1-201.

Substantive changes to correspond this section to the provisions on termination in Article 2 and Article 2B, neither of which requires notice when termination occurs on the happening of an agreed event. The proposed revisions here do not go that far, but exclude notification where the termination occurs at the end of the license term or the stated number of uses (e.g., the end of a twelve month license).

1. Scope of Section. This section deals with electronic limitations on use that involve enforcement of contract terms by preventing breach. It does not involve electronic devices used to make a repossession or force discontinuation of use in the event of breach. Those are covered in Section 2B-716. The electronic restrictions discussed here all derive from contract terms; they limit use consistent with contract terms or terminate a license at its natural end. Of course, electronic regulation assumes that the licensor is enforcing a restriction that is, itself, enforceable. The few reported cases that deal with electronic devices support use of electronic devices even in the case of breach if disclosed to the licensee; the cases have not considered the less intrusive use of devices not associated with enforcing claims of breach.

2. Policy. The basic principle is that a contract can be enforced. Where the contract places time or other limits on a party's use of licensed information, electronic devices that merely enforce those limitations are appropriate. This reflects an important new capability created by digital information systems.

3. Passive or Active Devices. This Section distinguishes between active and passive electronic devices. An active device terminates the ability to make any further use of the information, while a passive device merely precludes actions that go beyond the license and would constitute a breach. Passive devices merely prevent unauthorized use, but leave the subject matter otherwise unaltered. Nothing in this Section authorizes active devices that impact the licensee's ability to access its own information through its own means other than the licensed information itself.

4. Bases for Use. Subsection (b) states alternative bases for the use of automated restraints. The section does not state exclusive rules. Federal or other law (including other sources of contract law) may also allow limiting devices designed to enforce copyright and copyright management information. In effect, this section contains an affirmative statement of when such limiting devices are enforceable under contract law, without limiting the enforceability of other methods.

a. Contract Authorization. The first option arises if the contract authorizes the party to use the restrictive tool. In this respect, the authorization must be in addition to the contract term that the tool enforces.

b. Passive Restraints Preventing Breach. Subsection (b)(2) provides that for passive devices, notice is not required if the electronics merely restrict use outside contract limitations or applicable informational property rights, without otherwise disabling the information. Thus, for example, assume that the contract restricts the lie licensee to making no more than one back-up copy of a work and that applicable copyright law rules provide that same limitation. This subsection authorizes use of a devices to enforce that limitation, so long as the device does not destroy the licensed information. The permitted restraint is one that enforces a contract, not one that imposes a penalty for its attempted breach. This is especially important for smaller suppliers whose ability to enforce contracts against often larger licensees is limited by costs of monitoring and judicial enforcement. The limitations, for example, might entail a counter which can be used to monitor the number of simultaneous uses or restrict use to a pre-agreed system. Although no notice is required, the agreement must support the electronic limitation. The licensee is protected by the fact that a limitation inconsistent with the licensor's rights constitutes a breach of contract.

Illustration 1: The license provides that no more than five users may employ the word processing software at any one time. An electronic counter is embedded in the software and, if a sixth user attempt to sign on for simultaneous use, that sixth user is denied access until another user discontinues use. This limiting device is effective without prior notice or contractual authorization.

Illustration 2: The same situation as in Illustration 1, except that the limiting device permanently disables the software if a sixth user attempts access. This is not authorized by subsection (b)(2).

c. Enforcing Property Rights. Subsection (b)(2) also allows use of passive devices that merely preclude infringing intellectual property rights reserved to the licensor. Merely preventing the act does not require contract or other notice. Thus, a contract that grants a right to make a back-up copy and to use a digital image, does not deal with the right of the licensee to transmit additional copies electronically. A device that precludes communication of the file electronically, but does not alter or erase the image in the event of an attempt to do so is authorized under (b)(2).

d. Enforcing Termination of the Contract. The restraints described in subsections (b)(3) and (b)(4) deal with restraints that enforce termination of the license. Termination means the end of the license for reasons other than breach. Subsection (3) corresponds to the licensor's basic right to terminate without notice either at the end of the fixed duration of the license, or on its termination on the happening of an agreed event. Both Article 2B and Article 2 recognize termination without notice in these cases and there is no principled reason to distinguish between termination enforced by automated means and any other form of termination. Subsection (b)(4), on the other hand, requires notice if termination is other than for the happening of an agreed event.

Illustration 3. A software license requires monthly payments of $1,000 due on the first of the month and a one year term with a right to renew based on written notice before expiration of the term. Licensee makes a payment five days late. Licensor uses an electronic device to turn off the software. That action is not authorized under this section since it enforces a breach of contract.

Illustration 4. Assume there was no late payment, but the licensee fails to give notice of renewal in the contractual time period. The restraint turns off the software. This is covered by this section. The termination is valid if either the contract contained a term authorizing that action, or the licensor or the device gave prior, reasonable notice of termination to the licensee.

5. Proper and Improper Enforcement. Subsection (c) states the obvious. Actions consistent with a contract are not a breach and do not give rise to liability under this Article or the contract. The section permits enforcement of contract terms. It does not deal with rights to exclude, block out, or otherwise impact other information owned by or licensed to the licensee.