(a) In this section:

(1) "Distributor" means a merchant licensee that receives information from a licensor and sells or licenses the information to end users.

(2) "End user" means a licensee that acquires a copy of the information from a distributor by delivery on a physical medium for its own use and not for the purpose of distribution or , transmission to third parties, or of public display or performance to third parties.

(3) "Publisher" means a licensor, other than a distributor, that if the licensor offers a license to an end user with respect to information distributed by a distributor.

(b) In a contract between a distributor and an end user, if the end user's right to use the information or informational property right is subject to a license from the publisher with respect to for which there was no opportunity to review before the end user became becoming obligated to pay the distributor, the following rules apply:

(1) The contract between the end user and the distributor is conditional on the end user's agreement to the publisher's license.

(2) If the end user does not agree, by manifest assent or otherwise, to the terms of the publisher's license, the end user may return the information to the distributor and receive a refund. Refund under this paragraph is constitutes a refund under Section 2B-112 and Section 2B-208.

(3) The distributor is not bound by the terms of, and does not receive the benefits of, an agreement between the publisher and the end user unless the distributor and end user adopt those terms as part of the distributor and end user ir agreement.

(c) If a refund is made in good faith, the following rules apply:

(1) Aa distributor that makes the refund to its end user because the end user did not agree, by manifest assent or otherwise, to the publisher's license is entitled to reimbursement from the authorized person from which the distributor obtained the copy. Reimbursement must shall be for the amount paid for the copy by the distributor and shall be made on delivery by it of the copy and documentation with proof of refund. to the authorized person.; and

(2) Aa publisher that makes the refund to the end user is entitled to reimbursement from the distributor of the difference between the amount refunded and the amount price paid by the distributor to the publisher for the information.

(d) If an agreement contemplates distribution of copies on a physical medium provided by the publisher, a distributor or other distributor shall distribute the such copies and documentation:

(e) A distributor that enters into an agreement with an end user is a licensor of the end user under this article.

Uniform Law Source: None

Committee Action: Reviewed several times with no substantive changes.

1. Scope and Context: Three Party Relationship. This section deals with a three party relationship common in information transactions, especially for digital products. The three party transaction involves a publisher, distributor, and end user. While the end user acquires the copy of information from a distributor, whether the distributor has authority to convey a right to use the work or the right to transfer title to the copy is determined by its contract with the publisher. That contract often precludes conveyance of rights without compliance with specified conditions. In such cases, the end user's right to "use" (e.g., copy) arises by a separate agreement between the end user and the producer (party with or control of the copyright). Often, in retail markets, this latter agreement is an on-screen license or a shrink wrap license.

2. Distributor and End User. While there are three parties and three separate relationships, the relationships are linked. Subsection (b) deals with that relationship from the perspective of the distributor's contract with the end user.

a. Contracts are Separable. The basic principle in subsection (b)(3) is that a distributor is not bound by nor does it benefit from any contract created by the producer with the end user. This mirrors modern law and limited case law dealing with sales of goods where manufacturer warranties and warranty limitations do not bind the distributor, but also do not benefit that distributor. This means that the distributor does not have the benefit of warranty disclaimers made in a publisher's license. That can be changed by contract, of course. However, it gives the end user two different points of recourse - distributor and publisher.

b. Distributor is a Licensor. Subsection (e) confirms that warranties exist on the part of the distributor by stating that the distributor is a licensor with respect to its licensee.

c. Conditional Rights. Subsection (b)(1) and (b)(2) deal with the reality that performance of the distributor's relationship with the end user hinges on the end user's ability to make actual use of the information supplied by the distributor and that this depends on the license between the producer and the end user. The effect is to give the end user who declines a license a right to refund. and to not being forced to pay the purchase price to the distributor. This creates a refund right, rather than an option. It reflects the conditional nature of the transaction with the end user. It differs from the publisher's option to provide a refund opportunity as a means of enabling the effective assent to the publisher's license terms. While they are distinct, however, a refund made by the distributor under the conditions of subsection (b) satisfies the refund opportunity required under 2B-112 for creating an opportunity to review.

There are several ways to view the relationship. One treats the publisher's license as part of the distributor's contract, understood as present by both the distributor and the end user from the outset, even if the precise terms are not yet known. See ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). An alternative treats the distributor's commitment as being to deliver the copy and to convey the right to use (e.g., copy into a machine). It cannot do the latter until the end user assents to the publisher's license if, as in most cases, the distributor's contract with the publisher authorizes only distributions subject to end user licenses. The end user's assent to the producer's license is then, as to the distributor, either a condition precedent (no final agreement until the end user assents to or rejects the license) or a condition subsequent (agreement subject to rescission if the license is unacceptable). In either case, if the end user declines the license, it can return the product to the distributor and obtain a refund or, if it has not already paid, avoid being forced to pay the contract fee.

Subsection (b)(1) and (b)(2) create this latter result. See Beta Computer (Europe) Ltd. v. Adobe Systems (Europe) Ltd. The contract between the distributor and end user is a license in that the end user's use rights are subject to assent to and the terms of the publisher's license. When the end user assents to the license, the publisher's license in effect replaces the distributor-end user license except as to obligations expressly created and earmarked as continuing on the part of the distributor (such as a services or support obligation). Of course, if the information breaches a warranty, the right to recover from the distributor remains present unless it was disclaimed by the distributor's contract.

Illustration 1: User acquires three programs from Distributor for $1,000 each. User is aware that each software comes subject to a publisher license. When it reviews one license, it notices that the license restricts use to non-commercial purposes. User refuses that license. It has a right to refund since distributor did not provide a useable package and the end user did not pay simply for a diskette. An alternative refund option would be from the publisher who cannot obtain consent to its license unless it offers a refund for those who decline the terms.

3. Distributor and Publisher. In most cases where an end user license is intended, the publisher's arrangement with the distributor is a license that retain ownership of copies in the publisher and permits distribution only subject to an end user license. The legislative history of the Copyright Act indicates that, whether there was a sale of the copy or not, contractual restrictions on use are appropriate under contract law. "[The] outright sale of an authorized copy of a book frees it from any copyright control over ... its future disposition.... This does not mean that conditions ... imposed by contract between the buyer and seller would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright." H.R. Rep. No. 1476, 94^th Cong., 2d Sess. 79 (1976).

To the extent that the distributor performs the producer's warranty obligations, the presumption is that it has a right of reimbursement from the producer. The provisions regarding refunds coordinate this section with the obligations incurred in creating an opportunity to review the terms of a license, which opportunity requires that there be a refund if the terms of the contract are refused. The consumer is entitled to refund of the retail price of the refused product and may obtain that either from the distributor or the producer. However, as between the producer and the distributor, the distributor can only receive reimbursement for what it paid to the producer. Thus, for example:

Illustration 2: Consumer refuses a program because it dislikes the license. It obtains a refund of the price paid to distributor ($100). Distributor is entitled to reimbursement from Producer of the $75 price that Distributor paid Producer for the product (if it returns the product). On the other hand, if Consumer obtains the $100 from Producer, Producer is reimbursed $25 from Distributor.

4. Subsection (d) sets out a basic default rule that corresponds with current law. The distributor is bound in its distribution by the terms of the contract with the producer and, as a default assumption, must redistribute in a form and subject to the conditions contained in the materials as received by it from the producer.