Symposium: The Uniform Commercial Code Proposed Article 2B

Decloaking Development Contracts


Micalyn S. Harris


VOL. XVI • Winter 1998 • NO. 2 (table of contents)

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16 John Marshall J. of Comp. & Info. Law 403


Proposed Article 2B seeks to minimize the conflict between the software developer and a client as to whether the contract is for goods or services. If the contract is for goods, then the client would receive the protection of a buyer under Article 2 of the U.C.C. If the contract is for services, then Article 2 does not apply and the relationship is governed by contract and common law principles. Proposed Article 2B will resolve this conflict by recognizing that development contracts are a mixture of goods and services and will also seek to provide default rules.

Section 2B-617(b) of the proposed amendments to the U.C.C. apply only if there is an agreement between a software developer and a client for the development of software. The amendment seeks to reduces the tension between the developer and the client in a number of ways. First, Section 617(b)(1)(A) allows the developer to retain "ownership of the intellectual rights [in a program] except to the extent that the program includes intellectual property of the client or the client would be deemed a co-owner under other laws." This recognizes that copyright laws protect software and that unless there is an expressed transfer of those rights, the developer retains all copyright rights to the software. Second, Section 617(b)(1)(B) provides that although the developer retains certain rights to the program, "the client receives a nonexclusive and irrevocable licenses to use the computer program information in any manner consistent with the agreement." Third, Section 617(b)(2) provides that pursuant to a clientūs request, the developer must inform the client of any use of independent contractors and confirm that all intellectual rights have been obtained or that the developer makes "no representation about those rights beyond any stated in the agreement."

Fourth, 617(b)(3) establishes default rules defining what intellectual property rights are passed from developer to client. Subsection (A) states that ownership passes pursuant to Section 2B-501. Section 501(a)(1) states that if the information is in existence when the agreement is created, the information passes upon creation of the agreement and is such contract is immediately enforceable. Section 501(a)(2) states that if the information is not in existence when the contract becomes enforceable, then ownership is passed when the information is "so far identified to the contract as to be distinguishable in fact from similar property even if it has not been fully completed and nay required delivery has not occurred." Subsection (B) of 617(b)(3) states that the client is not restricted in the use of the program, and the developer may not cancel the clientūs rights once ownership has passed. Subsection (C) of 617(b)(3) allows the developer to retain ownership of pre-existing code and code developed independently of the contract. The client, however, is granted an irrevocable right to use the code "constant with the agreement... as part of the completed program."

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