(cb) Subsection (a) and (b) do es not apply to:

(dc) If an agreement requires a licensor to provide or select an integrated system consisting of computer programs, hardware, or similar components and the licensor has reason to know that the licensee is relying on the skill or judgment of the licensor to select the components of the system, there is an additional implied warranty that the components selected will function together as a system.

"Agreement": Section 1-201. "Computer program": Section 2B-102. "Information": Section 2B-102. "Informational content": Section 2B-102. "Licensee": Section 2B-102. "Licensor": Section 2B-102. "Published informational content": Section 2B-102.

a. Consensus to expand this section to cover all information with the possibility of an exception or special treatment for published informational content and manufacturer/ publishers.

Notes to this Draft: Revised to reflect licensee concerns. Presumes Article 2 rule unless circumstances indicate a services contract was intended.

1. General Approach. This Section reconciles several diverse lines of case law in information industries and an unresolved issue with respect to computer software under current Article 2. It also creates, in subsection (c), a new implied warranty that does not exist under any current law.

The Section deals with an issue encountered in development and design contracts: whether (if not disclaimed) the appropriate implied obligation is an obligation to produce a result (present in sales of goods) or to make an effort to achieve a result (services contracts). In software cases, the difference is based on whether a court views the transaction as involving goods (result) or services (effort). The reported cases split, often turning on the subjective impressions of the court. Compare USM Corp. v. Arthur Little Systems, Inc., 28 Mass. App. 108, 546 N.E.2d 888 (1989) (goods); Neilson Business Equipment Center, Inc. v. Italo Monteleone, M.D., 524 A.2d 1172 (Del. 1987) (goods) with Micro-Managers, Inc. v. Gregory, 147 Wis.2d 500, 434 N.W.2d 97 (Wisc. App. 1988) (services); Wharton Management Group v. Sigma Consultants, Inc., 1990 WESTLAW 18360, aff'd 582 A.2d 936 (Del. 1990) (services contract); Data Processing Services, Inc. v. LH Smith Oil Corp., 492 N.E.2d 314 (Ind. Ct. App. 1986) (services).

Since all software development contracts are covered under Article 2B, a different approach is adopted in subsection (a) to determining which type of implied obligation is appropriate. The section presumes that (in an appropriate case) the Article 2 rules apply. This most completely protects the licensee. To accommodate the existence of services contract formats, the in effect directly identifies a consistent factor that indicates that to be true. The presumed Article 2 model is altered if the agreement hinges payment on the time and effort spent (services like) irrespective of completion of a product.

Of course, express contract terms control over either variation of the implied warranty.

2. Warranty of Fitness. Subsection (a)(1) adopts the language of existing Article 2-305.

This implied warranty obligates the provider to meet known licensee needs if the circumstances indicate that the licensee is relying on the provider's expertise to achieve this result. There are many development contract and other situations where no such reliance exists. For example, a contract that calls for a development of information to defined specifications A and B may not obligate the vendor to achieve fitness for the licensee's purpose. The express terms of the contract indicate that the focus is on the specific criteria and that there is no reliance on the vendor on whether meeting those specifications will meet applicable needs, the licensor's basic obligation is to conform to the agreement and meet the specifications.

Of course, however, in this illustration, if the purchaser relied on the licensor to propose appropriate specifications, this might indicate adequate reliance under this section to establish the implied warranty.

3. Services and Warranty. This section does not override the general law of services contracts for performance standards in that context. Under that law, the service provider does not guaranty suitability unless it expressly undertakes to do so. See 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). Subsection (a)(2) proposes a standard to determine when a contract calls for services, rather than a result. Other criteria or conditions may also indicate that the parties intended a services obligation and the standard delineated in subsection (a)(2). A pure services or access contract is not covered under this implied warranty.

4. Aesthetics and Market Appeal. This Section is not limited to transactions involving development and design of computer programs. In other areas, the services contract assumption routinely applies. More importantly, the implied fitness obligation is never appropriate under current practice or case law in reference to aesthetics, market appeal and the like. Here, the relationship obligates the party to an effort, not an outcome unless an express contrary obligation is stated in the agreement. That approach is, of course, common in publishing and entertainment industries.

5. System Integration. Subsection (c) provides an implied warranty of system integration. This differs from the fitness concept, but is closely related to that concept. The obligation is that the selected components will actually function as a system. That is an additional step beyond the obvious fact that the components themselves must be separately functional in a manner consistent with the contract.