(a) Unless otherwise disclaimed excluded or modified and subject to subsections (b) and (c), a merchant that in a special relationship of reliance provides informational content in a special relationship of reliance or that provides services within this article to collect, compile, process, or transmit informational content, warrants to its licensee that there is no inaccuracy in the informational content caused by its failure to exercise reasonable care and workmanlike effort in its performance.

(b) A warranty does not arise under subsection (a) with respect to:

(1) the quality, aesthetics, or market appeal of the content;

(2) published informational content; or

(3) informational content in manuals, documentation, or the like, that which does not constitute a material portion of the value in the transaction; or

(4) a party that acts as a conduit or and provides no only more than editorial services in distributing informational content, if the distributing party identified the informational content as having been prepared or created by a third party, unless the distributing party's own lack of care or workmanlike effort caused the inaccuracy resulting in the loss.

(c) The liability of a third party that provides informational content is not avoided by the use of a conduit described in subsection (b)(4) or by the fact that the conduit is not liable for errors under that subsection.

Uniform Law Source: Restatement (Second) of Torts 552.

"Informational content". Section 2B-102. "Licensee". Section 2B-102. "Merchant". Section 2B-102. "Party". Section 1-201. "Published informational content". Section 2B-102. "Value". Section 1-201.

Committee Actions: Reviewed without substantive change.

Notes to this Draft: Subsection (c) and former (b)(3) deleted as not necessary in light of scope of (b)(3).

1. Scope and Effect. This section creates an implied warranty applicable to contracts dealing with consulting, data processing, and informational content. The warranty runs from the licensor to the licensee and focuses on the accuracy of data provided where the provider tailors or customizes its information for the client's purposes or being in a special relationship of reliance with that client.

The warranty created here focuses on the accuracy of the data and reports provided, but incorporates a concept derived from the process-related obligations typically found in services and informational content warranties. No states currently impose implied obligations of accurate results in these cases, and a number of courts have concluded that no warranty exists at all. Thus, the Section expands contract protection for licensees, but does so in a manner consistent with the nature of the subject matter. For example, in Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (NY 1977) the New York Court of Appeals rejected a warranty claimed commenting: "[Those] who hire experts for the predominant purpose of rendering services, relying on their special skills, cannot expect infallibility. Reasonable expectations, not perfect results in the face of any and all contingencies, will be ensured under a traditional negligence standard of conduct ... unless the parties have contractually bound themselves to a higher standard of performance."

The warranty incorporates that view and also the quasi-contract tort liability established under Restatement (Second) of Torts § 552. The Restatement on that: "One who, in the cause of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance on the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information."

2. Terms and Existence of the Warranty.

a. Accuracy and Care. Subsection (a) describes a warranty that focuses on accuracy of data and reports and warrants that no inaccuracy occurred due to the provider's failure to exercise reasonable care. This is the Restatement test. It does not provide assurances about the aesthetics, marketability, or value of the information. These are all subjective criteria that are inappropriate for the realm of implied warranty law. If the licensee desires assurances on these issues, those assurances must arise by express contract terms. They cannot be implied because they cannot reasonably be measured. In addition to being clear from the nature of the warranty itself, this principle is made explicit in subsection (b)(1).

Accuracy, of course, relates to what the information purports to be. A contract to provide a mailing list of current addresses with no more than 10% errors does not entail an implied warranty of 100% accuracy. A contract to provide an estimate of the number of end users of particular software in Houston does not warrant that the estimate is correct, but merely that it is an estimate. Similarly, an agreement to provide a published stock index figure requires that the index number accurately describe the number itself, not necessarily that the computation of that number be correct. (CITE)

An inaccuracy does not, in itself, establish a breach of warranty. The inaccuracy against which the warranty runs consists of an inaccuracy produced by a lack of effort or of reasonable care. This follows the Restatement standard and ordinary commercial practice. See Rosenstein v. Standard and Poor's Corp., 1993 WL 176532 (Ill. App. May 26, 1993) (liability for inaccurate data tested under Restatement in light of contractual disclaimer); Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (N.Y. 1977); Micro-Managers, Inc. v. Gregory, 147 Wis.2d 500, 434 N.W.2d 97 (Wisc. App. 1988).

