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Proposed Article 2B: Problems from the Customer's View

Part 1: Underlying Issues

Cem Kaner, J.D., Ph.D.
Santa Clara, California

 

Copyright © Cem Kaner, 1996. All rights reserved.

 


(This article was written for, and originally circulated to, the Article 2B Drafting Committee at its meeting on September 27-29, 1996. Some parts of the draft were changed in that meeting, and others will be changed in the November meeting in Tampa. To see the latest draft of Article 2B, check the Article 2B home page at www.law.uh.edu/ucc2b. This paper will be published in the UCC Bulletin in January, 1997.)

Article 2B will cover all transactions in Information (a broadly defined term that includes software). It also provides some rules for electronic commerce. My primary interest in Article 2B is that it will define the law of software quality. This statute will define the legal ground rules under which we develop, sell, and support software.

At the July meeting of NCCUSL, the July 1996 draft of Article 2B was criticized for a perceived lack of consumer protection. I think the problem is broader-the draft fundamentally favors licensors (such as software publishers) at the expense of licensees (customers, who may or may not be consumers). Where both entities are large businesses who will negotiate for the terms they want anyway, it doesn't matter. Where the licensee is an individual or a small business, I think there are serious problems.

I believe that this proposed statute, if enacted, would harm the software industry. I believe that it reduces the accountability of licensors to their customers, and therefore blesses a lowering of concern for quality in the American software marketplace. The rest of the world is driving toward higher software standards and tighter control of their software development processes. Over the long term, we risk losing yet another key American industry.

Ray Nimmer, the Reporter of the 2B committee, wrote a new draft of Article 2B on September 4. It makes several changes from the July (and previous) versions, but I think that the main issues are still unresolved, or resolved in favor of licensors.

I hope that this series of memos will clarify the issues and stir up some interest among counsel who represent customers.

One prefatory note. Even though I write bluntly about the Article 2B draft, I have tremendous respect for the drafting committee, especially and including Ray Nimmer. Nimmer's book, The Law of Computer Technology, is the first book that I turn to when researching almost any computer law question. He is a remarkable author and researcher and a decent and thoughtful person.

In the next memo, I'll provide a long list of specific issues that I think need to be addressed. The rest of this memo uses a few examples to illustrate the point that the Article as a whole is biased against customers.

The Notion of Breach

Article 2B rejects the perfect tender rule and adopts the notion of material vs. substantial performance. An aggrieved party doesn't have the right to cancel a contract unless the breach is material.

Here is the definition of substantial performance in the July and September drafts.

 

  • 2B-102 (a)(36) "Substantial performance" means performance of an obligation in a manner that does not constitute a material breach of contract.
  • Here is the July draft definition of a material breach:

     

  • 2B-109 (July) (b) A breach is material if the contract so provides or, in the absence of express contractual terms, if the circumstances, intent of the parties, language of the contract, and character of the breach indicate that the breach caused or may cause substantial harm to the interests of the aggrieved party, or if it meets the conditions of subsection (c) or (d).

    (c) A breach is material if it involves:

    1. (1) knowing or grossly negligent disclosure or use of confidential information of the aggrieved party not justified by the license;

      (2) knowing infringement of the aggrieved party's intellectual property rights not authorized by the terms of the license and occurring over more than a brief period; or

      (3) an uncured, substantial failure to pay a license fee when due which is not justified by an existing, colorable dispute about whether payment is due.

    (d) A material breach occurs if the aggregate effect of the nonmaterial breaches by the same party satisfy the standards for materiality.

  • Look closely at (c), which defines a material breach by enumeration. (Some attorneys will argue that a breach is not material if it is not in the enumerated list.) Now consider the software publisher and the customer of the publisher.