b. Merchants. The warranty applies only to persons who are merchants in the particular information providing context. When dealing with a merchant, the licensee has a rightful expectation that errors are not created by lack of care. In dealing with persons who are not in the business of dealing with the particular type of information, however, that expectation is not implicitly reasonable; to exist, it must be made express.

c. Special Relationship of Reliance. The warranty arises only if the information is provided in context of a special relationship of reliance. This language follows the approach of most cases applying the Restatement standard and identifies the warranty-creating transaction as involving more than merely making information generally available. It does not require a fiduciary relationship, but does require a context that entails indicia of special reliance. The case law under the Restatement provides applicable guidance. See generally A.T. Kearney v. IBM, -- F.3d - (9^th Cir. 1997); Daniel v. Dow Jones & Co., Inc., 520 N.Y.S.2d 334 (NY City Ct. 1987) (electronic news service not liable to customer; distribution was more like a newspaper than consulting relationship);.

This excludes implied warranty liability for information distributed to the public. This concept is made explicit in subsection (b)(2). "Published informational content" refers to information made available without being customized for a particular licensee and where no special relationship of reliance exists. Published informational content is material made available in a standardized form to a public defined by the material involved. This exclusion reflects the vast majority of case law under the Restatement and modern values of not inhibiting the flow of content. The policy values stem in part from First Amendment considerations, but also from social norms about the value of information and of encouraging its distribution.

Illustration 1: Sam opens a website making available information on restaurants for a small monthly fee for subscribers. One item of information concerning Restaurant A is incorrect and a subscriber has a bad experience because of the error. Sam's website contains published informational content and creates no warranty or resulting liability. The same would be true of a restaurant review in the New York Times.

Illustration 2: Sam, an expert on restaurants, contracts with Able to provide advice about which restaurants should be included in Able's book on the "most profitable" Chicago restaurants. Sam makes a negligent error in providing a list of restaurants. Sam has liability under this warranty as to Able since the information is not "published informational content" but was tailored to the specific purposes of the specific client. When the book is published, however, no warranty exists for either provider to the end user since the book is published informational content.

The issue is important for information systems analogous to newspapers and are treated as such here for purposes of contract law. See Daniel v. Dow Jones & Co., Inc., 520 N.Y.S.2d 334 (NY City Ct. 1987). "Technology is rapidly transforming the information industry. A computerized database is the functional equivalent of a more traditional news vendor, and the inconsistent application of a lower standard [enabling] liability [for] an electronic news distributor ... than that which is applied to a public library, book store, or newsstand would impose and undue burden on the free flow of information." Cubby, Inc. v. CompuServ, Inc., 3 CCH Computer Cases & 46,547 (S.D.N.Y. 1991).

3. Exclusions. Subsection (b) lists various exclusions from the warranty.

a. Aesthetics and Published Content. Subsection (b)(1) clarifies that this is not a warranty of aesthetic quality, but accuracy. Subsection (b)(2) expressly exempts published informational content. Both points, although they could be inferred from the terms of the warranty itself and were added for clarity based on suggestions from a licensee involved with entertainment issues.

b. Conduits. Subsection (b)(4) states as a contract law principle case law that holds the publisher harmless from claims based on inaccuracies in third party materials that are merely distributed by it. In part, this stems from concerns about free speech and leaving commerce in information free from the encumbrance of liability where third parties develop the information. In cases of egregious conduct, ordinary principles of negligence apply. As a contractual matter, merely providing a conduit for third party data should not create an obligation to ensure the care exercised in reference to the data provided by the third party. See Winter v. G.P. Putnam's Sons, 938 F.2d 1033 (9th Cir. 1991).